Setting up an investment fund in the British Virgin Island – 0% tax on investment income!
If your company is planning to raise external funds and use these funds to invest in crypto projects, this will typically require some type of licensing. In the EU and Asia, these licenses are usually expensive to secure, not to mention that it also takes some time.
A popular alternative jurisdiction for performing investment fund activities are the British Virgin Islands. The licenses are easier to secure, and at the same time, it is much more cost-effective.
There is a relatively new investment fund regime in the British Virgin Islands, which you should be aware of should you decide to choose the British Virgin Islands as your designated jurisdiction for running your investment fund.
Below you will find the current regime on investment funds in the British Virgin Islands:
- Funds that are created privately (friends, family, close business partners) where the investors are also direct shareholders in some capacity are not regulated and the activities can be done through a simple company set up;
- An Incubator fund is a fund where the maximum number of investors during this time is 20 and each one must invest at least US$20,000. The incubator fund’s net assets may not exceed US$20 million at any time. At the end of the validity period of 2 years, the fund must convert to another type of fund. An Incubator fund is typically used to check the validity of the fund, which is why it gets a validity period of 2 years.
- The Approved fund is for fund managers who want to establish a private offering to a small group of investors on a longer-term basis. The number of investors is capped at 20 and net assets may not exceed US$100 million. However, there is no minimum initial investment required and the fund is not required to appoint an auditor, a manager or a custodian.
- Private funds are funds that do not have a minimum initial investment amount for each investor or any “professional” or “sophistication” test for investors. To qualify as a private fund, the fund must either have no more than 50 investors or only make a private invitation to subscribe for or purchase fund interests. Private funds must be recognized by the FSC (the regulatory body in the British Virgin Islands) before they carry on business. A fund will be regarded as having commenced its business when it publishes a prospectus or other document inviting to purchase or subscribe for shares of the fund (this type of fund is relatively new and was not regulated until recently).
- Professional Funds are aimed at professional investors or high net worth investors and typically have a minimum initial investment requirement of US$100,000;
- Public Funds are divided into “ordinary” mutual funds sold to the general public and “selective” mutual funds sold on a selective basis through intermediaries. There are no minimum investment criteria, but they are subject to more extensive regulation than private or professional funds.
DBI’s suggestion when setting up an investment fund in the British Virgin Islands moving forward:
– Incorporate with the premises that shareholders funding will be used
– Once incorporated, DBI will monitor the activity and see if a fund license will be necessary at some point in the future. Luckily, there is a period between performing the activity and the deadline for submitting the license application (3 weeks);
– Once licensing is necessary, DBI can request this.
Although the introduction of the private fund regime provides an additional layer of regulatory obligation in the British Virgin Islands, there is still a lot of merit in setting up an investment fund in the British Virgin Islands instead of requesting such a license in an EU-country, as the application costs in the British Virgin Islands are not high (relatively) and the regulation itself is ‘’lighter’’ than a typical EU central bank. There are also many tax benefits in performing investment fund activities in the British Virgin Islands.
Contact DBI today and find out what your options in the British Virgin Islands are!