British Virgin Islands: Boosting Intangible Assets And Innovation With Offshore Investment Funds

Investment Funds And Their Advantages 

As we have explained previously in an article published in IFC Caribbean Review 2020 (BVI Investment Funds Regime At A Glance), an investment fund is an arrangement made by a group of investors who pool the ownership of their property into a collective scheme, losing day-to-day control and direct ownership of the assets concerned, which are then collectively managed by the operator of the scheme.

If the fund vehicle is open-ended, the investors have a right to request redemption of their shares at regular and specified intervals should they decide to exit the fund. Redemption proceeds will be calculated as a share of the fund’s net asset value at the relevant redemption day. Increases and decreases in the value of the fund’s assets are directly reflected in the amount an investor can withdraw.

On the other hand, closed-ended funds are funds where investors are not entitled to do so. They are generally used for real estate projects or investment ventures where the partners are only a few and know each other.

Investment funds in offshore jurisdictions such as the British Virgin Islands (BVI) are known for their flexibility and favourable regulations that cater to innovation. For instance, these investment funds have been extensively utilised for investing in crypto assets, even facilitating subscriptions and redemptions in such assets.

Interestingly, investment funds are not considered by local legislation as entities engaged in ‘relevant activities’, which provides tax advantages concerning the economic substance requirements typically imposed on companies in compliance with the Base Erosion and Profit Shifting (BEPS) standards advocated by the OECD for the utilisation of intangible assets. This flexibility is particularly advantageous for addressing a broad spectrum of businesses and delving into the advantages of pooling intangible assets, thereby enabling tax benefits and opportunities to secure capital for investments in ventures related to the digital economy and innovation.

Let's explore three examples of how investment funds can be structured for different business objectives:

Example 1: Content Creators, Artists, Athletes And Influencers

One example involves pooling intellectual property, such as videos, image rights, music, and brand endorsements, into an investment fund. The ability to subscribe in kind to the fund, exchanging intangible assets for participating shares, offers a significant advantage.

The fund can oversee the management and distribution of royalties and revenues stemming from various licencing agreements, sponsorships, and partnerships. This structured approach provides an efficient method to monetise content, particularly beneficial for individuals who are typically managed by their agents, without a formal structure beyond commercial contracts like deeds of assignment of image rights or licencing agreements.

With a structure like this in place, agents and managers can effectively handle rights through a robust framework with clear, predefined rules for negotiating cross-border licencing deals with streaming platforms, advertisers, brands, sponsorships, and partnerships.

This enables them to navigate the complexities of international markets, secure favourable terms, and maximise revenue. Profits from the fund can be distributed to creators based on their contributions and agreed-upon terms. Additionally, the flexibility of offshore funds in the BVI allows for the creation of multiple classes of portfolios and shares with distinct rights. This feature is valuable for segregating rights and profits among subscribers, while also attracting external investors who can provide capital for investments in upgraded equipment, enhanced production quality, and marketing campaigns.

Example 2: Investments In Crypto Assets

The BVI has been one of the most popular jurisdictions for structuring investments involving crypto assets, attributed to its adaptable share valuation procedures, the option to subscribe and/or redeem shares in kind, and its specialised industry expertise. For instance, an investment fund could maintain a diversified portfolio comprising cryptocurrencies, tokens, and blockchain-based assets, thereby mitigating risk and enhancing potential returns.

Furthermore, investment funds are increasingly being leveraged for engaging in activities involving algorithmic bots and artificial intelligence (AI).

Example 3: Capital Raising For Startups And Pools Of Innovation

The flexibility to define and execute investment objectives and operational characteristics, such as subscription periods, redemptions, lock-up periods, and capital commitments, positions investment funds as an optimal structure for investments in research and development.

This is particularly beneficial for addressing the intricacies associated with research and development that may be more challenging to navigate within traditional entities. For instance, investments in research and development often entail extended timeframes and may necessitate additional capital injections during the research phase. These aspects can be managed through lock-up periods and capital calls outlined in the fund's offering documents, which are subscribed to by investors.

Moreover, these funds can serve as vehicles for aggregating patents and/or other technologies, facilitating the democratisation of investment in innovation and capital mobilisation for small investors. This is made possible by the flexibility to establish modest minimum investment thresholds.

Harnessing The Power Of Funds

Investment funds in the BVI stand out as highly adaptable structures capable of accommodating the diverse needs of various industries, effectively navigating the challenges posed by the digital economy within a well-defined regulatory framework. The jurisdiction provides a diverse array of investment fund types, each varying in complexity based on the investor targets and requisite service providers. The inherent flexibility and tax efficiency of these structures make them indispensable tools for promoting and funding businesses centred around intangible assets.

By leveraging BVI investment funds, businesses can optimise their operations, access a broad spectrum of investment opportunities, and capitalise on opportunities for innovation and growth in the rapidly evolving digital landscape.

Moreover, the BVI's reputation as a trusted international financial centre, the efficient fund administration services and strategic tax planning solutions that can be found in the jurisdiction, as well as its regulatory stability and investor-friendly environment, further solidifies its position as a preferred destination for structuring investment funds aimed at fostering entrepreneurship, driving technological advancements, and unlocking the potential of intangible assets in the global marketplace.

Martín A. Litwak
Lawyer specialised in wealth structuring and investment funds. Martín has focused on providing advice to high net worth (HNW), ultra-high net worth (UHNW) and institutional families domiciled in Latin America. His expertise in setting up and/or managing fiduciary structures designed to tackle issues related to the lack of rule of law, the lack of privacy and the fiscal voracity of the countries in which they reside and/or conduct their business activities, as well as his experience in resolving succession issues and/or to ensure that the family assets are well protected makes him one of the foremost lawyers in this field. He has also assisted several Latin American based fund managers with the establishment and licensing of hundreds of investment funds, the majority of them in the British Virgin Islands and the Cayman Islands. Finally, Martín has been very active in multi-jurisdictional mergers and acquisitions, international financial transactions of several types (i.e. private equity/venture capital deals, project financing, structured finance, IPOs, etc.), tax amnesties and the provision of advice in transactions involving crypto-assets and Blockchain (ICOs, STOs, etc.)

Camila Da Silva Tabares