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BVI
BRITISH VIRGIN ISLANDS

 

OFFSHORE MUTUAL FUNDS
GENERAL INFORMATION AND PROCEDURE

 

 

BVI OFFSHORE MUTUAL FUNDS
British Virgin Islands is the global leader in registration of offshore mutual funds. More than 3000 mutual funds are currently registered in the BVI, with the total of over 100 billion US dollars under management. The popularity of the BVI as the prime location for offshore mutual funds grows by the day, as investment professionals increasingly recognize the benefits of this tax haven jurisdiction. Fidelity Corporate Services Ltd can provide a comprehensive incorporation and licensing services package to establish a private, professional or public mutual fund in the BVI, or to register a fund management company in the BVI.


 

Advantages of BVI mutual funds
There are two groups of reasons in favour of the registration of an offshore mutual fund in the BVI:

- general benefits of creating an investment fund in an offshore financial centre (tax haven);
- advantages of the British Virgin Islands as a suitable location for an offshore mutual fund.

The main general benefits of establishing a mutual fund in an offshore financial centre are:

(a) Minimum or zero tax on capital gains, incomes, profits and dividends that accrue to the Fund. This would usually allow the Fund to outperform its peers domiciled in a high-tax jurisdiction, if only by the reason that the monies, which would otherwise be paid as tax, can in the case of an offshore mutual fund be further reinvested in the assets held by the Fund. While an offshore investment fund would typically operate in a tax-free environment and would therefore be able to grow faster, the individual investors should nevertheless remain aware of the fact that at the time when their investments are redeemed or when dividends are received from the offshore fund, such personal income may be subject to tax in their domicile country, at receipt. To this extent, qualified tax advice should be sought by the investor.

(b) Minimum or zero tax on fees, commission income and profits earned by the Fund Managers, Advisors and Administrators, registered and regulated in an offshore financial centre. Again, this may provide a competitive advantage to these professionals, for instance, by giving them an opportunity to charge lesser fees and commissions than do their competitors, who happen to be located in high-tax jurisdictions.

(c) Greater operational flexibility, in terms of both the choice and structuring of the investment portfolio, and in relation to the internal structuring of the Fund itself. This largely owes to the fact that less "red tape" and formal regulation is generally allowed by mutual fund legislation in offshore financial centres, as compared to creation of mutual investment vehicles in most high-tax countries. Offshore investment funds have access to the widest possible variety of investment instruments and may often pursue more aggressive investment strategies than if they were registered in a "traditional" jurisdiction.

(d) The same relatively lower level of regulation allows for a faster and easier establishment process of an offshore investment fund. Subsequent running and administration costs are typically lower, too. Series of offshore investment funds designed under the same pattern and having the same recognized managers and administrators, may be created extremely quickly and with minimum cost. As a result, an offshore investment fund can be offered to potential investors at more attractive financial terms. It is also quite common for an offshore investment fund to outsource some or all of its support functions to outside providers, either in the same jurisdiction or abroad. Thus, the fund administration, management, investment advisory and shareholder relations may be subcontracted to established service providers elsewhere. The recognition process of such outside providers for the purposes of licensing of the particular offshore investment fund is usually quite straightforward. Again, such flexibility and variety of choices quite simply ensures a more efficient and profitable running of the fund.

The particular advantages of the British Virgin Islands as a domicile for offshore mutual funds are:
(a) BVI is a well-regulated jurisdiction with a long and proven track record. It is a widely preferred and recognized choice for offshore corporate domicile, with almost 700`000 IBC’s and Business Companies registered since the introduction of the offshore financial sector in 1984.

(b) Being a British Dependent Territory, BVI has an outstanding political and social stability, a complete legal predictability and a robust economy, featuring modern telecommunications infrastructure and a culture of professional work ethics in the financial services industry.

(c) US dollar is the official currency in the BVI and there are no exchange controls or restrictions on financial transfers.

(d) A BVI mutual fund is subject to zero taxation on its profits and capital gains. The same is true for any other BVI-registered business, as under the new corporate legislation there is no more legal distinction between domestic and offshore entities. This lack of "ring-fencing" helps to avoid potential discrimination of BVI-registered entities in their dealings abroad.

(e) A BVI mutual fund can be registered in the widest possible variety of organizational forms - as a Business Company, a Partnership, a Unit Trust or "other similar body". Recognition under the BVI Mutual Funds Act can be obtained for funds already registered in another jurisdiction, as well as for fund managers, administrators and other professionals operating from another jurisdiction. Umbrella funds and funds of funds are recognized under the BVI mutual funds legislation.

(f) A BVI mutual fund can also be specifically registered as a Segregated Portfolio Company under the BVI Business Companies Act 2004. Registration under this chapter permits effective differentiation and management of several distinct investment portfolios or asset classes within the organizational boundaries of one mutual fund.

(g) There are no minimum capital requirements for a BVI mutual fund, neither there are any restrictions as to the type, denomination, number, classes and designation of rights of shares that can be created. Multiple classes of shares may be issued to distinguish between different classes of assets, investors or even currencies. The authorized share capital would typically consist of common voting shares and non-voting preference shares, however different and more complicated layouts are certainly possible. Shares can be denominated in any currency, or in multiple currencies.

(h) There are no statutory limitations as regards the investment policies, investment instruments and borrowing powers of a BVI mutual fund, as such conditions are only prescribed by internal documents (Memorandum and Articles of Association, Prospectus, Placement Memorandum, Offering Circular, etc) of the fund itself, which are determined by the promoters and managers of the fund.

(i) In terms of actual establishment and running of an offshore investment fund, BVI provides better cost-efficiency and value for money than its principal competitors.

(j) A pool of experienced, licensed professionals is readily available in the BVI for all back-office support functions of the fund. At the same time the mutual funds legislation allows outsourcing of any of such functions to foreign providers and establishes a fast and straightforward procedure for recognition of such providers.

(k) The regulation of the offshore financial sector is carried out by the BVI Financial Services Commission under a well-designed and modern suite of laws, enabling an adequate protection of investors’ interests and the support of jurisdictions? Good reputation. Both the formal letter of the law and the actual regulatory practices are designed to ensure that only fit and proper persons are involved in any aspect of mutual fund operations in the BVI.

(l) The BVI Mutual Funds Act 1996, which is the primary source of mutual funds legislation in the jurisdiction, together with sub-regulations issued by the Financial Services Commission, provides for a flexible, modern and attractive legal basis for establishment of offshore mutual funds in BVI. The review of the particular features and benefits of this legislation is provided further in this chapter.

MUTUAL FUNDS – GENERAL OVERVIEW

What is a Mutual Fund, Pooled Fund or Open Ended Investment Trust?
Most American investors are very familiar with mutual funds, but for those that are not, here is a brief explanation. A mutual fund is basically a type of investment vehicle that allows individual investors with a like minded interest to pool their money and have the benefit of professional money management. The professional manager has the responsibility of selecting stocks, bonds or other investments that are consistent with the fund’s goal or objectives. As an example, investors participating in the GT Global Healthcare Fund are doing so because they want to own a portfolio of stocks involved in the healthcare industry. In reality, they are a part owner (along with the other fund investors) of a very large investment portfolio. The portfolio may be a collection of 50 companies worldwide that are involved in the healthcare industry. To duplicate such a portfolio themselves, investors would need to commit a great deal of time and capital. But, with an investment of only Euros 35,000 in the fund, the investor has the benefits of instant diversification and the knowledge that a professional advisor is managing the portfolio for them. Naturally, the fund manager receives a salary from the mutual fund firm and may also receive a bonus that is directly related to how well he or she manages the portfolio for the investors. All mutual fund companies charge a management fee for the services they are providing. Even so-called no load companies are getting their money from somewhere.

The equivalent British term to the American “mutual fund” is “pooled fund” or “open investment trust”. In reality, the open-ended trusts that can be seen listed in the London Financial Times are the same type of investment vehicles as the American “mutual fund”. To be sure, there are many more terms and detailed explanations that go along with this. The purpose here is for the reader to have a basic understanding of a mutual fund type of investment. I also want you to be aware that there are a number of investments in Europe that have a different name, but in essence work the same way as something you are very familiar with.

Why are Offshore Mutual Funds Tax-Free?
Well, the explanation for this is quite simple. Just like some jurisdictions permit interest from bank accounts to be tax exempt, the same is true for mutual funds. Some of the more popular offshore mutual fund jurisdictions, such as the Cayman Islands, Bahamas, Bermuda, Channel Islands or the Isle of Man permit mutual funds to be exempt from local taxation as long as the investors are not residents of these locations. Mutual fund companies use this to their advantage. All of the well-known American mutual fund companies mentioned earlier have their funds registered and based in one of these locations. As an example, The Fidelity Investments Offshore North America Fund might be the very same fund as the popular Magellan Fund or Puritan Fund. The only difference is that the fund is domiciled and is operated offshore. As a result, there is no tax on capital gains or dividends for the shareholder.

Why haven’t I heard about this type of investment before?
Three reasons: fear, aggravation and the S.E.C or Securities and Exchange Commission. The US Securities and Exchange Commission prohibits offshore or non-US registered funds from soliciting US investors. In theory, this is to protect US investors from unscrupulous and unregulated offshore fund companies and in my opinion is a valid regulation. The regulations and requirements in some jurisdictions regarding offshore fund companies range from a highly regulated environment to none at all. Investors therefore must investigate a fund company thoroughly and do their homework. There are some excellent companies operating offshore, such as Global Asset Management, Baring Asset management, Invesco-GT Global, Fidelity Investments, and then there are some crooks. You must certainly separate the good from the bad.

In all honesty, there are also a number of very good trust or fund companies from Europe that simply do not want to be bothered with all of the paperwork and filing requirements of the S.E.C, just so they can market their funds in the US. Part of this also has to do with taxes. Many European funds operate on what is known as a roll-up basis. This means that capital gains and dividends are automatically reinvested back into the fund, pushing up the share price in the process. No distributions are actually made as with the US funds. These type of funds are actually tax deferred because, the investor does not have a tax consequence until they redeem their fund shares five years later, ten years later or whenever. You can be sure that the IRS does not like this arrangement and the European fund companies are not about to change the way they operate just to please the IRS. If you currently own shares in a US mutual fund, even if you request automatic re-investment of your capital gains and dividends, you know that your annual capital gains are reported and that you must pay tax on it. This is regardless of whether or not the actual share price of the fund has changed or whether or not you physically received a check from the fund. This has got to be one of the greatest tax scams in history and the IRS loves it. You are actually paying tax twice on your US mutual fund investment. Once every year that you own the fund and of course again when you redeem your shares.

The other reason that you may not have heard about these offshore funds is fear. Even though offshore funds cannot solicit US investors directly, US investors are certainly permitted to solicit them. Meaning, it is perfectly legal for you to own shares in any of the funds offered from Luxembourg, Isle of Man, Cayman Islands, Honk Kong and elsewhere. However, recent hassles or scare tactics regarding tax reporting issues and money laundering efforts have made many offshore fund companies refuse to accept American clients. This is especially true with the investment companies located in Europe. Most of these companies are tired of being harassed by the IRS or the SEC to cooperate with tax reporting or to turn over investor lists. If it is not a requirement in their own country, why should they do it just because 3% of their clients are American? It is unfortunate, but this is how the US government agencies have gotten around the constitution. It is far easier, and technically legal, to put the fear of God into a foreign company, so much so, that they will not take American clientele. Remember what I mentioned previously.

It is perfectly legal for a US citizen to own shares in a foreign or offshore mutual fund, annuity or to have an offshore bank account. The problem today is finding a company that is not afraid of the IRS or the SEC and that will take an individual US citizen as a client. I do know of a few companies in Europe that will do it, but they are the exception to the rule.

How Can Investors participate in an Offshore Mutual Fund?
There are two problems that both can be addressed by using the Offshore Trust, Foundation or Company structure. One problem is something already discussed. That is the refusal of many offshore fund companies to take US citizens or residents as clients. While many firms have a fear about this, for the reasons discussed, they have absolutely no problem with a Trust or Non-US company as the shareholder or beneficial owner of the fund. So, while the US citizen is shunned, a Panamanian Corporation or Trust from the Bahamas is welcome with open arms as a shareholder.

The second problem US investors have is taxes. Even if you find an offshore mutual fund that will take you as a client, and while it is perfectly legal under US law for you to own such an investment, you still are required to pay tax to the US government. This is true regardless of the fact that there is no tax liability in the jurisdiction where the fund is domiciled or if the fund is a SICAV or “roll-up” type fund that does not make annual distributions. The answer again is to own such an investment through a properly arranged offshore entity.

When you factor in the tax savings, asset protection benefits and availability of some excellent investment opportunities; Offshore Mutual Funds, SICAV Funds, and Unit Trusts from the BVI are extremely appealing and offer the possibility of returns not found in the North American market.

Types of offshore investment funds as recognized by the BVI Mutual Funds Act
The BVI Mutual Funds Act 1996 (as substantially amended in 1997 and 2004) sets forth the regulatory environment for operation of mutual funds in British Virgin Islands. There are also several additional Regulations issued by the BVI Executive Council on the subject of mutual funds regulation, and a range of Policy Guidelines issued by the BVI Registrar of Mutual Funds (being part of the Financial Services Commission) and dealing with the finer points of the practical application of the Mutual Funds Act.

The BVI Mutual Funds Act deals primarily with three main areas - registration of Public Funds, recognition of Private and Professional Funds, and the licensing of Fund Managers and Administrators.

In BVI, mutual funds may be formed or recognized in a variety of organizational forms. A mutual fund can be a company (a BVI Business Company or a foreign corporation), a partnership (Limited or Unlimited Partnership), a unit trust or "other similar body" formed or organised either in the BVI or in another country.

The BVI Mutual Funds Act defines a mutual fund as an organization (in one of the abovementioned forms), which collects and pools investor funds for the purpose of collective investment, and issues shares that entitle the holder to receive on demand or within a specified period after demand an amount computed by reference to the value of a proportionate interest in the whole or in a part of the net assets of the fund.

There are three main types of funds, distinguished by the BVI Mutual Funds Act:

- Public Funds
- Private Funds
- Professional Funds

PUBLIC FUNDS
While the BVI Mutual Funds Act defines a public fund broadly as any "mutual fund which is not a private fund or a professional fund", a public fund is simply one that offers its investment shares to general public. This is the type of fund that attracts the highest degree of regulation.

Public Funds must be registered (or obtain consent to registration under a pre-filing procedure) before engaging in any business activity in or from within the BVI. A Public Fund must publish a prospectus including the information required by the Act and must also produce and distribute audited annual financial statements. The Registration Application includes details of all directors, managers, administrators and other persons closely involved in the management of the fund. There are very stringent "fit and proper" requirements to be met in regards all individuals involved with the promotion and management of a fund.

The Mutual Funds Act requires that a prospectus for a public mutual fund shall provide "full and accurate disclosure of all such information as investors would reasonably require and expect to find for the purpose of making an informed investment decision". The prospectus is also required to contain a summary statement of investors´ rights. Namely, investors in a public BVI fund have the right to claim for rescission of their purchase, or for recovery of damages in the event of any misrepresentation in the prospectus of the fund. However, such claim must be raised within 180 days after becoming aware of the misrepresentation or within 1 year after the shares were purchased, whichever is earlier. The amount recoverable under such claim may not, however, exceed the amount at which the shares were purchased, including any fees or other charges paid at such purchase by the investor.

The prospectus must also be accompanied by (or contain reference to the availability of) financial statements for the last financial year of the fund and the auditor’s report.

PRIVATE AND PROFESSIONAL FUNDS
The BVI Mutual Funds Act defines a Private Fund as a mutual fund which by its constitutional documents has restricted the maximum number of its investors to fifty, or which has specified that all invitations to subscribe for the funds? Shares shall be made on a private basis. At application, a proposed private fund will be expected to demonstrate the "private basis" of offering its shares to prospective investors, and to explain what criteria will enable any particular investors to qualify as "private". It remains with the Registrar of Mutual Funds to either accept or reject any such explanation. In one of the Policy Guidelines, it is stated, in particular, that "the making of invitations to as many as 300 persons might be considered an offering on a "private basis" if it can be demonstrated that the person made the invitations to specified persons and had no deliberate intention of making invitations to other persons. The making of invitations to a significantly greater number of persons than 300 would cast doubt upon compliance with the spirit of "private basis" which is embodied in the Act, on the grounds that a large number of persons is not consistent with what is commonly understood to be "private"."

The official definition of a Professional Fund is that of a mutual fund, the shares of which are made available only to professional investors and the initial investment in which, in respect of the majority of each of such investors, is not less than one hundred thousand US dollars or its equivalent. Consequently, the "professional investor" is any person, who qualifies under any one of the two possible criteria: a professional investor is one whose ordinary business involves, basically, investment business similar to the kind of the fund itself (a more elaborate definition is provided in the Act), or a professional investor is also one who has declared his net worth to exceed one million US dollars and has consented in writing to be treated as a professional investor. In simple terms, therefore, a "professional investor" is a person who is supposedly either an investment professional (and therefore should know what he is doing), or a person who has expressly declared that he know what he is doing, in addition to declaring that his net worth is substantial (so that an eventual failure of the investment should supposedly not leave this person bankrupt).

As opposed to "registration" of the public funds, required by the Act, the procedure prescribed for professional and private funds is called "recognition". It is much simpler than the one prescribed for the public funds. The recognition of a private or professional fund in BVI requires completion of the relevant application, provision of the proofs or documents that supposedly qualify the fund as private or professional, provision of the details of the fund itself, as well as the details of its managers, administrators, custodians and other professionals involved (as the case may be) and their place(s) of business. The application should be accompanied by the prescribed fees.

At recognition of a private or professional fund, most of the attention of the Registrar will be centred towards the particulars of the managers, administrators and other professional parties involved with the fund. The requirements towards such professionals are fairly stringent and detailed. The overview of these requirements is provided below.

BVI MUTUAL FUNDS
BVI FUND MANAGEMENT COMPANIES

REGISTRATION AND LICENSING PROCEDURES
Registration and licensing of mutual funds, fund management companies and fund administration companies in the British Virgin Islands is carried out under the provisions of the BVI Mutual Funds Act 1996 and a number of Regulations and Guides, as published by the BVI Financial Services Commission (FSC).

BVI is one of the most attractive offshore jurisdictions offering investment companies and mutual funds a completely tax-free environment, coupled with strict laws that guarantee client confidentiality.

There are no taxes payable in the BVI for profits made by an investment fund or fund manager; however investor/shareholders are advised to take advice as to the tax implications in their respective domestic national jurisdictions.

Licensing and registration of mutual funds and fund managers in BVI is based on a case-to-case review of detailed licence applications by the BVI FSC. License applications must be supported by a substantial amount of documents and information from the sponsors and promoters of the fund and fund manager.

The licensing process is not automatic. Refusals to grant license are possible and do happen.

The success of the fund licence application mostly depends on the credentials, reputation and resources of the principals and promoters of the fund and the management team that will be involved in the daily management of the fund.

Therefore, a substantial input in the licensing procedure is always required from the client.

Before proceeding with any license applications, we recommend all clients to get acquainted with the BVI Mutual Funds Act 1996 and the other laws and regulations that form the legal basis of mutual funds licensing in the BVI. Original texts of that legislation are available through the official website of the BVI Financial Services Commission, at www.bvifsc.vg under the Chapter „Legislation Library”.

TURN-KEY SOLUTION
We can provide a comprehensive, “turn-key” solution for establishment of a BVI Mutual Fund and for licensing of a BVI Fund Manager.

Our services would include the complete set of services necessary in order to register, license and actually launch a BVI Mutual Fund.

The time-scale for getting a BVI mutual fund through licensing procedures primarily depends on the complexity of the application and as to how quickly and properly the application documents can be provided by the applicants. As a general indication, the time taken for the FSC to review an application may range anywhere between 2 weeks and 3 months.

The following info contains the information that potential applicants for mutual fund licence will need to provide in order to assess their application by the Financial Services Commission. The information described below is not exhaustive and further data may be required during the application process by the Financial Services Commission.

OFFSHORE MUTUAL AND INVESTMENT FUNDS

FREQUENTLY ASKED QUESTIONS

- What is an investment fund?
- An investment fund is a pool of money contributed by a small or large number of subscribers, unit-holders or shareholders, which is invested and administered on their behalf. They share the proceeds (or losses) in proportion to their subscriptions after deduction of costs.

- Who runs an investment fund?
- Three distinct functions exist: the promoter is the person or company who established the fund and markets it; the manager is the person or company who runs it from day to day, and the custodian is the person or company who holds the investment assets on behalf of the subscribers. In some jurisdictions, these functions have to be exercised by separate bodies, but in many, two or more can be combined. All three functions are rewarded with fees, usually based on the value of the fund, but sometimes being success-based.

- What is a mutual fund?
- A mutual fund (a unit trust in the UK) is an investment fund divided into units (equivalent to shares) which can be bought from and sold back to the manager of the fund, but which are not traded as such. The value of the fund NAV (net asset value) per unit is calculated frequently. Many countries have favourable tax regimes for mutual funds, to encourage saving.

- What is UCITS?
- This is an EU Directive which establishes a common regulatory regime for Undertakings for Collective Investment in Transferable Securities, ie funds under UCITS can market themselves throughout the EU. As the name implies, investments are limited to those securities listed on public stock exchanges. Many mutual funds in Europe use the UCITS legislation.

- What is an open-ended investment fund?
- One which has no pre-determined closing date. Most publicly-marketed investment and mutual funds are open-ended.

- What is a closed-end investment fund?
- One with a pre-determined closing date, on which the fund's assets must be realised and the proceeds distributed back to the subscribers. Closed-end funds are normally used by groups of private investors, often working in 'limited partnerships' for tax reasons.

- What is an offshore investment fund?
- One which is based in an offshore jurisdiction (although the term is often used, perhaps incorrectly, to describe a fund which is based outside a particular high-tax country). An offshore investment fund may have the problem that it cannot market into some important high-tax countries unless its local supervisory and regulatory regime is 'recognised' by high-tax countries as being up to their standards. Broadly speaking, this means that if you see an offshore fund being marketed in a high-tax country, its investment behaviour is probably quite constrained, and this may limit its ability to achieve high returns, in the interests of protecting investors.

- What types of offshore fund are there?
- Offshore funds come in many varieties, even more than onshore funds (those in high-tax countries) which are often limited by local regulation to less volatile types of investment. Thus, there are offshore bond funds, equity funds, sectorial funds, emerging-market funds, money-market funds, hedge funds, property funds, income funds, capital funds - and more.

INFORMATION TO BE PROVIDED BY APPLICANTS:
1. Proposed names for the Fund and/or for the Fund Management Company.

2. Initial minimum size of the Fund at the commencement of operation.

3. Personal information and documents for each principal / director /manager of the Fund and Management Company:
a) Good quality copy of valid passport.
b) Personal resume (Curriculum Vitae), with emphasis on the professional experience.
c) One bankers’ reference.
d) Two personal or professional references.
e) Police clearance certificate (absence of criminal record).

4. For each director, manager and controller of the fund: full business and professional background, including relevant experience, qualifications and any regulatory registrations, (for example SEC/SFA).

5. Identification and description of the proposed professional connections of the fund:
a) Custodians (must be functionally independent)
b) Bankers
c) Brokers
d) Administrators
e) Investment advisors
f) Auditors
g) Legal advisors

6. Mandatory for Public Funds and recommended for Private and Professional Funds, a Prospectus of the Fund must be prepared (and published for Public Funds). A copy of the Prospectus must be filed with the Financial Services Commission. The Prospectus must provide full and accurate disclosure of all such information as investors would reasonably require and expect to find for the purpose of making an informed investment decision; the Prospectus must also contain a full statement of investors’ rights as provided in the Mutual Funds Act (Section 16).

7. As far as not already described by the Prospectus, full characteristics of the proposed fund must be identified to the Regulator:
a) Category of the Fund: open-ended, close-ended?
b) Limitations on advertising and marketing policy.
c) Limitations on number of investors.
d) Authorised share classifications.
e) Minimum subscription.
f) General rules for subscriptions and redemptions.
g) Limitations on minimum amount of investments (“professional investors”).
h) General description of who will be the prospective investors.
i) Restrictions on the geographical origin of investors, if any.
j) How shall investors be attracted, what services shall be offered?
k) Where will the actual place and location of business management be situated?
l) What managerial control procedures will be implemented?
m) Proposed structure of management fees.
n) A broad description of underlying investments (optional).
o) Restrictions to invest in any particular instruments (if any).
p) Proposed leverage.
q) Investment objectives and benchmarks that the fund will follow.
r) A broad description of the proposed investment strategies – for instance, convertible arbitrage, distressed securities, emerging markets, growth funds, macro funds, market neutral, market timing, merger arbitrage, opportunistic, sector funds, short selling, etc.

FOR A FUND MANAGEMENT SERVICES LICENCE, in addition to the above, the following information will also have to be provided:

1. Resources statement - A description of the human resources and administrative facilities available to the applicant including details of the use of information technology. Also include details of any data security and back-up arrangements.

2. Financial statements - If available, a copy of the applicant's most recent audited accounts must be provided. If the Applicant is part of a group, the latest audited group accounts should also be provided.

3. Business plan - This should include details of the following:
a) A brief resume of the applicant’s or the group’s history. A group structure chart showing the name and jurisdiction of all subsidiaries and where it is proposed the applicant will appear in the group. Indicate any regulatory authorities to which any group companies report. Include a brief description of the major sources of income for the group.
b) Business objectives of the applicant - include details of the types of services and products to be provided, the reason for establishing in the BVI, marketing strategy and marketing methods and markets to which services/products are to be offered.
c) Management and staff structure of the applicant: including a structure chart and a description of the responsibilities of each director and manager and a description of managerial control procedures and segregation of functions.
d) Projected financial position - a projected profit and loss account and balance sheet for the next two years, to be confirmed by the applicant's auditor.

The information stated above is not exhaustive – it is customary that during the review of the licence applications, the BVI Financial Services Commission requests further clarifications or statements.

All of the above information has to be provided to FSC through standardized Application Forms and by way of submitting additional documents in free form.

Licensing of Fund Managers and Administrators
All managers or administrators of mutual funds, who carry out their activities in or from within the BVI, must be licensed by the BVI Financial Services Commission.

The BVI Mutual Funds Act prescribes several general conditions that must be met by any such licensee. In particular, the Financial Services Commission must be satisfied that the applicant "is a fit and proper person" to be engaged in the proposed fund management or administration business. The applicant is also required to have "adequate knowledge, expertise, resources and facilities necessary for the nature and scope of the business proposed."

The Act only states the licensing requirements in a rather general manner. However, the Policy Guidelines, issued by Financial Services Commission, contain a very detailed and exact explanation of the applicable conditions. These conditions are uniformly applied to any applicant who wishes to be licensed as a fund manager or administrator in the BVI. Following is a synopsis of those requirements.

A "fit and proper" test is a regulatory benchmark for all professionals involved in the mutual funds business in the BVI. In direct words of the Policy Guidelines, "the purpose of the "fit and proper" standard is to ensure, as far as possible, that the dishonest, the incompetent and the inexperienced cannot easily take up positions of trust and responsibility to the detriment of investors in mutual funds." All licensees must be able to demonstrate that they are likely to act "with integrity, in a way which is truthful and fair, that is in the best interests of investors and which is consistent with best market practice in respect of the business of managing or administering mutual funds."

 

BVI MUTUAL FUND REGISTRATION FEES

Euros 35,000 - ESTABLISHMENT OF A BVI PROFESSIONAL OR PRIVATE
MUTUAL FUND

Euros 45,000 – ESTABLISHMENT OF A BVI PUBLIC MUTUAL
FUND

This is a comprehensive, “turn-key” solution for establishment of a BVI Mutual Fund. This package represents a complete set of services necessary in order to register, license and actually launch the fund.

Here is a complete list of what’s included:
- Drafting the special Memorandum and Articles of Association for the Fund.
- Provision of the Registered Agent and Registered Office for the Fund for the first year.
- Incorporation of the Fund Company as BVI Business Company.
- Standard Government fees at incorporation of the Fund Company.
- Drafting of First Minutes, appointment of directors and primary corporate documents.
- Obtaining duplicate Certificate of Incorporation (for licensing purposes).
- Drafting of Offering Memorandum and finalizing same with the client.
- Drafting of Management and Administration contracts and finalizing same with client.
- Legal review of all corporate and contractual documents by a lawyer in BVI.
- Drafting the licence Application for recognition as Professional or Private Fund.
- Submission of the licence Application along with the accompanying documents.
- Mutual fund Application fee and Recognition fee.
- Follow-up with the licence Application and liaison with the Financial Services Commission.
- Appointment of one corporate director to the Fund for the first year.
- Appointment of administrator (annual administration fees not included).
- Assistance with appointment of custodian and opening of a custodial account.
- Assistance with appointment of auditor (audit fees not included).
- Assistance with appointment of banker and opening of bank account.
- Assistance with appointment of broker and opening of brokerage account.
- Assistance with preparation of Prospectus (for Public Funds).
- Obtaining CUSIP/ISIN number.

ANNUAL RECURRING FEES
Annually recurring fees – included in the first year costs, as quoted above:
- Provision of the Registered Agent and Registered Office for the Fund – Euros 1,750.00/annual
- Provision of the corporate director to the Fund – Euros 3,500.00/annual
- Annual Government fee for the Fund Company – USD 350.00/annual (Euros 280.00)
- Annual Government license fee for the Fund - USD 350.00/annual (Euros 280.00)

FUND ADMINISTRATION
Fund administration – professional fund administration services will be integrated into the fund set-up, provided by an independent Fund Administrator, as required by the BVI Mutual Funds Act 1996.

Fund administration fees typically range between 0.12% and 0.20% of net assets, subject to a minimum of Euros 25,000.00 per annum. The actual rates of administration fees depend on a number of factors, such as the type and complexity of the fund and its assets, complexity and frequency of the calculation and reporting, number of shareholders, share classes and series, sources involved at value calculations, and other similar factors. Exact quotation of the administration fees will be possible as soon as these variables are known.

ESTABLISHMENT AND LICENSING OF A FUND MANAGEMENT
COMPANY - Euros 7,500.00
This fee covers establishment and licensing of a Fund Management company under the BVI Business Companies Act and BVI Mutual Funds Act. The following services are included in this fee*:

- Special Memorandum and Articles of Association for the Fund Management Company.
- Provision of the Registered Agent and Registered Office for the first year.
- Incorporation of the Fund Management Company as BVI Business Company.
- Standard Government fees at incorporation of the Fund Management Company.
- Drafting of First Minutes, appointment of directors and primary corporate documents.
- Obtaining duplicate Certificate of Incorporation (for licensing purposes).
- Legal review of all corporate and contractual documents by a lawyer in BVI.
- Drafting the licence Application for licensing as Fund Manager.
- Submission of the licence Application along with the accompanying documents.
- Fund Manager Application fee and Recognition fee.
- Follow-up with the licence Application and liaison with the Financial Services Commission.

ANNUAL RECURRING FEES
Annually recurring fees – included in the first year costs, as quoted above:
- Provision of the Registered Agent and Registered Office for the Fund – Euros 1,750.00/annual
- Annual Government fee for the Fund Management Company – USD 350.00/annual (Euros 280.00)
- Annual Government license fee for the Fund Management company- USD 500.00 (Euros 400.00)

* IMPORTANT REMARK - The fee of Euros 7,500.00 for establishment of the Fund Management Company is only valid if this service is ordered together and in conjunction with the establishment of a Mutual Fund in the BVI. The standard fee for this service, provided separately, is Euros 25,000.00.

AMMORTISATION OF THE FOUNDATION COSTS IN FUND
ACCOUNTS

In the accounts for the Fund the total organisation fee of Euros 35,000 will be set-up as an asset and amortised over a period of time, usually, 36 months. The organisation fee of Euros 35,000 will also be treated as a liability of the Fund against its sponsor(s), to be repaid gradually or at a later date.

The treatment of the total organisational fees as an asset and also a liability will have nil effect on the net asset valuation when the Fund launches. Following the launch, the organisation costs can be depreciated over a period of time, thus having minimal impact on the monthly net asset valuations. Finally, such amortisation of the foundation costs will essentially mean that these costs are gradually repaid to the fund sponsor by fund investors.

PAYMENT TERMS
Payment terms for all establishment and licensing fees, as quoted above, are 75% up front and 25% upon completion. Payment terms for all annually recurring fees are 100% up front, starting from the 2nd year of operation.

Our Firm can provide a complete formation services package to establish a private, professional or public mutual fund in the BVI, or to register and license fund Management Company in the BVI. For more information on formation of BVI Mutual Funds and Fund Managers, please contact us.

 

 

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