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BVI Approved Funds
BVI Fund Types In the BVI regulated funds are categorized as either Incubator Funds, Approved Funds, Private Funds, Professional Funds, or Public Funds. Another option also exists in the BVI as not all companies operating as pooled investment vehicles are subject to the Securities and Investment Business (Amendment) Act 2015 (amending the Securities and Investment Business Act 2010 (SIBA). SIBA regulates only open-ended funds (i.e., those whose equity interests are redeemable at the option of the investor). Consequently, closed-ended "funds" (i.e., whose equity interests are not redeemable at the option of the investor) are not subject to specific regulation in the BVI. The redemption feature represents the key distinction between closed-ended companies operating as "funds", Incubator Funds, Approved Funds, Private Funds, Professional Fund and Public Funds. Learn More About Using a BVI Closed-Ended Company as a Hedge Fund
BVI Approved FundsThe Approved Fund option is attractive for fund managers who wish to establish incubate a fund for a period longer than two (2) or three (3) years and on a more private basis. The approved fund is aimed at managers requiring a cost efficient fund with light regulation on an ongoing basis. Approved funds will have no obligation to appoint functionaries other than an administrator, keeping the third party costs at a minimum. Like the Incubator Fund, the Approved Fund benefits from a fast-track, two day approval process. The Approved Fund is limited to a maximum of twenty (20) investors at any one time; and limited to a market capitalization of US $100 million on the value of investments of the fund. It has similar characteristics to the Private Fund including no minimum initial investment for the investors but unlike the Private Fund, the Approved Fund is not required to appoint an auditor, an investment manager or a custodian. However, it is required to appoint an Administrator and actual administration must take place. It is not enough to just list an administrator on the Approved Fund's application. The BVI government has not been enforcing this requirement beyond identifying an administrator on the application form, which is unfortunate. Therefore, there is no guarantee of third party oversight of the Approved Fund's activities.
BVI Approved Funds Annual Compliance The Approved Fund has three annual compliance obligations. The Approved Fund files an Annual Return with the BVI Financial Services Commission (FSC) by January 31st. It pays an Annual License Fee of $1,000 to the BVI government by March 31. The Approved Fund files a Financial Statement before June 30th (or six months after its financial year end) along with a Director's Certificate.
BVI Approved Fund CautionsIf you are investing in an Approved Fund, It is very important that any information provided about an Approved Fund come directly from a bona fides third party Administrator. The Approved Fund's FSC filings (see below) can be self prepared by the Approved Fund's "operator/sponsor" as the FSC has not required that these filing be prepared by the third party administrator or even be signed (after review) by both Directors of the Approved Fund, which is terrible. We have seen Approved Fund Sponsors prepare filings with the signature of only one Director (also the Sponsor) accepted by the BVI FSC. This is a recipe for criminal fraud.
Unlike the BVI Incubator Fund, the Approved Fund does not have any period restrictions and can operate as an Approved Fund indefinitely unless:
A decision is made to voluntarily apply to the FSC to become a Professional Fund or Private Fund;
It is required to convert into a Private Fund or Professional Fund upon exceeding one of the relevant thresholds; or
It elects to wind up its operations.
Directors & Authorized Representative Both Incubator and Approved Fund are required to appoint an authorized representative in the BVI and must have at least two directors at all times, one of which must be an individual. It will be necessary to provide the resume of any individual appointed to act as director part of the application process. We can provide BVI professional directors and appoint an authorized representative in the BVI. Contact Us For Help
Risk Warnings & Disclosures An application for approval of either an Incubator Fund or an Approved Fund must include the constitutional documents of the fund, a description of the fund's investment strategy and a written warning to investors, both of which can be contained in the fund's offering document or where it is not proposed to issue an offering document, the description and a warning in the prescribed form must be submitted as separate documents which will be provided to investors. An application for approval of a fund as an Incubator Fund or an Approved Fund must be accompanied by the correct fee, currently set at US$1,500. An annual renewal fee of US$1,000 is also payable for either type of fund.
Commencement of Business It will be possible to commence business as an Incubator Fund or an Approved Fund two business days following the day the BVI receives a completed application in respect of the fund. A license will not be provided by the Commission but it will be possible to obtain a certificate from the BVI evidencing the status of the fund.
Financial Statements & Returns It is a requirement for Incubator Funds and Approved Funds to prepare and submit to the BVI annual financial statements although there is no requirement that these statements be audited. Such funds will also be required to submit semi-annual returns to the Commission regarding their eligibility to utilize the relevant fund classification.
Conversion. If the number of investors or the amount of investments held by an Incubator Fund or an Approved Fund exceeds the limits set out above over a consecutive two month period, the fund must notify the BVI within seven days of this fact and must: (a) In the case of an incubator fund, submit an application for conversion to a private fund, a professional fund or an approved fund; (b) In the case of an approved fund, submit an application for conversion to a private fund or a professional fund; or (c) In both cases, commence the process of liquidating the fund or cease to be a fund by making the appropriate amendments to the fund's constitutional documents.
UBTI Blocker Fund BVI Incubator funds structure as a corporation are useful for U.S. fund promoters that need a "UBTI blocker" solution. For example, U.S. based hedge fund managers expecting U.S. tax-exempt investors to invest in the fund (i.e., retirement accounts and pension funds) should set up an offshore hedge fund in the form of a UBTI blocker company when margin trading is required to execute the hedge fund's trading program. The reason for this is the need for tax-exempt investors to avoid unrelated business taxable income (UBTI) tax exposure. Learn More About U.S. Tax Issues Under U.S. income tax laws, a tax-exempt investors (i.e., as IRA, 401(k) plan, etc.) investing in a financial product that involves borrowing money may be liable for tax on UBTI notwithstanding its tax-exempt status.
Why the British Virgin Islands? The British Virgin Islands (BVI) is an attractive and affordable country for hedge funds. The BVI is a zero tax country and has no capital gains or capital transfer taxes, no inheritance tax, and no sales tax or VAT. BVI is committed to remaining fully compliant with international financial regulatory norms and regulations. There are no regulatory restrictions on investment policies or strategies and there is no requirement to appoint local directors, administrators or auditors. It boasts a full range of professional service providers and very low start-up and ongoing fees and costs.The British Virgin Islands (BVI) is one of the best countries in the world to set up a hedge fund and a licensed investment management business. Presently, it offers start up fund managers more fund options than any other country. In the BVI regulated funds are categorized as either Incubator Funds, Approved Funds, Private Funds, Professional Funds, or Public Funds. Another option also exists in the BVI--the Closed-Ended Company
U.S. SEC Offshore AlertThe U.S. SEC's 134-page report published in 2003--The Implications of the Growth of Hedge Funds--presents the status of the hedge fund industry as viewed in the United States. What is interesting about this SEC Report is that articles and web content authored by our very own hedge fund attorney Hannah Terhune, JD, LLM (Taxation) (when she was the Chief and only Attorney at GreenCompany.com) on offshore hedge funds was cited on page 10 of the U.S. SEC Report as providing information the SEC Staff found to be valuable in its understanding of the hedge fund industry. For a decade, hedge fund attorney Hannah Terhune has been counted on by the U.S. government and hedge fund organizers worldwide as a source of cutting edge and practical information on hedge fund formations.
You will see from this web site that we supply more information about hedge funds than most books do on the subject. It's great to see that Hannah Terhune's expertise is appreciated by the SEC! This is quite a coup for Hannah, and provides one more piece of evidence as to how she can help you. You can reach her today at hterhune@capitalmanagementservicesgroup.com or at +1 (307) 413-2212 or on Skype at: CapitalManagementServicesGroup.
Call Us First We are experts in international hedge funds and tax. Click on any reference below to our leading articles:
Strategic Hedge Fund Planning by Hannah Terhune. Wilmott Magazine Ltd. (Volume 2013, Issue 63, pages 8-11 January 2013).
Trading Foreign Index Contracts? Know the Tax Rules Before You Trade by Hannah M. Terhune and Roger D. Lorence. Stocks, Futures and Options (June 2005).
