The BVI is a very popular offshore jurisdiction with relatively mild requirements for the establishment and activities of mutual funds which are stated in the Mutual Funds Act 1996 and in the Securities and Investment Business Act 2010 (SIBA). The law of the BVI is based on English common law. The funds are controlled by the BVI Financial Services Commission (FSC).
Instead of licensing mutual funds must go through the procedure of recognition or registration. At the same time, all managers and administrators of mutual funds need a license to confirm their qualification. To get a license they need special education, work experience, recommendations, and some facilities and resources (money, equipment and premise).
To set up a fund its founders have to work in this field in their country, also the fund must be connected with investment company in founder’s country.
Forms of business organization
Limited partnership. Investor becomes a limited partner; the fund is ruled by a general partner.
BVI Business Company. Investor buys shares, the fund is ruled by the court of directors.
Unit Trust. Investor gets units, the fund is ruled by a trustee.
This type is most regulated by the government. It offers its shares to an unlimited number of investors. The registration form must contain information on all persons associated with the management of the fund: directors, managers, administrators, etc. The public fund prospectus sets out the rights of investors, information on the financial standing of the fund for the last financial year. The financial statement of a public fund must be audited annually. Public funds have no minimum investment criteria.
The minimum initial investment must be not less than 100 thousand dollars and the fund’s shares are available only to professional investors according to the Act definition.
Shares are available only to a small circle of private investors who meet certain criteria. A private fund may have no more than 50 investors or must be offered on a private basis only.
This option is designed for managers who wish to start an investment strategy on a trial basis (for up to 3 years). During that period, the fund can operate with light regulation, no mandatory service providers and without conducting an audit. If the strategy succeeds within the prescribed timescale, the fund can be recognised or approved as a private professional or approved fund, depending on the manager’s future plans. Otherwise, an incubator fund can be closed down or converted to an ordinary company.
An incubator fund may have no more than 20 “sophisticated private investors”. The minimum initial investment must be not less than 20 thousand dollars. The incubator fund’s net assets may not exceed 20 million dollars at any time.
This option is designed for managers who looking to establish a private offering to a small group of investors on a longer-term basis.
An incubator fund may have no more than 20 investors. The approved fund’s net assets may not exceed 100 million dollars at any time. There is no minimum initial investment required and the fund is not required to appoint an auditor, a manager or a custodian. The approved fund must have an administrator.
The fund’s working schemes
Open-ended funds – the investor has a right to pick up his investment, the fund is obliged to redeem its share (stocks, unit) at the current value of the net assets of the fund.
Close-ended funds – the investor only receives dividends; he can buy back his share only by agreement with the fund.
There is no corporate income tax (repealed in 2006), personal income tax (repealed in 2005), VAT and tax on dividends. Companies pay only an annual state fee for the maintenance of offshore, which does not depend on the size of profits, but only on the capital. There are no legal restrictions on the investment policy and strategy of the funds.
Accounting, auditing and financial reports
Since there is no income tax and VAT there is no need for filing annual financial statements and audit. The funds are required to keep financial records, which should reflect its financial standing, and store all related accounting documents. The BVI legislation establishes detailed requirements for the procedure of keeping and maintaining the corporate and financial documentation.