Jurisdictional comparison British Virgin Islands, Cayman Islands and Luxembourg Investment Funds

Regulatory authority

The BVI Financial Services Commissions (FSC).

The Cayman Islands Monetary Authority (CIMA).

The Financial Sector Supervisory Commission - the Commission de Surveillance du Secteur Financier (CSSF).

Type of vehicle

Company (BVI business company, segregated portfolio company, restricted purpose company), Unit Trust and Limited Partnership (with or without legal personality).

Company (exempted company, segregated portfolio company (SPC), limited liability company (LLC) and limited duration company), Unit Trust, Exempted Limited Partnership and Limited Liability Partnership.

Under the law of 10 August of 1915 on commercial companies:

Public limited company (SA - société anonyme), partnership limited by shares (SCA - société en commandite par actions), limited partnership (SCS - société en commandite simple), special limited partnership (S.C.Sp. - Société en Commandite Spéciale or SLP), limited liability company (Sarl - société à responsabilité limitée).

Additional options under the Fund Laws: common fund (FCP - fonds commun de placement), an investment company (SICAV - Société d’investissement à capital variable or SICAF - Société d’investissement à capital fixe).

The FCP is similar to a Unit Trust and has no legal personality.

The applicable Fund Law may restrict the type of entity to be used as the Fund vehicle.

Type of fund

Open-ended (approved, incubator, professional, private and public funds) or closed-ended (private investment funds (PIFS)).

Open-ended funds fall under the BVI Security and Investment Business Act, 2010 (as amended) (SIBA).

Closed-ended funds were brought under SIBA’s regulatory orbit in 2019. Generally, a closed-ended investment vehicle will not fall within the definition of a PIF (and will therefore not fall under SIBA) if it only holds a single investment or has a single investor.

Open-ended or closed-ended. Open-ended funds fall under the Mutual Funds Act (2021 Revision) (MFA). Closed-ended funds fall under the Private Funds Act (2021 Revision) (PFA).

Open-ended or closed-ended. The ability to redeem at the instance of the investor does not determine if the Fund is regulated or unregulated. UCITS^[1] must be open-ended.

Licensing/ registration requirements

Under SIBA, open-ended funds are subject to regulation by the FSC. These funds include incubator, approved, private, professional and public funds.

A prospectus is required for registration of a public fund and an offering document or term sheet is generally required for the recognition or approval of the other types of open-ended fund, however the fund may choose not to issue an offering document or a term sheet. In such cases they would have to provide an explanation as to how the relevant information concerning the fund will be provided to investors.

SIBA also requires PIFs to be regulated by the FSC. Again, an offering document or term sheet is generally required, however the fund may choose not to issue such document provided that it can explain how the relevant information concerning the fund will be provided to investors.

Open-ended funds (where the investors have a right to require the redemption of their interests) are required to be registered with CIMA under the MFA. Open-ended funds which have no more than 15 investors where those investors have the right by a majority vote to appoint and remove the directors may register as ‘limited investor funds’ and have a minimum initial subscription of US$100,000. Retail funds (where the minimum initial subscription is less than US$100,000) must either be licensed by CIMA or engage a licensed administrator to provide their principal place of business. Offering document/prospectus required on registration/licensing of funds.

Closed-ended funds (where the investors have no right to require the redemption of their interests) are also required to be registered with CIMA under the PFA as a ‘private fund’. A ‘private fund’ is required to file either an offering document/prospectus or a summary of terms on registration. There is no minimum investment amount in the PFA.

UCITS - a retail investment product regulated by the CSSF with detailed rules on organisational & management requirements, diversification, liquidity and use of leverage by such funds to ensure the highest level of investor protection.

AIFs^[2] - Part II funds^[3], SIFs^[4], SICARs^[5] , RAIFs^[6], ELTIF^[7], EuVECA^[8], EuSEF^[9] and other unregulated Luxembourg entities used to pool investors and qualifying as AIFs.

Non-AIFs - eg a regulated family fund set up as a SIF.

Regulated Funds are required to be approved by the CSSF and are subject to the CSSF’s on-going supervision. A number of documents and agreements are submitted to the CSSF as part of the approval process.

A RAIF is indirectly regulated through the obligation to appoint an authorised AIFM.

Registry

Annual fees are required but no annual filing. Limited information publicly available. An online government platform is available which allows for electronic filings.

Annual filing and fees required. Limited information publicly available.

Filings are dependant on the legal form and regulatory status of the entity. Information is publicly available depending on the legal form and regulatory status of the entity. An LPA^[10] is not publicly available.

Financial statements

Audited financial statements to be filed with FSC, except in the case of incubator and approved funds which do not require audited financial statements.

It may be possible to obtain an exemption from the requirement to audit financial statements for private and professional funds and PIFs.

No requirement for local auditor sign-off.

For funds registered under the MFA or PFA, audited financial statements are required to be filed with CIMA within 6 months of the end of each financial year of the fund and signed off by local auditor.

UCITS and Part II Funds: Semi-annual unaudited report and annual audited financial statements. A long-form report must be issued by the auditor with the annual report in accordance with CSSF Circular 02/81.

SIFs, RAIFs, SICARs, ELTIFs, EuVECA, and EuSEF: Annual audited financial statements.

Unregulated vehicles: depends on a number of factors eg number of employees, size and turnover or if an authorised AIFM is appointed.AIFM.

Minimum capital requirement

None.

None.

UCITS and Part II Funds: €1,250,000 within 6 months of authorisation. SIF: €1,250,000 within 12 months of authorisation.

SIF/RAIF: €1,250,000 within 12 months of incorporation/formation. SICAR: €1,000,000 within 12 months of authorisation.

Directors

No residential qualifications necessary. Corporate directors acceptable.

The FSC requires a minimum of two directors for mutual funds and PIFs, one of which must be an individual.

However, only an individual can be appointed as a director of a public fund.

No residential qualifications necessary. Corporate directors acceptable. CIMA require a minimum of two directors for registered funds. The Directors Registration and Licensing Act 2014 (revised) (DRLA) requires that each director of a fund registered with CIMA under the MFA (but not, at this stage, the PFA) is either registered or licensed in accordance with the DRLL. An annual fee is required to be paid by each registered or licensed director to CIMA.

A director is deemed to include a manager of an LLC pursuant to the Limited Liability Companies Act (2022 Revision).

No residential qualifications prescribed under the relevant Fund Law. CSSF’s administrative practice is to require at least one resident director. CSSF Circular 18/698 is of assistance in determining board composition. See also ALFI’s Code of Conduct, which provides a framework of high-level principles and best practice recommendations for the governance of Luxembourg Funds. Directors must have sufficient time, experience and be of good repute in relation to the type of Fund.

Shareholder meetings

No requirement for annual meetings.

No requirement for annual meetings.

Depends on the legal form, if regulated or unregulated. Generally, an annual meeting is required.

Investment manager

Not required to be BVI resident or domiciled investment managers.

BVI resident or domiciled managers require licensing or approval by the FSC.

Required for public, private and professional funds.

Incubator and approved funds are not required to appoint an investment manager.

PIFs are required to have an appointed person responsible for management of the fund’s assets. This does not have to be a third-party investment manager.

Not required to be Cayman Islands resident or domiciled.

Cayman Islands resident or domiciled investment manager entities are required to register or be lincensed under the Securities Investment Business Act (2020 Revision) (SIBA). Annual registration and filings are required together with the payment of applicable fees.

Investment manager entities registered under SIBA may also be subject to economic substance requirements in the Cayman Islands which would require a physical presence in the Cayman Islands.

Not required to be a Luxembourg resident entity.

UCITS must appoint a UCITS Management Company. RAIF/ELTIF must appoint an Authorised AIFM. For other AIFs wishing to use the AIFMD pre-marketing and marketing passport, an Authorised AIFM must be appointed. Detailed rules on delegation of portfolio management services are applicable.

The Registered AIFM^[11] regime is also available (partial exemption under the AIFMD).

Luxembourg UCITS Management Companies and Authorised AIFMs are subject to CSSF authorisation and on-going supervision, detailed capital, operational and conduct of business rules, among other rules, are applicable.

A management company of a FCP is also required to be regulated by the CSSF.

Luxembourg entities providing MiFID services are required to be approved by the finance minister under the Financial Sector Law.^[12]

Investment restrictions

None required.

None.

UCITS: Detailed rules on eligible assets, risks diversification, counterparty risk and concentration limits. Part II Funds, SIFs, RAIFs (not investing in risk capital), unrestricted eligible assets, there are risk diversification requirements, look through for SPVs; ramp-up periods may be permitted by the CSSF on a case by case basis. SICARs and RAIFs (investing in risk capital), no diversification requirement but eligible assets (risk capital) applicable.

ELTIF, EuVECA, EuSEF eligible asset and additional requirements.

Constitutional documents

Memorandum and articles of association may be amended by a resolution of directors or by a resolution of voting shareholders.

Partnership agreements may be amended by resolutions of the General Partner. Trust deeds for unit trusts can be amended in accordance with their terms.

Memorandum and articles of association for companies other than LLCs can be amended by shareholders only.

LLC agreements for LLCs, Partnership agreements for exempted limited partnerships and Trust deeds for unit trusts, can be amended in accordance with their terms.

SA and SCA - Articles of association (amended by shareholders holding 2/3 of the share capital at an extraordinary general meeting before a Luxembourg notary at which at least 50% of the share capital is represented).

Management Regulations and Partnership Agreement can be amended in accordance with their terms.

Sarl - Articles of association (amended by shareholders holding 75% of the share capital at an extraordinary general meeting before a Luxembourg notary).

Transfer of shares

Unrestricted save as provided in the constitutional documents.

Unrestricted save as provided in the constitutional documents and eligibility requirements of investors under the MFA or PFA (as applicable).

Unrestricted save as provided in the constitutional documents and eligibility requirements of investors under the relevant Fund Law, other than a Sarl which is a private company restricted to 100 shareholders. Shares in a Sarl are not transferable to non-members unless shareholders representing at least 75% (can be reduced to 50%) of the shares have approved the transfer in a general meeting. Shares between members are freely transferable.

Beneficial ownership register

The BVI government has committed to work towards introducing a publicly accessible register of beneficial ownership for companies by 2023. It is unclear at this stage whether funds will be captured by the relevant legislation. At present, all funds registered with the FSC are exempt from reporting under the Beneficial Ownership Secure Search System Act, 2017.

Funds registered with CIMA under the MFA and the PFA are currently out of scope under the beneficial ownership regime and not required to maintain and file beneficial ownership registers.

The Fund may, however, be required from time to time to provide, on request, certain particulars to other Cayman Islands entities which are within the scope of the beneficial ownership regime and which are therefore required to maintain beneficial ownership registers under the beneficial ownership regime.

Yes, the Fund is required to maintain a register of beneficial owners and publish this on the Luxembourg trade register (Registre de Commerce et des Sociétés  – RCS).

Data protection

The Data Protection Act, 2021 introduced a data protection regime to BVI. Certain personal information will be considered personal data under the legislation. Funds, fund managers and fund functionaries are likely to be captured under the legislation as either data processors or data controllers.

The Cayman Islands Data Protection Act (2021 Revision) (DP Act) is similar to the General Data Protection Regulation (GDPR) and certain personal information will be considered personal data under the DP Act.

Yes, Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (GDPR) and any national data protection law.

AML officer

Funds are required to appoint a Money Laundering Reporting Officer, and notification of such individuals must be provided to the FSC.

A Money Laundering Reporting Officer, a Deputy Money Laundering Reporting Officer and an Anti-Money Laundering Compliance Officer are required to be appointed.

Yes (responsible for compliance (RR) and compliance officer (RC)). Articles 40 to 43 of CSSF Regulation N° 12-02 and CSSF FAQS^[13] set out further details regarding the skills and duties of the RR and RC.

RAIFs are not subject to CSSF supervision, however, the Luxembourg indirect tax authorities (the ITA) has published the FAQ “Persons involved in AML / CFT for RAIF supervised by the ITA for AML / CFT purposes”. The FAQ clarifies that RAIFs are also legally required to appoint an RR and RC.

ESG disclosures

Not yet required.

Not yet required.

Yes required for AIFMs and UCITS manager to be performed pursuant to the SFDR^[14] (i.e.  Level 1 regulation: pre-contractual and corporate disclosures)

Registered AIFMs are also within scope.

Currency

Multi-currency funds permitted.

Multi-currency funds permitted.

Multi-currency funds permitted.

Administrator

Not required to be BVI resident or domiciled administrator.

BVI resident or domiciled administrators require licensing or approval by the FSC.

Required for public, private, approved and professional funds.

Incubator funds are not required to appoint an administrator.

PIFs are required to have an appointed person responsible for valuation of the fund’s assets. This does not have to be a third-party administrator.

No requirement for local administrator although any person administrator conducting the anti-money laundering due diligence on behalf of the fund should apply Cayman Islands AML standards. Cayman Islands resident or domiciled administrators require licensing under the MFA.

Regulated funds & RAIFs are required to appoint a Luxembourg central administrative agent established in Luxembourg and regulated by the CSSF.

Custodian

With the exception of approved and incubator funds, BVI mutual funds are required to appoint a custodian, but an exemption from having to do so can be sought from the FSC.

PIFs are required to have an appointed person responsible for safekeeping of fund property. This does not have to be a third-party custodian.

No custodian requirements for open-ended funds registered under the MFA.

For closed-ended funds registered under the PFA, there is a requirement to either (i) appoint a custodian (authorised in an approved jurisdiction to provide custody services) or (ii) where it is not practical or proportionate to appoint a custodian, ensure that an independent third party, independent administrator, or the manager or operator of the private fund is engaged to verify title to, and maintain records of, the fund’s assets, subject to appropriate operational independence and disclosure of the potential conflicts of interest to investors.

Whether a custodian (safekeeping of the assets) or a depositary (safekeeping with strict liability in certain circumstances, cash monitoring and oversight duties) must be appointed, depending whether the fund is a UCITS or an AIF (regulated or unregulated) with an Authorised AIFM/sub-threshold AIFM or a non-AIF regulated by a Fund Law, as applicable.

The custodian or depositary must be a Luxembourg entity, holding a particular licence.

Investment advisor

Not required to be BVI resident or domiciled investment adviser.

BVI resident or domiciled investment advisers require licensing or approval by the FSC.

Not required to be Cayman Islands resident or domiciled.

Cayman Islands resident or domiciled investment advisers may require registration or licensing under SIBA. If applicable exemptions apply, a simple annual registration and filing would then be required.

Luxembourg resident or domiciled investment advisers; required to be approved by the finance minister under the Financial Sector Law if providing advice in respect of financial instruments. There are limited exemptions.

Set up time

Start to finish indicative timing: 4-6 weeks.

Approval time frame for recognition of private and professional funds is 1 week, for approval of incubator and approved funds is 1 week, for approval of PIFS is 1 week, and for registration of public funds is 4-6 weeks.

Start to finish indicative timing for CIMA registration: 4-8 weeks for Licensed Mutual Funds. 2-4 weeks for Administered Funds, Mutual Funds, Registered Mutual Funds and Exempt Mutual Funds, in each case under the MFA.

Start to finish indicative timing for CIMA registration under the PFA: 4-8 weeks for Registered Private Funds.

Regulated funds require CSSF prior approval.^[15] Approval time-frames vary depending on the type of fund, underlying assets, target investors and quality of the service providers and directors. UCITS: 4-6 months, other regulated AIFs: 2-4 months.

Unregulated funds, including RAIFs, are not subject to CSSF approval and are therefore quick to market.

Taxation

Mutual funds, PIFs and any investors who are not persons resident in the BVI are exempt from all forms of taxation in the BVI.

No income, capital gains or corporation tax and government undertaking that no such taxation, if introduced, will be levied on the income or property of the fund for a maximum of 30 years for companies (although typically it will be 20 years) and 50 years for unit trusts, LLCs and exempted limited partnership.

Unregulated Funds (other than RAIFs) in corporate form are required to withhold tax on dividends paid, are subject to corporate income tax, municipal business tax and net wealth tax. This can be reduced under certain EU directives; the Luxembourg participation regime and Luxembourg double tax treaties (DTA).

UCITS, Part II Funds, SIFs and RAIFs (not investing in risk capital) are exempt from corporate income tax, dividend withholding tax, municipal business tax, net wealth tax and subject to a subscription tax (taxe d'abonnement) of 0.05% of their net asset value per annum, for SIFs and RAIFs (not investing in risk capital), 0.01% of their net asset value per annum. This can be reduced in certain circumstances and is payable quarterly in arrears.

A SICAR or a SICAR like RAIF in corporate form is subject to corporate income tax, but the return derived from securities is exempt. Exempt from net wealth tax. No annual subscription tax.

Funds in corporate form may benefit from a number of Luxembourg DTAs.

There are VAT implications but exemptions may apply.

A levy is applicable to certain Luxembourg Funds investing in Luxembourg real estate.

Segregated portfolio companies

Permitted under the BVI Business Companies Act, 2004 (as amended) and SPC Regulations.

Permitted under the Companies Act (2022 Revision).

Permitted under the relevant Fund Law. Not available to unregulated Funds.

Cross sub-fund investing

Not permitted.

Regulated Funds and RAIFs can cross invest subject to certain conditions.

Name reservation

Available at no charge for a period of 10 days if the name contains no restricted words or phrases. Available for a fee of $200 for a period of 90 days if the name contains a restricted word, such as the word “fund”.

Available for a weekly fee of US$49, monthly fee of US$74, two months of US$98 and three months of US$147.

Submitted online to the Luxembourg Business Registers (LBR) for a fee of less than €10, through the local service provider or lawyer. The certificate of availability can be downloaded for a period of 20 days from processing the request by the LBR.

Pre-marketing possible

Yes, but subject to conditions. In relation to open-ended funds, subscriptions cannot be accepted until the fund has been registered with CIMA under the MFA. In relation to closed-ended funds, the application for registration under the PFA must be submitted to CIMA within 21 days of receiving an investment commitment. However, contributions may not be received by the fund from investors until the registration has been approved by CIMA.

Rules on pre-marketing passport are not applicable to UCITS.

Subject to the conditions of the AIFMD and CBFD Directive^[16].Only authorised EU AIFM may engage in “pre-marketing” in EEA Member State. In respect of Non-EU AIFMs each jurisdictions rules should be consulted. In Luxembourg Non-EU AIFMs are required to notify the CSSF of pre-marketing to Luxembourg Professional Investors.

There are rules, which determine the content of the marketing and pre-marketing material.

In respect of EU retail investors a PRIIPS KID (summary sheet in prescribed format) is required.

Transactional provisions for UCITS extended to 2023 to use a KID.