Flexible and Innovative Legislation Ensures Continued Success in the BVI

By Sherri Ortiz, Chief Operations Officer,
BVI International Finance Centre

In the early 1980s, when the British Virgin Islands (BVI) launched itself as an offshore jurisdiction, all involved were hopeful of success. However, even the wildest of optimists amongst them would have been hard pressed to envisage the extraordinary growth the territory has achieved in this extremely competitive market.

The jurisdiction has long held the position as the leading offshore registry for international companies and within a generation the economy has risen to the extent where income per capita is approximately US$40,000 per annum. As a result, it is now one of the wealthiest places on the planet, not to mention one of the most beautiful.

It is the leading offshore domicile for company registrations, with around 750,000 companies registered here since 1984. This is more than any other jurisdiction by far, and the figures for this year are set to match, if not exceed, the impressive figures from last year which saw some 65,000 new BVI Business Companies registered.

Some would say that innovative and progressive legislation combined with the commercial approach to corporate governance and regulation have been the reason for this success, while others would cite the close collaboration between the public and private sectors. Most would probably agree that the combination of both has resulted in a winning formula that has given rise to this premier offshore jurisdiction.

It is also widely recognized that success relies on being able to react quickly to changing circumstances. As such, several pieces of legislation in the BVI have been revisited to ensure that they are relevant, effective and attractive to investors. The results are modern and up-to-date laws based on well-established principles, reflecting the current economic environment.

Business Companies Act

A good example of this innovative and progressive legislation took place on 1st January 2006, when the Business Companies Act 2004, (BVI BC Act) replaced the long-established International Business Companies (IBC) Act, the latter of which lay at the heart of the BVI’s development as a leading offshore jurisdiction.

This new legislation has created a flexible, forward-looking, and in many ways, radical framework within which highly sophisticated companies can operate effectively. It maintains all of the benefits of the IBC Act, but removes some of the more old-fashioned provisions, while introducing a handful of additional provisions to make the BVI Business Company a more effective transactional vehicle. It encourages flexibility for directors and shareholders of BVI registered companies while still retaining safeguards for creditors and minority shareholders.

The new BVI BC Act has had an impact on the funds sector with one of its principal aims being to provide increased choice in the range of corporate vehicles available, thereby adding the advantages of establishing an investment fund in the BVI. It has built on the old IBC Act by providing managers with more flexibility, including the ability to utilise Segregated Portfolio Companies and no stated par value shares as standard with no requirements to account for share capital. Other tangible and real improvements relate to the solvency tests for distributions and redemptions, which are now more flexible and straightforward under the BVI BC Act.

Such has been the success that, in Asia particularly, the BVI brand has become synonymous with the very concept of an offshore company. From international joint-ventures looking for a neutral - but legally secure - home to smaller businesses eyeing the benefits of flexible structures and tax neutrality, the BVI is frequently the first point of call. The jurisdiction is currently ranked as the second biggest investor into China and many people report that, both there and in Hong Kong, rather than giving a rationale to use a BVI company, a rationale for not using a BVI company has to be provided.

Investment Business in the BVI

The success in the British Virgin Islands has seen it develop a reputation as an attractive and established jurisdiction in which to domicile offshore funds. With some 2,500 funds now operating from within the jurisdiction, the BVI is the second largest domicile of hedge funds, with approximately 10% of the global market share.

The hedge fund industry has grown substantially since the introduction of the Mutual Funds Act 1996, which is the primary legislation governing the funds industry in the BVI, and the sector can now draw upon the support of more than 500 managers and administrators licensed in the Territory to provide fund support services to both mutual and hedge funds.

The legislation provides for three categories of regulated funds and it is this distinction between public, private and professional funds that is the core strength of the BVI and something which other jurisdictions have adopted, or intend to adopt. It allows a different approach to regulation wherein a relevant level of regulation is applied to respective categories of funds.

As a result, the BVI have been able to achieve efficiency in regulation which facilitates the commercial reality of having a hedge fund up and running in a timely manner. In fact, the distinction has permitted an average turnaround time, for the recognition of a private or professional fund, of 48 hours (assuming the application is in order). In addition, a professional fund is permitted to commence business up to 14 days in advance of recognition being granted, thereby facilitating the launch of such a hedge fund immediately after incorporation.

Another major factor where the BVI really scores is that it is significantly less expensive to establish and maintain a fund in the BVI than in its competitor jurisdictions. Legal fees and organisational costs to establish equivalent funds tend to be lower and the current annual fund and corporate registration fees are considerably less its main rivals. For those funds where cost is a significant factor, this is obviously an enormous benefit when choosing the BVI and unquestionably makes it the most cost effective jurisdiction for small-to-medium size managers to launch their funds.

However, the BVI attracts hedge funds of all sizes, because of the ease of incorporation and the flexibility of the regulation. The last couple of years have seen it attract some of the biggest names in the sector, further endorsing the maturity and attraction of the domicile on the world stage.

Last year, Fortis Prime Fund Solutions, one of the world’s foremost hedge fund administrators, made a firm commitment to the British Virgin Islands through the acquisition of Hedge Funds Services (HFS), one of the principal administrators operating in the Territory with approximately €2bn in assets under administration. Then, in October, Jersey-based law firm Ogier, one of the largest and most renowned offshore law firms in the world, announced their entry into the BVI through a merger with WSmiths, a BVI firm whose practice area focuses on investment funds and related securities business, particularly in Asia and Latin America.

Public / Private Partnership

However, sound legislation and prudent regulation can only go so far. It is the on-island professionals who do the hard work and provide the necessary expertise on a day-to-day basis.

The BVI is the only Caribbean jurisdiction to boast the presence of all six of the largest offshore law firms and also hosts the world’s top accounting and auditing practices. These professionals are supported by the Government under their commitment to encourage success and growth in the financial services industry.

The British Virgin Islands International Finance Centre (BVI IFC) also plays a supporting role by giving a voice to all segments of the finance sector while making sure the Territory retains the unique balance of a sound regulatory framework, an entrepreneurial business community and innovative legislation.

Those from the both public and private sectors recognise that their success is inter-dependent and, as such, the partnership between them is strong. This strength continues to enhance the growing popularity of the BVI’s financial services products thereby making the jurisdiction a destination of choice for the alternative investment community.

Contact Information:

Sherri Ortiz
Chief Operations Officer
BVI International Finance Centre
Haycraft Building, 1 Pasea Estate
Road Town
Tortola
British Virgin Islands

Tel: +1 284 494 1509

 

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