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Depuis le 1er janvier 2026, le Grand-Duché de Luxembourg a dispose d'un nouveau régime fiscal applicable aux carried interest, confortant ainsi sa position de place financière de premier plan au sein de l'Union Européenne pour les acteurs institutionnels du secteur des fonds d'investissement alternatifs. La présente note a vocation à présenter de manière synthétique les caractéristiques substantielles de ce nouveau régime. Pourquoi cette réforme était-elle nécessaire ? Le dispositif fiscal antérieur applicable aux rémunérations de type carried interest présentait des limitations substantielles. Seules les personnes physiques ayant acquis la qualité de résident fiscal luxembourgeois au cours de la période comprise entre 2013 et 2018 étaient susceptibles d'en bénéficier ; le bénéfice dudit régime était limité à une durée maximale de dix années et les conditions d'éligibilité étaient restreintes aux seuls salariés des sociétés de gestion de fonds. Par conséquent, depuis l'exercice 2018, aucun nouveau contribuable n'était en mesure de se prévaloir des dispositions de l'ancien régime. L'instauration d'un nouveau cadre normatif s'avérait dès lors indispensable afin de préserver la compétitivité du Grand-Duché et de maintenir son attractivité à l'égard des professionnels du secteur des investissements alternatifs. Cette réforme s'inscrit dans le cadre d'une stratégie gouvernementale de plus grande envergure visant à consolider la position du Grand-Duché de Luxembourg en qualité de place financière de premier rang à l'échelle européenne. Concomitamment à la refonte du régime fiscal des carried interest , les autorités luxembourgeoises ont procédé à une modification du dispositif fiscal des impatriés — prévoyant désormais une exonération d'impôt sur le revenu à hauteur de 50 % pour les revenus n'excédant pas 400.000 euros —, ont renforcé les mécanismes légaux d'intéressement aux bénéfices et ont instauré un nouveau cadre fiscal dérogatoire applicable aux options de souscription d'actions (stock-options) au bénéfice des start-ups. Deux catégories de carried interest La nouvelle loi crée deux catégories distinctes de carried interest, chacune avec son propre traitement fiscal. Le Contractual Carry constitue la structure la plus simple des deux dispositifs. Dans ce cadre, le bénéficiaire perçoit une quote-part des bénéfices du fonds par le biais d'un versement au titre du carry, sans être tenu d'investir. Cette rémunération s'apparente à une prime liée à la performance du véhicule d'investissement. Le régime fiscal applicable est particulièrement favorable : seul le quart du taux normal d'imposition sur le revenu s'applique, soit un taux effectif d'environ 11,5 % (ou 13 % en incluant la contribution dépendance). Le mécanisme du Participation Carry (également désigné sous le terme de " carried invest ") implique que le gérant procède à un investissement en capital afin d'acquérir un droit de participater aux distributions de carry. Ce dispositif se distingue du co-investissement classique en ce qu'il porte spécifiquement sur le traitement fiscal de la distribution du carried interest elle-même. Le nouveau régime ne prévoit ni seuil minimal d'investissement, ni pourcentage déterminé du capital devant être souscrit. La distinction fondamentale entre les deux mécanismes réside dans les modalités d'acquisition du carried interest : le Contractual Carry confère un droit contractuel sans contrepartie financière, tandis que le Participation Carry requiert un investissement effectif. Sous réserve du respect de deux conditions cumulatives — à savoir une période de détention minimale de six mois et une participation ne pouvant excéder 10 % du capital du fonds — le carried interest bénéficie d'une exonération totale de l'impôt luxembourgeois. Éligibilité élargie Le nouveau régime élargit substantiellement les catégories de personnes éligibles. Sont désormais visées l'ensemble des personnes physiques participant activement, de manière directe ou in...

As of 1 January 2026, Luxembourg has introduced a modernised and permanent tax regime for carried interest, positioning itself as one of the most competitive jurisdictions in Europe for alternative investment fund professionals. This briefing summarises the key features of the new regime and what it means for fund managers, directors, advisors and other industry participants. Why the reform was necessary The previous carried interest regime had significant limitations. Only individuals who became Luxembourg tax residents between 2013 and 2018 could benefit, the advantage was capped at ten years, and eligibility was restricted to employees of fund managers. Since 2018, no new individuals could qualify under the old rules. A modernised, permanent regime was therefore essential to ensure Luxembourg remains attractive to international talent in the alternative investment sector. This reform forms part of a broader strategy to strengthen Luxembourg's position as a leading financial centre. Alongside the carried interest enhancements, the government has revamped the inpatriate regime (offering a 50 per cent tax exemption on income up to €400,000), improved profit-sharing schemes, and introduced a new tax regime for stock options aimed at start-ups. Two categories of carried interest The new law creates two distinct categories of carried interest, each with its own tax treatment. Contractual Carry is the simpler of the two structures. Under this arrangement, the individual receives a share of the fund's profits through a carry payment without making any investment into the fund. It is essentially a performance-based bonus. The tax treatment is highly favourable: only one quarter of the normal income tax rate applies, resulting in an effective rate of approximately 11.5 per cent (or 13 per cent including the dependency contribution). Participation Carry (sometimes referred to as "carried invest") involves the manager paying money to acquire the right to share in carry distributions. This is distinct from traditional co-investment; it relates specifically to the taxation of the carry distribution itself. There is no minimum euro amount required, nor any specific percentage of fund capital that must be invested. The key distinction lies in how the carried interest is acquired: Contractual Carry involves receiving a contractual right without payment, whereas Participation Carry requires a genuine investment. Provided two conditions are met—holding the investment for at least six months and owning no more than 10 per cent of the fund's capital—the carried interest is completely exempt from Luxembourg tax. Expanded eligibility The new regime significantly broadens the categories of individuals who may benefit. It now covers all individuals actively involved in the management of an alternative investment fund, whether directly or indirectly. This includes employees of fund managers and management companies, partners and directors of those entities, individuals providing advisory services to the fund (provided they are active in management rather than purely administrative functions), independent board members of the fund, shareholders of management companies, and other non-employees who receive carried interest entitlements. Importantly, the preferential regime applies only to individuals, not to companies. To qualify, an individual must be tax resident in Luxembourg under both domestic law and any applicable double tax treaty. Structuring flexibility The new regime accommodates both EU-style whole-of-fund waterfall models and US-style deal-by-deal carry arrangements. The legal form of the fund—whether partnership, company or otherwise—does not affect whether the regime applies. In most cases, Participation Carry is structured through a dedicated special purpose vehicle, such as a Luxembourg special limited partnership, providing additional flexibility for clawback and other structuring considerations. Practical next steps Fund managers ...

This guide provides a high level summary of the main obligations for Cayman Islands investment funds under Cayman Islands automatic exchange of information (AEOI) legislation. Over recent years governments around the world have agreed international standards for the automatic sharing of financial account information between global fiscal authorities, with the aim of reducing tax evasion. As part of its commitment to international transparency standards, the Cayman Islands Government is a signatory to: A Model 1B intergovernmental agreement with the United States (US IGA) which provides the framework for the implementation of the United States (US)Foreign Account Tax Compliance Act (FATCA) in the Cayman IslandsThe Organisation for Economic Co-operation and Development sponsored multilateral competent authority agreement and certain bilateral agreements or tax treaties regarding the common reporting standard on automatic exchange of information (CRS, together with the US IGA, AEOI Agreements) As Cayman Islands entities are not directly subject to the AEOI Agreements, the Cayman Islands has introduced legislation to implement the AEOI Agreements under the Tax Information Authority Act (TIA Act) including the Tax Information Authority (International Tax Compliance) (United States of America) Regulations (FATCA Regulations) and the Tax Information Authority (International Tax Compliance) (Common Reporting Standard) Regulations, as amended (CRS Regulations), together AEOI Legislation). Definitions used in this guide are as set out in the AEOI Legislation unless otherwise indicated. The Department of International Tax Co-operation (DITC) is the Cayman Islands government department responsible for tax affairs and the Tax Information Authority (TIA), created by the TIA Act, is the Cayman Islands competent authority for tax co-operation and is housed within the DITC. The DITC has issued guidance notes (Guidance Notes) on the AEOI Legislation, which can be found here and here, which provide details of the notification, reporting and ongoing obligations that apply, as well as a useful reminder of the differences between FATCA and CRS. In practice, the vast majority of Cayman Islands investment funds fall within the definition of an Investment Entity (one of the types of Financial Institution under AEOI Legislation) and will be classified as Cayman Islands Reporting Financial Institutions (Reporting FIs). Reporting FIs are required to report on financial accounts held by specific US persons or individuals or entities resident in certain jurisdictions (Reportable Accounts). There are certain differences between the definitions in each of the FATCA Regulations and the CRS Regulations, with the term Foreign Financial Institution being used under FATCA. In this guide we will be discussing 'FIs' or 'Financial Institutions'. The most notable notification obligations are: To register with the Internal Revenue Service of the US (IRS): to obtain a global intermediary identification number (GIIN) (even if a Reporting FI has no US Reportable Accounts) either through the IRS FATCA Portal or through a paper submission. 'Registered Deemed Compliant FIs' (which are specific low risk FIs that are exempt from full FATCA reporting obligations) are also obliged to register with the IRS.A Cayman Islands investment fund which is a Reporting FI is required by the FATCA Regulations to register with the IRS within 30 days of 'starting business'. While a fund is not technically operating until it starts to accept subscription payments from investors (for the purposes, at least, of the Mutual Funds Act), in reality, all funds have to provide their GIIN numbers to banking and other counterparties at a very early stage of their creation in order to open accounts. It is therefore important to get this registration done as soon as possible after the vehicle has been formed. When registering for a GIIN, the IRS FATCA Portal requires the name of a natural person to be...

This guide sets out the continuing obligations under Cayman Islands law of an open-ended fund registered with the Cayman Islands Monetary Authority (CIMA) under section 4(3) or 4(4)(a) of the Mutual Funds Act (Mutual Funds Act). Part A of this guide sets out the ongoing requirements under the Mutual Funds Act as well the various FATCA and CRS requirements, director registration obligations and anti-money laundering compliance. An open-ended investment fund, registered with CIMA under the Mutual Funds Act, can be structured as an exempted company, limited partnership, limited liability company or unit trust, each of which also have ongoing obligations. Part B applies to a fund that is an exempted company incorporated with limited liability and an authorised share capital. If the fund is an exempted limited partnership see also Part C. If it is a limited liability company (LLC) incorporated under the Limited Liability Companies Act (LLC Act) see also Part D and if it is an exempted trust, see also Part E. Please see our guide to mutual funds in the Cayman Islands for more details of the open-ended fund structures available in the Cayman Islands. CIMA has the power under the Monetary Authority Act (MA Act) to impose significant administrative fines of up to CI$1 million (US$1.2 million) for each breach of certain provisions of the Anti-Money Laundering Regulations (AML Regulations) and other Cayman regulatory laws and regulations, including the Mutual Funds Act, Securities Investment Business Act and Directors Registration and Licensing Act (DRL Act). The level of an administrative fine will depend on various factors including whether the breach is committed by an individual or a body corporate and if the breach is classified as minor, serious or very serious. An overview of the annual compliance dates is set out in our compliance calendar, which can be found here on our website. Note in particular that penalties frequently apply for late filings and so the registered office should be informed promptly of any notifiable changes to allow the appropriate filing/s to be made. Action Required Timing and Penalties Must be paid to CIMA. Fund/Feeder fund CI$4,125/US$5,031 Master fund CCI$3,075/US$3,750 SPC If a fund is structured as a segregated portfolio company an additional annual fee of CI$300/US$366 per segregated portfolio is also payable to CIMA. By 15 January of each calendar year. Penalties under Mutual Funds Act 1/12 of the annual fee due for each month the payment remains outstanding. For a fund which has ceased carrying on business and which has applied to de-register from CIMA half annual fees are payable. Action Required Timing and Penalties For all funds registered under section 4(3), all master funds and for those funds registered under section 4(4)(a) that filed an offering document with CIMA, a copy of amended offering document or supplement to the offering document (or prescribed details for a master fund which does not have an offering document) must be filed with CIMA along with a signed amended application form (if applicable). Offering document/supplement filing fee CI$125/US$153 Application form filing fee CI$300/US$366 Within 21 days of becoming aware of the change. CIMA expects the governing body and operators of registered funds to comply with the corporate governance principles set out in its Rule and Statement of Guidance on Corporate Governance for Mutual Funds and Private Funds issued in 2023 (SoG). The governing body of a regulated fund is the board of directors for a corporate fund, the general partner(s) of an exempted limited partnership, the manager(s) of an LLC and the trustee(s) of a unit trust. The governance structure of any fund will depend on the fund's size, structure, nature of business, risk profile of the operations and complexity. Action Required Timing and Penalties The governing body has responsibility for monitoring and supervising the fund's activities and affairs, including: ensure ...

This guide sets out the continuing obligations under Cayman Islands law of a closed-ended fund registered with the Cayman Islands Monetary Authority (CIMA) under the Private Funds Act (Private Funds Act). Part A of this guide covers the ongoing obligations of a private fund that is registered under the Private Funds Act, as well the various FATCA and CRS requirements, and anti-money laundering compliance. A private fund, registered with CIMA under the Private Funds Act, can be structured as an exempted company, limited partnership, limited liability company or unit trust, each of which also have ongoing obligations. Part B applies to a fund that is an exempted company incorporated with limited liability and an authorised share capital. If the fund is an exempted limited partnership see also Part C. If it is a limited liability company (LLC) incorporated under the Limited Liability Companies Act (LLC Act) see also Part D and if it is an exempted trust, see also Part E. Please see our guide to private funds in the Cayman Islands for more details of the closed-ended fund structures and requirements under the Private Funds Act. CIMA has the power under the Monetary Authority Act (MA Act) to impose significant administrative fines of up to CI$1 million (US$1.2 million) for each breach of certain provisions of the Anti-Money Laundering Regulations (AML Regulations) and other Cayman Islands regulatory laws and regulations, including the Private Funds Act and Securities Investment Business Act. The level of an administrative fine will depend on various factors including whether the breach is committed by an individual or a body corporate and if the breach is classified as minor, serious or very serious. An overview of the annual compliance dates is set out in our compliance calendar, which can be found here on our website. Note in particular that penalties frequently apply for late filings and so the registered office should be informed promptly of any notifiable changes to allow the appropriate filing/s to be made. Action Required Timing and Penalties Must be paid to CIMA. CI$4,125/US$5,031 If the fund has alternative investment vehicles an additional annual fee of CI$525/US$641 per alternative investment vehicles is also payable to CIMA. If a fund is structured as a segregated portfolio company an additional annual fee of CI$525/US$641 per segregated portfolio is also payable to CIMA. By 15 January of each calendar year. 1/12 of the annual fee due for each month the payment remains outstanding. Action Required Timing and Penalties A copy of such changes must be filed with CIMA. Filing fee CI$125/US$153. Within 21 days of becoming aware of the change. Penalty under Private Funds Act of CI$20,000/US$24,390 for failing to do so. Action Required Timing and Penalties All private funds must conduct asset valuations. The valuation must be done on an appropriate and consistent basis, which must be at least annually, and in accordance with CIMA's Rules on the Calculation of Net Asset Values for private funds. The valuation must be done by an independent third party, independent administrator, or the manager or operator of the private fund subject to appropriate operational independence and disclosure of the potential conflicts of interest to investors. Must be done on an appropriate and consistent basis, at least annually. CIMA has the power to require that the valuation is verified by an auditor or independent third party, where the valuation is not undertaken by an independent third party. Penalty under Private Funds Act of CI$20,000/US$24,390 payable by the operator if the fund does not comply with the law. Action Required Timing and Penalties All private funds must monitor cash flows, cash account receipts and payments to investors. The monitoring must be done by an independent third party, custodian or administrator, or the manager or operator of the private fund subject to appropriate operational independence and disclosure of the p...

Last week, the Cayman Islands welcomed an influx of professionals in the digital assets space for its inaugural Cayman Crypto Week. As a jurisdiction at the forefront of innovative structuring for the digital assets space, this event was testament to the strength of the offering and experience of the professionals based here, and the increasing institutionalisation of crypto. Tokenised funds were the talk of the town, and unsurprisingly so, given the aptly timed draft legislative updates published in early February heralding a clear regulatory framework for tokenised funds set up in the Cayman Islands. What exactly is a tokenised fund? To add context, lets briefly summarise a traditional fund – an investment vehicle pooling capital from a number of investors. Investors typically will hold their interests in the fund by subscribing for shares in the fund vehicle (in the case of a company), limited partnership interests (in the case of a limited partnership), or membership interests (in the case of an LLC). The concept of a tokenised fund, fundamentally, is an investment fund which allows investors to subscribe for interests in the fund by acquiring tokens on a blockchain. The fund would mint and send tokens to an investor who has successfully subscribed for fund interests and sent capital to the fund (usually via a smart contract). Conceptually, in the ideal of a tokenised fund, the tokens issued by the fund vehicle would be the sole representation of fund interests (investors would not need to hold shares or other forms of interest), and the fund would operate entirely on-chain. In practice, due to other requirements and regulations applicable to operating an investment fund (as well as investor readiness), for now the most typical tokenised fund would issue tokens which represent or mirror the more traditional shares which are also issued. While investors in such a fund will likely consider the tokens to be the representation of their ownership interest in the fund, in reality there would be a conventional share register behind the scenes as well, which would reflect the ownership of those shares mirrored by the tokens. The Cayman Islands framework and proposed changes. Tokenised funds are not new in Cayman or the offshore world generally, and many prominent tokenised funds already operate in Cayman. That said, many such funds to date have been set up within the constraints of frameworks designed for traditional funds, with solutions to issues raised by tokenisation being developed to fit without a clear framework or certainty as to expectations of the regulator. The proposed legislative changes (once in force) will provide a definitive and clear framework allowing for certainty in setting up in Cayman, boosting confidence for both managers and investors. For reference, the proposed legislative changes mentioned relate to the Mutual Funds Amendment Bill 2026, the Private Funds Amendment Bill 2026 and the Virtual Asset Service Providers Amendment Bill 2026. Critically for offering certainty for tokenised fund launches in Cayman, the issuance; creation; sale; transfer or other disposition of tokenised equity or investment interests by regulated private and mutual funds will not constitute the issuance of virtual assets under the Virtual Assets (Service Providers) Act, and will therefore not be a regulated activity under that Act. The changes add clarifications and additional requirements specific to digital tokens to the existing funds regime. The key operational requirements and considerations to comply with the licensing regime as tokenised funds formed in the Cayman Islands are set out below: Comprehensive token records and availability to the Cayman Islands Monetary Authority. Tokenised funds must obtain and securely maintain all records of the issuance, creation, sale, transfer and ownership of tokenised interests (including any additional data the Cayman Islands Monetary Authority may require), and make them available ...

In this episode of Funds Hub, Vanessa Molloy and Pierre Luc-Wolff discuss Luxembourg's new carried interest tax regime. They explain the two categories now available, contractual carry and participation carry, and explore who can benefit, including employees, partners, directors, and advisors. Click here to subscribe to the Funds Download podcast. Choose your preferred platform from the list presented and click subscribe or follow once logged in. Visit the Funds Download podcast page to catch up on all the Funds Download episodes. If you're considering establishing a fund in the Cayman Islands, Luxembourg, or the British Virgin Islands, visit our Funds Hub for guidance.

In this first episode of our new podcast series, our Global Head of Financial Services, Maggie Kwok, and Partner Stéphane Karolczuk explore why managers targeting European investors avoid relying on reverse solicitation and instead turn to national private placement regimes (NPPRs) where available, or choose to establish an AIFMD compliant Luxembourg fund alongside their Cayman structure. For managers with a European background, or those with growing European ambitions, setting up a Luxembourg fund managed by a third-party AIFM allows them to enjoy the best of both worlds: namely, (i) access to the AIFMD marketing passport for EU investors, and (ii) the ability to maintain their traditional Cayman fund for non-EU investors without disrupting existing structures. This parallel Luxembourg–Cayman approach offers flexibility, regulatory certainty, and an efficient distribution strategy across jurisdictions. Stay tuned for our next episode, where we will take a deeper dive into selecting and appointing a third-party AIFM for your Luxembourg fund and discuss the distribution, compliance, and marketing support they can provide. Click here to subscribe to the Funds Download podcast. Choose your preferred platform from the list presented and click subscribe or follow once logged in. Visit the Funds Download podcast page to catch up on all the Funds Download episodes. If you're considering establishing a fund in the Cayman Islands, Luxembourg, or the British Virgin Islands, visit our Funds Hub for guidance.

The following table shows the similarities and differences between the BVI, Cayman and Luxembourg Investment Funds across 27 different areas. Please reach out to the authors to find out more.

Emerging fund managers in the Middle East—particularly those targeting sub-US$50 million in assets under management —face critical decisions when launching their first fund. While the region's domestic markets are maturing, and offer a compelling alternative in certain circumstances, for first time managers selecting an offshore jurisdiction may be the better choice. The Cayman Islands and the British Virgin Islands offer cost-effective, internationally respected platforms that simplify fund formation, enhance credibility with global investors, and provide a neutral, well-understood legal framework. This article outlines the key advantages of these two jurisdictions and explains how their structures can align with the strategic needs of new managers in the region. Why emerging managers look offshore While distinct in their offerings, the Cayman Islands and British Virgin Islands share several foundational features that make them attractive to first-time fund managers. These jurisdictions provide a stable, tax-neutral environment, which is crucial for pooling capital from diverse international sources without adding layers of tax complexity. This, combined with their regulatory efficiency, creates a powerful value proposition: Global recognition and investor confidence – Both are leading international finance centres recognised by institutional investors, regulators, and counterparties worldwide. This global standing enhances a new fund's credibility and significantly simplifies the investor onboarding and due diligence process. Strong legal foundations – Based on English common law, both jurisdictions offer clear, predictable, and commercially-minded legal frameworks. This provides certainty on matters such as shareholder rights, director duties, and creditor protections, which is highly valued by sophisticated investors. Political and economic stability – As British Overseas Territories, they benefit from long-term constitutional stability and a reliable court system, with an ultimate right of appeal to the Privy Council in London. This insulates fund structures from local political and economic volatility. Cost efficiency – For emerging managers, budget is paramount. Startup fees, annual government fees, and professional service costs in these jurisdictions are often substantially lower than in major onshore financial centres, making them ideal for lean, entrepreneurial teams. Speed to market – Both jurisdictions feature streamlined and efficient regulatory registration or approval processes. This allows managers to launch their funds quickly and predictably, enabling them to capitalise on fundraising opportunities without being delayed by bureaucratic hurdles. Cayman Islands: Global standard-setter The Cayman Islands is the world's leading offshore fund domicile, with tens of thousands of funds registered with the Cayman Islands Monetary Authority. This depth of experience has created a sophisticated ecosystem of world-class service providers. The jurisdiction offers two primary fund structures relevant to emerging managers: Mutual Funds – Ideal for open-ended strategies with liquid assets (eg hedge funds) where investors can subscribe and redeem on an ongoing basis. These funds are regulated by the Cayman Islands Monetary Authority and must appoint a Cayman-based auditor and a licensed fund administrator, ensuring robust governance and independent oversight. Private Funds – Designed for closed-ended strategies with illiquid assets (eg private equity, venture capital, real estate) where investors commit capital for the life of the fund. While still required to register with the Cayman Islands Monetary Authority and appoint appropriate service providers for cash monitoring, valuation, and safekeeping of assets, the overall regime is more flexible than for mutual funds. Cayman remains the default choice for many institutional investors due to its regulatory maturity and deep investor familiarity. However, the mandatory app...

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I regularly act for residential and commercial property investors and those who lend to them and I also have a (probably) slightly unhealthy interest in Rightmove's sold property prices. What better credentials do I need? With a real estate property magnate in the White House and the increase in property investment generally, the real estate sector is ripe for international private equity fund managers to tap into. According to The Lawyer's Global 200: Real Estate 2017 Report and data provided by Private Equity Real Estate magazine, the world's top 50 private equity real estate funds raised a combined US$271 billion between 2011 and 2016. Fundraising for global funds declined in 2016 after 5 years of year-on-year growth. PERE reports that this was due in part to a lack of funds closing - 25 per cent fewer funds closed in 2016 than in 2015. Those who attended MIPIM in early March will have been aware of the positive view of the property sector. Investment in the London commercial property market continues to be popular for High Net Worth Individuals and Family offices, as well as for larger global private equity funds. Asian and Middle Eastern investors still look to London for their property investment and particularly in some of the more distinctive buildings which now pepper London's skyline - from the City to Canary Wharf (the Cheese Grater, the Shard et al). All good signs for onshore and offshore lawyers servicing this market. Pan European real estate funds are becoming increasingly popular, with London and Germany proving preferred markets for commercial property investment. According to The Lawyer's Real Estate Report, portfolio deals involving particular asset classes (logistics, student accommodation, build to rent and private rented and hotels) are standing out further than single asset investments. In our experience of acting for investors in these sectors, offshore fund vehicles are just the ticket for investment in real estate portfolios - and for good reason. Whether the investor is looking for a simple offshore company to hold the property assets in his own name or that of a nominee, or a more complex structure involving holding companies and an onshore, midshore or offshore funds vehicle, the legislative regimes in both the British Virgin Islands and in the Cayman Islands provide solid, predicable yet flexible frameworks for private equity investors. In both jurisdictions, depending on the proposed exit strategy, the investment vehicle may be established as a regulated entity or as a more straightforward unregulated, closed ended funds vehicle or in conjunction with an onshore or midshore fund. Exit strategies will and do vary, depending on the appetite in the market. Private sales of whole property funds or some of their assets, redemptions of holdings or IPOs are all options, although the first two are probably more common of late. Other drivers such as tax and the domicile of the key investing parties will also be relevant. If you act for investors or lenders who like to finance commercial property investments, and an offshore structure is under consideration, do let us know, we would be delighted to talk through the options. Sales pitch over, I leave you with a couple of quotes about property investment which I quite like. "Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world." -- Franklin D. Roosevelt, US President "Buy land, they're not making it anymore." -- Mark Twain, writer and humorist

Primarily, it means that BVI and Cayman companies are not subject to corporate taxation on income, capital gains or share transfers. Instead, the BVI and Cayman governments raise revenue through other means such as income taxes on resident individuals (in the BVI), real estate taxes, sales and import duties and, in relation to corporate vehicles, through incorporation and licence fees. In Cayman the government goes one step further and will issue a tax exemption certificate to a typical Cayman fund (in return for a fee) confirming that for a period of 20 years (where the fund is a company) the fund will not be subject to certain Cayman taxes irrespective of any change in law. The fact that BVI and Cayman companies have no corporate taxes can make them particularly useful in fund structures, as one or more corporate vehicles can be used to pool investor funds without adding additional layers of taxation. Investors are still taxed in the jurisdictions in which they are tax resident on any income and gains generated from investment into the fund, but there is no corporate taxation at the fund level. This is subject to certain exceptions where the BVI or Cayman fund may be subject to taxation in another jurisdiction as a consequence of the location of its investments and/or its investors (for example, under US FATCA). The attraction of tax neutral jurisdictions is not quite as simple as it may sound and it is not always favourable from a tax perspective for all investors for funds to be domiciled in tax neutral jurisdictions. As I set out in more detail in my previous post on fund structures, while some groups of investors would prefer to invest in an offshore, tax-neutral, fund, for others it is advantageous to invest in a domestic onshore fund. For example, U.S taxable investors prefer to invest into domestic U.S. funds structured as partnerships which are "pass through" entities for U.S. tax purposes. And, it's not all about tax. There are numerous reasons to use BVI and Cayman funds apart from being tax-neutral. Phil has touched on this before in his previous post but, as a recap, both jurisdictions have a modern corporate law, which is supported by hundreds of years of English common law, and a sophisticated court system with ultimate recourse to the Privy Counsel of the United Kingdom. They both offer a range of fund products, suited to different uses and with appropriate regulation and competent and experienced regulators (the British Virgin Islands Financial Services Commission and the Cayman Islands Monetary Authority). In addition, both jurisdictions are home to world-class service providers and Cayman is the fifth-largest banking center worldwide. This makes the BVI and Cayman extremely attractive jurisdictions in which to establish a fund. If you think that you would benefit from using a BVI or Cayman fund and you would like to discuss the options in more detail, please get in touch. The original author of this post is no longer with Harneys. For more information on this topic, please reach out to the contact listed above.

But will the OFC and proposed tax changes really entice Hong Kong based hedge fund managers to set up funds in Hong Kong? Much of the talk of the "advantage" for a Hong Kong manager in setting up an OFC over a Cayman domiciled fund relates solely to a requirement for dealing only with the Securities and Futures Commission (SFC) and not also the Cayman Islands Monetary Authority (CIMA). This seems to me a little simplistic. As a starting point, with a Hong Kong manager directly managing a Hong Kong fund, and without any offshore manager, there will be no opportunity for any management or performance fees to be earned at the Cayman level and tax-deferred. Moreover, hedge funds are cross-border by their very nature. Most hedge funds have investors from a lot of different countries and have investments in a lot of different countries. Accordingly, managers will already need to be considering the securities laws of various countries. All the investors in a hedge fund will have their own local tax obligations, so as a very base condition a manager is seeking to domicile their fund somewhere with no additional taxes. However, this is not enough. A manager also needs to domicile their fund somewhere that provides investors from a lot of different countries the relevant level of comfort to place their investments in such a vehicle. There are some very important factors that are considered by the type of sophisticated investors that invest into hedge funds in determining this comfort level. Such factors that a jurisdiction must exhibit include the absolute rule of law, respect for property rights and access to a sophisticated judiciary free from political interference. The Cayman Islands is a jurisdiction that fulfils these requirements and has reliably proven itself to do so over decades. As a result, over 85 per cent of the world's hedge funds are domiciled in the Cayman Islands. Hong Kong is a jurisdiction that some might consider is rapidly being subsumed into the People's Republic of China. Even when you drill down into more of the minutiae of the OFC regime it appears that the Cayman Islands remains a clear leader. The level of prescription and oversight which is contemplated by the OFC regime, whilst it may be familiar to operators of Hong Kong retail funds, is far more than would be familiar to hedge fund managers, or than applies to private Cayman funds. The OFC's governing document is required to contain certain prescribed provisions, including the kinds of property in which the OFC can invest. Any change to this governing document will require the SFC's approval. There are no restrictions imposed by the Cayman regime on investment strategies of Cayman funds or their use of leverage. A Cayman fund does not have prescribed provisions in, and CIMA's approval is not required for any changes to, its memorandum and articles of association. The appointments of the directors of an OFC are subject to the SFC's approval, and the SFC will require the directors to be appropriately qualified and experienced. By contrast, CIMA requires directors to register via a web portal but does not impose an approval process nor any requirements as to qualifications, experience or independence. An OFC must appoint a custodian approved by the SFC which meets the eligibility requirements set out. In practice, many hedge funds appoint one or more prime brokers, and many prime brokers may not, and may not wish to, meet these eligibility requirements. A Cayman fund sold in Hong Kong by private placement is not required to appoint a custodian. The OFC regime requires that the valuation and pricing of the OFC's property is the investment manager's responsibility. This is inconsistent with the typical hedge fund model, where valuation and pricing is typically delegated to the fund's administrator. Any change of name of an OFC is subject to the SFC's approval. No approval is required to a change of name of a Cayman fund. Transfers of OFC shares will be subj...

One of the most common scenarios we encounter is a US-based manager who initially establishes a domestic fund to attract US taxable investors. With the performance going in the right direction, the manager begins to think about US tax-exempt investors, such as charities, pension funds and university endowments, as well as investors based outside of the US, who like the track record and want to invest. They have probably then been made aware that they will need an offshore vehicle and now have the task of working out why, where, and how much they need to spend. Why do I need one of these? US tax-exempt and non-US investors will want to avoid potential US tax exposure that could result from direct investment into your US vehicle and so they will want to come into an offshore "blocker" vehicle. To ensure you can take in their capital, you will need to add at least one offshore structure to form either the traditional "master-feeder" or the "mini-master". What is a master-feeder? Here, we will create two new offshore vehicles. Your existing US fund will then contribute its assets into the offshore master fund upon the launch of the new structure. The offshore feeder vehicle will then be available to take in US non-taxable investors and the non-US investors and "feed" into the offshore master fund as well, allowing for a co-mingling of all of the invested capital in the most tax efficient manner. Sounds good, so what about the minimaster? In a mini-master structure, a single offshore fund is established which is taxed as a corporation to benefit US tax-exempt investors and block UBTI for non-US investors. Adding a single offshore vehicle saves cost and therefore has proven popular with startup and emerging managers. The offshore fund invests directly into the existing US fund, which will then act as the master fund (whilst remaining the fund into which the US taxable investors will continue to invest). This provides an additional benefit of not requiring the ownership of the assets of the domestic fund to be transferred. This reduces the administration around the restructuring and subsequently the cost as well. While there are some tax consequences to be discussed (and some investors may not want to invest even indirectly into a US vehicle), it has proved to be appealing to those looking to keep it as simple as possible to begin with. Okay, so I need one of these structures. Where do I choose to set it up? The British Virgin Islands and the Cayman Islands are both highly suitable and well-regarded offshore fund jurisdictions that have been used for many decades and always strive to meet the requisite international standards. We have long-standing clients who elected to use one or the other for different and highly sensible reasons at the time of their first launch. But there are differences, and a number of our clients have fund vehicles in both jurisdictions to maximise the advantages that they each offer. Understood. But how do I choose the best one for my fund? Cayman is the world's most popular offshore funds jurisdiction. We estimate that Cayman has over 70 per cent of the world's offshore funds and so is the well-trodden path. Although the BVI has around 15 per cent, managers who opt to establish their funds in the BVI sometimes encounter the additional question from institutional investors of "Why BVI?". Whilst there are very reasonable and logical answers, the selection of Cayman removes this additional query in the DDQ. But I am also looking to minimise cost… In terms of corporate and regulatory costs, Cayman is a significantly more expensive jurisdiction than the BVI, both upon formation and for the annual maintenance of the vehicle(s). This is then compounded by the greater regulatory requirements in Cayman, which result in the cost differential for the jurisdictions being substantial. For this reason, many fund managers who are operating with a relatively low level of AUM prefer to establish their offshore fund in th...

Here is a way to start an article like no other; what a fantastic year 2020 has been. The obituary of the hedge fund industry has been written many times, but for some, it was written in indelible ink in 2008 following the financial crisis. Commentators blamed the industry for its part in the global collapse, notwithstanding the fact that a huge majority of fund vehicles during that time were actually victims themselves. Ignoring the huge layer of red tape that subsequently encased the industry, this wasn't actually the largest cause for concern. The bigger problem was that once the S&P settled down, its solid and consistent performance led to a benchmark that the industry simply couldn't match. Many funds struggled to provide the exceptional returns they were once capable of and with new products like exchange-traded funds combining performance with a lower risk profile and lower fees, the glitz and glamour of AW Jones' product had truly been eroded. However, the inflow of investment remained, and while the lack of true performance caused general resentment, a shock to the global financial system might cause the passive investment models to fail and suddenly the two and 20 would look like money well spent. So the script for 2020 couldn't have been better written by Hollywood, although probably would have had a little more Dwayne Johnson. The flash crash in March could have lead to the industry flourishing from that point forward. Dog funds Sadly, a record 150 funds were classed as poor performers in the "Spot the Dog" list compiled by wealth manager Tilney Bestinvest, which names and shames the worst-performing investment funds and reported a 65 per cent increase in the number of "dog" funds, up from 91 in February. Interestingly, this is consistent with the tough time value investors have generally had over the last decade. Buying shares in companies which appear cheap given their fundamentals became a true art form, but the markets simply haven't played to the same rule book and one obvious explanation for this is the rise of tech firms, which are simply impossible to analyse using standard valuation tools. Brand strength and user adoption models seemingly become far more important than the profit line, for example. With a pandemic forcing the entire planet to go online simultaneously, the arguably overvalued tech stocks somehow continued to grow exponentially. Those companies that remained well placed to increase in value consistently if the world had continued on its "normal" course, suddenly found that the very solid foundations they were sensibly built on were destroyed from under them. Hugely dependable industries were decimated in a matter of months which even the very best minds in the hedge fund industry couldn't readjust to quickly enough. Where you have such a fundamental and novel shock to the system, the largest funds will always have the biggest problem with turning their tanker around. Just looking at the Top 20 Dogs, all but one of them is over a billion and you can see some truly institutional names. On a wider basis, the ten largest hedge funds reporting to eVestment remain some 4.61 per cent in the red year-to-date, despite posting a 1.31 per cent gain in July. In contrast, hedge funds overall are now flat for the year, having registered a 3.43 per cent rise in July to successfully claw back losses suffered in H1. Market neutrality achieved? Being nimble and able to pivot in this type of market was always going to be advantageous. Digital rise From our own anecdotal evidence, given we have the pleasure of working with a large number of emerging managers, we certainly have clients who are putting some very significant numbers up on the board this year. It has been especially noticeable in the digital asset slice of this market. Whether you believe in the digital gold theory of bitcoin or not, there is no doubt that with so much uncertainty out there, investors are looking for interesting alternatives to ...

The market for US dollar (USD)-denominated funds in Greater China has undergone rapid transformation. Professional services providers have been grappling with the impact of a flurry of new laws and regulations, while fund managers have suddenly found themselves overwhelmed by choice. This has led some to question whether market convergence has finally led to the creation of a level playing field for all jurisdictions, or whether in fact this is the beginning of widespread divergence in the fund market industry. This article explains how and why the market has blossomed in recent years, and considers how it may develop in future. USD fund market outside mainland China The USD fund market outside mainland China has flourished due to the emergence of free markets such as Hong Kong, in tandem with the tight capital controls maintained by China. These controls have laid the foundation for China's economic evolution in the past 40 years, which have seen the confluence of international asset allocation, pensions and endowments on the one hand, and the emergence of ultra-high-net-worth individuals, domestic insurance funds and a burgeoning asset management industry on the other. This dichotomy of two markets - domestic and international - created a real need for offshore vehicles so that USD capital could be pooled and invested, and investment returns distributed in a tax-efficient way. This in turn smoothed the way for the widespread recognition of the Cayman Islands and its investment-holding and fund products, such as exempted limited partnerships for private equity funds, exempted companies as mutual funds and certain non-fund arrangement vehicles. International standards and rule books The coordination of international standards and rule books for the fund management market was led by the Organisation for Economic Cooperation and Development (OECD), the Financial Action Task Force (FATF) and, to a certain extent, the UK government. The financial services industry has been beset by "regulatory fatigue" since 2015, as it has got to grips with heightened scrutiny of anti-money laundering and counter-terrorist financing and proliferation measures, and with new requirements governing the exchange of tax information (automatic, spontaneous or on request). At the same time, it has had to deal with new requirements governing economic substance, data collection and transparency in beneficial ownership, as well as measures to safeguard fund assets and heightened oversight of virtual asset issuers and service providers. The sheer volume of regulatory changes in recent years has certainly felt overwhelming, but it is also necessary to consider how the market has responded to the resurgence of neo-liberalism, and the free flow of capital and free movement of people across borders. The answer may be moot, but governments and regulators have made substantial progress toward establishing a mutual framework for information-gathering and exchange, as well as behavioral standards to which fund managers must adhere. While this convergence has been taking place, many individual jurisdictions have quietly been re-designing their tax regimes to make them clearer, friendlier and more flexible. As just a few examples: Hong Kong has established the Unified Fund Exemption Regime and introduced a much-anticipated tax concession for carried interest. Singapore's new variable capital companies and Hong Kong's partnership funds have garnered considerable interest. Investors have begun to revisit and "rediscover" alternative structures, notably those offered by the British Virgin Islands, which are more versatile for small to medium-sized funds and for those renminbi fund managers just dipping their toes in the water of the USD fund market for the first time. Amid all the hype, fund managers have tended to focus on how comparable, or otherwise, these new products are to conventional offshore products, rather than exploring the nuances in terms of what they a...

It seems to have fallen upon me to talk about all the things that can go wrong with your fund! As it happens, suspending NAV calculations, subscriptions and redemptions is not the end of the world that it was once considered. If you keep in mind a few key considerations, chances are you will survive this challenge. Suspensions: The post-2008 context Prior to September 2008, suspensions were pretty much never invoked. The general view was that to invoke a suspension would cause irreparable reputational damage to a manager. However, in the midst of the 2008 financial crisis, it was those managers that did suspend redemptions, waited for the storm to pass, limited the damage and then eventually lifted suspensions that survived. Those who failed to operate suspensions and gates were left with redeemed (but unpaid) investors whose claims as creditors for their redemption proceeds ranked above the remaining investors. It is because of this that, whilst liquidity is still absolutely key for investors, there is now an expectation that a responsible and well-advised manager would invoke a suspension or gate when reasonably necessary in order to protect the investors' interests. Navigating a suspension scenario So, the dreaded situation arises; your fund suffers a financial blow so severe that your investors start to withdraw their funds. What should you do? Firstly, call your lawyer! They will need to carefully review your fund documents to determine what you can and cannot do, and what the correct process is. Getting the right strategy from the start is crucial. Your lawyer should know their way around your fund documents, particularly if they drafted them, and they will know where to look for any potential pitfalls. Secondly, act quickly. You will need to suspend redemptions before the next redemption date. Otherwise, investors that have submitted redemption requests will become creditors of the fund and their redemption proceeds will become payable. So you called your lawyer straight away. What do you need to do next? Below are six key considerations or actions you will want to take. 1. Consult your board You will need to call a board meeting, as there are various things to discuss. What has your lawyer advised and are you able to suspend redemptions? If not, are there other mechanisms that you can use such as imposing investor or fund level gates or transferring certain assets into side pockets or restructuring the fund in another way? Do you need to work out a liquidation plan or do you think you can ride this storm? Minutes will need to be taken at each meeting, as they may be required in future proceedings to prove that reasonable steps were agreed upon and followed by the board. Make sure to document everything. Whilst not pleasant, the investment manager and the board of directors will need to consider whether there are any conflicts of interest that would, for example, prevent a director who is affiliated with the investment manager from attending and voting at any meetings. If there is a likely chance of a conflict of interest arising, you will need to consider whether the investment manager and board of directors need to instruct separate legal counsel. 2. Don't forget about redemptions and subscriptions You need to make sure that as well as suspending the calculation of NAV, you also suspend redemptions and subscriptions. In some circumstances, it may be possible to continue to calculate NAV and you may want to suspend redemptions and subscriptions without suspending the calculation of NAV. If there are investors who have submitted redemption requests and the redemption date has passed, you may also want to suspend the payment of redemption proceeds, if your fund documents permit this. You could also consider payments of redemption proceeds in kind (often referred to as "in specie"), ie by transferring assets worth the same amount as the redemption proceeds to the redeeming investor if your fund documents allow this. 3....

Whilst there is clearly a cacophony of different issues for him to tackle, it did remind me of this excellent article in Reuters back in October which was already tracking the moves being made in the investment funds industry to continue the meteoric rise of ESG investment strategies. For those that are very late to the party, ESG stands for environmental, social and governance and the story of ESG investing actually began back in January 2004 when former UN Secretary General Kofi Annan wrote to over 50 CEOs of major financial institutions, inviting them to participate in a joint initiative under the auspices of the UN Global Compact and with the support of the International Finance Corporation (IFC) and the Swiss Government. The goal of the initiative was to find ways to integrate ESG into capital markets. Whilst the concept has become an undoubted success, getting it to this position has not been without challenges. Ignoring those that thought ESG might just be something of a fad, one of the more interesting issues came from institutional investors who argued that making investment decisions on the basis of these principles was actually a breach of their fiduciary duties to their shareholder base. This has caused extensive debate, but a strong argument was being made in many circles that the pursuit of financial gains should always be the sole focus. It became litigious in a number of jurisdictions, where investment managers were challenged on both their principles and ethics, although in almost every case, it was where the financial gains had not matched the expectations of the investors. But both the UK and the EU decided to take this out of the hands of the courts and the new disclosure requirements for investment managers and advisers with respect to their ESG policies will apply in the European Union from 10 March 2021 and new climate-related disclosures will apply to investment managers under a UK disclosures regime that is expected to be phased in from 2022. We will ignore the impact of Brexit for the purposes of this short article, but it does appear that all of Europe is united on this front. What is interesting to watch is that the regulatory landscape in this area is undoubtedly evolving and when you add these new initiatives to the Shareholder Rights Directive, the UK Stewardship Code, the Principles for Responsible Investing and the UK Corporate Governance Code, it is now the case that European managers will be operating within these parameters indefinitely. Figures show that assets in sustainable investment products in Europe are forecast to reach €7.6 trillion over the next five years, which will then outnumber conventional funds. Part of this drives comes from a critical mass of pension funds and insurers deploying capital exclusively to asset managers with ESG capabilities. Whilst this level of market dominance has not yet been reached in the US, largely due to some of the scepticism highlighted above, the clearer path that the Democratic party now have in the US may well see their domestic capital providers follow a very similar path, especially in a market with greater maturity that really is looking for a transformation for the better. This article was originally published by funds europe.

Are you thinking of setting up a closed-ended investment fund in the BVI? This document provides an overview of the closed-ended funds industry in the BVI and why the BVI is such an attractive jurisdiction for private equity, venture capital and other closed-ended fund managers. We explain the regulatory regime in the BVI, the fund structures available and how we can support you from the initial structuring and planning conversations, all the way through to the launch and ongoing support. Closed-ended funds in the BVI are regulated by the Financial Services Commission (the Commission). The primary legislation which governs the industry is the Securities and Investment Business Act 2010, as amended (SIBA), and the Private Investment Funds Regulations 2019 (the PIF Regulations). This guide focuses on the closed-ended fund industry, but it should be highlighted that the BVI does have a separate regulatory regime for hedge funds and other open-ended funds - these are discussed in a separate legal guide. Do let us know if you would like further details. What factors determine whether a closed-ended fund must be regulated in the BVI? Generally, an entity will be considered to be a closed-ended fund and will be subject to regulation as a Private Investment Fund (or PIF) if it falls within the following definition of a "private investment fund": It collects and pools investor funds for the purpose of collective investment and diversification of portfolio risk, and The equity interests that it issues entitle the holder to receive an amount calculated by reference to the value of a proportionate interest in the whole or a part of the net assets of the fund The BVI Private Investment Fund Regime BVI closed-ended funds falling within the definition of a "private investment fund" are generally required to be regulated by the Commission as a PIF. However certain entities, including but not limited to single investor funds, single asset funds, joint venture companies and special purpose acquisition companies do not require regulation as a PIF. The PIF is a flexible, cost-effective and lightly-regulated fund product which is suited for everyone from the start-up manager to established institutional private equity houses with billions under management. The characteristics of the PIF are set out below. Private investment fund Interests in a PIF may be distributed on either a 'private' or a 'professional' basis. There is no minimum investment amount for a PIF distributed on a private basis. If distributing on a 'private' basis the PIF is restricted to either: Having no more than 50 investors, or Making an invitation to subscribe for or purchase fund interests on a private basis only If the PIF interests are being distributed on a 'professional' basis, they may only be made available to "professional investors" and the minimum initial investment by each professional investor must not be less than US$100,000 (or other currency equivalent), unless the investor is an "exempted investor" in which case there is no minimum initial investment. A "professional investor" is a person: Whose ordinary business involves, whether for that person's own account or the account of others, the acquisition or disposal of property of the same kind as the property, or a substantial part of the property, of the fund; or Who, whether individually or jointly with their spouse, has a net worth in excess of US$1,000,000 (or other currency equivalent) which does include the primary residence An "exempted investor" means: The manager, administrator, promoter or underwriter of the fund, or Any employee of the manager of the fund A PIF is required to issue an offering document or term sheet (although in certain circumstances the Commission can provide an exemption from this requirement). A PIF is required to maintain a clear and comprehensive policy for the valuation of its assets (Fund Property) with procedures that are sufficient to ensure that the valuation policy is eff...

On 9 February 2022, the Luxembourg Chamber of Deputies (Chambre des Députés), adopted the law modernising the Luxembourg law of 2 March 2004 on securitisation, as amended (the New Securitisation Law). The New Securitisation Law enhances legal certainty and flexibility of the Luxembourg securitisation regime, while ensuring and increasing effective protection for investors. The New Securitisation Law has modernised the following main aspects. New sources of funding The financing of a securitisation transaction is no longer limited to the issuance of securities but is open to the issuance of any type of financial instrument. Furthermore, in addition to the issuance of any financial instruments, securitisation undertakings can have recourse, in whole or in part, to the conclusion of any type of loans, whose yield or repayable principal depends on the risks acquired (eg profit participating loans, asset-backed loans). New legal forms The legal forms that can be used for securitisation companies are now broadened by: The unlimited company (société en nom collectif) The common limited partnership (société en commandite simple) The special limited partnership (société en commandite spéciale) The simplified limited company (société par actions simplifiée) New authorisation and supervision requirements A securitisation vehicle must be subject to the authorisation and supervision of the CSSF, when it issues to the public on a continuous basis. Only securitisation vehicles issuing more than three times per year (on an all compartments basis) non-private placements with a denomination below €100,000 per each unit issued to non-professional investors need to be authorised and supervised by the CSSF. New rules governing the accounting treatment of equity-financed compartments The accounting treatment and distribution of profits and losses of equity financed compartments shall now be done on a compartment basis unless the articles of the securitisation entity provide otherwise. Where compartments are equity-financed: The balance sheet and the profit and loss account prepared for each compartment shall be approved only by the shareholders of that compartment, unless the articles of the securitisation entity provide otherwise Limitations to the distribution of profits and other distributable reserves may be determined by reference to each compartment, without regard to the global situation of the securitisation entity, unless the articles of the securitisation entity provide otherwise The legally required reserve according to the Luxembourg law of 10 August 1915 on commercial companies, as amended, shall be determined on a compartment basis without regard to the global situation of the securitisation entity, if this is provided for by the articles of the securitisation entity Holding of securitised assets A securitisation entity can now: Directly own the assets generating the cash flows that are securitised Acquire such assets or risks to be securitised indirectly, either through a subsidiary or via the acquisition of an entity holding these assets or risks Security interests A securitisation vehicle can now grant security interests over its assets to parties that are involved in a securitisation transaction but are not direct creditors of the securitisation vehicle. Active management Active management of securitised assets is now allowed for Luxembourg securitisation vehicles but only where the following conditions are met: The pool of securitised risks is made up of debt securities, claims or debt financial instruments The securitisation entity is not financed by issues to the public Ranking/legal subordination The following default waterfall of payments/order of priority in respect of debt and equity instruments issued by a securitisation vehicle is now applicable to securitisation entities unless otherwise agreed: The units of a securitisation fund are subordinated to the other financial instruments issued by, and loans contracted by, s...

Reporting and financial statements An incubator fund is required to prepare and submit the following to the FSC: Financial statements, which do not need to be audited but are required to be approved or signed by a director or the general partner of the fund, within six months of the end of the financial year to which they relate A semi-annual return, no later than 31 January and 31 July containing the following information as at 31 December of and 30 June of the preceding semi-annual period: the number of investors in the fund the total investments in the fund the aggregate subscriptions to the fund the aggregate redemptions paid to investors the net asset value of the fund any significant investor complaint received by the fund and how the complaint was dealt with A statement that the fund is not in breach of the requirements of the Regulations that allow it to continue as an incubator fund, no later than 31 January (such statement is included in the semi-annual return). Anti-money laundering obligations The BVI anti-money laundering (AML) regime applies to all funds as they are classified as "relevant persons" under the Anti-money Laundering Regulations 2008. In addition to appointing an officer to the fund or another individual as MLRO (as mentioned above), a fund will be required to: Put in place investor on-boarding procedures which address typical "know your client" requirements Put in place and maintain a written and effective system of internal controls which provides appropriate policies, processes and procedures for forestalling and preventing money laundering and countering the financing of terrorism (the Manual). The Manual should be reviewed annually to ensure compliance with AML regime in the British Virgin Islands Report suspicious transactions to the Financial Investigation Agency (FIA) in the BVI Report the identity of its appointed MLRO to the FIA Agency The BVI rules do provide for funds to outsource all and any of these obligations to functionaries based outside of the BVI. If the incubator fund has an administrator and/or investment manager, it may consider doing this. Any outsourcing must, however, be documented in writing. Fund policies and arrangements The Fund is required to maintain a valuation policy setting out the applicable procedures for the valuation of fund property, the preparation of reports on the valuation and setting out the mechanisms for sharing valuation information with investors (Valuation Policy). The Fund is also required to have a safekeeping policy and have adequate arrangements in place for the safekeeping of fund property (Safekeeping Policy). On an annual basis, the Fund should review its Valuation Policy and Safekeeping Policy to ensure compliance with BVI legislation. Obligations under FATCA and CRS Incubator funds are required to register for a Global Intermediary Identification Number (GIIN) with the US Internal Revenue Service. Funds are also required to enrol with the ITA. Enrolment for FATCA reporting is made through the ITA's online portal, called BVI Financial Account Reporting System, and for CRS is made by email to [email protected]. Incubator funds will need to identify reportable accounts and start to report the necessary information to the ITA. The reporting deadline for US FATCA, UK FATCA and CRS is 31 May. The information that must be reported under US and UK FATCA and CRS is broadly similar and includes: the name, date of birth, tax identification number (TIN) (for Specified US Persons where available); National Insurance Number (for Specified UK Persons, where available); jurisdiction of residence (for reportable persons under CRS only); the account number; name and GIIN of the reporting financial institution; and the account balance (some minimums apply under FATCA).

The Virgin Islands Data Protection Act 2021 (the Act) is now in force. The Act imposes a number of obligations upon investment funds in relation to the processing of personal data that they will inevitably collect as part of the investor onboarding procedure. In order to ensure compliance with the Act, investment funds should: Provide investors with a privacy notice Update their offering and subscription documentation Revisit service agreements with third parties, most importantly, the fund administrator Overview The Act governs how a data controller may process, use and retain personal data. Anyone who falls within the definition of a "data controller" (of which an investment fund domiciled in the BVI clearly does) must now comply with the seven principles in the Act in relation to any personal data processed by the fund. Where a data controller engages a third party (such as an administrator or investment manager) to process personal data on its behalf (defined in the Act as a "data processor"), the data controller must ensure the data processor has appropriate safeguards in place in respect of the personal data. In addition to governing how a data controller processes, uses and retains personal data, the Act also sets out the rights of individuals to control their personal data and implements a series of offences and enforcement measures designed to ensure compliance. The Act is broadly designed to reflect the General Data Protection Regulation (GDPR) and the Cayman Islands Data Protection Act (both of with which many clients will already be familiar), however there are a number of differences that you should be aware of. Application of the Act to investment funds Any investment fund structured as a BVI company or partnership, or any foreign company registered in the BVI that acts as a general partner of an investment fund will be subject to the Act and will be a data controller. Investors in a BVI investment fund will routinely provide certain personal identifying information to the investment fund such as their name, address, date of birth, bank details etc and this is to be regarded as "personal data". Although the persons whose data is gathered under the Act ("data subjects") have to be natural individuals, the Act will still apply in connection with corporate investors who provide personal data for their beneficial owners, directors, employees and members. The individual to which the personal data relates does not need to be in the BVI or a citizen of the BVI in order for the Act to apply. What must an investment fund do to comply with the Act? As a data controller, an investment fund must ensure that it complies with the seven data protection principles contained in the Act. See our guide BVI introduces data protection regime for further information. In practical terms, an investment fund can demonstrate compliance with the data protection principles by taking the following actions: Send a privacy notice to existing investors, whether as a separate document or part of an update to the offering document Update subscription documents to include a privacy notice for new investors as well as obtain certain acknowledgements, representations and warranties Update offering documents Update agreements with any third parties that would be regarded as a data processor on the basis that they process personal data on behalf of the data controller Privacy notices If the investment fund is already subject to GDPR then it may have already adopted a GDPR compliant privacy notice. If that is the case, then a few amendments to the privacy notice to reflect the Act are all that are needed. If the investment fund has not yet adopted a privacy notice, then it should prepare one in order to communicate the required information to its investors and we would be happy to assist with this drafting where required. In either case, the privacy notice should be sent to existing investors and/or made available on an investor or fund administrati...

After a highly educational trip down to Buenos Aires at the end of last year, I couldn't help but be encapsulated by everything that was going on in Argentina. It absolutely felt like a country that was finally moving in the right direction and the Tax Amnesty was a large part of that. On that basis, I took the time out to interview the head of our Montevideo Office, Horacio Woycik to gauge his views on how 2017 is playing out: Thanks for taking the time to speak to me Horacio. I noted that on 31 March 2017, Argentina concluded one of the world's most successful tax amnesties, something of which you must be very proud of as a native Argentinian. Could you tell our blog readers a little more? Thanks Phil. Although the Argentina Government was cautiously optimistic when announcing the Tax Amnesty on various assets[i] a year ago, the results exceeded all expectations, with $116.8 billion assets declared in total. This is impressive, particularly compared to the $1.7 billion declared under the former government's Tax Amnesty programme between 2013-2015. That's a truly incredible result. What do you put it down to? Some may attribute this success to investor confidence in Argentina's new Government, led by Mauricio Macri, but in my opinion, this only partially explains the results. Another deciding factor in the Amnesty's success was the unanimous consensus from local legal, tax and financial advisors that sooner rather than later, there would no longer be a safe place for undeclared assets and they actively encouraged all of their clients to participate. The Amnesty was seen as a "last chance" opportunity for taxpayers to regularise assets before the unprecedented flow of financial information amongst Tax Authorities following the implementation of the OECD's Common Reporting Standard (CRS) in September 2017. That's interesting as clearly the CRS has been a huge topic of conversation down there for a while. Has it made that much of an impact? Absolutely. CRS, FATCA and FATCA's bilateral Intergovernmental Agreements (IGAs) are reshaping the international financial system, and compliance with local tax obligations will soon be monitored by financial institutions more closely than ever before. In this context, tax amnesties are just another preliminary step in a coordinated global effort. As a matter of fact, Argentina's Amnesty programme is only one of many Tax Amnesty programmes taking place simultaneously worldwide. Chile successfully closed its Tax Amnesty programme in December 2015 with $18.7 billion in assets declared. Meanwhile, Brazil recently extended its Amnesty programme until 31 July 2017, with $54 billion in assets declared to date. Additionally, countries like Colombia, Peru and Mexico have ongoing Tax Amnesty programmes. So this is absolutely going to be become the norm. What can we expect after these various tax amnesties take place? The high adherence to the different tax amnesties will likely trigger a wave of asset restructurings by high net worth individuals, with tax efficiency as the main driver. It's likely that there won't be a "one size fits all" solution for the structuring needs of clients from different countries, as structuring will be very dependent on local tax legislation, and solutions will vary from country to country. Accordingly, private clients' increased use of fund structures for tax and estate planning purposes is likely to drive growth in Latam's fund industry. That's very interesting and I'm our funds blog readers would like to know a little more about why that is. I can see three obvious reasons why: Funds are a natural vehicle for asset repatriation. Tax residents in Latam are disclosing billions of dollars through the ongoing tax amnesty programmes, most of which are held abroad. Some of those assets are likely to return to their investors' countries of residence once the "invisible barrier" of being undeclared is lifted. It could be expected that investment funds will channel a signifi...

Fund policies and arrangements A PIF is required to maintain a valuation policy setting out the applicable procedures for the valuation of fund property, the preparation of reports on the valuation and setting out the mechanisms for sharing valuation information with investors (Valuation Policy). A PIF must ensure that the person appointed as its valuation "appointed person" values fund property in accordance with the valuation policy. A PIF should also have a safekeeping policy and adequate arrangements in place for the safekeeping of fund property (Safekeeping Policy). On an annual basis, a PIF should review its Valuation Policy and Safekeeping Policy to ensure compliance with BVI legislation. Maintenance of records and financial statements A PIF must maintain records that are sufficient to show and explain its transactions, to enable its financial position to be determined with reasonable accuracy at any time, to enable it to prepare financial statements and make returns and, if applicable, to enable its financial statements to be audited. A PIF must prepare financial statements for each financial year that comply with: The International Financial Reporting Standards, promulgated by the International Accounting Standards Board UK GAAP US GAAP Canadian GAAP; or Internationally recognised and generally accepted accounting standards equivalent to the accounting standards referred to above Anti-money laundering obligations The BVI anti-money laundering (AML) regime applies to all funds as they are classified as "relevant persons" under the Anti-Money Laundering Regulations 2008. In addition to appointing an officer to the fund or another individual as MLRO (as mentioned above), a fund will be required to: Put in place investor on-boarding procedures which address typical "know your client" requirements. Put in place and maintain a written and effective system of internal controls which provides appropriate policies, processes and procedures for forestalling and preventing money laundering and countering the financing of terrorism (the Manual). The Manual should be reviewed annually to ensure compliance with AML regime in the British Virgin Islands. Report suspicious transactions to the Financial Investigation Agency (FIA) in the BVI Report the identity of its appointed MLRO to the FIA The BVI rules do provide for funds to outsource all and any of these obligations to functionaries based outside of the BVI, such as an administrator or investment manager. Any outsourcing must, however, be documented in writing. Obligations under FATCA and CRS? PIFs are required to register for a Global Intermediary Identification Number (GIIN) with the US Internal Revenue Service. Funds are also required to enrol with the ITA. Enrolment for FATCA reporting is made through the ITA's online portal, called BVI Financial Account Reporting System, and for CRS is made by email to [email protected]. PIFs will need to identify reportable accounts and start to report the necessary information to the ITA. The reporting deadline for US FATCA, UK FATCA and CRS is 31 May. The information that must be reported under US and UK FATCA and CRS is broadly similar and includes: the name, date of birth, tax identification number (TIN) (for Specified US Persons where available); National Insurance Number (for Specified UK Persons, where available); jurisdiction of residence (for reportable persons under CRS only); the account number; name and GIIN of the reporting financial institution; and the account balance (some minimums apply under FATCA).

The Cayman Islands Data Protection Act (the DP Act) governs how a data controller may process, use and retain personal data. Anyone who falls within the definition of a "data controller" (such as a Cayman Islands investment fund) must now comply with eight data protection principles in relation to any personal data processed by the data controller. Where a data controller engages a third party (such as an administrator or investment manager) to process personal data on its behalf, the data controller must ensure the third party complies with the eight data protection principles. In addition to governing how a data controller processes, uses and retains personal data, the DP Act also sets out the rights of individuals to control their personal data and implements a system to protect against the misuse of personal data. The DP Act is similar to the General Data Protection Regulation (GDPR) of the European Union with which many clients will be familiar. For a general overview of the Cayman Islands DP Act please see our Guide to data protection in the Cayman Islands. Application of DP Act to investment funds In order for investors to invest in an investment fund they must provide certain personal identifying information to the investment fund. Even where the investor is an entity, personal identifying information of contact persons, beneficial owners, directors, employees, partners or members of that entity will be provided to the investment fund. This personal information will be considered personal data under the DP Act. The individual to which the personal data relates does not need to be in the Cayman Islands or a citizen of the Cayman Islands in order for the DP Act to apply. Any investment fund structured as a Cayman Islands company or partnership, or any foreign company registered in the Cayman Islands that acts as a general partner of an investment fund will be subject to the DP Act and will be a data controller. What must an investment fund do to comply with the DP Act? As a data controller, an investment fund must ensure that it complies with the eight data protection principles when it processes any personal data. It must also ensure that any third party that processes personal data on its behalf also complies with the eight data protection principles. Cayman Islands investment funds must: send a privacy notice to existing investors update their subscription documents to include a privacy notice for new investors as well as obtain certain acknowledgements, representations and warranties update offering documents to reflect the requirements under the DP Act update agreements with any third parties that process personal data on behalf of the investment fund to ensure such processing is undertaken in compliance with the DP Act especially where there is transfer of data outside of the Cayman Islands Privacy notices If the investment fund is already subject to GDPR then the investment fund may have already adopted a GDPR compliant privacy notice. If that is the case, then a few minor amendments to the privacy notice to reflect the DP Act are all that are needed. If the investment fund has not yet adopted a privacy notice then it should prepare one in order to communicate the required information to its investors. In either case the privacy notice should be sent to existing investors and/or made available on an investor or fund administration portal. Subscription documents The subscription agreement of the investment fund will also need to be updated to include the privacy notice and certain acknowledgements from the investor. It should also contain representations and warranties from entity investors that they have provided the privacy notice to any person whose data is given to the investment fund (eg beneficial owners, directors etc) and may need to also contain consent provisions for specific activities prescribed under the DP Act, such as the processing of sensitive personal data if applicable. Offering documents Offe...

The Cayman Islands is the leading jurisdiction for the offshore investment funds industry due to its combination of flexible and appropriate regulation, an approachable and effective regulator, professional service provider expertise, high reputation among investors and a tax neutral fiscal regime. Investment funds established in the Cayman Islands fall into two broad categories: open-ended funds and closed-ended funds. Open-ended funds provide investors with voluntary redemption or repurchase rights and closed-ended funds do not provide investors with those rights. Typically, open-ended funds will invest in liquid assets which can be readily realised to fund redemptions (eg listed, liquid, tradable securities) and closed-ended funds will invest in non-liquid assets requiring time to liquidate/realise value (eg real estate, unlisted companies). This guide sets a summary of the regulatory regime of open-ended investment funds, which is supervised by the Cayman Islands Monetary Authority (CIMA). For an overview of the regulatory regime that governs private funds please see Guide to Private Funds in the Cayman Islands. Fund vehicle options Companies Exempted companies limited by shares are the most common form of entity used for the establishment of open-ended investment funds, with an investor's liability being limited to the amount paid or agreed to be paid in respect of their shares. Please see our Guide to Exempted Companies for more details. Segregated portfolio companies An exempted company may register as a segregated portfolio company (SPC), which is similar to a segregated cell company in many other jurisdictions. An SPC may establish any number of segregated portfolios. Assets and liabilities attributed to a particular segregated portfolio are legally separated from the assets and liabilities attributed to any other segregated portfolio. A creditor who is party to a contract involving a particular segregated portfolio will have restricted recourse and will be entitled to recover only against assets attributed and credited to the specific segregated portfolio to which the contract is also attributed. SPCs can be useful as multi-strategy vehicles and platform vehicles. Savings by using multi-strategy SPCs are often not as great as anticipated however and SPCs with multiple segregated portfolios do require a greater degree of care to ensure assets are properly segregated, contracts are entered into on behalf of the correct segregated portfolio and inadvertent cross-collateralisation does not occur. Please see our Guide to Segregated Portfolio Companies for more details. Limited liability companies Limited liability companies (LLCs) can be incorporated in the Cayman Islands in a form closely aligned to the Delaware LLC. LLCs may be used in investment fund structures where a flexible structure similar to a limited partnership is required, but where the vehicle needs to be established as a body corporate distinct from its members. LLCs are regulated by their LLC agreement and the Limited Liability Companies Act. Please see our Guide to LLCs for more details. Exempted limited partnerships While an exempted limited partnership (ELP) is the most common vehicle for closed-ended funds including private equity, venture capital and real estate funds, they are also used for open-ended funds. An ELP has many similarities to its Delaware equivalent vehicle but an ELP is not a separate legal person and for this reason, it is popular with managers and investors in a number of jurisdictions. An ELP is managed by its general partner. Please see our Guide to ELPs for more details. Unit trusts Cayman Islands unit trusts are established under and governed by the Cayman Islands Trusts Act and, save as modified under that law, generally applicable principles of English trust law. With a unit trust, investors contribute funds to a trustee which holds those funds on trust for the investors and each investor is directly entitled to a pro rata s...

The Cayman Islands is the leading jurisdiction for the offshore investment funds industry due to its combination of flexible and appropriate regulation, an approachable and effective regulator, professional service provider expertise, high reputation among investors and a tax neutral regime. Investment funds established in the Cayman Islands fall into two broad categories: open-ended funds and closed-ended funds. Open-ended funds provide investors with voluntary redemption or repurchase rights and closed-ended funds do not provide investors with those rights. Typically, open-ended funds will invest in liquid assets which can be readily realised to satisfy redemptions (eg listed, liquid, tradable securities) and closed-ended funds will invest in non-liquid assets requiring time to liquidate/realise value (eg real estate, unlisted companies). This guide sets out a summary of the regulatory regime that governs closed-ended investment funds, known as private funds, which is supervised by the Cayman Islands Monetary Authority (CIMA). For an overview of the regulatory regime that governs open-ended investment funds please see our Guide to mutual funds in the Cayman Islands. Fund vehicle options Exempted limited partnerships An exempted limited partnership (ELP) is the most common vehicle for closed-ended funds including private equity, venture capital and real estate funds. An ELP has many similarities to its Delaware equivalent vehicle but an ELP is not a separate legal person and for this reason, it is popular with managers and investors in a number of jurisdictions. An ELP is operated and managed by its general partner. Please see our Guide to ELPs for more details. Limited liability companies Limited liability companies (LLCs) can be incorporated in the Cayman Islands in a form closely aligned to the Delaware LLC. LLCs may be used in investment fund structures where a flexible structure similar to a limited partnership is required, but where the vehicle needs to be established as a body corporate distinct from its members. LLCs are regulated by their LLC agreement and the Limited Liability Companies Act. Please see our Guide to LLCs for more details. Companies Exempted companies limited by shares are also used for the establishment of closed-ended investment funds, with an investor's liability being limited to the amount paid or agreed to be paid in respect of their shares. Please see our Guide to exempted companies for more details. Segregated portfolio companies An exempted company may register as a segregated portfolio company (SPC), which is similar to a segregated cell company in many other jurisdictions. An SPC may establish any number of segregated portfolios. Assets and liabilities attributed to a particular segregated portfolio are legally separated from the assets and liabilities attributed to any other segregated portfolio. A creditor who is party to a contract involving a particular segregated portfolio will have restricted recourse and will be entitled to recover only against assets attributed and credited to the specific segregated portfolio to which the contract is also attributed. SPCs can be useful as multi-strategy vehicles and platform vehicles. Savings by using multi-strategy SPCs are often not as great as anticipated however and SPCs with multiple segregated portfolios do require a greater degree of care to ensure assets are properly segregated, contracts are entered into on behalf of the correct segregated portfolio and inadvertent cross-collateralisation does not occur. Please see our Guide to segregated portfolio companies for more details. Unit trusts Cayman Islands unit trusts are established under and governed by the Cayman Islands Trusts Act and, save as modified under that law, generally applicable principles of English trust law. With a unit trust, investors contribute funds to a trustee which holds those funds on trust for the investors and each investor is directly entitled to a pro rata share ...

This guide looks at the roles and responsibilities of the nominated officers of financial service providers whose job it is to look out for and report suspicious activity and who oversee the compliance function and ensure that adequate systems and controls are in place to comply with the Anti-Money Laundering Regulations (Revised). Money laundering is the process by which the proceeds of crime are channelled through the economy/financial system in a way which is intended to conceal the true origin and ownership of the proceeds of criminal activity. The Proceeds of Crime Act (the PC Act), the Terrorism Act and the supporting Anti-Money Laundering Regulations (Revised) (the Regulations) are the main pieces of legislation in the Cayman Islands aimed at combating money laundering, proliferation financing and terrorist financing. Under these laws, those persons carrying out "relevant financial business" (referred to as financial service providers or FSPs) must apply a risk based approach to anti-money laundering, proliferation financing and terrorist financing (together, AML) compliance. Nominated officers - money laundering reporting officer and deputy The PC Act requires that FSPs have a "nominated officer" in place for the purpose of receiving reports relating to criminal conduct, with the Regulations creating the roles of the Money Laundering Reporting Officer (MLRO), Deputy Money Laundering Officer (DMLRO) and AML Compliance Officer (AMLCO). Accordingly, natural persons must be appointed as the MLRO, DMLRO and AMLCO for all FSPs, including investment funds. The Regulations and Guidance Notes on the Prevention and Detection of Money Laundering and Terrorist Financing in the Cayman Islands (and amendments) (Guidance Notes) published by the Cayman Islands Monetary Authority (CIMA) set out more details on each of these roles and functions. Who can be appointed as MLRO? Under the Regulations each person carrying out relevant financial business must designate a person at management level as their MLRO, to whom suspicious activity reports (SARs) must be made. The MLRO should be someone who is well versed in the business of the FSP which may give rise to opportunities for money laundering, proliferation financing or terrorist financing. A DMLRO must also be appointed to perform the MLRO's functions in their absence. The DMLRO should be a staff member of similar status and experience as the MLRO. The Guidance Notes provide that the MLRO should: Be a natural person Be autonomous, meaning the MLRO is the final decision maker as to whether to file a SAR Be independent, meaning no vested interest in the underlying activity Have access to all relevant material in order to make an assessment as to whether an activity is or is not suspicious What is the role of the MLRO? The primary duties of the MRLO (or the DMLRO in their absence) are to: Receive reports of any information or other matter which comes to the attention of a person carrying out relevant financial business, which gives rise to an actual knowledge or suspicion of money laundering, proliferation financing or terrorist financing Consider and investigate such reports in light of all other relevant information to determine if the information or other matter gives rise to such knowledge or suspicion Have access to other information which may assist in considering such report Make prompt disclosures to the Financial Reporting Authority (FRA) in the standard SAR form if after considering a report there is knowledge or a suspicion of money laundering, proliferation financing or terrorist financing Establish and maintain a register of money laundering, proliferation financing or terrorist financing reports made by staff Maintain a register of reports to the FRA How do we identify unusual or suspicious transactions? As the types of transactions which may be used by money launderers are unlimited it is difficult to define a suspicious transaction. The Guidance Notes are instructive in t...

The Cayman Islands is the leading jurisdiction for the offshore investment funds industry due to its combination of flexible and appropriate regulation, an approachable and effective regulator, professional service provider expertise, high reputation among investors and a tax neutral regime. Investment funds established in the Cayman Islands fall into two broad categories: open-ended funds and closed-ended funds. Open-ended funds provide investors with voluntary redemption or repurchase rights and closed-ended funds do not provide investors with those rights. Typically, open-ended funds will invest in liquid assets which can be readily realised to satisfy redemptions (eg listed, liquid, tradable securities) and closed-ended funds will invest in non-liquid assets requiring time to liquidate/realise value (eg real estate, unlisted companies). This guide sets out a summary of the regulatory regime that governs closed-ended investment funds, known as private funds, which is supervised by the Cayman Islands Monetary Authority (CIMA). For an overview of the regulatory regime that governs open-ended investment funds please see our Guide to mutual funds in the Cayman Islands. Fund vehicle options Exempted limited partnerships An exempted limited partnership (ELP) is the most common vehicle for closed-ended funds including private equity, venture capital and real estate funds. An ELP has many similarities to its Delaware equivalent vehicle but an ELP is not a separate legal person and for this reason, it is popular with managers and investors in a number of jurisdictions. An ELP is operated and managed by its general partner. Please see our Guide to ELPs for more details. Limited liability companies Limited liability companies (LLCs) can be incorporated in the Cayman Islands in a form closely aligned to the Delaware LLC. LLCs may be used in investment fund structures where a flexible structure similar to a limited partnership is required, but where the vehicle needs to be established as a body corporate distinct from its members. LLCs are regulated by their LLC agreement and the Limited Liability Companies Act. Please see our Guide to LLCs for more details. Companies Exempted companies limited by shares are also used for the establishment of closed-ended investment funds, with an investor's liability being limited to the amount paid or agreed to be paid in respect of their shares. Please see our Guide to exempted companies for more details. Segregated portfolio companies An exempted company may register as a segregated portfolio company (SPC), which is similar to a segregated cell company in many other jurisdictions. An SPC may establish any number of segregated portfolios. Assets and liabilities attributed to a particular segregated portfolio are legally separated from the assets and liabilities attributed to any other segregated portfolio. A creditor who is party to a contract involving a particular segregated portfolio will have restricted recourse and will be entitled to recover only against assets attributed and credited to the specific segregated portfolio to which the contract is also attributed. SPCs can be useful as multi-strategy vehicles and platform vehicles. Savings by using multi-strategy SPCs are often not as great as anticipated however and SPCs with multiple segregated portfolios do require a greater degree of care to ensure assets are properly segregated, contracts are entered into on behalf of the correct segregated portfolio and inadvertent cross-collateralisation does not occur. Please see our Guide to segregated portfolio companies for more details. Unit trusts Cayman Islands unit trusts are established under and governed by the Cayman Islands Trusts Act and, save as modified under that law, generally applicable principles of English trust law. With a unit trust, investors contribute funds to a trustee which holds those funds on trust for the investors and each investor is directly entitled to a pro rata share ...

This guide provides an overview of the powers, duties and obligations of a director of an exempted company incorporated under the Companies Act of the Cayman Islands (Companies Act) which is registered with the Cayman Islands Monetary Authority (CIMA) as a fund (Fund). This guide is limited to those Funds registered with CIMA under section 4(3) or 4(4)(a) of the Mutual Funds Act (a Mutual Fund) and those Funds registered with CIMA under the Private Funds Act (a Private Fund) as well as the law and practice of the Cayman Islands. Other duties, obligations and potential liabilities may also arise under the laws of other jurisdictions. Who are the directors of a Fund? There is no precise definition of a 'director' under Cayman Islands law. The directors of a Fund may be individuals or corporate bodies and they are the persons with ultimate responsibility for the management and conduct of the Fund's affairs. The first directors of a Fund (whether described as 'executive' or 'non-executive') are typically appointed by the initial subscribers to the Fund or otherwise in accordance with the articles of association of the Fund (Articles). The register of directors maintained by the Fund will be prima facie evidence of the identity of the directors from time to time. A person undertaking the activities of a director without being formally appointed may be found to be acting as a 'de facto director'. Also, if the duly appointed directors of a Fund are found to be acting in accordance with the directions or instructions of another person then that person may be found to be acting as a 'shadow director'. A person is not deemed to be a shadow director however by reason only that the directors act on advice given by such person in a professional capacity, so that an investment adviser of a Fund making recommendations to the directors as to the purchase or sale of investments should not usually constitute a shadow director. Executive directors, non-executive directors, shadow directors and de facto directors are all subject to the duties and obligations set out in this guide. Should I agree to act as a director of a Fund? When deciding whether or not to act as a director of a Fund, the following points should be considered: Who will be the other directors of the Fund? Will your fellow directors have the ability to work with you to properly coordinate the proper oversight and management of the Fund? Any other interests you may have in the overall structure of the Fund and its advisers or service providers. If you are a connected person (for example, a principal of the Fund's investment manager) you may want to consider either not sitting on the board of the Fund or making sure that you are in a minority position. These measures will reduce the potential for conflicts of interest to arise which could increase the risk of your actions later being challenged by the investors of the Fund as not being in accordance with your duties to the Fund. The expectations of the Fund's key investors. They may be comfortable with a board of directors comprised of connected persons or they may require the Fund to have one or more directors independent of the Fund's investment manager. This is something that you may wish to discuss further with the Fund's representatives and the Fund's current or proposed key investors before agreeing to accept any appointment as a director. You need to have sufficient and relevant knowledge and experience to discharge your duties as a director. It is up to you to acquire and maintain sufficient knowledge to enable you to carry out your role. You should use the Fund's professional advisers to provide advice on any areas or transactions of which you are unsure. In particular, you should ensure that you are able to properly read and understand the financial information relating to the Fund, including its financial statements. If there is anything that you do not understand, then you should promptly obtain professional advice. ...

This guide provides an overview of the powers, duties and obligations of a director of an exempted company incorporated under the Companies Act of the Cayman Islands (Companies Act) which is registered with the Cayman Islands Monetary Authority (CIMA) as a fund (Fund). This guide is limited to those Funds registered with CIMA under section 4(3) or 4(4)(a) of the Mutual Funds Act (a Mutual Fund) and those Funds registered with CIMA under the Private Funds Act (a Private Fund) as well as the law and practice of the Cayman Islands. Other duties, obligations and potential liabilities may also arise under the laws of other jurisdictions. Who are the directors of a Fund? There is no precise definition of a 'director' under Cayman Islands law. The directors of a Fund may be individuals or corporate bodies and they are the persons with ultimate responsibility for the management and conduct of the Fund's affairs. The first directors of a Fund (whether described as 'executive' or 'non-executive') are typically appointed by the initial subscribers to the Fund or otherwise in accordance with the articles of association of the Fund (Articles). The register of directors maintained by the Fund will be prima facie evidence of the identity of the directors from time to time. A person undertaking the activities of a director without being formally appointed may be found to be acting as a 'de facto director'. Also, if the duly appointed directors of a Fund are found to be acting in accordance with the directions or instructions of another person then that person may be found to be acting as a 'shadow director'. A person is not deemed to be a shadow director however by reason only that the directors act on advice given by such person in a professional capacity, so that an investment adviser of a Fund making recommendations to the directors as to the purchase or sale of investments should not usually constitute a shadow director. Executive directors, non-executive directors, shadow directors and de facto directors are all subject to the duties and obligations set out in this guide. Should I agree to act as a director of a Fund? When deciding whether or not to act as a director of a Fund, the following points should be considered: Who will be the other directors of the Fund? Will your fellow directors have the ability to work with you to properly coordinate the proper oversight and management of the Fund? Any other interests you may have in the overall structure of the Fund and its advisers or service providers. If you are a connected person (for example, a principal of the Fund's investment manager) you may want to consider either not sitting on the board of the Fund or making sure that you are in a minority position. These measures will reduce the potential for conflicts of interest to arise which could increase the risk of your actions later being challenged by the investors of the Fund as not being in accordance with your duties to the Fund. The expectations of the Fund's key investors. They may be comfortable with a board of directors comprised of connected persons or they may require the Fund to have one or more directors independent of the Fund's investment manager. This is something that you may wish to discuss further with the Fund's representatives and the Fund's current or proposed key investors before agreeing to accept any appointment as a director. You need to have sufficient and relevant knowledge and experience to discharge your duties as a director. It is up to you to acquire and maintain sufficient knowledge to enable you to carry out your role. You should use the Fund's professional advisers to provide advice on any areas or transactions of which you are unsure. In particular, you should ensure that you are able to properly read and understand the financial information relating to the Fund, including its financial statements. If there is anything that you do not understand, then you should promptly obtain professional advice. ...

This guide provides a high level summary of the main obligations for BVI investment funds under BVI automatic exchange of information (AEOI) legislation. The legislative framework The BVI Government is a signatory to: A Model 1B intergovernmental agreement with the United States (the IGA) which provides the framework for the implementation of the US Foreign Account Tax Compliance Act (FATCA) in the BVI The OECD sponsored Multi Competent Authority Agreement regarding the new common l reporting standard on automatic exchange of information (CRS, together with the IGA, the AEOI Agreements). As BVI entities are not directly subject to the AEOI Agreements, the key BVI statute in relation to tax information exchange is the Mutual Legal Assistance (Tax Matters) Act 2003 (MLAT) and the orders made under MLAT (together, the AEOI Legislation). The BVI International Tax Authority (ITA) is the designated Competent Authority under MLAT and is responsible for matters concerning tax information exchange. The ITA has issued guidance notes (the Guidance Notes) in relation to the US and UK IGAs which can be found here and in relation to CRS which can be found here. Funds as investment entities and therefore financial Institutions There are differences between all three of the AEOI Agreements which have been replicated in the AEOI Legislation in terms of the definitions and application to the business of any BVI fund. In practice, despite the differences, the majority of BVI investment funds fall within the definition of Investment Entity, under each of the regimes. There will be some very rare exceptions to this rule. Investment Entities are one of the types of Financial Institution under the AEOI Legislation. Under FATCA, the term Foreign Financial Institution is used, but for the purposes of this Guide we will refer to FIs or Financial Institutions. The majority of BVI funds will, subject to some very limited exceptions, be Reporting FIs. Reporting financial institutions Reporting FIs are required to comply with registration and reporting obligations imposed under the AEOI Legislation. The most notable obligations are: To register with the Internal Revenue Service of the United States (IRS) to obtain a global intermediary identification number (GIIN) (even if the Reporting FI has no US Reportable Accounts) either through the IRS FATCA PORTAL or through a paper submission. Registered Deemed Compliant Fis are also obliged to register with the IRS. To register with the ITA through its online portal, the BVI Financial Account Reporting System (the BVI FARS) To identify Reportable Accounts in accordance with the due diligence requirements set out in the AEOI Agreements, the relevant AEOI Legislation and the Guidance Notes To report annually to the ITA certain specified information with respect to any Reportable Accounts. Registration with the IRS A BVI fund which is a reporting FI is required by FATCA to register with the IRS within 30 days of 'starting business'. While a fund is not technically operating until it starts to accept subscription payments from investors, in reality, all funds will have to provide their GIIN numbers to banking and other counterparties at a very early stage of their creation in order to open accounts. It is therefore important to get this registration done as soon as possible after the vehicle has been formed. When registering for a GIIN, the IRS portal requires the name of a natural person to be listed as the FI's Responsible Officer (RO), despite the fact that under the US IGA this role is not mentioned. The application requires the RO to certify that the information provided is accurate and that the BVI fund will comply with its FATCA obligations. The RO should be someone with authority under BVI law to provide the confirmations and submit the information required by the application. A director or general partner of the fund would have this authority under BVI law and may delegate it to a third party such as the ...

These extremely popular and flexible funds are governed by the Securities and Investment Business (Incubator and Approved Funds) Regulations 2015, as amended (the Regulations) and the Incubator and Approved Funds Guidelines. The BVI has often been described as the "home" of the emerging manager and these two fund products further reinforce that message. The incubator fund is aimed at start-up managers looking to establish a track record and test a strategy in the most cost- efficient manner. The approved fund is aimed at managers looking to establish a fund for a small, private and longer-term offering in a tested and respected funds jurisdiction. In order to qualify as an incubator or approved fund, a fund must fall within the requisite thresholds regarding (i) the number of investors, (ii) the maximum value of its net assets and (iii) the minimum initial contributions by each investor (incubator funds only). An approved fund is also required to appoint an administrator to ensure suitable oversight of its operations. The key features of incubator & approved funds Rapid approval times by the Financial Services Commission (the Commission) ensuring that the fund can be launched within a timescale that meets the manager's requirements Light regulation and minimal ongoing regulatory obligations Limited mandatory information to be contained in an offering document means that the fund can operate using a short-form term sheet, keeping legal costs and time associated with set-up to a minimum Stripped back requirements for mandatory functionaries to be appointed (other than the appointment of an administrator for an approved fund). The manager can therefore elect to only appoint functionaries they believe the fund requires from the outset No requirement to conduct an audit or file audited financial statements The incubator fund has a two-year validity period (with the possibility to extend this by a maximum of 12 months on application to the Commission), which gives the manager time to test their strategy and determine whether the fund is viable before committing to operate as a private, professional or approved fund Option to convert to a private or professional fund at a later date, should the fund outgrow the applicable restrictions Ability to commence business within two business days of lodging a complete application for approval with the Commission Criteria for the incubator & approved funds Number of investors: Incubator and approved funds must have no more than 20 investors. Once this limit is met, the Regulations allow a reasonable time to upgrade the fund to the next level, ensuring a smooth continuity of operation Minimum investment: For incubator funds only, each investor must be a "sophisticated private investor", which simply means that they were invited to invest in the fund and must make a minimum initial investment of US$20,000. There is no prescribed minimum investment amount for approved funds Total assets: The net assets of an incubator fund must not at any time exceed US$20 million. The net assets of an approved fund must not at any time exceed US$100 million Valuation policy: The fund is required to maintain a clear and comprehensive policy for the valuation of its assets (Fund Property) with procedures that are sufficient to ensure that the valuation policy is effectively implemented. The valuation policy shall: Be appropriate for the nature, size, complexity, structure and diversity of the fund and the Fund Property Be consistent with the provisions concerning valuation in its constitutional documents and term sheet/offering document Require valuations to be undertaken at least on an annual basis Include procedures for preparing reports on the valuation of the Fund Property Specify the mechanisms in place for disseminating valuation information and reports to investors Minimum investor disclosures: Each investor must be provided with a written warning (either in a prominent place in the offering document or ...

This guide provides an overview of the British Virgin Islands' Approved Manager regime. The regime came into effect on 10 December 2012 with the Investment Business (Approved Managers) Regulations 2012 (the Regulations) and the Approved Investment Managers Guidelines (the Guidelines). It introduces a less onerous regulatory regime for BVI domiciled investment managers and investment advisers and compliments the more heavily regulated investment business licensing regime under Part I of the Securities and Investment Business Act 2010 (SIBA). The key features of the new regime are: For eligible managers and advisors, an alternative to licensing under Part I of SIBA The applicant must be a BVI company or limited partnership Application form provides for self-certification of "fit and proper" status of the applicant The approved manager can commence business seven days after filing a short and simple application with the Financial Services Commission (the Commission) pending formal approval The approved manager can act as manager or advisor to any number of incubator, approved, private or professional funds recognised under SIBA, as well as funds domiciled outside of the BVI in a Recognised Jurisdiction (as defined below) and closed ended funds domiciled in the BVI or in a Recognised Jurisdiction, if they have the key characteristics of a private or professional fund The approved manager is subject to caps of (i) aggregate assets under management of US$400 million for open ended funds and (ii) aggregate capital commitments of US$1 billion for closed ended funds Annual return and unaudited financial statements to be filed with the Commission No capital adequacy or professional indemnity insurance requirements and no requirement to appoint a compliance officer. The Regulatory Code does not apply At this point in time, a Recognised Jurisdiction for these purposes means: Argentina, Australia, Bahamas, Bermuda, Belgium, Brazil, Canada, Cayman Islands, Chile, China, Curacao, Denmark, Finland, France, Germany, Gibraltar, Greece, Guernsey, Hong Kong, Ireland, Isle of Man, Italy, Japan, Jersey, Luxembourg, Malta, Mexico, Netherlands, New Zealand, Norway, Panama, Portugal, Singapore, Spain, South Africa, Sweden, Switzerland, United Kingdom and the United States of America. Criteria for approved managers An approved manager may carry on business (defined as "relevant business" in the Regulations) as an investment manager or investment adviser to: 1. One or more incubator, approved, private or professional funds recognised under SIBA (or funds domiciled outside the BVI but in a Recognised Jurisdiction) 2. One or more closed ended funds which are domiciled in the BVI and have certain key characteristics of a private or professional fund 3. One or more open ended or closed ended funds which are domiciled in a Recognised Jurisdiction and have certain characteristics of a private or professional fund 4. One or more non-BVI funds (open ended or closed ended) investing a substantial part of its assets in a fund described in (a), (b) or (c) above 5. One or more persons who are affiliated (as defined in the Guidelines) to a fund described in (a) or (b) above 6. Such other person(s) as the Commission may approve on a case by case basis (the most common application under this section being for the purposes of providing some form of management advice to "managed accounts") Application process - timeframe An applicant must submit its application in the prescribed form to the Commission at least seven days prior to the intended date of commencement of the "relevant business". After the expiry of the seven day period (or such shorter period as the Commission may approve), the applicant may commence and carry on "relevant business" for a period of up to 30 days (such period being extendable for a further period of 30 days by the Commission). During this 30 day (or extended) period, the applicant will be deemed to have been approved under the Regulations....

Maintenance of records and financial statements A private or professional fund must maintain records that are sufficient to show and explain its transactions, to enable its financial position to be determined with reasonable accuracy at any time, to enable it to prepare financial statements and make returns and, if applicable, to enable its financial statements to be audited. A private or professional fund must prepare financial statements for each financial year that comply with: The International Financial Reporting Standards, promulgated by the International Accounting Standards Board UK GAAP US GAAP Canadian GAAP; or Internationally recognised and generally accepted accounting standards equivalent to the accounting standards referred to above Fund policies and arrangements The Fund is required to maintain a valuation policy setting out the applicable procedures for the valuation of fund property, the preparation of reports on the valuation and setting out the mechanisms for sharing valuation information with investors (Valuation Policy). On an annual basis, the Fund should review its Valuation Policy to ensure compliance with BVI legislation. Anti-money laundering obligations The BVI anti-money laundering (AML) regime applies to all funds as they are classified as "relevant persons" under the Anti-Money Laundering Regulations 2008. In addition to appointing an officer to the fund or another individual as MLRO (as mentioned above), a fund will be required to: Put in place investor on-boarding procedures which address typical "know your client" requirements Report suspicious transactions to the Financial Investigation Agency (FIA) in the BVI Report the identity of its appointed MLRO to the FIA Put in place and maintain a written and effective system of internal controls which provides appropriate policies, processes and procedures for forestalling and preventing money laundering and countering the financing of terrorism (the Manual). The Manual should be reviewed annually to ensure compliance with AML regime in the BVI. The BVI rules do provide for funds to outsource all and any of these obligations to functionaries based outside of the BVI, such as an administrator or investment manager. Any outsourcing must, however, be documented in writing. Obligations under FATCA and CRS? Private and professional funds are required to register for a Global Intermediary Identification Number (GIIN) with the US Internal Revenue Service. Funds are also required to enrol with the ITA. Enrolment for FATCA reporting is made through the ITA's online portal, called BVI Financial Account Reporting System, and for CRS is made by email to [email protected]. Private and professional funds will need to identify reportable accounts and start to report the necessary information to the ITA. The reporting deadline for US FATCA, UK FATCA and CRS is 31 May. The information that must be reported under US and UK FATCA and CRS is broadly similar and includes: the name, date of birth, tax identification number (TIN) (for Specified US Persons where available); National Insurance Number (for Specified UK Persons, where available); jurisdiction of residence (for reportable persons under CRS only); the account number; name and GIIN of the reporting financial institution; and the account balance (some minimums apply under FATCA).

The BVI benefits from a diverse offering of hedge fund products suited to everyone from the start-up manager setting up an incubator fund to established institutional fund managers with billions under management. Its pragmatic flexibility over the twenty-five years of prudent regulation has actually been a large driver for the popularity it has generated amongst the global investment funds community. The characteristics of the products available are set out below. If you need help choosing the most suitable product for your fund, please contact us. Incubator fund The incubator fund is aimed at emerging managers and allows them a two year incubation or "validity" period (with an extension of up to 12 months available with permission from the Commission) to establish a track record and test its viability. During that period, the fund can operate with light regulation, very limited mandatory service providers and without having to carry out an audit. An incubator fund must remain within the following thresholds: Having no more than 20 investors Each investor, having been invited to invest, must make a minimum initial investment of US$20,000 The net assets of an incubator fund must not at any time exceed US$20 million Before the end of the validity period (or, if earlier, when it exceeds the relevant thresholds for two consecutive months) an incubator fund is required to convert to a private, professional or approved fund. If the fund determines that it is not viable to continue, it is required to wind up its operations. The incubator fund is required to conduct an audit as part of its conversion to a private or professional fund. An incubator fund benefits from a fast track approval process, enabling it to commence business as an incubator fund two business days after submitting a complete application to the Commission. Approved fund The approved fund is aimed at managers looking to establish a fund with a private offering to a small group of investors on a longer term basis. An approved fund is restricted to: Having no more than 20 investors Having net assets which do not at any time exceed US$100 million The approved fund has similar characteristics to the private fund recognised under SIBA, including no minimum initial investment for investors. Unlike the private fund, the approved fund is not required to appoint an auditor. It is also not required to appoint a manager or a custodian, unless it is set up as an SPC (please see below for more details). It is required to appoint an administrator to ensure there is some suitable oversight of its operations. Like the incubator fund, the approved fund benefits from the fast track approval process, enabling it to commence business as an approved fund two business days after submitting a complete application to the Commission. Private fund Private funds do not have a minimum initial investment amount for each investor or any "professional" or "sophistication" test for investors. This has made them popular with start-up managers, allowing a friends and family offering. A private fund is restricted to either: Having no more than 50 investors, or Only making an invitation to subscribe for or purchase fund interests on a private basis Private funds must be recognised by the Commission before they carry on business. Historical policy guidelines issued by the Commission under the previous mutual funds regime suggested that a fund will be regarded as having commenced its business when a prospectus, or other document the purpose of which is to make an invitation to purchase or subscribe for shares of the fund, is published. Professional fund Professional funds are the most popular category of regulated fund and make up approximately 65 per cent of all regulated funds in the BVI. The interests in a professional fund may only be made available to "professional investors" and the minimum initial investment by each professional investor must not be less than US$100,000 (or other currency equiv...

This guide provides an overview of the British Virgin Islands' Approved Manager regime. The regime came into effect on 10 December 2012 with the Investment Business (Approved Managers) Regulations 2012 (the Regulations) and the Approved Investment Managers Guidelines (the Guidelines). It introduces a less onerous regulatory regime for BVI domiciled investment managers and investment advisers and compliments the more heavily regulated investment business licensing regime under Part I of the Securities and Investment Business Act 2010 (SIBA). The key features of the new regime are: For eligible managers and advisors, an alternative to licensing under Part I of SIBA The applicant must be a BVI company or limited partnership Application form provides for self-certification of "fit and proper" status of the applicant The approved manager can commence business seven days after filing a short and simple application with the Financial Services Commission (the Commission) pending formal approval The approved manager can act as manager or advisor to any number of incubator, approved, private or professional funds recognised under SIBA, as well as funds domiciled outside of the BVI in a Recognised Jurisdiction (as defined below) and closed ended funds domiciled in the BVI or in a Recognised Jurisdiction, if they have the key characteristics of a private or professional fund The approved manager is subject to caps of (i) aggregate assets under management of US$400 million for open ended funds and (ii) aggregate capital commitments of US$1 billion for closed ended funds Annual return and unaudited financial statements to be filed with the Commission No capital adequacy or professional indemnity insurance requirements and no requirement to appoint a compliance officer. The Regulatory Code does not apply At this point in time, a Recognised Jurisdiction for these purposes means: Argentina, Australia, Bahamas, Bermuda, Belgium, Brazil, Canada, Cayman Islands, Chile, China, Curacao, Denmark, Finland, France, Germany, Gibraltar, Greece, Guernsey, Hong Kong, Ireland, Isle of Man, Italy, Japan, Jersey, Luxembourg, Malta, Mexico, Netherlands, New Zealand, Norway, Panama, Portugal, Singapore, Spain, South Africa, Sweden, Switzerland, United Kingdom and the United States of America. Criteria for approved managers An approved manager may carry on business (defined as "relevant business" in the Regulations) as an investment manager or investment adviser to: 1. One or more incubator, approved, private or professional funds recognised under SIBA (or funds domiciled outside the BVI but in a Recognised Jurisdiction) 2. One or more closed ended funds which are domiciled in the BVI and have certain key characteristics of a private or professional fund 3. One or more open ended or closed ended funds which are domiciled in a Recognised Jurisdiction and have certain characteristics of a private or professional fund 4. One or more non-BVI funds (open ended or closed ended) investing a substantial part of its assets in a fund described in (a), (b) or (c) above 5. One or more persons who are affiliated (as defined in the Guidelines) to a fund described in (a) or (b) above 6. Such other person(s) as the Commission may approve on a case by case basis (the most common application under this section being for the purposes of providing some form of management advice to "managed accounts") Application process – timeframe An applicant must submit its application in the prescribed form to the Commission at least seven days prior to the intended date of commencement of the "relevant business". After the expiry of the seven day period (or such shorter period as the Commission may approve), the applicant may commence and carry on "relevant business" for a period of up to 30 days (such period being extendable for a further period of 30 days by the Commission). During this 30 day (or extended) period, the applicant will be deemed to have been approved under the Regulations....

Submission of annual returns Provision What to do and when? Regulation 16/Guideline 6.4 An Approved Manager must file an annual return with the Financial Services Commission (the Commission) no later than 31 January each year. The annual return must be in the prescribed form and must contain: 1. A statement that the Approved Manager is not in breach of the requirements of the Regulations 2. A confirmation that each director and senior officer of, and shareholder with a "significant interest" (generally speaking, more than ten per cent) in, the Approved Manager is fit and proper 3. Details, as at 31 December of the preceding year, of: 1. the funds (and persons) for which it provides services 2. the assets under management of each fund (and person) for which it acts 3. the number of investors in each fund for which it acts 4. any significant complaints received by the Approved Manager Renewal fee Provision What to do and when? Regulation 6(2)/Guideline 7.1 An Approved Manager must pay an annual renewal fee of US$1,800 to the Commission by 31 March of each year.* * Harneys Corporate Services' invoices for disbursements are distributed annually in November and are payable by 15 January. Payment of Registry fees Provision What to do and when? BVI Companies Act 2004 (as amended) For companies incorporated from 1 January to 30 June, pay the Registry licence fee by 31 May and for companies incorporated from 1 July to 31 December, pay the Registry licence fee by 30 November.* The Registry licence fee is US$550 for companies authorised issue up to 50,000 shares and US$1,350 for companies authorised to issue more than 50,000 shares. * Harneys Corporate Services' invoices for disbursements are distributed annually in November and are payable by 15 January. Preparation and submission of financial statements Provision What to do and when? Regulation 14(1)/Guideline 6.2 An Approved Manager must prepare financial statements for each financial year in accordance with either UK GAAP, US GAAP, Canadian GAAP, IFRS or such other recognised international accounting standards as may be approved by the Commission on a case-by-case basis. The financial statements do not need to be audited. Financial statements must be signed by a director and submitted to the Commission within six months of the end of the financial year to which they relate. Such statements must be accompanied by a director's certificate (in the prescribed form) and a report on the affairs of the Approved Manager. Directors and authorised representative Provision What to do and when? Regulation 13(1)/Guideline 6.1.1 An Approved Manager must at all times have: 1. At least two directors, at least one of whom shall be an individual (or in the case of a limited partnership, at least one general partner) 2. An authorised representative - this entity acts as the conduit between the Approved Manager and the Commission. An affiliate entity of Harneys Corporate Services (Craigmuir Authorised Representative Limited) provides this service Anti-money laundering/Countering the financing of terrorism Provision What to do and when? Anti-Money Laundering Regulations 2008 Anti-Money Laundering and Terrorist Financing Code of Practice 2008 Financial Services (Prudential and Statistical Returns) Order 2009 The BVI anti-money laundering regime applies to all Approved Managers as they are classified as "relevant persons" under the Anti-Money Laundering Regulations, 2008. In summary, an Approved Manager will be required to: 1. Put in place client onboarding procedures which address typical "know your client" requirements in respect of the funds (and persons) that will be clients of the Approved Manager 2. Appoint an officer or another individual as Money Laundering Reporting Officer 3. Report suspicious transactions to the BVI Financial Investigation Agency 4. Put in place documentation, such as a compliance manual, which outlines how the Approved Manager complies with the BVI antimoney laundering requi...

Reporting and financial statements An approved fund is required to prepare and submit the following to the FSC: Financial statements, which do not need to be audited but are required to be approved or signed by a director or the general partner of the fund, within six months of the end of the financial year to which they relate. An annual return, no later than 31 January containing the following information as at 31 December of the preceding year: the number of investors in the fund the total investments in the fund the aggregate subscriptions to the fund the aggregate redemptions paid to investors the net asset value of the fund any significant investor complaint received by the fund and how the complaint was dealt with a statement that the fund is not in breach of the requirements of the Regulations that allow it to continue as an approved fund Anti-money laundering obligations The BVI anti-money laundering (AML) regime applies to all funds as they are classified as "relevant persons" under the Anti-Money Laundering Regulations 2008. In addition to appointing an officer to the fund or another individual as MLRO (as mentioned above), a fund will be required to: Put in place investor on-boarding procedures which address typical "know your client" requirements Put in place and maintain a written and effective system of internal controls which provides appropriate policies, processes and procedures for forestalling and preventing money laundering and countering the financing of terrorism (the Manual). The Manual should be reviewed annually to ensure compliance with AML regime in the British Virgin Islands Report suspicious transactions to the Financial Investigation Agency (FIA) in the BVI Report the identity of its appointed MLRO to the FIA The BVI rules do provide for funds to outsource all and any of these obligations to functionaries based outside of the BVI, such as an administrator or investment manager (if the fund has one). Any outsourcing must, however, be documented in writing. Fund policies and arrangements The Fund is required to maintain a valuation policy setting out the applicable procedures for the valuation of fund property, the preparation of reports on the valuation and setting out the mechanisms for sharing valuation information with investors (Valuation Policy). The Fund is also required to have a safekeeping policy and have adequate arrangements in place for the safekeeping of fund property (Safekeeping Policy). On an annual basis, the Fund should review its Valuation Policy and Safekeeping Policy to ensure compliance with BVI legislation. Obligations under FATCA and CRS Approved funds are required to register for a Global Intermediary Identification Number (GIIN) with the US Internal Revenue Service. Funds are also required to enrol with the ITA. Enrolment for FATCA reporting is made through the ITA's online portal, called BVI Financial Account Reporting System, and for CRS is made by email to [email protected]. Approved funds will need to identify reportable accounts and start to report the necessary information to the ITA. The reporting deadline for US FATCA, UK FATCA and CRS is 31 May. The information that must be reported under US and UK FATCA and CRS is broadly similar and includes: the name, date of birth, tax identification number (TIN) (for Specified US Persons where available); National Insurance Number (for Specified UK Persons, where available); jurisdiction of residence (for reportable persons under CRS only); the account number; name and GIIN of the reporting financial institution; and the account balance (some minimums apply under FATCA).

Companies incorporated in the BVI are, by most measures, the most popular offshore holding structure in the world. Whilst offshore vehicles are used for a wide variety of different purposes globally, there are a number of common factors which feed into the success of the BVI product. Whilst the most popular BVI vehicles are companies, BVI trusts and partnerships are also increasing in popularity. Many of the BVI's advantages are common to numerous other jurisdictions (English language, absence of currency exchange controls, US dollar as a currency, stable democracy, common law legal system with final appeal to the Privy Council in London). A number of other advantages are not: Taxation BVI has no income tax, corporation tax, capital gains tax, wealth tax or similar fiscal laws. Whilst trading companies will normally pay taxation in the usual way in countries where they engage in business, using a BVI company as an intermediary holding company can create tax neutral layers in the corporate holding structure. Speed Subject to satisfying relevant KYC requirements, companies can be incorporated quickly by licensed registered agents via the BVI's online electronic interface, usually within 2 days. Names BVI companies may be incorporated with foreign character names (eg a Chinese name) in addition to their English name. Cost BVI companies are still comparatively inexpensive compared to other premium jurisdictions such as Cayman and Bermuda, and most mid-shores such as Hong Kong or Singapore. A vanilla BVI company can normally be incorporated for around US$1,750 inclusive of disbursements. Confidentiality Neither the register of directors nor the share register of a company is required to be publicly filed in the BVI. Although safeguards exist to prevent abuse of corporate confidentiality in relation to money-laundering and international crime, law abiding companies can exist with the confidence of privacy. Corporate flexibility Company law in the BVI is designed to provide the maximum flexibility consistent with common law legal systems. Companies are permitted to undertake any lawful act or activity, and there are no strictures relating to corporate benefit. The economic substance regime requires entities undertaking relevant activity, which are not tax resident outside the BVI in a suitable jurisdiction, to have adequate substance in the BVI. Capitalisation requirements BVI does not impose "thin capitalisation" rules or impose any general maintenance of capital requirements. Provided a company maintains cash-flow and balance sheet solvency, there are no limitations relating to its ability to distribute assets to its shareholders by way of dividend. A BVI company is expressly empowered to provide financial assistance to a third party for the acquisition of its own shares. Joint ventures BVI companies may adopt specific provisions in their corporate constitutions to abrogate the common law duties on directors to act in the best of interests of all of the shareholders in a joint venture, and instead free them to act for the benefit of the party appointing them. This flexibility has led to a number of high profile international joint ventures being structured through BVI holding companies. IPO ready For successful businesses, BVI companies are widely used in international capital markets as listing vehicles. Shares in BVI companies are listed in stock exchanges in London (LSE and AIM), New York (NASDAQ and the Big Board), Toronto, Hong Kong and Singapore, amongst others. Debt financing BVI has a quick and simple system relating to secured creditor registration which facilitates leveraging assets where a BVI company needs to do so in order to raise capital. The BVI also has the most developed insolvency system in the offshore world which, whilst not usually a great consideration for entrepreneurs, is normally a key factor for banks who are being asked to fund them. "Light touch" regulation Outside of certain very specific industries...

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