British Virgin Islands is the global leader in registration of offshore mutual funds. More than 3000 mutual funds are currently registered in the BVI, with the total of over 100 billion US dollars under management. The popularity of the BVI as the prime location for offshore mutual funds grows by the day, as investment professionals increasingly recognize the benefits of this tax haven jurisdiction. Fidesta Ltd can provide a comprehensive incorporation and licensing services package to establish a private, professional or public mutual fund in the BVI, or to register a fund management company in the BVI.
BVI MUTUAL FUND AND FUND MANAGEMENT REGISTRATION PROCEDURES
ESTABLISHMENT AND LICENSING OF A BVI MUTUAL FUND
For establishment of a BVI professional, private or public mutual fund, we offer a comprehensive, “turn-key” solution. This contains a complete set of services necessary in order to create, launch and run the fund!
Normally, the following services are necessary during the various stages of the establishment of a new BVI mutual fund:
- Drafting the special Memorandum and Articles of Association for the Fund.
- Provision of the Registered Agent and Registered Office for the Fund.
- Incorporation of the Fund company as a BVI Business Company.
- Payment of standard Government fees at incorporation of the Fund company.
- Drafting of First Minutes, appointment of directors and primary corporate documents.
- Obtaining duplicate Certificate of Incorporation (required for licensing purposes).
- Drafting of the Offering Memorandum.
- Drafting of the Management and Administration contracts.
- Legal review of all corporate and contractual documents by a BVI-based legal counsel.
- Drafting of the licence Application for recognition as Professional or Private Fund.
- Submission of the licence Application along with the accompanying documents.
- Payment of Mutual fund Application fee and Recognition fee to BVI FSC.
- Follow-up with the licence Application and liaison with the Financial Services Commission.
- Appointment of one corporate director to the Fund.
- Appointment of administrator (annual administration fees to be negotiated separately).
- Assistance with appointment of custodian and opening of a custodial account.
- Assistance with appointment of auditor (audit fees not included).
- Assistance with appointment of banker and opening of bank account.
- Assistance with appointment of broker and opening of brokerage account.
- Obtaining CUSIP/ISIN number (if necessary).
Fund administration. Professional, BVI-based fund administration services can be integrated into the fund set-up, provided by an independent Fund Administrator, as required by the BVI Mutual Funds Act 1996. Fund administration fees typically range between 0.12% and 0.20% of net assets, subject to a minimum of $18`000, per annum. The actual rates of administration fees depend on a number of factors, such as the type and complexity of the fund and its assets, complexity and frequency of the calculation and reporting, number of shareholders, share classes and series, sources involved at value calculations, and other similar factors. Exact quotation of the administration fees is available as soon as these variables are known.
Establishment and Licensing of a Fund Management Company
In conjunction with the establishment of a BVI mutual fund, we can assist with the establishment and licensing of a fund management firm in the BVI. Again, we offer an all-inclusive solution, with the following services provided:
- Drafting of special Memorandum and Articles of Association for the Fund Management company.
- Provision of the Registered Agent and Registered Office.
- Incorporation of the Fund Management company as a BVI Business Company.
- Payment of standard Government fees at incorporation of the Fund Management company.
- Drafting of First Minutes, appointment of directors and primary corporate documents.
- Obtaining duplicate Certificate of Incorporation (for licensing purposes).
- Legal review of all corporate and contractual documents by a BVI-based legal counsel.
- Drafting the licence Application for licencing as Fund Manager.
- Submission of the licence Application along with the accompanying documents.
- Payment of Fund Manager Application fee and Recognition fee.
- Follow-up with the licence Application and liaison with the Financial Services Commission.
BENEFITS AND ADVANTAGES OF ESTABLISHING BVI MUTUAL FUND
There are two groups of reasons in favour of the registration of an offshore mutual fund in the BVI:
- general benefits of creating an investment fund in an offshore financial centre (tax haven);
- advantages of the British Virgin Islands as a suitable location for an offshore mutual fund.
GENERAL BENEFITS
The main general benefits of establishing a mutual fund in an offshore financial centre are:
Minimum or zero tax on capital gains, incomes, profits and dividends that accrue to the Fund. This would usually allow the Fund to outperform its peers domiciled in a high-tax jurisdiction, if only by the reason that the monies, which would otherwise be paid as tax, can in the case of an offshore mutual fund be further reinvested in the assets held by the Fund. While an offshore investment fund would typically operate in a tax-free environment and would therefore be able to grow faster, the individual investors should nevertheless remain aware of the fact that at the time when their investments are redeemed or when dividends are received from the offshore fund, such personal income may be subject to tax in their domicile country, at receipt. To this extent, qualified tax advice should be sought by the investor.
Minimum or zero tax on fees, commission income and profits earned by the Fund Managers, Advisors and Administrators, registered and regulated in an offshore financial centre. Again, this may provide a competitive advantage to these professionals, for instance, by giving them an opportunity to charge lesser fees and commissions than do their competitors, who happen to be located in high-tax jurisdictions.
Greater operational flexibility, in terms of both the choice and structuring of the investment portfolio, and in relation to the internal structuring of the Fund itself. This largely owes to the fact that less “red tape” and formal regulation is generally allowed by mutual fund legislation in offshore financial centres, as compared to creation of mutual investment vehicles in most high-tax countries. Offshore investment funds have access to the widest possible variety of investment instruments and may often pursue more aggressive investment strategies than if they were registered in a “traditional” jurisdiction.
The same relatively lower level of regulation allows for a faster and easier establishment process of an offshore investment fund. Subsequent running and administration costs are typically lower, too. Series of offshore investment funds, designed under the same pattern and having the same recognized managers and administrators, may be created extremely quickly and with minimum cost. As a result, an offshore investment fund can be offered to potential investors at more attractive financial terms. It is also quite common for an offshore investment fund to outsource some or all of its support functions to outside providers, either in the same jurisdiction or abroad. Thus, the fund administration, management, investment advisory and shareholder relations may be subcontracted to established service providers elsewhere. The recognition process of such outside providers for the purposes of licensing of the particular offshore investment fund is usually quite straightforward. Again, such flexibility and variety of choices quite simply ensures a more efficient and profitable running of the fund.
PARTICULAR ADVANTAGES
BVI is a well-regulated jurisdiction with a long and proven track record. It is a widely preferred and recognized choice for offshore corporate domicile, with almost 700`000 IBCs and Business Companies registered since the introduction of the offshore financial sector in 1984.
Being a British Dependent Territory, BVI has an outstanding political and social stability, a complete legal predictability and a robust economy, featuring modern telecommunications infrastructure and a culture of professional work ethics in the financial services industry.
US dollar is the official currency in the BVI and there are no exchange controls or restrictions on financial transfers.
A BVI mutual fund is subject to zero taxation on its profits and capital gains.The same is true for any other BVI-registered business, as under the new corporate legislation there is no more legal distinction between domestic and offshore entities. This lack of “ring-fencing” helps to avoid potential discrimination of BVI-registered entities in their dealings abroad.
A BVI mutual fund can be registered in the widest possible variety of organizational forms – as a Business Company, a Partnership, a Unit Trust or “other similar body”. Recognition under the BVI Mutual Funds Act can be obtained for funds already registered in another jurisdiction, as well as for fund managers, administrators and other professionals operating from another jurisdiction. Umbrella funds and funds of funds are recognized under the BVI mutual funds legislation.
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.
There are no minimum capital requirements for a BVI mutual fund, neither there are any restrictions as to the type, denomination, number, classes and designation of rights of shares that can be created. Multiple classes of shares may be issued to distinguish between different classes of assets, investors or even currencies. The authorized share capital would typically consist of common voting shares and non-voting preference shares, however different and more complicated layouts are certainly possible. Shares can be denominated in any currency, or in multiple currencies.
There are no statutory limitations as regards the investment policies, investment instruments and borrowing powers of a BVI mutual fund, as such conditions are only prescribed by internal documents (Memorandum and Articles of Association, Prospectus, Placement Memorandum, Offering Circular, etc) of the fund itself, which are determined by the promoters and managers of the fund.
In terms of actual establishment and running of an offshore investment fund, BVI provides better cost-efficiency and value for money than it`s principal competitors.
A pool of experienced, licenced professionals is readily available in the BVI for all back-office support functions of the fund. At the same time the mutual funds legislation allows outsourcing of any of such functions to foreign providers and establishes a fast and straightforward procedure for recognition of such providers.
The regulation of the offshore financial sector is carried out by the BVI Financial Services Commission under a well-designed and modern suite of laws, enabling an adequate protection of investors` interests and the support of jurisdictions? good reputation. Both the formal letter of the law and the actual regulatory practices are designed to ensure that only fit and proper persons are involved in any aspect of mutual fund operations in the BVI.
The BVI Mutual Funds Act 1996, which is the primary source of mutual funds legislation in the jurisdiction, together with sub-regulations issued by the Financial Services Commission, provides for a flexible, modern and attractive legal basis for establishment of offshore mutual funds in BVI. The review of the particular features and benefits of this legislation is provided further in this chapter.
TYPES OF BVI MUTUAL FUNDS
Types of offshore mutual funds recognized by the BVI Mutual Funds Act
The BVI Mutual Funds Act 1996 (as substantially amended in 1997 and 2004) sets forth the regulatory environment for operation of mutual funds in British Virgin Islands. There are also several additional Regulations issued by the BVI Executive Council on the subject of mutul funds regulation, and a range of Policy Guidelines issued by the BVI Registrar of Mutual Funds (being part of the Financial Services Commission) and dealing with the finer points of the practical application of the Mutual Funds Act.
The BVI Mutual Funds Act deals primarily with three main areas – registration of Public Funds, recognition of Private and Professional Funds, and the licensing of Fund Managers and Administrators.
In BVI, mutual funds may be formed or recognized in a variety of organizational forms. A mutual fund can be either a company (a BVI Business Company or a foreign corporation), a partnership (Limited or Unlimited Partnership), a unit trust or “other similar body” formed or organised either in the BVI or in another country.
The BVI Mutual Funds Act defines a mutual fund as an organization (in one of the abovementioned forms), which collects and pools investor funds for the purpose of collective investment, and issues shares that entitle the holder to receive on demand or within a specified period after demand an amount computed by reference to the value of a proportionate interest in the whole or in a part of the net assets of the fund.
There are three main types of funds, distinguished by the BVI Mutual Funds Act:
- Public Funds
- Private Funds
- Professional Funds
PUBLIC FUNDS
While the BVI Mutual Funds Act defines a public fund broadly as any “mutual fund which is not a private fund or a professional fund”, a public fund is simply one that offers its investment shares to general public. This is the type of fund that attracts the highest degree of regulation.
Public Funds must be registered (or obtain consent to registration under a pre-filing procedure) before engaging in any business activity in or from within the BVI. A Public Fund must publish a prospectus including the information required by the Act and must also produce and distribute audited annual financial statements. The Registration Application includes details of all directors, managers, administrators and other persons closely involved in the management of the fund. There are very stringent “fit and proper” requirements to be met in regards all individuals involved with the promotion and management of a fund.
The Mutual Funds Act requires that a prospectus for a public mutual fund shall provide “full and accurate disclosure of all such information as investors would reasonably require and expect to find for the purpose of making an informed investment decision”. The prospectus is also required to contain a summary statement of investors´ rights. Namely, investors in a public BVI fund have the right to claim for rescission of their purchase, or for recovery of damages in the event of any misrepresentation in the prospectus of the fund. However, such claim must be raised within 180 days after becoming aware of the misrepresentation or within 1 year after the shares were purchased, whichever is earlier. The amount recoverable under such claim may not, however, exceed the amount at which the shares were purchased, including any fees or other charges paid at such purchase by the investor.
The prospectus must also be accompanied by (or contain reference to the availability of) financial statements for the last financial year of the fund and the auditor´s report.
PRIVATE AND PROFESSIONAL FUNDS
The BVI Mutual Funds Act defines a Private Fund as a mutual fund which by its constitutional documents has restricted the maximum number of its investors to fifty, or which has specified that all invitations to subscribe for the funds? shares shall be made on a private basis. At application, a proposed private fund will be expected to demonstrate the “private basis” of offeering its shares to prospective investors, and to explain what criteria will enable any particular investors to qualify as “private”. It remains with the Registrar of Mutual Funds to either accept or reject any such explanation. In one of the Policy Guidelines, it is stated, in particular, that “the making of invitations to as many as 300 persons might be considered an offering on a “private basis” if it can be demonstrated that the person made the invitations to specified persons and had no deliberate intention of making invitations to other persons. The making of invitations to a significantly greater number of persons than 300 would cast doubt upon compliance with the spirit of “private basis” which is embodied in the Act, on the grounds that a large number of persons is not consistent with what is commonly understood to be “private”.”
The official definition of a Professional Fund is that of a mutual fund, the shares of which are made available only to professional investors and the initial investment in which, in respect of the majority of each of such investors, is not less than one hundred thousand US dollars or its equivalent. Consequently, the “professional investor” is any person, who qualifies under any one of the two possible criteria: a professional investor is one whose ordinary business involves, basically, investment business similar to the kind of the fund itself (a more elaborate definition is provided in the Act), or a professional investor is also one who has declared his net worth to exceed one million US dollars and has consented in writing to be treated as a professional investor. In simple terms, therefore, a “professional investor” is a person who is supposedly either an investment professional (and therefore should know what he is doing), or a person who has expressly declared that he know what he is doing, in addition to declaring that his net worth is substantial (so that an eventual failure of the investment should supposedly not leave this person bankrupt).
As opposed to “registration” of the public funds, required by the Act, the procedure prescribed for professional and private funds is called “recognition”. It is much simpler than the one prescribed for the public funds. The recognition of a private or professional fund in BVI requires completion of the relevant application, provision of the proofs or documents that supposedly qualify the fund as private or professiona, provision of the details of the fund itself, as well as the details of its managers, administrators, custodians and other professionals involved (as the case may be) and their place(s) of business. The application should be accompanied by the prescribed fees.
At recognition of a private or professional fund, most of the attention of the Registrar will be centered towards the particulars of the managers, administrators and other professional parties involved with the fund. The requirements towards such professionals are fairly stringent and detailed. The overview of these requirements are provided below.
BVI FUND MANAGERS AND ADMINISTRATORS
Licensing of Fund Managers and Administrators
All managers or administrators of mutual funds who carry out their activities in or from within the BVI must be licensed by the BVI Financial Services Commission. The BVI Mutual Funds Act prescribes several general conditions that must be met by any such licensee. In particular, the Financial Services Commission must be satisfied that the applicant “is a fit and proper person” to be engaged in the proposed fund management or administration business. The applicant is also required to have “adequate knowledge, expertise, resources and facilities necessary for the nature and scope of the business proposed.”
The Act only states the licensing requirements in a rather general manner. However, the Policy Guidelines, issued by Financial Services Commission, contain a very detailed and exact explanation of the applicable conditions. These conditions are uniformly applied to any applicant who wishes to be licensed as a fund manager or administrator in the BVI. Following is a synopsis of those requirements.
A “fit and proper” test is a regulatory benchmark for all professionals involved in the mutual funds business in the BVI. In direct words of the Policy Guidelines, “the purpose of the “fit and proper” standard is to ensure, as far as possible, that the dishonest, the incompetent and the inexperienced cannot easily take up positions of trust and responsibility to the detriment of investors in mutual funds.” All licensees must be able to demostrate that they are likely to act “with integrity, in a way which is truthful and fair, that is in the best interests of investors and which is consistent with best market practice in respect of the business of managing or administering mutual funds.”
Requirements to apply for a Mutual Fund / Fund Manager license in the BVI
The following is the listing of main information and documents required by the BVI Financial Services Commission from all applicants for a Mutual Fund license.
Every applicant for a Mutual Fund license will have to provide the following:
- Proposed names for the Fund and/or for the Fund Management company.
- Initial minimum size of the Fund at the commencement of operation.
- Personal information and documents for each principal / director /manager of the Fund and the Management Company:
- Good quality copy of valid passport.
- Personal resume (Curriculum Vitae), with emphasis on the professional experience.
- One bankers` reference.
- Two personal or professional references.
- Police clearance certificate (absence of criminal record).
- For each director, manager and controller of the fund: full business and professional background, including relevant experience, qualifications and any regulatory registrations, (for example SEC/SFA).
- Identification and description of the proposed professional connections of the fund:
- custodians
- bankers
- brokers
- administrators
- investment advisors
- auditors
- legal advisors
- A description of the primary characteristics of the proposed fund:
- Type of the Fund: public, private, professional?
- Category of the Fund: open-ended, close-ended?
- Limitations on advertising and marketing policy.
- Limitations on number of investors.
- Authorised share classifications.
- Minimum subscription.
- General rules for subscriptions and redemptions.
- Limitations on minimum amount of investments (“professional investors”).
- General description of who will be the prospective investors.
- Restrictions on the geographical origin of investors, if any.
- How shall investors be attracted, what services shall be offered?
- Where will the actual place and location of business management be situated?
- What managerial control procedures will be implemented?
- Proposed structure of management fees.
- A broad description of underlying investments (optional).
- Restrictions to invest in any particular instruments (if any).
- Proposed leverage.
- Investment objectives and benchmarks that the fund will follow.
- A broad description of the proposed investment strategies – for instance, convertible arbitrage, distressed securities, emerging markets, growth funds, macro funds, market neutral, market timing, merger arbitrage, multistrategies, opportunistic, sector funds, short selling, etc.
IN ADDITION to the above, every applicant for a Mutual Fund Managers` license will also have to provide the following:
- Resources statement. A description of the human resources and administrative facilities available to the applicant including details of the use of information technology. Also include details of any data security and back-up arrangements.
- Financial statements. If available, a copy of the applicant´s most recent audited accounts must be provided. If the Applicant is part of a group, the latest audited group accounts should also be provided.
- Business plan. This should include details of the following:
- Brief resume of the applicant`s or the group`s history. A group structure chart showing the name and jurisdiction of all subsidiaries and where it is proposed the applicant will appear in the group. Indicate any regulatory authorities to which any group companies report. Include a brief description of the major sources of income for the group.
- Business objectives of the applicant – include details of the types of services and products to be provided, the reason for establishing in the BVI, marketing strategy and marketing methods and markets to which services/products are to be offered.
- Management and staff structure of the applicant: including a structure chart and a description of the responsibilities of each director and manager and a description of managerial control procedures and segregation of functions.
- Projected financial position – a projected profit and loss account and balance sheet for the next two years, to be confirmed by the applicant`s auditor.
The information stated above is not exhaustive – it is customary that during the review of the licence applications, the BVI Financial Services Commission requests further clarifications or statements
Fidelity Corporate Services Ltd can provide a complete formation services package to establish a private, professional or public mutual fund in the BVI, or to register and license fund management company in the BVI. For more information on formation of BVI Mutual Funds and Fund Managers, please contact us.
How to Register?
Fidesta Ltd can provide a complete formation services package to establish a private, professional or public mutual fund in the BVI, or to register and license fund management company in the BVI. For more information on formation of BVI Mutual Funds and Fund Managers, please contact us.
