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British Virgin Islands

Leading funds jurisdiction. Tax neutral. Politically and economically stable.

British Virgin Islands jurisdiction as map pin on black

Why BVI?

Approximately one quarter of all offshore hedge funds established worldwide over the years have been domiciled in the BVI. Globally, the jurisdiction has built up this reputation over the course of many successful decades, based upon the essential building blocks of being tax-neutral, politically stable and economically secure.

Recognised and respected legal system

Its highly regarded legal system based on well-established and recognised English common law principles; its sophisticated yet user-friendly legislation, and its ability to keep up with and be fully compliant with all internationally recognised tax reporting and anti-money laundering standards.

A competent regulator and sophisticated Commercial Court

The BVI is committed to complying with the most rigorous international regulatory standards and boasts a sophisticated Commercial Court with a wealth of experience resolving complex matters and with ultimate recourse to the Privy Council of the United Kingdom.

Fast track approval

The flexibility and sophistication of the relevant legislation, means the jurisdiction it is becoming the home for more niche areas such as crypto-currency funds, hybrid funds and crowdfunding platforms.

Investment fund structures

There are a number of ways to structure your offshore fund and the best option for you will depend largely on the location of the manager, the geographical spread of your investor base and the type of underlying investments that the fund will make.

Offshore standalone structure

It would generally be geared towards non-US investors but it could also be structured so as to allow for US domiciled tax-exempt investors such as pension funds, charitable organisations and endowments who are looking to efficiently optimise around unrelated business taxable income.

An offshore standalone structure is where only one fund vehicle is used to allow for collective investment on behalf of all of the investors.

The very simple structure would traditionally look like this:

Standalone funds structure graph

This structure is predominantly used by managers who are not intending to initially allow for US taxable investors to participate in the fund.

Master-feeder structure

This structure is the most popular and the traditional route when you are seeking to blend a combination of US taxable and Non-US investors into the same fund structure.

In this scenario, we would create two new offshore vehicles, an offshore feeder and an offshore master, and we would work alongside your US counsel who would form a US feeder vehicle as well.

These structures can launch together at the same time or, where a US-based manager already has a standalone domestic fund, we can add the new offshore structures into the existing arrangement.

In this scenario, the existing US fund will contribute its assets into the offshore master upon the launch of the new structure. In turn, the offshore feeder will take in the US non-taxable investors and the non-US investors and “feed” them into the offshore master. The offshore master will then hold all of the existing investments and make any new investments on behalf of both feeder funds from this point forward, creating a collective investment offering in the most tax-efficient manner.

A typical master-feeder structure would look like this:

Master-feeder funds structure graph

The master-feeder structure enables the investment manager to operate a single trading entity and avoids the need to allocate trades between separate funds. It also avoids duplication of documentation with counterparties. In some cases, opportunities for leverage may be better than when operating a side-by-side structure.

Side-by-side structure

A side-by-side structure (often referred to as a parallel structure) is used where a single manager is seeking investment from both US investors and non-US or US tax exempt investors who require different tax treatment.

Two funds, an offshore and domestic US fund, are established and both are managed in exactly the same way, following the same underlying investment strategy as far as possible and with the same fee structure being charged to the investor base.

This structure is sometimes used for fund of funds strategies but less often for other trading strategies, given the administrative burden associated with either making two identical trades at the same time or splitting trade tickets between the two funds. Unlike the master-feeder structure where there is one performance result, each fund may have slightly different performance results as a consequence of having different fee levels.

The manager clearly needs to also consider any potential conflicts involved where the portfolios begin to look a little different.

While the popularity of these structures has weakened over the years, we have seen a resurgence recently due to the digital assets industry and a restriction that some of the target investments (whether that is through the execution of a SAFT or the establishment of an account on a centralised exchange, for example) place on having US taxable investors involved.

A typical side-by-side structure would look like this:

Side-by-Side funds structure graph

The main reason for choosing the side-by-side structure over the master-feeder structure is to enable tax structuring measures to be taken by one or the other of the funds which, if used in the master-feeder structure, would have negative consequences for the other group of investors.

Mini-master structure

The mini-master structure is popular with managers looking to trial the use of an offshore fund vehicle for a small number of investors, without having to undertake the full cost and restructuring administration of a full structure.

In a mini-master structure, a single offshore fund is established which is taxed as a corporation to benefit US tax-exempt investors and block UBTI for non-US investors.

The offshore fund invests directly into the existing US fund, which will then act as the master fund (while remaining the fund into which the US taxable investors will continue to invest).

A typical mini-master structure would look like this:

This structure provides an additional benefit of not requiring ownership of the assets of the domestic fund to be transferred. This reduces the administration around the restructuring and subsequently the cost as well. While there are some tax consequences to be discussed (and some investors may not want to invest, even indirectly, into a US vehicle), it has proved to be appealing to those looking to keep it as simple and cost-efficient as possible to begin with.

On occasions, you will see “reverse mini-masters” where the US vehicle invests into an offshore master fund instead. This is often where the offshore vehicle was the initial entity that was established or where it is not feasible for some or all of the underlying assets of the structure to be held by a US counterparty. This type of project will again require US tax advice to ensure that it doesn’t cause any adverse consequences for investors.

BVI legal entities

BVI Business Company

This is the most common structure and benefits from the flexibility of BVI corporate law. A BVI Business Company is a separate legal entity from the investing shareholders. The shareholders of a BVI Business Company have no direct legal or beneficial interest in any of the assets of the company which are instead legally and beneficially owned by the company itself. The BVI Business Companies Act provides a great deal of flexibility in terms of structuring funds. By way of example, there is no concept of “authorised capital” or “share capital” and therefore there is no longer a requirement for there to be any par value or capital attributed t ...

This is the most common structure and benefits from the flexibility of BVI corporate law.

A BVI Business Company is a separate legal entity from the investing shareholders. The shareholders of a BVI Business Company have no direct legal or beneficial interest in any of the assets of the company which are instead legally and beneficially owned by the company itself.

The BVI Business Companies Act provides a great deal of flexibility in terms of structuring funds. By way of example, there is no concept of “authorised capital” or “share capital” and therefore there is no longer a requirement for there to be any par value or capital attributed to shares. A company only has to state in its memorandum of association the maximum number of shares that it is authorised to issue. The directors may also designate different series of shares within each class without the need to amend the constitutional documents of the fund, giving a great deal more flexibility to funds wishing to use series accounting techniques to achieve equalisation of performance fee allocations among shareholders.

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Limited partnership

Although less commonly chosen, the limited partnership is sometimes preferred by clients who are familiar with funds structured as partnerships in their home jurisdiction, such as the US, and for those that are looking for a flow-through tax treatment. A limited partnership can elect whether to have a separate legal personality distinct from its partners so that it can enter into contractual arrangements directly, rather than through its general partner. But in either structure, the General Partner is ultimately liable for the debts and obligations relating to the limited partnership, and so is very commonly set-up as a limited liability com ...

Although less commonly chosen, the limited partnership is sometimes preferred by clients who are familiar with funds structured as partnerships in their home jurisdiction, such as the US, and for those that are looking for a flow-through tax treatment.

A limited partnership can elect whether to have a separate legal personality distinct from its partners so that it can enter into contractual arrangements directly, rather than through its general partner. But in either structure, the General Partner is ultimately liable for the debts and obligations relating to the limited partnership, and so is very commonly set-up as a limited liability company in either the BVI or another jurisdiction which will preserve and protect the interests of the owners. As a matter of BVI law, a limited partner is not liable for the debts and obligations of the limited partnership (save for the amount contributed/committed).

A limited partnership is formed by a general partner and at least one limited partner executing a limited partnership agreement (or adopting a model form agreement) and the registered agent submitting a registration statement and registered agent consent to act to the Registrar of Limited Partnerships. The partnership agreement forms the internal governing document of the partnership, dealing with issues such as partnership contributions and withdrawals and the day-to-day running of the partnership and does not have to be filed with the registrar.

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Unit trusts

In some very specific circumstances and for clients in certain jurisdictions, using a unit trust can be favourable. A unit trust arrangement is not a separate legal entity. The Trustee has legal capacity and holds the assets of the fund on the terms of the deed of trust for the investors in the unit trust scheme. Under BVI law, the holders of units in a unit trust scheme are the beneficial owners of the trust assets. If the trustee of a BVI unit trust is a company incorporated in or operating out of the BVI, then the trustee is likely to require a trust licence under the BVI Banks and Trust Companies Act, 1990, as well as having to apply for ...

In some very specific circumstances and for clients in certain jurisdictions, using a unit trust can be favourable.

A unit trust arrangement is not a separate legal entity. The Trustee has legal capacity and holds the assets of the fund on the terms of the deed of trust for the investors in the unit trust scheme. Under BVI law, the holders of units in a unit trust scheme are the beneficial owners of the trust assets.

If the trustee of a BVI unit trust is a company incorporated in or operating out of the BVI, then the trustee is likely to require a trust licence under the BVI Banks and Trust Companies Act, 1990, as well as having to apply for recognition of the unit trust as a fund under SIBA.

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Segregated portfolio companies

An exempted company may register as a segregated portfolio company, which is a single company limited by shares but offering statutory segregation of assets and liabilities between separate “portfolios” (SPC). It is similar to a segregated cell or protected cell company in many other jurisdictions. An SPC may establish any number of segregated portfolios. Assets and liabilities attributed to a particular segregated portfolio are legally separated from the assets and liabilities attributed to any other segregated portfolio. A creditor who is party to a contract involving a particular segregated portfolio will have restricted recourse and will ...

An exempted company may register as a segregated portfolio company, which is a single company limited by shares but offering statutory segregation of assets and liabilities between separate “portfolios” (SPC). It is similar to a segregated cell or protected cell company in many other jurisdictions.

An SPC may establish any number of segregated portfolios. Assets and liabilities attributed to a particular segregated portfolio are legally separated from the assets and liabilities attributed to any other segregated portfolio. A creditor who is party to a contract involving a particular segregated portfolio will have restricted recourse and will be entitled to recover only against assets attributed and credited to the specific segregated portfolio to which the contract is also attributed.

SPCs can be useful as multi-strategy vehicles and platform vehicles. Savings by using multi-strategy SPCs are often not as great as anticipated however, and SPCs with multiple segregated portfolios do require a greater degree of care to ensure assets are properly segregated, contracts are entered into on behalf of the correct segregated portfolio and inadvertent cross-collateralisation does not occur.

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BVI funds products

The BVI offers five open-ended fund products and one closed-ended fund product (albeit with three different categories), which makes the BVI a suitable home for everyone from the start-up manager looking to take the first step towards testing their investment strategy or running a small friends & family fund, all the way through to our fully established institutional fund managers with many billions under management and a long-term track record who look to capitalise on the widespread international recognition for the BVI structures. In addition, largely as a result of the jurisdiction’s market-leading limited partnership legislation (which takes the best aspects from multiple jurisdictions), the BVI is increasingly the domicile of choice for closed-ended vehicles (ie. those in the real-estate, private-equity and venture-capital spaces) too.

Finally, because of the flexibility and sophistication of the BVI’s Financial Services Commission (the FSC), the regulator of investment funds in the jurisdiction, the BVI is also the home for more niche areas such as crypto-currency funds, hybrid funds and crowd funding platforms.

Open-ended fund types

The BVI benefits from a diverse offering of open-ended fund products, each of which will have a separate appeal.

Open-ended funds are those in which investors have some form of right to redeem their fund interests within a certain period of time. But at all times subject to the relevant commercial terms which include redemption notices, gates, lock-up periods and suspensions.

Typically, open-ended funds will invest in more liquid assets which can be readily realised to fund redemptions (eg. listed, liquid, tradable securities), although the rise of hybrid funds in recent times is beginning to challenge this and an open-ended fund’s portfolio can have a healthy blend of liquidity as long as the key terms of the fund match the investment approach.

  • Cost-effective vehicle aimed squarely at emerging managers
  • Allows for a two-year incubation period (with an extension of up to 12 months)
  • Offers ability to establish a track record and test the strategy’s viability
  • Light regulation and no audit during incubation period
  • Cap of 20 ‘sophisticated private investors’
  • Net assets must not exceed US$20 million at any time
  • Does not require audited financial statements
  • No investment manager required (they can be self-managed)
  • No administrator required (the fund would still need to conduct suitable KYC/ AML checks on investors)
  • Used mainly by smaller managers and family offices looking to establish a fund with a private offering to a small group of investors on a longer-term and economical basis
  • Must appoint an administrator from the outset
  • Benefits from of the fast-track approval process
  • Cap of 20 investors
  • AUM threshold of US$100 million
  • Does not require audited financial statements
  • No investment manager required (they can be self-managed)
  • Professional funds are the most popular category of regulated funds in the BVI (approximately 70 per cent of all regulated funds in the jurisdiction)
  • No restriction on the number of investors that can be brought into the fund
  • No AUM threshold
  • Interests in a professional fund may only be issued to ‘professional investors’
  • Minimum initial investment by each professional investor must not be less than US$100,000 (or other currency equivalent)
  • An investor can be ‘exempted’, in which case there is no minimum initial investment
  • For quick launch, it may carry on its business, or manage and administer its affairs, for a period of up to 21 days without being recognised by the FSC
  • Possible to obtain an exemption from the requirement to audit financial statements
  • Possible to obtain an exemption from requirement to appoint a custodian
  • No requirement for local auditor sign-off
  • No minimum subscription threshold
  • No ‘professional’ or ‘sophistication’ tests for investors
  • Either no more than 50 investors at any one time or that fund interests are purely marketed on a private basis
  • Popular for friends and family offerings
  • Possible to obtain an exemption from the requirement to audit financial statements
  • Possible to obtain an exemption from requirement to appoint a custodian
  • No requirement for local auditor sign-off
  • A retail product
  • Higher regulatory burden than that of a private or professional fund
  • No BVI restrictions on the level of AUM, investment strategies nor the number of investors
  • Must publish a prospectus that complies with the Public Funds Code, approved by and signed on behalf of the fund’s directors if shares are offered to wider public
  • Full suite of service providers required
  • Service providers can be located in a jurisdiction that best suits the manager and the fund’s investors; no requirement for them to be based in the BVI

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3 hourglasses in black on a green background

Closed-ended funds

Closed-ended funds (where the investor is not able to redeem its interests on demand and are often subject to a fixed term with the potential for extensions), are commonly used for non-liquid assets requiring time to liquidate/realise value out of the underlying investments, most commonly used in the private equity, venture capital, real estate and infrastructure investment space.

  • Generally required to be regulated by the FSC pursuant to SIBA and the PIF Regulations, 2019
  • Certain entities, including but not limited to single investor funds, single asset funds, joint venture companies, and special purpose acquisition companies do not require regulation
  • Flexible, cost-effective and lightly-regulated fund product which provides great optionality to the industry
  • No AUM thresholds for PIFs, but interests in a PIF can be distributed on either a ‘private’ or a ‘professional’ basis, which basically provides three different categories:
    • PIFs that cannot have more than fifty investors;
    • PIFs that make an invitation to subscribe for or purchase fund interests on a private basis only; or
    • PIF interests that are only made available to “professional investors” and the minimum initial investment by each professional investor is not less than US$100,000 (or other currency equivalent).

A “professional investor” is 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, whether individually or jointly with his/her spouse, has a net worth in excess of US$1,000,000 (or other currency equivalent) which does include the primary residence.

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