The British Virgin Islands is the world’s second-largest jurisdiction for regulated investment funds. The reason for the appeal of BVI funds is due to a number of different factors.
BVIs legal system is sophisticated and has its roots in English Law. It offers zero tax in its tax neutral environment, and it enjoys a stable economy and political environment. Furthermore, regulators are both welcoming to investors and committed to remaining fully compliant with international financial best practices and regulations. The BVI is becoming an increasingly popular place for a number of different businesses including cryptocurrency.
But back to funds. With both incubator and approved funds, there are few restrictions on investment strategies or policies, and you’re not required to appoint a local director, functionary, or auditor. These funds are fast and straight forward and the set-up and ongoing costs are lower than other jurisdictions.
Types of BVI funds
There are five types of funds available in the BVI: professional funds, private funds, public funds, incubator funds, and approved funds. The first three must be registered with the authorities and regulated by SIBA. Incubator and approved funds were created in June 2015 and are supervised by the Securities and Investment Business Regulations 2015. For the purpose of this article, we will be focussing on incubator and approved funds.
The purpose of an incubator fund is to give managers a fast and cheap fund set up. It is also used to give them an investment strategy track record. If the strategy is successful in two years, the incubator fund can be converted into an approved fund, private or professional fund. If the fund isn’t successful after two years, the manager can dissolve it or convert it to a regular company. The manager may also apply for a one-year extension but must indicate whether they’ll convert it into another kind of fund at the end of the extended term.
In terms of restrictions, only sophisticated private investors who have capital of no less than $20,000 can invest in the incubator fund. The number of investors is limited to 20 and the net assets must not exceed $20 million.
Approved funds are similar in the way that they are set up and organized. They may hold net assets of up to $100 million, divided between a maximum of 20 investors.
Structuring BVI funds
The most popular way of structuring a fund is by incorporating a local company. These companies are authorized to issue shares that can be redeemed, subject to authorization. The maximum number of shares and the type, class, rights, privileges, and restrictions relating to them must be specified in the company’s Memorandum of Association.
Setting up a BVI fund
First, you need to incorporate a BVI company. The MoA must be filed with the Registrar of Corporate Affairs. All details relating to directors, shareholders, and other functionaries must be presented at the same time. Once incorporated, an application and fee for the fund must be submitted to the Financial Services Commission for approval. It should include the constitutional documents of the fund, details of the fund strategy, and a written warning to investors. It generally takes around two days to receive authorization to proceed with the operation of the fund. Both fund types are required to submit annual financial statements and semi-annual returns to the BVI authorities.