British Virgin Islands: Offshore Business Sectors
Investment Fund Management
There was already a substantial fund management sector in the British Virgin Islands when the Mutual Funds Act 1996 came into force in 1998. A total of 2,627 mutual funds were registered in the BVI as at September 30, 2011.
The Act divides open-ended investment funds into a number of classes:
- Private Funds, being funds sold to no more than 50 investors on a private basis;
- Professional Funds, being funds sold to market professionals or individuals with net worth over $1m; and
- Public Funds, divided into 'ordinary' mutual funds sold to the general public and 'selective' mutual funds sold on a selective basis through intermediaries;
All open-ended funds have to be 'recognised' or registered by the Registrar of Mutual Funds, an official of the Financial Services Commission. The Act also sets up a licensing regime for managers and administrators of mutual funds. Umbrella funds and funds of funds are both permitted. Closed-end funds are not covered by the Act. See Law of Offshore for further details of the regulatory regime for investment funds. Investment funds in the BVI normally take one of three corporate forms: the Business Company (BVIBC); the Unit Trust; or the Limited Partnership (see Forms of Company). A BVI mutual fund can also be specifically registered as a Segregated Portfolio Company under the BVI Business Companies Act 2004.
Registration under this chapter permits effective differentiation and management of several distinct investment portfolios or asset classes within the organizational boundaries of one mutual fund.
The Segregated Portfolio Companies Regulations, 2005 were gazetted on 22 December, 2005 and the first quarter of 2006 saw the first private fund re-registered as a Segregated Portfolio Company, with a total of 189 segregated portfolios as at 31 March, 2006. This figure had reduced to 135 by 30 September, 2011.
Exemption from tax applies to funds covered by the Mutual Funds Act, to IBCs, to Trusts and to Limited Partnerships. See Offshore Legal and Tax Regimes for further details of taxation and fees payable.
The BVI Registrar of Mutual Funds recognises 39 jurisdictions as having sufficiently prudent systems of regulation/supervision of mutual fund business in place so as to allow him to approve applications for recognition and registration by British Virgin Islands mutual funds which list a functionary (e.g. a manager) from the recognised jurisdiction. The 39 jurisdictions are: United Kingdom; United States of America; Argentina; Australia; Bahamas; Belgium; Bermuda; Brazil; Canada; Cayman Islands; Chile; China; Curacao; Denmark; Finland; France; Germany; Gibraltar; Greece; Guernsey, Hong Kong; Isle of Man, Ireland; Italy; Japan; Jersey; Luxembourg; Malta; Mexico; The Netherlands; New Zealand; Norway; Panama; Portugal; Singapore; Spain; South Africa; Sweden; and Switzerland.
Although there are now 400 entities providing management and/or administration services to Mutual Funds in the BVI, Mutual Funds do not have to be managed or administered from within the BVI. Regulated service providers in the above jurisdictions around the world are accepted by the BVI Registrar of Mutual Funds to provide management and administrative services to BVI Funds, allowing greater flexibility when appointing service providers. Similarly a non-BVI Mutual Fund is not required to be regulated under the Mutual Funds Act only because it is managed or administered from within the BVI, provided that the management or administrative service provider is a BVI entity, licensed under the Mutual Funds Act.
The FSC is working on a code of practice to regulate BVI incorporated managers and administrators which will adopt the highest international standards. The Securities and Investment Business Act, 2010, came into effect on 17 May. It requires all mutual funds in the BVI to have an authorised representative in the BVI and to have at least two directors. The authorised representative will have certain responsibilities to ensure that its mutual fund client comply with the regulatory requirements in the BVI.
It does not seem that the implementation of the EU's Savings Tax Directive has led to an outflow of fund business from those jurisdictions. The 'equivalent measures' legislated by the BVI in anticipation of the STD have given the BVI an advantage over other offshore jurisdictions which have not implemented equivalent measures, for example Bermuda and the Bahamas.
Key EU fund jurisdictions, notably the UK and Ireland and, in addition, Switzerland have implemented legislation and/or guidance notes that acknowledge that certain types of fund (eg non-UCITS funds) are outwith the STD.
Distributions and other payments derived from funds which are not UCITS or elective UCITS are not reportable as savings income under the regulations. A UCITS is an ‘undertaking for collective investment in transferable securities’ authorised in accordance with the UCITS Directive. Non-EU funds may or may not be UCITS depending in a complex way on their nature. Even when a fund is a UCITS, its distributions are only taxable under the STD when the 15% threshold for income from money debts is breached. The rules are complex.
The BVI regulations are such that funds established there are deemed not to be UCITS, with the exception of restricted public funds as defined in the Mutual Funds Act 1996.
Accordingly, in respect of any such BVI non-UCITS funds, paying agents (whether feeder funds or nominees or otherwise, and whether in the BVI or in the EU) will not be required to make reports or withhold on distributions regardless of the application of the asset test or the identity or residence of the recipient of the dividend or distribution.
In September 2008, it was announced by the British Virgin Islands Financial Services Commission (FSC) that a new Annual Return regime for BVI investment funds had been created.
The idea of the Annual Return is that the BVI will be able to benchmark its fund industry, to conform with international reporting standards, and to enable the regulator to gather financial information that may assist with the strategic development of the BVI funds industry.