The amendments have expressly expanded key definitions to bring crypto assets into the fold. This means that many BVI and other offshore crypto funds will now find themselves classified as "Investment Entities" and, consequently, as Reporting Financial Institutions under the CRS. What does this mean for your fund? It means new registration, due diligence, and reporting obligations.

The expanded "Investment Entity" test

A BVI crypto fund will likely be classified as an "Investment Entity" if it meets one of two tests.

1. The business activity test: This applies if the fund's primary business activity involves investing, administering or managing "Relevant Crypto-Assets" on behalf of others (type (a). This captures most collective investment vehicles, such as hedge or crypto funds. "Primarily" generally means at least 50% of gross income is derived from these activities.
2. The gross income and management test: This applies if the fund's gross income is primarily from investing or trading in Relevant Crypto-Assets AND it is managed by another Financial Institution (like a licensed investment manager) (type (b)).

Given these broad criteria, a BVI crypto fund will almost certainly be classified as an Investment Entity.

Relevant crypto-assets are now "Financial Assets"

The core change is that the definition of "Financial Asset" under the CRS now explicitly includes any interest in a "Relevant Crypto-Asset". This removes previous ambiguity and firmly brings entities dealing primarily in crypto-assets under the same global tax transparency standards as those dealing in traditional finance.

BVI implementation and practical consequences

The BVI implements the CRS through its Mutual Legal Assistance (Tax Matters) Act. This requires all BVI Financial Institutions, including Investment Entities, to comply. There are no exemptions for crypto funds. The practical consequences for a BVI crypto fund classified as a Reporting Financial Institution are significant:

• CRS registration: The fund must register with the BVI's International Tax Authority (ITA) through the BVI FARS portal.
• Due diligence: It must implement procedures to identify the tax residency of all investors (Account Holders) and their "Controlling Persons," which involves collecting and validating self-certification forms.
• Annual reporting: The fund must report detailed information on its reportable investors to the ITA by 31 May each year. This includes investor details, account values, and gross proceeds.

Distinguishing CRS from CARF

It is crucial to differentiate the CRS from the new Crypto-Asset Reporting Framework (CARF). CARF targets entities that provide crypto exchange services "as a business," such as exchanges and brokers.

A BVI crypto fund that simply invests in digital assets is not providing these services. Therefore, it is highly unlikely to be a CARF reporting entity. In fact, Investment Entities under CRS are generally "Excluded Persons" for CARF purposes. The fund's obligations will fall under the enhanced CRS, not CARF.

The path forward

The CRS amendments leave little doubt: most BVI crypto funds are now Reporting Financial Institutions with mandatory compliance obligations. Fund managers must act to assess their status, register with the ITA, and implement robust systems for due diligence and annual reporting.

For further guidance and support, the Harneys team is here to provide the expert legal guidance needed to navigate these changes and ensure your fund remains fully compliant.