The BVI is a well-recognised international financial centre for high and ultra-high net worth clients and families looking to structure their affairs for asset protection and succession planning purposes. The jurisdiction has sophisticated and flexible trust legislation allowing for Private Trust Companies (PTCs), standard discretionary trusts and the well-known VISTA trust. With its experienced and mature trustee service providers and Court connection to the United Kingdom, it instils confidence.
Recently, there have been no notable changes in trust legislation, but it is the changes in the arenas of compliance, regulation and reporting that have had the most impact for BVI trusts and BVI trustee services. For the PTC this includes the latest EU initiative - economic substance.
It is assumed that most readers have a good understanding of the PTC structure, but just to recap - a PTC is a company formed for the specific purpose of acting as a trustee of a single trust or group of related trusts. It operates in the BVI without being required to be licensed by the BVI Financial Services Commission (FSC) relying on an exemption provided under the Financial Services (Exemptions) Regulations, 2007 (the PTC Regs), which states that a PTC shall be exempted from licensing and regulation under the Banks and Trust Companies Act 1990 (the Law) should it satisfy certain conditions, such as it does not solicit from or provide trust business services to the public, and compliance with the PTC Regs is monitored by a Registered Agent (RA). The choice of RA, which must hold a Class 1 trust licence issued under the Law, is an important consideration when establishing a PTC.
The directors of the PTC tend to be members of the family. In some cases, they are also individuals from the RA and/or trusted advisors of the family, such as lawyers. Whilst the shares of the PTC can be held by family members, they tend to be held in a purpose trust or foundation.
Putting tax aside, clients tend to have two main questions regarding the PTC which are: (1) Due to all the various changes in regulation, compliance and reporting, how confidential and safe is my information? and (2) Should I use a PTC or would I be better asking a professional independent BVI trust company to act as trustee of the trust?
How Private Is A Private Trust Company?
Despite the ‘moral’ push for transparency, many clients still want privacy and confidentiality as well as some say in how their personal information is dealt with and exchanged between providers and authorities in various countries.
Whilst a PTC is certainly not an Apple iPhone, it could help to give the family some input and control in relation to how their information is dealt with.
Where the family provides the directors to the board then the RA will, via VIRRGIN (the Virtual Integrated Registry and Regulatory General Information Network)), report to the Registry of Corporate Affairs fairly standard details relating to each individual director. This information is for BVI purposes only and is not reported on to any other authority. This information is not available to the public unless the directors resolve to make a public filing.
Generally, the shares of the PTC are held in a purpose trust, the trustee of which is the RA. The trust will have no income or beneficiaries. For BVI purposes, via BOSS (the Beneficial Ownership Secure Search system), details of the RA are provided as the controlling person. If the trust has an enforcer, details of the enforcer are provided too.
BOSS is regarded as extremely safe and secure and is encrypted. There is no public access, with other access being tightly restricted to a limited number of persons in the BVI. A RA can only see information it has filed and not information filed by any other RA. Whilst external authorities may apply to be provided with information held on BOSS, in respect of a particular individual or company, there is no guarantee the information will be provided and such external authorities are not permitted to undertake ‘fishing expeditions’. Importantly, like VIRRGIN, information held on BOSS is not automatically exchanged with outside authorities.
In terms of the BVI trust of which the PTC will act as trustee, whilst there is a US$200 stamp fee for new BVI trusts, details relating to the trust are not filed on any public trust register and there are currently no plans to introduce such a register in the BVI.
The RA will be a trust company regulated by the FSC. Therefore, it has various compliance and regulatory obligations and responsibilities. If the RA only provides registered agent and registered office services (no director to the PTC) together with trustee of the trust holding the shares of the PTC then, under the various BVI laws and regulations, it will require standard client due diligence (KYC) for the directors and the enforcer, and a copy of the trust deeds of any trust to which the PTC acts as trustee. Since the PTC is its client, then arguably the RA should not need to be provided with KYC in respect of any settlor of the underlying trusts or the beneficiaries.
The RA is also not required to hold any financial information relating to the PTC (although it must know where such information is held) or the underlying trusts.
CRS (Common Reporting Standards) and FATCA (Foreign Account Tax Compliance Act) are complicated and professional advice should always be sought. However, based on the scenario outlined above, neither the PTC nor the underlying trusts are required to undertake any reporting in the BVI since they are regarded as non-reporting entities. In respect of the trust that holds the shares of the PTC, the RA has little to report since it is the trustee and there are no beneficiaries or income.
One of the most recent significant legal developments in the BVI relating to PTCs is the introduction of the economic substance regime. In the BVI, economic substance was introduced on 1 January 2019 by the Economic Substance (Companies and Limited Partnerships) Act, 2018 and, in short, relates to all BVI companies (which includes PTCs) and limited partnerships with legal personality.
However, fortunately for the PTC, the new economic substance imparts few obligations. The business of being a PTC is not a ‘relevant activity’ in itself. PTCs will usually be outside the scope of the economic substance requirements under the Act. Therefore, a PTC will need to have no more substance in the BVI than having a RA and a registered office, which it is already required to do under the BVI Business Companies Act, 2004 (as amended). In terms of dealing with economic substance, it should be noted that the PTC will still need to confirm each year to the RA that it is not conducting a relevant activity so that the RA can make a relevant submission to the BVI International Tax Authority.
Overall, it should be clear that it is possible for a client/family to establish a BVI PTC with some confidence in relation to the BVI’s treatment of its private and confidential information since the amount of information that needs to be held in the BVI to satisfy the high international standards is proportionate.
What Are The Key Differences Between A PTC And A Professional Trust Company As Trustee?
There are a number of aspects which can be overlooked in the decision-making process as to whether a PTC or a professional trustee is the best option for the family concerned.
The immediate focus is normally on costs and taking this in isolation can lead to a bad decision. When assets are managed by a professional trustee, the client is paying for their years of specialist industry experience, the fact that they are often long established businesses with strong balance sheets, have multi-jurisdictional expertise, are regulated in their domestic jurisdictions, and have the backing of fully comprehensive professional indemnity insurance (although care needs to be taken in examining standard terms and conditions to make sure that the exclusion terms are not overly favourable to the trust company).
Whilst some BVI PTCs do seek indemnity cover, the market is specialised and premiums in the London market have increased in recent years.
Trusts can hold all manner of businesses and diverse types of asset classes. Whilst the professional trustee has staff who are experienced in their own industry, their knowledge may not extend to certain types of asset held in the trust structure. They will therefore require comfort from experts when asked to make decisions. The cost of the experts is an additional cost to the structure but, more importantly, the kind of decisions normally requiring an expert are commercial decisions that have to be taken under time pressure and the opportunity can pass because it may not be possible to get the trustee comfortable in time. That can put the beneficiaries on a collision course with the trustee and can lead to a frustrated relationship at times.
With a PTC, you would expect its board to be comprised of people with expertise in any key asset classes in which the trust fund is invested. The expertise is therefore immediately available to the decision-making body.
As part of their regulation, professional trustees will be subject to extensive internal risk policies. It may be that what is acceptable one year in terms of asset classes, investment strategy or geographic spread, is not acceptable the following year. Changing professional trustee can also be an expensive and cumbersome process with the client ultimately footing the bill.
Having a professional trustee can also bring about a different reporting status under FATCA and CRS. With a professional trustee, a trust is likely to be classified as a Financial Institution (albeit deemed-compliant for FATCA and non-reporting for CRS). Whilst the trust as an entity will not report on itself, the professional trustee may have to report on all persons connected to the trust which may include the settlor, protector, beneficiaries with vested interests, and beneficiaries who have received distributions. Contrast this with a PTC, which will normally be a passive non-financial entity, and you end up with a very different proposition regarding privacy, confidentiality, and reporting.
Privacy And Confidentiality
In conclusion, privacy and confidentiality remain extremely important considerations for any client that is looking to establish a structure for asset protection and succession planning purposes. If the family wants more involvement and control in relation to how their information is dealt with and reported then, as explained above, the BVI PTC is certainly an attractive option. However, making the choice between a PTC and enlisting the services of an experienced BVI trust company is not always an easy one. In certain cases, for reporting purposes, it may be that the right decision for the client is to appoint a BVI trust company to provide director services to the PTC so that the PTC can become responsible for FATCA and CRS reporting in the BVI rather than reporting being undertaken in another jurisdiction.
Carl specialises in private client, corporate and commercial, trusts and foundations, investment funds and banking and finance. He regularly advises trust companies, fund administrators, tax boutiques and private clients. Carl is a British Virgin Islands solicitor, a Jersey Advocate and an English solicitor with twenty years’ legal experience. He is ATT tax qualified and was a founding member of the Jersey Branch of the Chartered Institute of Taxation (CIOT). He is also a member of the Society of Trust and Estate Practitioners (STEP). He was called to the English Bar by Middle Temple in 1998 before becoming an English solicitor in 2001. Prior to moving to Jersey in 2006 to join Crill Canavan (now Collas Crill), Carl worked for the UK law firm Thomas Eggar (now Irwin Mitchell) advising on private client, trust and onshore and offshore tax planning matters. He regularly presents at conferences and client in-house seminars and has published various articles in the professional press in relation to collective investment funds and trust matters. He has recently presented at STEP LATAM and the Offshore Investment Conferences. Carl is a director of Hatstone Listing Services Limited, which acts as listing sponsor for companies listing corporate debt and securities on The International Stock Exchange and the Stock Exchange of Mauritius. Carl holds a practising certificates for the BVI, Jersey and England & Wales.
Michael specialises in trusts, corporate and commercial, business law, mergers and acquisitions, private client and family office. Michael qualified as an English Solicitor in 2007 and has over ten years’ experience in the Jersey finance and legal industry. Michael previously worked for a boutique legal practice that was affiliated to a large independent trust company where he fulfilled roles as a solicitor and in-house counsel for corporate matters, private client and funds. Michael managed an institutional issuer of structured securities with over US$20bn of assets under management and a family office team servicing one large family office. Michael won the CityWealth Tomorrow Club Emerging Wealth Advisor/Manager of the year at the 2012 CityWealth Offshore Awards. This award acknowledged Michael as having excelled in achievement, innovation, expertise and service for his clients. Michael was also recognised as one of the UK’s top 35 under 35 advisors by Private Client Practitioner in 2012 and was shortlisted for Wealth Professional of the Year at the 2015 Citywealth Magic Circle Awards. Michael contributes to our knowledge management team, assisting with the drafting of legal precedents, articles and briefing notes. He is also regularly asked to speak at CPD events.