Advantages of Mutual Funds incorporation in Belize
Types of offshore investment funds as recognized by the Belize Mutual Funds Act 2000
Licensing of Fund Managers and Administrators

ADVANTAGES OF BELIZE MUTUAL FUNDS


Belize has one of the most attractive offshore mutual fund laws in the world.

The general benefits of establishing a mutual fund in an offshore financial centre like Belize are:

  • Minimum or zero tax on capital gains, incomes, profits and dividends that accrue to the Fund. This would usually allow the Fund to outperform its competitors domiciled in high-tax jurisdictions, if only by the reason that the funds, which would otherwise be paid as tax, can in the case of an offshore mutual fund be reinvested in the assets held by the Fund. While an offshore investment fund would typically operate in a tax-free environment and would therefore be able to grow faster, the individual investors should nevertheless be aware that at the time when their investments are redeemed or when dividends are received from the offshore investment fund, such personal income may be subject to tax in their domicile country, at time of receipt. To this extent, qualified tax advice should be sought by the investor.
  • Minimum or zero tax on fees, commissions and profits earned by the Fund Managers, Advisors and Administrators, registered and regulated in an offshore financial centre. Again, this may provide a competitive advantage to the investment services professionals, for instance, by giving them an opportunity to charge lesser fees and commissions than their competitors, located in high-tax jurisdictions.
  • Greater operational flexibility, in terms of both the choice and structuring of the investment portfolio, and in relation to the internal structuring of the Fund itself. This largely owes to the fact that less formal regulation is generally allowed by mutual fund legislation in tax haven (offshore) jurisdictions, as compared to creation of mutual investment vehicles in most high-tax countries. Offshore investment funds have access to the widest variety of investment instruments and may often pursue more aggressive investment strategies than if they were registered in a "traditional" jurisdiction.
  • The relatively lower level of regulation also allows for a faster and easier establishment process of an offshore investment fund. Running and administration costs are typically lower, too. Series of offshore investment funds, designed under the same pattern and having the same recognized managers and administrators, may be created extremely quickly and with minimum cost, thanks to a modern legislation. Therefore, an offshore investment fund may be offered to potential investors at more attractive terms. It is also common for an offshore investment fund to outsource some or all of its support functions to outside providers, either in the same jurisdiction or abroad. The fund administration, management, investment advisory and investor-relations functions may be subcontracted to reputable service providers elsewhere. The recognition process of such outside providers during the process of establishment of an offshore investment fund is specifically straightforward. Again, such flexibility ensures a more efficient and profitable running of the fund.

The particular advantages of the Belize as a domicile for offshore mutual funds are:

  • Belize is a reputable, well-regulated jurisdiction with competent and efficient financial services supervisory authorities. The Belize Mutual Funds Act 2000 is a modern and comprehensive piece of legislation.
  • Belize has an outstanding political and social stability, a complete legal predictability and a robust economy, featuring modern telecommunications, relatively low cost of qualified workforce and a culture of professional work ethics in the financial services industry.
  • No exchange controls or restrictions on financial transfers apply to Belize-registered offshore mutual funds.
  • All Belize-registered offshore mutual funds, and any investors in such fund are in all respects exempt from any and all of the provisions of the Belize Income and Business Tax Act, the Belize Stamp Duties Act and the Belize Exchange Control Regulation Act. In essence, Belize mutual funds and investors into such funds are not subject to any tax in Belize.
  • Recognition under the Belize Mutual Funds Act can be obtained for funds already registered in another jurisdiction, as well as for fund managers, administrators and other professionals operating from another jurisdiction.
  • There are no minimum capital requirements for a Belize mutual fund, neither there are any restrictions as to the type, denomination, number, classes and designation of rights of shares that can be created. Multiple classes of shares may be issued to distinguish between different classes of assets, investors or even currencies. The authorized share capital would typically consist of common voting shares and non-voting preference shares, however different and more complicated layouts are certainly possible. Shares can be denominated in any currency, or in multiple currencies.
  • There are no statutory limitations as regards the investment policies, investment instruments and borrowing powers of a Belize mutual fund, as such conditions are only prescribed by internal documents (Memorandum and Articles of Association, Prospectus, Placement Memorandum, Offering Circular, etc) of the fund itself, which are determined by the promoters and managers of the fund.
  • In terms of the establishment and running of an offshore investment fund, Belize provides far superior cost-efficiency and value for money than it`s principal competitors.
  • The regulation of the offshore financial sector is carried out by the Belize International Financial Services Commission under a well-designed and modern suite of laws, enabling an adequate protection of investors` interests and the support of jurisdictions` good reputation. Both the formal letter of the law and the actual regulatory practices are designed to ensure that only fit and proper persons are involved in mutual fund operations in the Belize.
  • The Belize Mutual Funds Act 2000, which is the primary source of mutual funds legislation in the jurisdiction, together with sub-regulations issued by the International Financial Services Commission, provides for a modern and attractive legal basis for establishment of offshore mutual funds in Belize. The review of the particular features and benefits of this legislation is provided further in this chapter.

ADVANTAGES OF BELIZE MUTUAL FUNDS


The Belize Mutual Funds Act 2000 sets forth the regulatory environment for operation of mutual funds in Belize. There are also several additional Regulations on the subject of mutul funds regulation, and a range of Policy Guidelines issued by the Belize Registrar of Mutual Funds (being part of the International Financial Services Commission) and dealing with the finer points of the practical application of the Mutual Funds Act.

The Belize Mutual Funds Act deals primarily with three main areas - registration of Public Funds, recognition of Private and Professional Funds, and the licensing of Fund Managers and Administrators.

The Belize Mutual Funds Act defines a mutual fund as company incorporated, a partnership formed, a unit trust organised or other similar body formed or organised under the laws of Belize or that of any other country or jurisdiction which:

  • collects and pools funds for the purpose of collective investment; and
  • issues shares (as herein defined) that entitle the holder to receive on demand or within a specified period after demand an amount computed by reference to the value of a proportionate interest in the whole or in a part ofthe net assets of the company, the partnership or the unit trust, as the case may be.

There are three main types of funds, distinguished by the Belize Mutual Funds Act:

  • Public Funds
  • Private Funds
  • Professional Funds

Public Funds

The Belize Mutual Funds Act defines a public fund as a fund that offers any shares it issues for subscription or purchase to any member of the general public or any section thereof; and which is registered as a public fund under the Belize Mutual Funds Act.

This is the type of fund that attracts the highest degree of regulation.

Public Funds must be registered (or obtain consent to registration under a pre-filing procedure) before engaging in any business activity in or from within the Belize. A Public Fund must publish a prospectus including the information required by the Act and must also produce and distribute audited annual financial statements. The Registration Application includes details of all directors, managers, administrators and other persons closely involved in the management of the fund. There are very stringent "fit and proper" requirements to be met in regards all individuals involved with the promotion and management of a fund.

The Mutual Funds Act requires that a prospectus for a public mutual fund shall provide full and accurate disclosure of all such information as investors would reasonably require and expect to find for the purpose of making an informed investment decision. The Prospectus for a public mutual fund must also contain a summarised statement of investors` rights (as also prescribed by the Act) and it must be accompanied by or contain reference to the availability of the financial statements for the last financial year of the fund and the auditorĀ“s report thereon if the fund has completed a financial year in operation.

Private and Professional Funds

The Belize Mutual Funds Act defines a Private Fund as a fund that has less than fifty investors and the constitutional documents of which prohibit the offering of its shares to the general public.

At application, a proposed private fund will be expected to demonstrate the "private basis" of offeering its shares to prospective investors, and to explain what criteria will enable any particular investors to qualify as "private". It remains with the Registrar of Mutual Funds to either accept or reject any such explanation.

The official definition of a Professional Fund is that of a mutual fund, the shares in which are offered only to professional investors and the initial investment in which, in respect of each investor, is not less than one hundred thousand US dollars or its equivalent in any other currency. Consequently, the "professional investor" is defined as any person, who qualifies under one of the two alternative criteria: a professional investor is one whose ordinary business involves the acquisition or disposal of property of the same kind as the property, or a substantial part of the property of the fund; or a professional investor is also one who has declared his net worth to exceed one million US dollars and has consented in writing to be treated as a professional investor. In simple terms, therefore, a "professional investor" is a person who is supposedly either an investment professional (and therefore should be aware of the inherent risks of investing), or a person who has expressly declared and acknowledged the investment risks, in addition to declaring that his net worth is substantial (so that an eventual failure of the investment should supposedly not leave this person bankrupt).

As opposed to "registration" of the public funds, required by the Act, the procedure prescribed for professional and private funds is called "recognition". It is much simpler than the one prescribed for the public funds. The recognition of a private or professional fund in Belize requires completion of the relevant application, provision of the proofs or documents that supposedly qualify the fund as private or professiona, provision of the details of the fund itself, as well as the details of its managers, administrators, custodians and other professionals involved (as the case may be) and their place(s) of business. The application should be accompanied by the prescribed fees.

At recognition of a private or professional fund, most of the attention of the Registrar will be centered towards the particulars of the managers, administrators and other professional parties involved with the fund. The requirements towards such professionals are fairly stringent and detailed. The overview of these requirements are provided below.

LICENSING OF FUND MANAGER AND ADMINISTRATIORS


All managers or administrators of mutual funds who carry out their activities in or from within the Belize must be licensed by the Belize International Financial Services Commission. The Belize Mutual Funds Act 2000 prescribes several general conditions that must be met by any such licensee. In particular, the IFSC must be satisfied that the applicant "is a fit and proper person" to be engaged in the proposed fund management or administration business. The applicant is also required to have "adequate knowledge, expertise, resources and facilities necessary for the nature and scope of the business proposed."

The Act only states the licensing requirements in a rather general manner. However, the Policy Guidelines, issued by International Financial Services Commission, contain a very detailed and exact explanation of the applicable conditions. These conditions are uniformly applied to any applicant who wishes to be licensed as a fund manager or administrator in the Belize.

For more elaborate evaluation, the Belize Mutual Funds Act 2000, the Belize Mutual Funds Policy Guidelines and the Belize Mutual Funds Regulations are available for download from our Downloads section.

Fidelity Overseas Ltd can assist with the formation of Belize Mutual Funds, and with the licensing and recognition procedures for Fund Managers and Administrators in the Belize. For more information, please contact us.