1 Legislative and regulatory framework
1.1 In broad terms, which legislative and regulatory provisions govern alternative investment funds in your jurisdiction?
The Securities and Investment Business Act, 2010 (SIBA) is the principal statue governing alternative investment funds (AIFs) in the British Virgin Islands. Regulations made pursuant to SIBA – including the Mutual Funds Regulations, 2010, the Securities and Investment Business (Incubator and Approved Funds) Regulations, 2015 and the Private Investment Funds Regulations, 2019 (‘PIF Regulations'), each as amended – provide the regulatory framework for the various types of AIFs.
1.2 Do any special regimes or provisions apply to specific types of alternative investment funds?
The British Virgin Islands has six types of regulated alternative investment funds which fall within three separate regimes.
Public, professional and private funds: Private, professional and public funds are open-ended funds primarily governed by SIBA and the Mutual Funds Regulations. A public fund is the most heavily regulated category of alternative investment fund in the British Virgin Islands and is aimed at retail funds which offer to the public. Private and professional funds are not subject to all of the regulatory requirements of public funds, but are restricted regarding how the fund may be offered or the type of investors they may be offered to.
The private fund is tailored to closely held funds which are not offered publicly, is suitable for private investors only and is limited to 50 investors (or any invitation to subscribe for fund interests must be made on a private basis).
The professional fund is restricted to offering its interests to professional investors and exempted investors only, and is subject to a minimum initial investment by each professional investor of $100,000.
Incubator and approved funds: The Incubator and Approved Fund Regulations provide a separate regime for open-ended funds which are specifically tailored to small start-ups or friends and family offerings. The regulations allow managers to establish funds with lighter regulation. Most significantly, incubator and approved funds need not be audited. Both the incubator fund and the approved fund are limited to having no more than 20 investors. They both have a cap on net asset value, which is $20 million for incubator funds and $100 million for approved funds. Incubator funds have a minimum initial investment of $20,000
Private investment funds: Recent amendments to the Securities and Investment Business Act, 2010, together with the introduction of the PIF Regulations, have introduced a new regime to regulate closed-ended funds, which had previously not been subject to regulation in the British Virgin Islands. A private investment fund may be recognised by the BVI Financial Services Commission (FSC) if:
- the fund is not authorised to have more than 50 investors;
- an invitation to subscribe for, or purchase, fund interests issued by the fund is made on a private basis only; or
- the fund interests shall be issued only to professional investors or exempted investors, with an initial investment of each professional investors of not less than $100,000.
Private investor and professional investor definitions: A ‘professional investor' means a person:
- whose ordinary business involves – whether for that person's own account or the account of others – the acquisition or disposal of property of the same kind as the property, or a substantial part of the property, of the fund; or
- who has signed a declaration that he or she – whether individually or with his or her spouse – has net worth in excess of $1 million or its equivalent in any other currency, and that he or she consents to being treated as a professional investor.
An ‘exempted investor' is:
- the manager, administrator or promoter of the fund; and
- any employee of the manager or promoter of the fund.
1.3 Do the legislative and regulatory provisions governing alternative investment funds have extra-territorial reach?
The regulatory requirements in relation to mutual funds and private investment funds will apply to any mutual funds that carry on or hold themselves out as carrying on business as a mutual fund ‘in or from within' the British Virgin Islands. Mutual funds or private investment funds which are BVI business companies, partnerships or unit trusts are deemed to carry on business from within the British Virgin Islands; but funds incorporated outside the British Virgin Islands will also be deemed to carry on business in the British Virgin Islands if they operate a place of business in the British Virgin Islands or solicit an individual within the British Virgin Islands to subscribe for, or purchase, any of their fund interests.
1.4 Are any bilateral, multilateral or supranational instruments in effect in your jurisdiction of relevance to alternative investment funds?
The FSC has entered into a multilateral memorandum of understanding approved by the European Securities and Markets Authority with 25 European securities regulators in the European Economic Area (EEA) to enable BVI funds to be market funds marketed to EEA member states in accordance with each member's private placement regimes.
1.5 Which bodies are responsible for regulating alternative investment funds in your jurisdiction? What powers do they have?
The FSC is the primary body responsible for regulating alternative investment funds in the British Virgin Islands. The FSC can require a fund to provide information or documentation if reasonably required for the purposes of discharging its function or ensuring compliance by the fund with any financial service legislation.
The FSC may impose conditions on the fund's registration, recognition or approval. The FSC is also empowered to take enforcement action against the fund (which may include revocation or suspension of the fund's registration, recognition or approval, as applicable) and impose financial penalties.
The BVI International Tax Authority (ITA) has regulatory powers in relation to the obligations of alternative investment funds in relation to compliance with their obligations in relation to the US Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS). The Financial Investigation Agency is responsible for receiving and obtaining information in relation to, and investigating and analysing, financial offences, the proceeds of financial offences and requests for legal assistance from foreign jurisdictions.
1.6 To what extent do the regulators cooperate with their counterparts in other jurisdictions?
The FSC cooperates closely with its counterparts in other jurisdictions and works diligently to implement international regulatory standards and maintain the British Virgin Islands' position as a leading jurisdiction for investment.
The British Virgin Islands is a Base Erosion Profit Shifting associate and a member of the Organisation for Economic Co-operation and Development (OECD)/G20 Inclusive Framework, and has implemented country-by-country reporting.
The British Virgin Islands has recently introduced the Economic Substance (Companies and Limited Partnerships) Act, 2018, which introduces new standards for economic substance for BVI entities as part of an initiative led by the EU Code of Conduct Group (Business Taxation) and the OECD's Forum on Harmful Tax Practices. The Economic Substance Act makes provision for information on BVI entities to be shared with the tax authorities in other jurisdictions. Guidance on compliance with the Economic Substance Act is contained in the rules on economic substance in the British Virgin Islands which were issued on 9 October 2019.
The British Virgin Islands has entered into bilateral tax information exchange agreements with 28 jurisdictions and is a party to the Multilateral Convention of Mutual Administrative Assistance in Tax Matters. As such, it can exchange information, subject to receipt of valid requests, with more than 76 jurisdictions.
The British Virgin Islands entered into an intergovernmental agreement with the United States in relation to compliance with the requirements of FATCA and automatically exchanges information in accordance with FATCA. Funds must report account information in relation to ‘U.S. Reportable Accounts' to the ITA annually by 31 May in each year and the ITA will subsequently report information to the Internal Revenue Service.
As a party to the Multilateral Convention of Mutual Administrative Assistance in Tax Matters, the British Virgin Islands automatically exchanges information in accordance with the OECD CRS. Funds must report account information in relation to ‘Reportable Accounts' to the ITA annually by 31 May and the ITA will subsequently report information to the tax authorities in the relevant ‘Reportable Jurisdictions'.
2 Form and structure
2.1 What types of alternative investment funds are typically found in your jurisdiction?
The British Virgin Islands attracts a wide variety of open-ended hedge funds and closed-ended venture capital and private equity funds. While the British Virgin Islands is still home to some of the oldest funds of funds, with billions under management, it has also carved a niche as the first choice of the emerging manager. The British Virgin Islands has introduced products such as the incubator fund, the approved fund and the approved manager, which are tailored to cater to start-up managers that need a jurisdiction with a sophisticated regulatory framework which is attractive to investors, but with competitive pricing and proportionate regulation. The ability to attract emerging managers has placed the British Virgin Islands in an ideal position to attract innovative funds and new asset classes. As a consequence, it has been at the forefront of the explosion of cryptocurrency funds and blockchain-related venture capital funds.
2.2 How are these alternative investment funds typically structured?
Investment funds in the British Virgin Islands may be formed as BVI business companies, segregated portfolio companies, limited partnerships (with or without legal personality) or unit trusts.
BVI business companies are by far the most common entity used to structure for investment funds, as the BVI Business Companies Act is extremely flexible and user friendly, selecting the best bits of English and Delaware companies law. The British Virgin Islands does not have the concept of share capital and the constitutional documents can be amended by the directors of the company.
Segregated portfolio companies (SPCs) are less common, but popular entities for umbrella funds operating a number of strategies and allowing investors to elect to invest in some, but not all portfolios. Each portfolio can operate a different strategy and benefit from a legal segregation of assets and liabilities such that the assets of one segregated portfolio are not available to meet the liabilities of another segregated portfolio.
We have seen a significant rise in funds formed as limited partnerships in the past two years, since the introduction of new limited partnership legislation in the form of the Limited Partnership Act, 2017 (LPA). The LPA modernised the limited partnership regime, making it particularly attractive for closed-ended funds and open-ended funds in master-feeder structures with onshore feeder funds which are limited partnerships. Limited partners are liable only up to their capital commitments, provided that they do not participate in the management of the limited partnership. The LPA provides an extensive list of safe harbours which helps to protect the limited liability of limited partners.
Unit trusts are the least common fund vehicles in the British Virgin Islands, but can be attractive for investors based in certain jurisdictions.
2.3 What are the advantages and disadvantages of these different types of structures?
Please refer to question 2.1.
2.4 What are the most widely used alternative investment funds structures used in your jurisdiction?
Common structures for alternative investment funds include the following:
- Standalone funds are normally used for funds which are not seeking to attract US investors (other than tax-exempt US investors). These funds normally have a single investment strategy and may have one or more classes of shares, with different terms as to liquidity and/or fees.
- Umbrella funds are normally structured as SPCs, with each segregated portfolio or class operating a separate investment strategy.
- Master-feeder structures are often used for funds which are seeking to attract investors with different requirements (often regarding tax or regulatory treatment). Master-feeder structures are most commonly used in the British Virgin Islands by US-based managers that are looking to attract investment from both US investors (which invest into a US feeder fund that has ‘pass through' treatment for tax purposes) and foreign investors or US tax-exempt investors, which generally prefer to invest into a ‘blocker' and will invest in a BVI feeder fund. Both the US feeder and the BVI feeder will invest into the BVI master fund, which will then carry on the investment activities of the fund structure.
- Mini-master structures are common in the British Virgin Islands and a good alternative to the master-feeder structure for managers that have an existing US or other onshore fund, but have a foreign allocator that needs a different structure for tax or regulator purposes. A BVI feeder can feed into an onshore fund which has previously been acting as a standalone fund, but becomes the master fund. The onshore investors continue to invest directly into the master fund, rather than creating a new master fund. This is a cost-effective structure, but may not have all the benefits of a master-feeder structure.
2.5 Is there a preferred alternative fund structure for particular investment strategies (ie, hedge fund/private credit/private equity)?
In general, BVI hedge funds are more commonly structured as BVI business companies. Private equity or venture capital funds are more commonly structured as limited partnerships, as the structure is more flexible for capital commitments which are called as and when appropriate investments are identified during the course of the investment period.
2.6 Are alternative investment funds required to have a local administrator appointed?
BVI mutual funds registered or recognised as public, professional, private and approved funds must appoint and administrator. The administrator need not be a local administrator, but the BVI Financial Services Commission (FSC) can accept the appointment of an administrator which is licensed by the FSC or is located in a jurisdiction recognised by the FSC pursuant to the Securities Investment Business (Recognised Jurisdictions) Notice, 2010. The FSC will normally accept the appointment of an administrator licensed in a recognised jurisdiction without further investigation. The FSC may, on application, accept the appointment of an administrator regulated in a jurisdiction which it has not recognised if it can be demonstrated that the jurisdiction in which it is located has an effective system of regulation.
BVI private investment funds must appoint a person responsible for undertaking the valuation of fund property, which will normally be an administrator. The person appointed to carry out the valuation function may be licensed by the FSC or a regulatory authority in a recognised jurisdiction.
BVI incubator funds need not appoint an administrator, but must ensure that the persons controlling the fund's investment function are independent from the persons controlling the fund's valuation process. In practice, this will mean that an administrator will be appointed in most cases. As with other BVI mutual funds, incubator funds can appoint either a local administrator or an administrator in a recognised jurisdiction or otherwise approved by the FSC.
2.7 Are alternative investment funds required to appoint a local custodian to hold assets? If yes, what legal protections are in place to protect the alternative investment fund's assets?
BVI mutual funds registered or recognised as private, professional or public funds must, subject to the availability of exemptions, appoint a custodian. There is no requirement that the custodian be licensed in the British Virgin Islands and it may be regulated in a recognised jurisdiction or other jurisdiction with approval from the FSC.
BVI funds approved as incubator and approved funds must have arrangements in place for the safekeeping of fund property, including provisions for the appropriate segregation of fund property. There is no requirement for an incubator or approved fund to appoint a custodian.
2.8 Is it possible for an alternative investment fund to redomicile to your jurisdiction? If yes, what considerations are required and what are the steps involved?
Yes, the BVI Business Companies Act and the LPA contain mechanisms for continuations into the British Virgin Islands. Alternative investment funds continuing into the British Virgin Islands must seek registration, recognition or approval from the FSC, depending on what level of regulation is appropriate for the fund continuing into the jurisdiction. The FSC's approval must be sought in advance and the entity continuing must ensure that it would, on continuation, meet all of the applicable regulatory requirements under BVI law.
3.1 Must alternative investment funds be authorised or licensed in your jurisdiction?
Yes, alternative investment funds must either be registered as a public fund, recognised as a professional or private fund, approved as an incubator or approved fund or recognised as a private investment fund.
3.2 If so, what criteria must be satisfied to obtain authorisation? Do any restrictions apply in this regard?
In order to apply for authorisation, the fund must ensure that it satisfies the criteria of the relevant classification of fund that it is applying for (as discussed in question 1.2). It must then submit an application together with supporting documentation and the relevant application fee to the BVI Financial Services Commission (FSC). The application and supporting documentation required vary depending on the category of application, but generally the application will contain some or all of the following:
- details of the applicant;
- the date on which the applicant intends to commence business;
- the name and address of each of the applicant's directors or general partner or trustee (as applicable);
- the name and address of the fund's authorised representative;
- the address of any place or places of business that the fund may have outside the British Virgin Islands;
- details of the fund's functionaries, including the name, address, jurisdiction of organisation and name of regulator (if applicable);
- the name and address of the fund's auditor (if applicable);
- whether the fund has issued or intends to issue an offering document;
- confirmation as to the classification type of the applicant and the clause in the constitutional documents that specifies that classification;
- details of the fund's accounting period;
- confirmation regarding previous conduct and regulatory or enforcement action; and
- a declaration from the applicant.
The application must be submitted together with such documents as must be submitted with the application for the relevant classification of the fund, which in most cases will be:
- a copy of the fund's constitutional documents;
- a resume or CV for each director;
- a copy of the offering document containing the prescribed investment warning or, in the absence of an offering document, a copy of the investment warning and summary of the investment strategy to be provided to investors;
- a copy of the valuation policy, if not contained in the offering document; and
- a letter from the appointed auditor, consenting to act.
A fund making an application to be registered as a public fund must also submit:
- a prospectus complying with the Public Funds Code;
- a statement setting out the nature and scope of the business to be carried on by the fund;
- any country where the fund is carrying on business or intends to carry on business; and
- a copy of each functionary agreement.
3.3 What is the process for obtaining authorisation of alternative investment funds and how long does this usually take?
The process is slightly different for each category of fund, but essentially, a complete application, together with all supporting documentation and the application fee, must be submitted to the FSC. Recognition is normally granted within one to two weeks if no further requests or enquiries are made by the FSC. A fund intending to operate as a private investment fund or a professional fund may operate for 21 days before obtaining recognition. A fund applying for approval as an incubator or approved fund may commence business two business days following submission of a complete application.
4 Management and advisory relationships
4.1 How are alternative investment fund managers and advisers typically structured in your jurisdiction?
Most alternative investment fund managers and advisers are structured as BVI business companies, although limited partnerships can also be used.
4.2 What are the advantages and disadvantages of these different types of structures?
BVI business companies are generally preferred, as:
- the liability of the shareholders is limited;
- only one entity is required; and
- the same people can act as the directors of the company and as the shareholders.
Limited partnerships require a general partner, separate from the limited partners, to ensure that the limited partners do not lose the benefit of their limited liability.
4.3 Must alternative investment fund managers be authorised or licensed in your jurisdiction?
Yes, there are two regimes for the authorisation or licensing of fund managers in the British Virgin Islands.
The Securities and Investment Business Act (SIBA) provides for the licensing of fund managers and applications can be made for a licence under Section 5 of SIBL under either:
- Category 3, Sub-category B: Managing Mutual Funds, which is appropriate for managers managing open-ended funds; or
- Category 3, Sub-category E: Managing Other Types of Investment, which is appropriate for managers managing closed-ended funds, including a BVI private investment fund.
The full SIBA licence is well established and popular with institutional managers. However, obtaining the licence can be a time-consuming process and licensees are subject to significant regulation.
Recognising that such comprehensive regulation is not necessary in all circumstances, the British Virgin Islands introduced the approved manager regime, which allows certain fund managers to operate cost efficiently, with lighter regulation. The speed and simplicity of the approval process and the relatively low set-up costs mean that the approved manager is by far the preferred option for start-up managers; but it is also popular with well-established investment managers that fall within the restrictions.
4.4 If so, what criteria must be satisfied to obtain authorisation? Do any restrictions apply in this regard?
The approved manager is subject to a cap on the aggregate assets under management of $400 million for open-ended funds or aggregate capital commitments of $1 billion for closed-ended funds. There are no capital adequacy requirements.
4.5 What is the process for obtaining authorisation and how long does this usually take?
For the approved manager, the process is fast and straightforward. An application must be submitted to the FSC, together with the application fee of $1,000. Key information that must be provided includes:
- details and CVs of each person who will be a director or person carrying out the day-to-day investment business of the applicant;
- details of all persons holding a significant interest in the manager;
- a written declaration by the applicant that each director, general partner, senior officer and each person who holds at least a 10% interest in the applicant is ‘fit and proper', in accordance with the Regulatory Code, 2009;
- details of each fund or person to which management services will be provided;
- the investment management agreement between the manager and each of the funds or persons for which it will act; and
- details of any relevant business functions which will be delegated, the person to whom they will be delegated and copies of the agreements delegating such relevant business functions.
An applicant for approval as an approved manager may commence operations seven days after submitting a completed application.
Obtaining a full SIBA licence is a more detailed and time-consuming process, and involves submitting a detailed business plan for approval by the FSC.
4.6 What other requirements or restrictions apply to alternative investment fund managers and advisers in your jurisdiction?
Other than the cap on assets under management, an approved manager may only carry on approved business, which includes any of the following investment business functions:
- acting as an investment adviser or investment manager to a private fund or professional fund;
- acting as an investment adviser or an investment manager to a closed-ended fund that is incorporated as a company, formed as a partnership or organised as a trust, under the laws of the British Virgin Islands and has the characteristics of a private or professional fund (following the enactment of the Securities and Investment Business (Amendment) Act, 2019 and the adoption of the Private Investment Fund Regulations, this will now be any private investment fund);
- acting as an investment adviser or investment manager to a person who is affiliated to a fund structure falling within the first two points above;
- acting as an investment adviser or investment manager to such other person as the FSC may approve on a case-by-case basis (this is commonly used for managed accounts, but the FSC will also generally approve applications to act for incubator and approved funds); and
- acting as an investment adviser or investment manager to a fund in a recognised jurisdiction with characteristics of a private, professional or private investment fund that invests substantially all its assets in a private, professional or private investment fund.
The FSC may impose restrictions on the licence of any SIBA licensed fund manager.
4.7 Can an alternative investment fund manager impose restrictions on the issue, redemption or transfer of interests in the funds under management?
The manager of a BVI alternative investment fund can generally involve itself in the running of a fund to the extent that powers have been delegated to it by the fund. However, its activities are always subject to the overall oversight and control of the fund's board or general partner.
4.8 Are there any requirements regarding the ownership of alternative investment fund managers? If so, please provide details.
Significant owners of a fully licensed SIBA licensee must satisfy the FSC's fit and proper criterion. Although information must be submitted to the FSC to enable it to make an assessment as to whether an owner satisfies the fit and proper criterion, it is expected that the applicant will conduct its own due diligence on a regular basis.
Applicants for approval as an approved manager must self-certify that the significant owners satisfy the fit and proper criterion.
4.9 Can alternative investment fund managers delegate to third-party investment managers or investment advisers? If yes, please provide details of any specific requirements.
Yes, an approved manager must provide details of the person that will be providing such services to the FSC and copies of the delegation agreements.
Full SIBA licensees are subject to greater regulation in relation to delegation and must comply with the provisions contained in the Regulatory Code which are concerned with managing outsourcing risk and ensuring that any delegation will not interfere with the FSC's ability to regulate the activities of the manager.
4.10 Can alternative investment fund manager provide investment management services to clients other than alternative investment funds? If yes, do any additional requirements apply?
Yes. If applying for a full SIBA licence, the applicant will also need to apply for a licence under Category 3, Sub-category E: Managing Other Types of Investment.
An approved manager can act for persons approved by the FSC on a case-by-case basis, the most common being managed accounts. The certificate of approval will list all persons that the approved manager is approved to act for and must be updated if the manager takes on additional clients.
5.1 Is the marketing of alternative investment funds subject to authorisation in your jurisdiction?
Part II of the Securities and Investment Business Act (SIBA) provides restrictions for the marketing of alternative investment funds in the British Virgin Islands, but has not been brought into force. Any fund not formed in the British Virgin Islands and soliciting an individual within the British Virgin Islands to subscribe for, or purchase, any of its fund interests will be deemed to be carrying on business in the British Virgin Islands and will need to seek recognition by the BVI Financial Services Commission (FSC) as a foreign fund in accordance with the Mutual Funds (Foreign Funds) Regulations, 2019.
5.2 If so, what criteria must be satisfied to obtain authorisation? Do any restrictions apply in this regard?
Foreign funds must issue a prospectus complying with the Public Funds Code, as if registered as a public fund. A foreign fund must appoint an administrator, custodian (subject to certain available exemptions) and a fund manager, each functionally independent from the other. A foreign fund must also prepare financial statements complying with internationally recognised accounting standards as approved by the FSC and appoint an auditor to audit its financial statements.
5.3 What is the process for obtaining authorisation and how long does this usually take?
A completed application, together with all required supporting documentation, must be submitted to the FSC. Recognition usually takes one to two weeks from the date on which the application is submitted, provided that the application is completed and the FSC does not need to raise significant enquiries in relation to the application.
5.4 To whom can alternative investment funds be marketed?
BVI funds must comply with the marketing restrictions that apply to the classification of fund that applies to them.
5.5 What are the content criteria that marketing materials for alternative investment funds must satisfy?
The prospectus of a public fund or foreign funds must contain:
- prescribed information regarding the manager, administrator, custodian, prime broker, investment adviser, registrar and transfer agent, auditor, legal advisors, authorised representative and promoter;
- the names, qualifications and experience of directors;
- information regarding the constitution and objectives of the fund;
- characteristics of the fund interests;
- characteristics of the fund;
- information regarding the valuation of fund property and interests;
- disclosures regarding fees;
- disclosures regarding distributions;
- disclosures regarding the terms of issue and redemption of fund interests;
- general information regarding the date of publication, the address at which additional information can be obtained and the dates on which reports will be published;
- the consequences of misrepresentations made in the prospectus and the rights of investors in such circumstances; and
- other information which investors and their advisers would reasonably require and expect to make an informed judgement about the merits of investing in the fund.
Other categories of fund in the British Virgin Islands need not issue a prospectus. Most funds issue an offering document. Although there is no strict requirement to do so under BVI law, having a carefully drafted offering document setting out the terms of offering of the fund protects managers and operators of investment funds from claims of misrepresentation.
5.6 What other requirements or restrictions apply to marketing materials for alternative investment funds?
Each category of investment fund in the British Virgin Islands has certain prescribed investment warnings and disclosures which must be provided to investors. These are normally contained within the offering document.
5.7 Can alternative fund managers from other jurisdictions market alternative investment funds in your jurisdiction without authorisation?
At this time, fund managers from other jurisdictions marketing alternative investment funds in the British Virgin Islands are not restricted. However, those funds must be recognised as foreign funds.
5.8 Is the appointment of local marketing entities required in your jurisdiction?
Not at this time.
5.9 Is it possible to market alternative investment funds to retail investors in your jurisdiction? If so, are there specific requirements?
Only if the fund is registered as a public fund or recognised as a foreign fund.
6 Investment process
6.1 Do any investment or borrowing restrictions apply to the portfolios of alternative investment funds?
There are no borrowing restrictions under BVI law which apply to portfolios of alternative investment funds.
6.2 Are there any specific legal or regulatory requirements regarding investments in particular assets?
There are no restrictions under BVI law or regulation regarding certain asset classes, except that BVI investment funds must not invest in businesses that receive the proceeds of any activities which, if they were being conducted in the British Virgin Islands, would constitute a criminal offence in the British Virgin Islands.
7 Reporting, governance and risk management
7.1 What key disclosure requirements apply to alternative investment funds in your jurisdiction?
The amount of information made public on BVI funds is limited. General information – such as the registration number, registered office, registered agent, incorporation/formation date, authorised shares (companies only), status (eg, if struck off), memorandum and articles of association (for companies) or registration statement (for limited partnerships) – and the register of charges can be obtained from the registry of corporate affairs or registry of limited partnerships.
Registers of directors and shareholders or partners are not publicly available.
The names and category of fund of each regulated fund in the British Virgin Islands are available on searching the register of regulated entities, available on the website of the BVI Financial Services Commission (FSC).
7.2 What key reporting requirements apply to alternative investment funds in your jurisdiction?
Private, professional and public funds must submit a mutual fund annual return via the FSC's website in respect of the previous calendar year by 30 June each year. The mutual funs annual return requires the disclosure of basic prudential and governance information and a summary of financial information.
Incubator and approved funds must submit a report to the FSC providing information regarding number of investors, aggregate subscriptions and redemptions, total investments, net asset value and details of any significant investor complaints. Incubator funds must provide this information twice a year for the six-month periods ending 30 June and 31 December in each year (no later than 31 July and 31 January respectively). Approved funds must provide this information annually for the period ending 31 December (no later than 31 January). In addition, incubator and approved funds must provide to the FSC by 31 January each year a return stating that they are not in breach of the requirements of the Incubator and Approved Fund Regulations.
BVI alternative investment funds (AIFs) must submit audited financial statements to the FSC within six months of the end of each financial year. Incubator and approved funds need not have their financial statements audited, but must submit unaudited financial statements to the FSC within six months of the end of each financial year.
BVI AIFs must report for Foreign Account Tax Compliance Act and Common Reporting Standard purposes to the BVI International Tax Authority by 31 May each year.
Each category of fund is subject to various consent or notification provisions in relation to ongoing operations – for example, in the event of changes to constitutional documents, offering documents, directors, functionaries and other significant events.
7.3 What key governance requirements apply to alternative investment funds in your jurisdiction?
BVI AIFs must have at least two directors, at least one of which must be an individual. Only an individual may be appointed as a director of a public fund.
BVI AIFs must maintain clear and comprehensive policies for valuation of fund property and ensure that a person, independent from the person responsible for the fund's management, is responsible for the valuation process. Approved, private, professional and public funds must appoint an administrator.
BVI AIFs must have a person responsible for undertaking or arrangements in place to ensure the safekeeping of fund property, including the segregation of fund property. Private, professional and public funds must, subject to the availability of exemptions, appoint a custodian.
Private, professional and public funds and private investment funds must appoint a fund manager or a person responsible for undertaking the management of fund property (in the case of a private investment fund).
Public funds are subject to more detailed governance requirements, set out in the Public Funds Code.
7.4 What key risk management requirements apply to alternative investment funds in your jurisdiction?
Fund managers, administrators and custodians each play a role (as applicable) in ensuring that risks are managed.
8.1 How are alternative investment funds treated for tax purposes in your jurisdiction?
Provided that it has no employees in the British Virgin Islands and it does not purchase property situated in the British Virgin Islands, an alternative investment fund (AIF) formed in the British Virgin Islands will not be subject to tax in the British Virgin Islands other than annual filing and registration, recognition or approval fees (as applicable).
8.2 How are alternative investment fund managers and advisers treated for tax purposes in your jurisdiction?
Provided that it has no employees in the British Virgin Islands and does not purchase property situated in the British Virgin Islands, an AIF formed in the British Virgin Islands will not be subject to tax in the British Virgin Islands other than annual filing and registration, recognition or approval fees (as applicable). If a fund manager employs staff in the British Virgin Islands to comply with the requirements of the Economic Substance Act, it will be subject to payroll taxes. Most investment managers will outsource services and will not directly employ staff in the British Virgin Islands.
8.3 How are alternative investment fund investors treated for tax purposes in your jurisdiction?
There are no BVI taxes charged on distributions or redemption payments made to investors. Investors into BVI funds will be charged tax on any amounts received in accordance with the tax rules in the jurisdiction in which they are tax resident.
8.4 What effect do international laws such as the US Foreign Account Tax Compliance Act and international standards such as the Common Reporting Standard have in your jurisdiction?
The British Virgin Islands has passed legislation to implement the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS). All AIFs must register for FATCA and CRS and report annually. The information is then shared by the International Tax Authority with the Internal Revenue Service or the tax authorities in the relevant reportable jurisdictions (as applicable).
8.5 What preferred tax strategies are typically adopted in the alternative investment fund context?
Given the simplicity of the BVI tax regime, there is no need for complex tax strategies to be adopted with regard to BVI tax.
9 Trends and predictions
9.1 How would you describe the alternative investment fund landscape and prevailing trends in your
The British Virgin Islands has recently introduced a number of significant amendments to the legislation and regulation affecting investment funds, largely in response to the EU recommendations on the oversight of investment funds. It has managed to strike the difficult balance between keeping pace with international regulatory standards and implementing proportionate regulation which maintains flexibility and cost efficiency, and continues to be attractive to emerging and smaller fund managers.
9.2 Are any new legal or regulatory developments anticipated which will impact on alternative investment funds or alternative investment fund managers in your jurisdiction?
While there have been significant developments recently with the amendments to Securities and Investment Business Act and the Mutual Fund Regulations, the adoption of the Private Investment Fund Regulations and the amendments to the Incubator and Approved Fund Regulations, it is unlikely that the BVI funds regime will stay static. The international regulatory standards for investment funds are moving quickly and the British Virgin Islands will continue to respond rapidly to maintain its position as the second largest jurisdiction for regulated investment funds globally. This will undoubtedly mean that more change is to come.
9.3 Do you envisage any particular industry strategy of attracting particular interest in the next 12 months?
The British Virgin Islands has been careful to ensure that it keeps its focus on the emerging manager and the recent changes to the funds regime will have secured its position as the home of the emerging manager. We expect to see this generating a lot of activity.
10 Tips and traps
10.1 What are your top tips for the smooth establishment and management of an alternative investment fund in your jurisdiction, and what specific challenges would you note?
Select service providers that you like working with and that have a good understanding of your strategy, and get your administrator on board at an early stage. Explore banking options early to avoid any delays to launch, as opening bank accounts can be time consuming. Consider where you are going to market the fund and take legal advice in the relevant jurisdictions to ensure that you comply with local private placement regimes. Keep a diary of key reporting deadlines and a list of continuing obligations, so that you ensure that the fund is fully compliant and avoids any penalties or fines.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.