Answer ... 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.

Answer ... 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.

Answer ... 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.

Answer ... 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.

Answer ... 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.

Answer ... 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’.