British Virgin Islands: More than just IBCs

July 2001

The British Virgin Islands (BVI) is well known for its international business companies, with almost 500,000 having been incorporated since 1984, when the Territory launched itself into the international financial and legal arena. The success as an offshore corporate domicile has, in the past, somewhat over-shadowed other financial products offered by the BVI - such as trusts and mutual funds - where centres such as Bermuda, Cayman and Jersey have tended to steal the limelight. However the past 17 years has seen the BVI develop into a complete offshore financial centre, with much more to offer high net worth individuals and multi-national corporations than simply a corporate domicile.

As a common law jurisdiction, trusts enjoy legal recognition in the British Virgin Islands, forming an integral part of the financial products and services offered by the Territory. In addition, the enactment of innovative and modern trust legislation in the BVI has provided a clear framework of rules for trustees, settlors and beneficiaries, in relation to both technical and practical issues arising from the use of BVI trusts. The BVI courts have also tested and ruled on many provisions used in trust instruments governed by BVI law, creating consistency and certainty in the interpretation of BVI trust law and instruments Spurred on by the legal and legislative trust development, the BVI now has 73 licensed trust and management companies, who alongside the BVI legal and accounting professions, are well positioned to provide expert trust services and advice.

Many of those who can benefit from utilising an offshore trust structure (be it high net worth individuals or corporations) have not fully considered the distinct advantages that such a structure (be it in the BVI or elsewhere) may offer in tax mitigation and wealth preservation. One of the main reasons for this is a lack of knowledge and access to current, accurate information on establishing a trust in an offshore jurisdiction. There is also a belief among some onshore professional advisors, that the perceived disadvantages of transferring assets to an offshore jurisdiction, to be administered by a foreign trustee, far outweighs any potential advantages. However, in reality, the exact opposite is generally true. If a trust instrument is properly drafted, the jurisdiction carefully selected and a reliable, professional trustee appointed, the perceived disadvantages become inconsequential.

For most people, the obvious advantages of using an offshore trust are tax planning of one sort or another. However, while the origins of the trust may lie in the avoidance of feudal dues (i.e. tax mitigation), there are many other, possibly stronger, reasons for using trusts. One of the major advantages of a trust is confidentiality. While the legal ownership vests in the trustee (and this may appear on various public records) the beneficial ownership of the assets held by the trust and the varying rights of the beneficiaries will not be a matter of public record because there is no public register of trusts or beneficial interests. There are also ways of building flexibility into a trust structure allowing the trust to adapt as times and personal circumstances change. 

Three years after the introduction of legislation regulating mutual funds, the BVI is fast gaining recognition as one of the main offshore jurisdictions for the establishment of private and professional mutual funds and is also a popular location for mutual fund management and administration. The flexibility of the legislation, combined with low start up costs and the presence in the Territory of quality service providers, makes the BVI an attractive option when establishing a new fund.

In excess of 2,000 mutual funds are currently registered or recognised in the BVI, representing total assets estimated to be in excess of US$75bn. Such has been the development of mutual funds in the Territory that certain BVI mutual funds are now eligible for listing on the Dublin and Bermuda stock exchanges.

The BVI has become an especially attractive jurisdiction for the establishment of mutual funds (particularly hedge funds) which are aimed at private or professional investors. These funds benefit from a quick and straightforward recognition procedure, while professional funds may also utilise a fast track procedure that enables them to commence business immediately, provided they obtain recognition from the BVI Registrar of Mutual Funds within 14 days.

Although the BVI Mutual Funds Act provides for the licensing of mutual fund managers and administrators in the BVI (and there are some 400 licenced entities providing management and/or administration services in the BVI), BVI mutual funds do not have to be managed or administered from within the BVI. Regulated service providers in 17 jurisdictions around the world are now accepted to provide management and administrative services to BVI funds, allowing greater flexibility when appointing service providers. 

In addition - and unlike some other jurisdictions - the BVI does not require a non-BVI mutual fund to be regulated under the Act simply because it is managed or administered from within the BVI, provided that the management or administrative service provider is a BVI entity, licensed under the Mutual Funds Act.

For further information on BVI trusts or mutual funds please feel free to contact us.