British Virgin Islands: Law of Offshore
BVI Trusts are formed under the Trust Ordinance 1961 (based on the English Trustee Act 1925), as updated and amended by the Trustee Amendment Act 1993.
Since the 1993 Act, there is no requirement for registration of trusts in the BVI, and there is no public disclosure of information regarding trusts. Trust duty of US$50 is payable on each trust instrument, which is achieved by buying and affixing stamps, creating no record.
Due to the Amendment Act, the regime for trusts in the BVI is very flexible. The following are some of the main features of BVI trust law:
- the proper law of a trust can be specified by the trust instrument; in the absence of a specified jurisdiction, a trust will be under BVI legislation if the trustee or the trust administration is situated in the BVI;
- trusts can migrate into and out of the BVI; but outwards migration is only possible if the 'receiving' jurisdiction recognizes the validity of the trust;
- purpose trusts are permitted in perpetuity and must have at least one BVI trustee (resident professional or equivalent);
- the perpetuity period can be set at 100 years, but 'lives in being' is still possible;
- 'wait and see' provisions are included as standard;
- 'protectors' are explicitly permitted, and their powers are clearly defined;
- forced heirship provisions are excluded;
- trustees may be given wide discretionary investment powers;
- BVI trusts are exempt from all taxation provided that there is no resident beneficiary and no BVI assets.
The Banks and Trust Companies Law 1990 introduced licensing for companies providing trust services. Trust licenses are as follows:
- A General Trust License permits services to be offered generally; the minimium paid-up capital is US$250,000 and a deposit of US$20,000 must be made as prescribed by the Governor; the annual license fee is US$16,000.
- A Restricted Trust License restricts the provision of services to those undertakings specified in the license. There are no minimum capital or deposit requirements; the annual license fee is US$500.
Amendments to the licensing legislation in 1995 incorporated 'gateways' which provide for the disclosure of information to the regulatory authorities and law enforcement agencies in other countries to assist the investigation of illegal or criminal activities. The BVI authorities however do not respond to 'fishing expedition' enquiries from other jurisdictions.
The BVI's trust regime was substantially updated in 2004 with three pieces of legislation.
The Virgin Islands Special Trusts Act, 2003 (VISTA)
The 'VISTA' law allows BVI trusts to exclude the so-called “prudent man of business rule” which has traditionally made the trust an unattractive vehicle to hold long-term assets and requires trustees to monitor and intervene in the affairs of underlying companies. The Act enables a shareholder to establish a trust of his company that disengages the trustee from management responsibility and permits the company and its business to be retained as long as the directors think fit.
The legislation permits the entire removal of the trustee’s monitoring and intervention obligations (except to the extent that the settlor otherwise requires); permits the settlor to confer on the trustee a duty to intervene to resolve specific problems (eg a deadlocked board); and allows trust instruments to lay down rules for the appointment and removal of directors (so reducing the trustee’s ability to intervene in management by appointing directors of its own choice).
Some of the features of the new Act are as follows:
- The Act does not apply to BVI trusts generally: it only applies where there is a provision in the trust instrument directing the Act to apply.
- Where the new Act applies, designated shares will be held on “trust to retain” and the trustee’s duty to retain the shares as part of the trust fund will have precedence over any duty to preserve or enhance their value. The trustee will not therefore be liable for the consequences of holding (rather than disposing of) the shares.
- The Act specifies that, subject to any contrary provisions in the trust instrument, unless the trustee is acting on an “intervention call” (as defined in the Act), the trustee may not exercise its voting or other powers so as to interfere in the management or conduct of any business of the company; the management or conduct of the company’s business will be left to those appropriate to deal with it, namely its directors, whose fiduciary duties to the company remain intact, except to the extent that the trustee/shareholder is refrained qua trustee from exercising some of the powers of a shareholder.
- The new statute also provides that the trust instrument may include “office of director rules” specifying how the trustee must exercise its voting powers in relation to appointment, removal and remuneration of directors, and the trustee is generally required to follow these rules. Except in compliance with these rules, the trustee must generally take no steps to procure the appointment or removal of the company’s directors.
- The Act further provides that the trust instrument may specify that the trustee may intervene in the affairs of the company in specified circumstances, ie when required to do so by an “intervention call” by a beneficiary, an object of a discretionary power of appointment, a parent or guardian of either of them, the Attorney General (in relation to charitable trusts), the enforcer (in relation to purpose trusts) or other specified persons.
- The Act specifies that (unless the trust instrument provides otherwise) the trustee is permitted to dispose of designated shares in the management or administration of the trust fund, but can only do so with the consent of the directors of the company (and that of such persons as are specified in the trust instrument).
- The new statute contains provisions enabling beneficiaries, directors and others to apply to the court for enforcement of the terms of the Act and, on the application of a specified person, the court is empowered to authorise the trustee to sell designated shares where retaining them is no longer compatible with the wishes of the settlor.
- The Act is confined to shares in BVI International Business Companies and Companies Act companies.
- The trustee of a VISTA trust must be a company which holds a licence to undertake trust business under the Banks and Trust Companies Act, 1990.
The Trustee (Amendment) Act, 2003
This Act makes a substantial number of amendments to the Trustee Act, including the following:
- With a view to making BVI trusts significantly more attractive in the commercial context, including a new section (which will only apply if there is a statement to this effect in the trust instrument) which enables trustees to create various forms of charges of trust assets in favour of creditors.
- The Act repeals section 83 of the Trustee Act and replaces it with a new set of conflict of laws rules relating to trusts. The new section contains robust, comprehensive and carefully crafted provisions protecting BVI trusts (and dispositions to their trustees) against “forced heirship” claims, which also prevent foreign judgments based on such forced heirship claims from being recognised or enforced in the Territory.
- The BVI’s purpose trusts legislation has been comprehensively overhauled in the light of amendments which have been made to other offshore jurisdictions’ legislation, various commentaries which have been written by experts and some issues which have arisen in practice since this legislation was originally introduced.
- Section 92 of the Trustee Act, which deals with the payment of trust duty has been replaced by a comprehensive new section which makes it clear what documents are subject to trust duty and how this must be paid.
- Trusts which are exclusively charitable are now exempted from trust duty; but the section includes a modest increase in duty from $50 to $100.
- The Act includes a number of further sections dealing with charities, variation of trusts, illusory appointments, the power to compromise claims, flee clauses and the jurisdiction of the BVI’s courts.
Property (Miscellaneous Provisions) Act, 2003
This Act abolishes the requirement that deeds executed by individuals need to be sealed.
In July, 2005, the BVI said it would amend its trusts legislation so that special trust vehicles can hold shares in private trust companies (PTCs), thus broadening the appeal of the vehicles.
The Virgin Islands Special Trusts Act (VISTA), which came into effect in March 2004, allows trustees of VISTA trusts which hold a shareholding in a BVI International Business Company to disengage the trustee from management responsibilities.
It is anticipated that the legislation will be amended to enable applications for exemption from trust licensing to be made when an unremunerated PTC is not offering its services to the public.
"Once this amendment comes into effect, the BVI financial services industry expects a great deal of use will be made of Vista trusts as charitable or non-charitable purpose trusts to hold shares in PTCs," noted Christopher McKenzie, partner of law firm Walkers.
In July, 2010, the Financial Services Commission noted amendments to the Banks and Trust Companies Act, 1990, and the Companies Management Act, 1990.
Among the legislative amendments proposed, of particular note are powers to enable the Commission to review licenses granted in respect of trusts regulated in the British Virgin Islands. The move, the Commission said, is to be made to bring the territory’s regime in line with international best standards. The new provisions, the Commission said, would improve synergies between the Banks and Trusts Companies Act, 1990, and the Companies Management Act, 1990.
In particular, the amendment will allow the FSC to revoke and re-evaluate licenses granted in respect of trusts. Licenses could be altered on request or where certain factors initiate such a move, namely: changes in the activities of the licensee; competence; compliance culture; or other ‘relevant factors’. Other amendments to the Acts would review vesting provisions, to address the transfer, sale or disposition of any of a licensee’s operations.