Tim Clipstone, Philip Ireland, Ann Ng, Heidi de Vries and Michael Gagie of Maples & Calder take us through the increasingly onerous obligations of offshore firms to notify the financial regulator of the British Virgin Islands of accounts, changes of directors and other events.

Over the last six months, the BVI Financial Services Commission has grown increasingly strict with firms that go over payment and filing deadlines and, in particular, we are expecting to see administrative penalties levied in respect of late filings of accounts, failure to obtain the prior consent of the FSC for various things and changes to functionaries.

As such, all regulated entities ought to review their procedures for identifying changes that require them to notify the FSC or obtain its permission for something and to undertake a review of their current status with the commission, with a view to bringing all requisite 'filings' up-to-date before 30 June 2015.

Audited financial statements for funds and licensees

Pursuant to the Securities and Investment Business Act 2010 (SIBA) and the Mutual Funds Regulations 2010, all BVI private, professional and public funds and all BVI investment business licence-holders or licensees are required to appoint, and at all times have, an auditor for the purposes of auditing their financial statements.

All funds and licensees are required to submit final copies of their audited financial statements to the FSC within six months of the end of each financial year.  Funds and licensees with a financial year ending on 31 December are therefore required to submit their audited financial statements for the 2014 financial year to the commission on or before 30 June and they face administrative penalties and/or enforcement action if they fail.  

Requirements

Funds and licensees must prepare financial statements for each financial year in accordance with one of the prescribed accounting standards or internationally recognised and generally accepted accounting standards equivalent to such prescribed accounting standards. The eligible standards are: the International Financial Reporting Standards, promulgated by the International Accounting Standard Board; UK, US or Canadian GAAP; or whatever recognised international accounting standards the FSC might have approved for them on a case-by-case basis.

Exemptions and extensions

Any fund or licensee that has not appointed an auditor will have to send a written application to the FSC for an exemption from the requirement to do so and submit audited financial statements.  Alternatively, funds and licensees that are not in a position to produce the audited financial statements by the annual filing deadline may apply to the regulator for an extension.  The FSC may, in normal circumstances, grant a maximum extension of up to nine months after the end of the relevant financial year.

Procedure for submission

Funds and licensees should submit their audited financial statements to the commission through their appointed authorised representatives.

Unlicensed entities

Other types of fund that are not registered or recognised under SIBA, for example closed-ended funds domiciled in the BVI, are not required to prepare or submit audited financial statements to the commission.

Annual returns for funds

All funds are subject to an annual reporting regime under which a mutual fund annual return (MFAR) must be submitted to the commission. The information to be disclosed in the MFAR is as follows.

(a)  Basic prudential and governance information, which includes information on the registered agent and functionaries of the fund in question.

(b)  Summary financial information for the relevant reporting period, which includes; opening NAV, total subscriptions, total redemptions, net income/net loss, dividends/distributions, ending NAV and year-end gross assets.

Asset allocation details are also required, but there is no need to set out specific details of individual investments.  Details of investors do not have to be disclosed in the MFAR.

When should one send off an MFAR?

The reporting period for the MFAR is every calendar year, ending on 31 December.  Funds are required to submit their MFARs within 6 months of the end of each reporting period, i.e. on or before 30 June.

The purpose of MFARs

The FSC intends to use the information in MFARs to measure and develop the BVI funds industry while at the same time meeting international reporting standards.  We understand that the commission will not make the returns publicly available, but may share information gathered from them on an aggregated basis.

The procedure for sending in an MFAR

The MFAR must be submitted to the commission electronically. If you have not previously sent your MFAR electronically then you will have to register as a new user on the Commission's website and obtain log in details by email. A copy of the commission's full guidance notes is also available.

The FATCA deadline of 30 June

BVI entities who have determined that they are “Reporting BVI Financial Institutions” (let us call them reporting FIs) for the purposes of the Foreign Account Tax Compliance Act of the United States (FATCA) and recently registered with the US Internal Revenue Service (IRS) for a Global Intermediary Identification Number (GIIN) should now be taking steps to identify any accounts they hold whose details they will have to report to the BVI International Tax Authority (ITA) for onward transmission to the IRS.

Once it has been established that an account held by a reporting FI is a “US Reportable Account,” the entity in question will have to report the following information to the ITA in respect of that account for 2014:

the name, address, US Tax Identification Number ("TIN") of the entity or individual account-holder and, in cases where the account-holder is a “Passive NFFE” that has controlling persons who are “Specified US Persons,” the name, address and TIN of such persons;

• the account number;
• the name and identifying number of the Reporting FI; and
• the account balance or value as of 31 December 2014.

This information is to be transmitted to the ITA before 30 June 2015 via the online portal known as the BVI Financial Account Reporting System ("BVIFARS"), which is now operational.  All Reporting FIs which have a return to submit should have applied for enrolment on BVIFARS by 1 June 2015.

Similar reporting requirements are contained in the intergovernmental agreement signed with the United Kingdom, but the deadline for sending off information for 2014 in relation to UK reportable accounts has been extended until 31 May 2016 and the exact format of this reporting has yet to be finalised.

Enhanced record-keeping requirements

Since 2005, BVI business companies have been required under the BVI Business Companies Act 2004 to keep records that are sufficient to show and explain the company’s transactions, allowing every company's financial position to be determined with reasonable accuracy at any time.  These statutory record-keeping requirements for companies remain in force and have now been applied to BVI limited partnerships by way of an amendment to the Partnership Act, which came into force in November 2012.  BVI companies and partnerships remain entitled to adopt accounting standards appropriate to them in the jurisdictions in which they operate, as long as the minimum transparency standard discussed above is met.

The records and underlying documents that BVI companies and limited partnerships are required to keep must now be kept for a period of at least five years, following the enactment of the Mutual Legal Assistance (Tax Matters) Act 2012 which also came into force in November 2012.  The five-year period starts on the date of completion of the transaction to which the records and underlying documentation relate, or the termination of the business relationship to which they relate.

The records and documents of a company or a limited partnership are not required to be kept in the BVI.  However, the company or limited partnership must notify its registered agent of the physical location of its records and underlying documents and also notify him or it within 14 days of any change to that location.  As such, all funds that are formed as companies or limited partnerships are required to notify their registered agents in the BVI of the locations of their financial records and documents.

* Tim Clipstone can be reached on +1 284 852 3046 and at tim.clipstone@maplesandcalder.com. Philip Ireland can be reached on +971 4 360 4073. Ann Ng can be reached on +852 3690 7475. Heidi de Vries can be reached on +44 20 7466 1651. Michael Gagie can be reached on +65 6922 8402.