As a matter of BVI law, a BVI grant of probate has to be
obtained to allow shares in a BVI company to pass to the intended
successors. This can be a complex and time-consuming process,
typically involving a substantial degree of correspondence between
those involved, as well as potential translations of key documents,
together with accompanying affidavits and an affidavit of foreign
law.
Luckily for the younger generation we are increasingly working
with, the BVI business company model has inherent flexibility built
in around a company's memorandum and articles of association
(M&A). A growing trend currently sees all parties ensuring that
ownership and control passes from the primary shareholder to their
intended successor automatically by amending the M&A.
Simply put, this entails the creation of two classes of share,
one of which is held by the primary shareholder and ceases to hold
rights on the primary shareholder's death, and the other held
by the intended successor, which attains right on the primary
shareholder's death.
This method of succession planning ensures that the intended
beneficiaries immediately and automatically control the shares in
the company, as designated, and are entitled to appoint their own
directors to manage and operate the company accordingly.
Other traditional succession planning tools which may be
considered include the use of trusts, Virgin Islands Special Trusts
Act (VISTA) or indeed making a BVI will to cover BVI situs
assets.
The crucial point here is that wealth and succession planners
are now having these conversations as soon as an offshore entity is
created, not 35 years down the line when it is often too late.
Where offshore investors used to only focus on today, the new
generation is equally as concerned about tomorrow.
Innovative investment structures
Another key development seen across the industry in recent years
is the rise of private clients using some of the most innovative
structures to facilitate increased offshore investing.
To this end, there has been a surge in the number of
'incubator' funds being used to allow people to attract and
pool investment and manage their own fund. These lightly regulated,
short-term investment vehicles were created to provide the ability
to set up and run a cost-efficient licensed fund that allows
investors to withdraw their funds on demand.
The BVI's incubator fund rules incorporate a "20-20-20
criteria" – the fund can have a maximum of 20 invited
investors, each of whom must make a minimum initial investment of
$20,000 and the fund cannot exceed $20 million in relation to the
aggregate value of its assets.
Increasingly, private clients are using these constructs as a
means of managing their own fund and to attract co-investment.
Offshore funds can be subject to significant administration and
oversight, but the BVI incubator fund was designed to minimise
costs and simplify the process while at the same time allowing the
manager to launch the fund in a jurisdiction with a strong
international reputation.
There are no requirements to appoint fund functionaries and no
need to have an auditor. In addition, there is no requirement for
an offering memorandum, and reporting obligations to the BVI's
Financial Services Commission (FSC) are limited.
Ultimately, the rise of these new structures is allowing clients
to do more with their wealth, work more efficiently with other
business partners and build their track record as a fund
manager.
Privacy vs transparency
At present, the BVI is facing a number of upcoming regulatory
developments from both the European Union and the United
Kingdom.
The BVI Government maintains that it will not implement public
registers of beneficial ownership unless they become a global
standard, in spite of the UK Government recently stating its
intention to enforce such registers on its Overseas Territories by
Order in Council by 2020.
What's more, we also face the possibility of clients having
to report to a greater level of detail on their offshore businesses
as a result of the Common Reporting Standard (CRS) and increased
regulation concerning the Foreign Account Tax Compliance Act
(FATCA).
Privacy is a significant issue for many clients seeking wealth
and succession advice in the BVI. For many reasons, including
safety and security, people wish to have their most personal
financial issues to remain private. Private wealth issues
inevitably involve families and sensitive information which most
people would prefer to remain out of the public domain.
That said, while this wave of regulation will probably affect
some clients, it will also serve as a huge boost to the banks and
financial institutions recommending that their clients do business
offshore. As a leading international finance centre, well respected
for its financial regulation, transparency and exchange of
information, the BVI is well placed to benefit from increasing
reporting standards driving global banks to seek out the most
reputable jurisdictions in which to conduct their business.
Economic substance opportunity
One of the primary reasons the BVI has maintained its position
as a leader in offshore investment and financial planning is a
constant readiness to take on the next challenge and seek out new
opportunities.
A key example of this is the implementation of the European
Union's economic substance requirements which call on all
offshore entities to demonstrate a certain degree of on-island
"substance", such as locally based directors or in some
cases offices and employees.
We expect guidelines on how BVI-based entities will need to
comply to serve as both a challenge and an opportunity for the
jurisdiction.
While many private clients hold assets other than shares within
their structures - meaning they will most likely fall outside the
scope of the economic substance rules - for others there will be a
need to plant roots in the BVI.
The impending European Union rules provide an opportunity to
strengthen and broaden our wealth and succession-planning offering,
allowing us to work more closely with other businesses and
professionals in the jurisdiction, and ultimately create an even
better service for clients.
This article was first published by WealthBriefing, 23rd May
2019. You can download this article here.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
