British Virgin Islands trusts for U.S. citizens

Trust legislation and its organization

The Trustee Act defines the trust relationship, while the Virgin Islands Special Trusts Act provides a separate framework for designated company shares.^[1][2]

Under the Trustee Act, a settlor places property under a trustee's control for beneficiaries or a specified purpose. Creation can take place during the settlor's lifetime or on death.^[1]

The Act addresses investment powers and trustee appointments in separate provisions. Other provisions cover duration and purpose trusts. Section 3 makes investment powers subject to the trust instrument and requires diligence and prudence in their exercise.^[1]

The Special Trusts Act organizes its shareholding framework around a direction in the trust terms. That direction can apply to all qualifying Virgin Islands shares in the fund or specified shares, subject to the statutory conditions.^[2]

Trust arrangements, duration and participant roles

The legislation recognizes beneficiary trusts and purpose arrangements, with separate provisions for designated shareholdings. Its definition also extends to implied and constructive trusts, as well as duties attached to personal representatives.^[1][2]

Trust property forms a fund separate from the trustee's estate. Legal title can stand in the trustee's name or another person's name on the trustee's behalf, while management and disposal remain subject to the trust terms and statutory duties.^[1]

A settlor's retention of certain powers does not necessarily prevent a trust from existing. The same qualification applies where a trustee also has beneficiary rights.^[1]

Amendments to the Trustee Act took effect on 16 May 2013. For trusts created after 15 May 2013, section 68 permits an instrument to specify a perpetuity period of up to 360 years, subject to its commencement conditions and special-power-of-appointment rules. Where a special power is involved, the provision connects the applicable period to the instrument creating that power.^[1]

Section 84A permits noncharitable purpose trusts when its conditions are met. The purposes need to be specific and reasonable, and they must be possible. They cannot be unlawful, immoral or contrary to public policy.^[1]

At least one trustee of a section 84A purpose trust has to be a designated person. The instrument also appoints an enforcer and provides for replacement, with the appointed person's participation or written consent required. The section disapplies rules against excessive duration to qualifying purpose trusts.^[1]

The Special Trusts Act requires a written lifetime or testamentary instrument and at least one designated trustee when the direction takes effect. Its definition of designated trustee includes a trust licensee and a qualifying private trust company.^[2]

For designated shares, section 5 establishes a retention duty subject to section 9. Section 6 generally leaves company management and dividend decisions to directors, subject to the trust terms and statutory exceptions. Section 7 permits instrument rules on director appointments and removal, as well as remuneration.^[2]

Regulation and trust business licence categories

The British Virgin Islands Financial Services Commission regulates trust business conducted in or from the territory. Its Licensing and Supervisory Committee assesses applications for licences and certificates.^[3]

The Commission's definition covers professional service as trustee, protector or administrator, and managing or administering a trust or settlement. For a Class I licence, it also includes specified work under wills and settlements and estate administration.^[3]

• Class I covers both trust business and company management business.^[3]
• Class II covers trust business, while Class III covers company management business.^[3]
• Restricted Class II permits business for up to 50 trusts identified in a sworn undertaking.^[3]
• Restricted Class III limits company management activity to providing shareholder, director and officer services for Virgin Islands companies, subject to applicable disclosure and reporting requirements.^[3]

The Commission identifies the Financial Services Commission Act, the Regulatory Code and the Banks and Trust Companies Act as the general regulatory framework. Its Banking & Fiduciary Services Division administers the Banks and Trust Companies Act for trust business.^[3]

Local tax treatment and its conditions

Section 90 of the Trustee Act sets out local tax exemptions with express conditions concerning residence, property and business. It exempts trust income held by a trustee and provides an income-tax exemption for money received from trustees by beneficiaries who are nonresident in the territory.^[1]

The section also exempts nonresident beneficiaries from listed estate and inheritance charges, along with succession and gift charges on distributions. Its stamp-duty provisions apply where the trust has no territory-resident beneficiaries and cover the creation instrument and specified appointment and transfer instruments.^[1]

These exemptions do not apply where a trust has underlying land in the territory or carries on business or trade there. For a U.S. citizen, the IRS separately describes income-tax consequences for foreign-trust owners and beneficiaries under U.S. rules.^[1][11]

Information exchange and trust records

The International Tax Authority handles cross-border tax matters and tax information exchange. Its responsibilities cover exchange on request and automatic or spontaneous exchange. They also include negotiating agreements and developing the domestic exchange framework.^[6]

The Authority describes CRS as implemented through amendments to the Mutual Legal Assistance legislation. It identifies the multilateral convention and competent-authority agreement as the legal basis for automatic tax information exchange under CRS.^[7]

Treasury's jurisdiction table lists the British Virgin Islands FATCA agreement as in force under Model 1. Treasury describes FATCA reporting as covering financial accounts held by U.S. taxpayers and certain foreign entities with substantial U.S. taxpayer ownership.^[9]

The Authority provides a reporting portal for BVI financial institutions' obligations under FATCA and CRS. Separately, section 2A of the Trustee Act requires trustees to keep trust records and underlying documents for at least five years, whether held inside or outside the territory.^[1][7]

Those records need to explain transactions and permit the trust's financial position to be determined with reasonable accuracy. The specified material includes receipts and expenditure, as well as purchases and sales. It also includes assets and liabilities.^[1]

U.S. tax and foreign trust reporting

The IRS includes U.S. citizens within its definition of U.S. persons and describes several reporting regimes for foreign-trust connections. Its domestic-trust definition requires both U.S. court supervision of administration and U.S. person control over all substantial decisions; other trusts are foreign trusts.^[11][12]

A U.S. person treated as an owner under the grantor-trust rules is generally taxed on trust income. Section 679 can treat a U.S. transferor as an owner where the foreign trust has, or is presumed to have, a U.S. beneficiary.^[11]

For a foreign nongrantor trust, a U.S. beneficiary generally reports the distributable net income attributable to a distribution. The IRS describes beneficiary statements that supply information about distribution tax treatment, with reporting rules also applying when a statement is absent.^[11]

Form 3520 generally reports creating or transferring property to a foreign trust and ownership under the grantor-trust rules. It also covers distributions. The IRS identifies loans and uncompensated use of trust property as reporting triggers, subject to the applicable rules and exceptions.^[11]

The Form 3520 instructions require a separate return for each foreign trust. A U.S. owner's Part II reporting applies even without transactions during the tax period.^[12]

U.S. owners are responsible for ensuring that the trust files a complete, accurate Form 3520-A and supplies annual owner and beneficiary statements. If the trust does not file, the IRS requires a substitute Form 3520-A attached to the owner's timely Form 3520, together with the required statements.^[11]

Form 8938 can apply when specified foreign financial assets exceed the relevant reporting thresholds. FBAR can apply to a financial interest in, or signature authority over, a foreign financial account; the IRS identifies it as FinCEN Form 114.^[11]

Legal system and court structure

The British Virgin Islands is a common law jurisdiction within the Eastern Caribbean Supreme Court system. The court structure runs from the Magistrate's Court to the Eastern Caribbean Court of Appeal, with the Judicial Committee of the Privy Council as the final appellate court.^[8]

The structure includes the Magistrate's Court, the Supreme Court commonly called the High Court, and the Eastern Caribbean Court of Appeal. A Commercial Division also sits within the Supreme Court.^[8]

Local statutes, orders and procedural rules distinguish BVI law from English law. In specified circumstances, local law provides for English law or procedure where a local provision is absent.^[8]

Primary sources

The Attorney General's Chambers provides access to Virgin Islands legislation through Virgin Islands Laws Online. The portal describes its work as part of the Accessibility of Laws Project and directs readers to official sources to confirm legislative status.^[5]

The Financial Services Commission publishes guidance on trust business regulation, and the International Tax Authority publishes CRS information. The Government of the Virgin Islands publishes information on the judiciary, and Treasury and the IRS publish the FATCA and U.S. reporting materials.^{[3][7][8][9][12]}

More on British Virgin Islands

Questions and answers

Related resources

Related glossary terms

• Trust variation: Trust variation means a change to a trust's terms or powers. Jersey, Cayman Islands and Bermuda laws and the Hague Convention address related terms and rules.
• Trust: The Hague Convention describes a trust as a relationship in which a settlor places assets under a trustee's control for beneficiaries or a specified purpose.
• U.S. owner of a foreign trust: The Form 3520 instructions define a U.S. owner as a person treated as owning trust assets under grantor trust rules. Ownership can apply to part of a trust.

Related articles and guides

• Bahamas Trust Tax and Reporting Rules: Bahamas trust rules on trustee duties, accounting records and certain tax matters, with the IRS reporting that applies to U.S. citizens with a foreign trust.

Tools and official documents

• FinCEN Report 114 (FBAR): foreign account reporting: FinCEN Report 114 (FBAR) for U.S. citizens: account definitions, financial interests, signature authority, trust provisions and the filing requirements it sets.