The British Virgin Islands (BVI) is a well-respected and sophisticated jurisdiction for the establishment of trusts. The general principles of BVI trust law are derived from those of English trust law as developed by the English courts of equity. Indeed, the principles of English common law and equity can be applied directly in the BVI by virtue of the Common Law (Declaration of Application) Act 1705 and the Eastern Caribbean Supreme Court (Virgin Islands) Act, as supplemented or modified by specific statutory provisions to offer a variety of flexible and user-friendly trust structuring options.
The main legislation in the BVI governing the creation and administration of trusts generally can be found in the British Virgin Islands Trustee Act of 1961, which was based on the English Trustee Act 1925. The BVI Trustee Act 1961 was amended in 1993, 2003 and most recently in 2013. Other significant trust legislation in the BVI includes the Virgin Islands Special Trusts Act 2003 (as amended by the Trustee (Amendment) Act of 2013) which creates a special type of trusts (known as the “VISTA” trusts). VISTA trusts have gained increasing popularity over the years, particularly to Chinese clients who wish to balance succession planning with wealth management.
Trust law in the BVI offers a high degree of privacy. Deeds creating BVI trusts and all other deeds executed pursuant to the terms of the trusts are exempt from registration under the Registration and Records Act. Trustees are also exempt from any reporting or filing requirements. These exemptions apply retroactively to deeds not filed or registered prior to 1 November 1993. Chinese HNWIs can take comfort that the terms, or the bare existence, of BVI trusts would remain confidential.
BVI trusts offer asset protection in a number of ways. Some Chinese HNWIs prefer to use BVI trusts to hold assets in a stable economic and political environment. Other risks such as confiscation or expropriation by governmental authorities may also be reduced. Another aspect relates to the transfer of legal title of the assets to the trustees upon creation of the trusts, as some Chinese HNWIs may have concerns over administration of the assets by the trustees. Under BVI law, trustees are required to deal in the trust assets in strict accordance with the terms of the trust instrument and are generally under fiduciary duties to exercise their powers in the best interests of the beneficiaries and to act prudently in preserving the value of the assets.
The BVI offers a tax neutral position with no estate, gift or income taxes for individuals or companies in the BVI. So there is no issue of double taxation in multi-jurisdictional wealth management structures.
Trusts are private arrangements which require no registration or filing and the cost of setting up a trust in the BVI is minimal. No taxes are payable in respect of trusts created in the BVI which are governed by BVI law on the basis that none of the beneficiaries is resident in the BVI, the trust assets do not include land in the BVI and that the trustees do not, in their capacity as trustees, carry on any business or trade within the BVI.
Although no stamp duty is payable in relation to trust instruments created for the benefit of beneficiaries resident outside of the BVI, a sum of US$200 duty is payable on instruments which change the proper law of a trust from another jurisdiction to the BVI or which create lifetime BVI trusts (bare trusts and exclusively charitable trusts are exempt). No duty is payable in respect of supplementary documents, instruments adding property to existing trusts or counterparts/duplicates.
Harneys have vast experience assisting Asian HNWIs and family offices in structuring BVI trusts to address concerns such as preservation of wealth and succession planning. Offshore trusts are particularly attractive to Chinese clients since the current legal and regulatory systems in China operate on the principle of “one property, one right”, which creates difficulties in preserving assets by way of transfer of legal ownership to trustees. However, it is often a challenge to persuade Asian clients to transfer their assets to third party trustees, as trustees may not share the same management or investment approach to specific trust assets, not least because trustees are generally required to act prudently in safeguarding the value of trust assets.
The BVI offers the best solution by introducing VISTA trusts, which adds a layer of holding company owned by the trustees to hold the assets. Management and control of trust assets lie with the board of directors of the company who are often the settlors, their family members or trusted advisers. The trustees cannot interfere in the management or investment of the underlying trust assets (except in extreme circumstances). VISTA trusts are therefore particularly useful when family business or corporations are involved in succession planning.
The BVI Trustee Act was last amended in 2013 to introduce more flexibility in BVI trusts. Generally, the maximum trust period has been increased from 100 to 360 years for trusts established after 16 May 2013 (except charitable or purpose trusts which may exist indefinitely). Key changes have also been made to the use of VISTA trusts and private trust companies (PTCs).
BVI trusts which are not VISTA trusts may now be converted into VISTA trusts (subject to certain conditions) as long as one of the trustees is a PTC or a trust license holder, which means that individuals or non-BVI companies can be co-trustees. Declarations in VISTA trust instruments may state that certain aspects of the statutory regime be revoked, suspended or triggered by specific events or by a directions from an individual or committee. This allows VISTA trusts to be tailored. Apart from acting as trustees of VISTA trusts, PTCs may now act as trustees of BVI purpose trusts too and changes have been made to the definition of “designated person” as trustees of purpose trusts.
These are just some of the changes recently made to the BVI trust regime which continues to offer a variety of flexible and user-friendly options for investors.
Contributed by:
Harney Westwood & Riegels
Fiona Chan, Hong Kong
