Updates on Economic Substance and Fund Annual Return (“FAR”) filings for Private Funds

Economic Substance requirements extend to Partnerships

On 29 June 2021 the Cayman Islands Government published the International Tax Co-operation (Economic Substance) (Amendment of Schedule) Regulations, 2021 and the International Tax Co-operation (Economic Substance) (Prescribed Dates) (Amendment) Regulations, 2021.  These amendments bring general partnerships, limited partnerships, exempted limited partnerships and foreign limited partnerships within the scope of the economic substance requirements with effect from 30 June 2021.

Partnerships, that satisfy the requirements of being relevant entities, are now required to notify the Tax Information Authority (TIA) of their operations in the Islands annually whether they are conducting relevant activities.  Partnerships that are conducting relevant activities must satisfy the ES Test and must file an annual return via the DITC Portal.

Partnerships that are not relevant entities (such as local partnerships licensed by the Trade and Business Licensing Act) and partnerships that are tax resident outside the Islands must notify the TIA of their operations but will be treated as out of scope for compliance with the ES requirements.  Accordingly, those partnerships will be exempted from having to satisfy the ES Test and will not have to file an annual return.

New economic substance guidance is available on the DITC’s website which can be found by clicking on this link

Economic Substance Notifications

Economic Substance Notifications (ESN) for the financial year commenced 2021 can now be submitted.  Entities wishing to submit their ESNs in advance of dissolution, liquidation and/or de-registration during 2021 may want to take advantage of this submission window.

Entities are encouraged to ensure they have been correctly classified on the ESN submitted via CAP and to ensure they are complying with all applicable requirements.

Further, for investments funds that are claiming the exemption from compliance with the ES obligations, those entities should provide CIMA/GIIN or FI numbers for themselves or for the investment fund that directly or indirectly invests/operates through the entity, if applicable.

Fund Annual Return (FAR) filings for Private Funds

In our 30 March 2021 newsletter we included updates on the Private Fund FAR Form (FAR Form).  To refresh, reporting requirements to be submitted via the FAR Form, when audited financial statements for 2020 are submitted to the Authority, are detailed in the Private Funds (Annual Returns) Regulations, 2021.

We await the publication of the FAR Form by the Cayman Islands Monetary Authority.  The deadline for filing audited accounts for 2020 and the FAR Form has been extended to 30 September 2021.  In the interim, Private Funds will not be subject to any penalties for non-compliance with section 13 of the Private Funds Act (2021 Revision).

AMS Law will issue a further update on the release of the FAR Form.

Please contact Stefanie Suckoo at stefanie.suckoo@amslaw.com or (345) 324-6382 to discuss how this may affect your business and how AMS Financial Group can assist you with compliance.

Understanding succession planning in the BVI – Part 3

We are pleased to bring you Part 3 of our series.  The full content of Part 1 and Part 2 can be viewed by clicking on the link.

Overview and Recap

We are in uncertain times but there are certain things we can control. Succession planning is one of these. This series investigates various succession tools that are available to people who own shares in BVI companies to facilitate the continued operation of a BVI company with minimum disruption following the passing of a shareholder.

Part 3 will focus on BVI Trusts in particular:

  • Standard
  • VISTA

Other topics to be covered in this series are:

  1. Private Trust Companies
  2. Joint Tenancy
  3. Memorandum and Articles of Association with cascading shares
  4. Private Placement Insurance Policies

BVI Trusts

Standard Trust

A trust can be an ideal solution in the right circumstances. The shareholder, who will be the settlor, transfers the shares to a trustee, who then has legal title to the shares and who has a fiduciary duty to protect and pass on the shares to the nominated beneficiaries of the settlor.  Moreover, the shares will generally not be available to the creditors of the settlor during the lifetime of or after the death of the settlor, there will be no need to obtain a Grant from the BVI Probate Registry and all information in relation to the shares/company will remain confidential.

A trust is also scalable – it can be set up simply as a Will substitute or it can be very tailored. It can be established to give the settlor effective control by reserving powers to the settlor such as the right to revoke or amend the trust, receive dividends and direct the trustee in relation to trust investments. However the trustee still has certain duties to the beneficiaries which the trustee would probably prefer not to have. Trusts are generally regarded as one of best “succession vehicles” but they have historically been hampered by a rule of law known as “the prudent man of business rule” which imposed onerous duties on the trustee to preserve the value of the trust investments.  To address the issues created by “the prudent man of business rule”, the BVI created the concept of the VISTA Trust.

VISTA Trust

VISTA is a piece of legislation enacted in, and unique to, the British Virgin Islands.

VISTA provides a structure for individuals seeking the protection and benefits of a trust, whilst not wishing to transfer day-to-day management of any underlying company to a trustee and offers a workable solution for family businesses and entrepreneurs. The legislation permits a shareholder to establish a trust of his/her company which frees the trustee from management responsibility and permits the company and its business to be retained as long as the directors think fit

Further, it exonerates a trustee from liability for holding company shares, rather than disposing of them. The legislation provides that the trustee’s duty to retain the shares has precedence over any duty to preserve or enhance their value or the value of the underlying assets in the company.

VISTA can be used in circumstances where:

  • the settlor wishes to, or needs to retain control of the underlying company;
  • the trustee’s involvement in the underlying company is inappropriate, perhaps due to a high degree of expertise, or risk;
  • the underlying assets of the company will comprise unusual or speculative investments;
  • the settlor wishes to ensure that the business of the company is continued by a named individual on his death.

Where the underlying assets are to compromise of speculative investments or the investments involve a degree of risk which would otherwise be regarded as inappropriate for the trustees of a non-VISTA trust.

VISTA has proved to be a very popular succession planning tool globally, particularly in Asia and South/Latin America.

How can the AMS Financial Group help?

AMS Financial Group (www.amsfinancial.com) is a global, dynamic organization with offices in the main financial centers, a strong infrastructure, know-how, staff and vision that provides real time solutions to corporate and private clients as well to the asset management industry.

 AMS Law has a wealth of experience in providing BVI trust structuring advice including the drafting of tailored trust deeds.

AMS Trustees Limited is licensed to act as the trustee of BVI trusts.

If you would like to learn more about how to put a BVI trust in place, please contact Philippa O’SullivanBarry Mitchell, Calvin Crilly or your usual contact at AMS Financial Group.

Understanding succession planning solutions in the BVI – Part 2

We are pleased to bring you Part 2 of our series, following on from the introduction provided by Part 1, which was published earlier. The full content of Part 1 can be viewed here

Overview and recap

We are in uncertain times but there are certain things we can control. Succession planning is one of these. This series looks into various succession tools that are available to people who own shares in BVI companies to facilitate the continued operation of a BVI company with minimum disruption following the passing of a shareholder.

Part 2 will focus on BVI Wills and Reserve Directors.

Other topics to be covered in this series are:

  1. BVI Trusts
    • Standard
    • VISTA
    • Private Trust Companies
  2. Joint Tenancy
  3. Memorandum and Articles of Association with cascading shares

BVI Wills

Under BVI law, in order to deal with the shares in a BVI company, a BVI grant of representation must be obtained. Until a grant is obtained, the shares are effectively paralysed and cannot be dealt with in any way.  The position is made worse when the single individual shareholder is also the only director. In such a case not only are the shares paralysed but the continued operation of the company is also paralysed as a new director cannot be appointed until such time as a Grant has been obtained. Where there are no directors, the annual fees of a BVI company may not get paid. Non-payment of fees can lead to a company being struck-off. Where a BVI company is struck off for seven years it automatically becomes dissolved. Once a company has been dissolved, it can only be restored to the Corporate Register by the BVI High Court, a costly and time consuming process. If an application to restore is not made within the 10 year period following the dissolution of the company no restoration is possible under the BVI Business Companies Act and there is no certainty that the assets of the company can be recovered.

The advantages of a BVI Will are that it will ensure that you:

  • do not lose control over how your shares are distributed in the event of your death;
  • make sure your shares pass on to the right people, in the right manner, as efficiently and effectively as possible;
  • will be able to appoint people you know and trust to be in control of the process;

Further advantages of making a BVI Will include:

  • reduced after death costs – a BVI will has the benefit of being written in English therefore the costs and time associated with getting a certified and qualified translation of the domestic will where written in a language other than English will not exist;
  • efficiency – the formalities associated with getting a BVI grant of probate can be addressed at the point of making a will rather than after death; and
  • parallel applications – with a BVI Will a BVI application for probate can run at the same time as a domestic application for a grant of probate. If there is only one non-BVI Will it is very difficult to run parallel applications.

Reserve Directors

Where a BVI company has a sole individual shareholder/director, people should consider appointing a reserve director. A Grant will still need to be obtained in the BVI but it allows the company to continue to operate while the Grant is being processed. It is a simple process.

How can the AMS Financial Group help?

AMS Financial Group (www.amsfinancial.com) is a global, dynamic organization with offices in the main financial centers, a strong infrastructure, know-how, staff and vision that provides real time solutions to corporate and private clients as well to the asset management industry.

AMS Law offers a BVI Will drafting service and also offers a special discounted rate to all clients with companies at AMS Trustees Limited.

AMS Trustees Limited can act as the executor to a Will as well as provide a reserve director where it is necessary.

If you would like to learn more about how to put a BVI Will in place,  how to appoint a reserve director or any of our other solutions, please contact Philippa O’SullivanBarry Mitchell, Calvin Crilly or your usual contact at AMS Financial Group.

Update on Fund Annual Return (“FAR”) filings for Private Funds

 

On 19 April 2021, the Cayman Islands Monetary Authority (the “Authority”) issued a Notice regarding the Private Fund FAR Form (the “FAR Form”).

Reporting requirements to be submitted via the FAR Form, when audited financial statements for 2020 are submitted to the Authority, are detailed in the Private Funds (Annual Returns) Regulations, 2021.

The Authority anticipates the FAR Form will be available by 30 June 2021 and to accommodate this release, the deadline for filing audited accounts for 2020 and the FAR Form has been extended to 30 September 2021.  In the interim, Private Funds will not be subject to any penalties for non-compliance with section 13 of the Private Funds Act (2021 Revision).

AMS Law will issue a further update on the release of the FAR Form.

Please contact Stefanie Suckoo at stefanie.suckoo@amslaw.com or (345) 324-6382 to discuss how this may affect your business and how AMS Financial Group can assist you with compliance.

Update on enhancements to BVI Trust and Probate law

 

The stakeholders in the BVI financial services industry have always taken great pride in constantly reviewing and looking to improve its offshore legislation. In keeping with this, the BVI has recently produced new legislation to modernise BVI trust legislation and simplify its probate procedures. Following is a summary of the most important of these changes.

Court variations to beneficial entitlements

The amendments provide the High Court with additional powers to vary the terms of a trust without the need for the consent of the adult beneficiaries. The High Court can approve such variations where it considers it expedient in all circumstances to do so. Various checks and balances have been built into the new provisions to prevent abuse but it is envisaged it could be very useful in certain situations where having to exercise powers in a certain way may be disadvantageous to beneficiaries.

Rule in Hastings-Bass

The rule in Hastings-Bass allowed certain decisions by trustees to be unscrambled on the basis that they had unintended consequences. The amendments to BVI law make it clear that the High Court has the power to set aside trustee mistakes. It will be particularly useful in situations where trustees have made poor decisions in relation to the exercise of a power, where such decisions have led to disadvantageous consequences to beneficiaries of a trust.

Reserved powers

The amendments expand the reserved powers provisions already contained in s 86 of BVI trust legislation and makes it explicit  that a settlor’s decision to reserve powers does not invalidate the trust, prevent its terms taking effect or cause any of its property to become part of the settlor’s estate on death. In addition the changes make it clear that the grant of powers by the settlor to others will also not invalidate a trust.

Conflict of laws ‘firewalls’ provisions

The firewall protections afforded by s 83A, making it clear that any questions arising in relation to the trust will be determined by BVI law rather than under potentially less favourable foreign laws. This is particularly useful in providing protection against forced heirship and matrimonial claims from foreign jurisdictions.

Third parties dealing with trusts

Due to the very nature of a trust, third parties and trustees were often reluctant to enter into contracts using a trust structure. In 2003 legislation was enacted which provided both third parties and trustees various protections when entering into a contract which reduced the perceived risks involved into entering into such contracts. However the changes only applied to trusts established after the legislation was enacted. The current amendments allow trusts established before March 2004 to take advantage of the changes made in the earlier legislation.

Probates (Resealing) Act, 2021

Prior to the amendment it was only possible to reseal a grant of probate in the BVI from a limited number of jurisdictions. The changes mean that a greatly extended list of jurisdictions will now be able to have a grant of probate resealed in the BVI pursuant to a simplified procedure. The new jurisdictions, which total 67, include Hong Kong, India, Singapore and the USA.

If you would like to know more about these changes, please contact Philippa O’Sullivan, Barry Mitchell, Calvin Crilly or your usual contact at AMS Financial Group.