Since the BVI’s Financial Services (Exemptions) Regulations, 2007 (as amended, “the PTC Regulations”) came into effect, the BVI has become the jurisdiction of choice for private trust companies. Over one thousand such companies have so far been established.
Background
The PTC Regulations enable unlicensed private trust companies (PTCs) to be established in the BVI if the company satisfies a number of conditions which are not, in our experience, too onerous to comply with.
PTCs enjoy the benefit of limited liability and perpetual existence which are usually the features of corporate vehicles and have the following further advantages:
- The principal advantage of a PTC is that, like the BVI’s Virgin Islands Special Trusts Act or VISTA legislation, the establishment of a PTC generally enables settlors or settlors’ family members or their appointees to exercise a significant degree of control over trustees’ decisions by being directors of PTCs; this enables them to respond quickly to issues which arise and to make decisions on the basis of their own personal knowledge and changing circumstances.
- The corporate structure is readily understood by non-professionals, especially those from non-trust jurisdictions and can be easily integrated into a family office or commercial structure.
- Confidentiality is preserved and this is an issue which is of increasing importance to those from jurisdictions where concerns over financial privacy are driven by issues of personal safety.
- A PTC enables the trustee’s charges to be kept in check.
- PTCs are often set up in circumstances in which the underlying assets of a trust are to comprise speculative investments or investments which involve a degree of risk which might be regarded as unacceptable to a risk-averse professional trustee.
Conditions with which a BVI PTC had to comply before the recent reforms
The conditions with which a BVI private trust company must comply were, until the recent amendments to the Regulations, essentially, as follows:
- The company must be a BVI company (whether or not it was first incorporated in the BVI, so that companies which have been “continued” in the BVI now also qualify); this would naturally mean, amongst other things, that the general requirements of the corporate and regulatory laws of the BVI must be satisfied.
- The company’s memorandum must state that it is a private trust company.
- The company must be a limited company and its name must include the designation “(PTC)” before its permitted ending.
- The company’s registered agent must hold a class 1 trust licence under the BVI’s Banks and Trust Companies Act, 1990.
- The company must not solicit trust business from members of the public.
- The company must carry on no business other than that of being the trustee, protector or administrator of trusts (or managing or administering trusts) (but now see below).
- All the company’s trust business must be “unremunerated trust business” and/or “related trust business.” These terms are explained immediately below.
Unremunerated trust business
Although the term “unremunerated trust business” was defined widely to prevent potential abuse, in most cases a company would have been regarded as carrying on as such business where no remuneration was paid to the company or anyone associated with it in respect of the provision by the company of its trustee services. However, it has always been permissible for payments to the company to cover its legitimate expenses (such as the government’s incorporation and renewal fees, the fees of otherwise unconnected professional advisers, and the fees of the registered agent) since this will never, in general, be regarded as remuneration for these purposes. Additionally, the Regulations provided that “professional directors,” who were not otherwise associated with the company, could be remunerated.
Related trust business
A company will, on the other hand, be regarded as carrying on “related trust business” where all the beneficiaries of the trust (or trusts) of which it is trustee are related (in the manner specified in paragraph 3 of the PTC Regulations) to its settlor. And, in the case of multiple trusts, the trusts either have the same settlor or else the settlors of all trusts of which the company is trustee are related in the prescribed manner to each other. However, the trust’s beneficiaries may also include the settlor (or settlors) or the trust (or trusts) and/or charities.
Review of PTC Regulations
A review of practical issues, which came to light since the PTC Regulations originally came into force 14 years ago, was undertaken with a view to identifying issues where improvements were desirable, and, as a result, the PTC Regulations have now been amended to address two issues of potential uncertainty.
Abolition of the requirement that a PTC can only carry on “trust business”
As indicated above (under the heading Conditions with which a BVI PTC had to comply before the recent reforms), prior to recent amendments, the Regulations provided that a PTC was prohibited from carrying on any business that is not trust business. It was considered that this restriction created an element of uncertainty in relation to what a PTC could and could not do. Although many took the view that a PTC would not, as a consequence, be prohibited from undertaking activities which are ancillary to acting as trustee, this was not spelled out in the Regulations, giving rise to potential uncertainty. The restriction has therefore been repealed in its entirety by the Financial Services (Exemptions) (Amendment) Regulations 2021 (the 2021 Amendment Regulations), so that is now quite clear that a PCT can undertake ancillary activities such as opening bank accounts (on its own account), purchasing trust property, and acting as enforcers of non-charitable purpose trusts and as council members of civil law foundations.
We should, however, stress that it does not follow from the removal of this prohibition that a BVI PTC will be able to carry out other regulated activities for which other forms of license are needed, or, indeed, any activities which are otherwise illegal.
As a result, it is now clear that BVI PTCs are capable of having all the powers of a BVI business company in addition to being able to act as protector or trustee.
Directors’ remuneration
Also, as indicated in the above summary of the conditions which a PTC had to satisfy in order to qualify for the unremunerated trust business head of the exemption, it was a requirement for eligibility under that head (but not under the related trust business head) of the exemption that not only must the private trust company itself receive no remuneration in return for the provision by it of trustee services, but that its directors must also be unremunerated unless they were acting in a professional capacity. The term “professional,” however, was not defined, giving rise to further uncertainty (and possibly an element of circularity to the extent that the view is taken that the test of whether a director will be regarded as acting in a professional capacity is if a charge for the relevant services is made).
The PTC Regulations have now been amended by the 2021 Amendment Regulations so that it is no longer a requirement of the PTC Regulations that a director of an otherwise unremunerated PTC cannot receive remuneration as a condition for eligibility for the unremunerated trust business head of the exemption. It does not, however, follow from this reform that directors who are regarded as being “associated” with the PTC (within the meaning of the PTC Regulations), such as those with a legal or beneficial interest in its shares or employees, will be able to receive direct or indirect remuneration without jeopardising the PTC’s eligibility under the unremunerated trust business head of the exemption.
It is considered that these two amendments should serve the argument of the attractiveness of BVI PTCs.
Why the BVI is increasingly selected as a jurisdiction to incorporate private trust companies
The BVI is increasingly selected as one of the leading jurisdictions to incorporate PTCs for the following reasons:
- Provided all the conditions specified above have been satisfied, no licence is needed and a BVI company can be incorporated very quickly.
- It is not necessary to have a local director or authorised representative (or indeed a director with relevant qualifications or experience).
- There are no capitalisation requirements for exempt PTCs.
- The company need not establish a physical presence in the BVI.
- The costs of setting up and running the company are extremely competitive: The Government’s fee will in most cases only be an additional US$900 (i.e., a total of $1,250 including the Government’s incorporation/renewal fee) on incorporation and annually thereafter.
- There is no need to list particular trusts in the company’s memorandum.
- Only the PTC’s memorandum and articles of association, which are likely in most cases to be fairly standard documents revealing little more than the name of the company and the identity of its registered agent, will be filed publicly and (except in cases of abuse) there is no need to supply the regulatory authorities with copies of the trust documentation or to disclose the identity of the settlor or beneficiaries of the trust; the company’s registered agent must instead be provided with copies of the relevant documents.
- With approximately 500,000 active companies on its register, the BVI is regarded as the world’s leading international financial centre for international business companies.
The above amendments to the PTC Regulations, which came into force on 9 July 2021, were made following recommendations from the Trust and Succession Law Review Committee of the BVI Branch of the Society of Trust and Estate Practitioners (STEP). The Committee is chaired by O’Neal Webster Partner Chris McKenzie and was formerly chaired by O’Neal Webster Managing Partner Vanessa King, who still serves on the committee. Ms. King is also chair of the BVI Branch of STEP and was recently elected as chair of STEP’s Caribbean and Latin America Regional Committee.
If you would like any further information about these reforms, please contact Christopher McKenzie or your O’Neal Webster advisor.
