About 80 kilometers off the coast of Puerto Rico today, the British Virgin Islands (BVI) has become a world-renowned jurisdiction for corporate trusts and establishment of offshore companies. Currently there are over 500,000 foreign businesses incorporated in the BVI.
Its eminence as an offshore financial center began with the enactment in 1984 of the International Business Companies Act, providing for the establishment of International Business Companies (IBCs) on its territories.
BVI is a semi-autonomous territory and IBCs are virtually the only business entity for foreign companies (and persons) looking to incorporate an entity in the BVI. As the BVI, being an Overseas Territory of the UK, comes under British jurisdiction in terms of business and common laws–the only recognised and established international business hub outside the US–it is also much freer to decide its incorporation laws and corporate tax.
The BVI operates a system of Territorial Tax. In fact, for a company incorporated in the BVI yet running its business outside the territory, there are no corporate taxes at all. Items not taxed for these companies are income, capital gains; customs duties, sales and profits; inheritances, dividends, interests and royalties.
For instance, when the International Business Companies (IBCs) conduct business locally are they subject to taxation by the BVI government–for instance if an IBC operates within the BVI’s islands or employs local people. The government’s revenue from foreign-operated IBCs is, for the most part, generated through foreign company registration and licensing fees. Such fees are often higher than incorporation costs in onshore jurisdictions.
Since BVI is a place where withholding taxes are not levied, it has Tax Information Exchange Agreements (TIEA) instead of Double Taxation Agreements (DTAs) with other territories. Under a TIEA, the BVI must provide tax-related information to other jurisdictions when required by law.
As a British Overseas Territory, the BVI cannot sign or ratify international corporate tax conventions in its own right. Therefore, conventions in the BVI are largely based on those of the UK. Moreover, the government of the UK may extend to the BVI its ratification of any convention.
Why Choose the BVI? The attractiveness of the BVI as an offshore jurisdiction lies in the streamlined procedure for incorporating an International Business Company (IBC) with strict regulations and requirements compare to other countries.
Some financial centers require a local director and shareholder who reside in the country, but in the BVI only one general director and shareholder (without restrictions of nationality) are needed to set up a new lBC. BVI annual meetings have no legal obligation to take place within the territory; they can convene anywhere in the world.
The shares can be issued in any currency and with or without par value, but may not total more than 50,000 (additional charges apply for issuing over this number). There are not compulsory audits each year, but merely keeping them is considered prudent accounting practice.
It is easy to deregister a company in the BVI (although there is still a risk that creditors may succeed in restoring a company listed as struck off). Liquidating a company is, in theory, a very complicated business. But companies which don’t renew their registrations after a period of time can simply be struck off without any further punishment; unless extenuating circumstances apply. If the company wishes to liquidate without renewing its fees on an annual basis, all records concerning the company and its business must be preserved for a period of several years.
Secondly, setting up and maintaining BVI company structures requires less effort as there is no mandatory audit reporting and tax filings, so they are cheaper than other structures to set up. BVI entities are also recognised jurisdictions, and as such they can open up corporate bank accounts. Many entity operations or international banking transactions require these facilities.
The British Virgin Islands (BVI) is proud of its exemplary business information confidentiality practices. At present there’s no obligation to disclose any company beneficial owner publicly, but this seems likely to change in the future. But the data must be accessible to the registered agent (who is appointed by the company) of an International Business Company (IBC). Proper documentation testifying to the true owner, such as a declaration of trust, can be used for greater privacy. Nominal directors and shareholders also are available (17).
Authority accordingly, Found situated properties declares that registered business agents in the BVI are required only to reveal ownership of a company under lawful requests issued by another.
In fact, although it is allowed in the BVI for IBCs to issue bearer shares through an authorized custodian, today’s circumstances (in particular, dominated as they are by the Common Reporting Standards and Automatic Exchange of Information) make this rarely a practice.
In addition, the BVI guarantees confidentiality by using Trust Structures as the owners of underlying IBC companies. A BVI Vista trust, operating under the guise of a Private Trust Company (PTC), is appointed as trustee to a Trust that itself holds the underlying IBC. By doing so, the trust empowers owners to self-manage trust assets as well as the underlying company without being accountable to the trustee for their decisions.
In terms of the available type and variety of corporations and trust structures, BVI is undoubtedly one of the most varied financial centres in the world. New IBCs incorporated in the BVI can be registered under any of these names or suffixes:
In addition, the BVI allows company names to be registered in (Mandarin) Chinese. Because of this, the BVI has become one of the that are most highly preferred by clients from China, Hong Kong and Taiwan.
While setting up a company in the BVI does save on audit report and tax filing requirements, companies must pay an annual fee to keep their company active.
Hong Kong VisaFrom 1 Jan 2018, the government fees to incorporate and maintain an IBC issuing less than 50,000 shares have come up from US$350 per annum to US$450.
Furthermore, because of the non-requirements to have a resident director and company secretary, BVI IBCs are extremely low in cost when clients want to find a company to hold their assets or set up as an operating vehicle for trading or investment and investment holding purposes.
Yet the BVI are faced with an interesting paradox about the confidentiality extended toward International Business Companies (IBCs). One good thing was that the veil of secrecy which hung over IBC formations took it out of the reach of tax collectors, and allowed IBCs to get out from under foreign exchange controls. More recently, however, BVI regulators have been making a great effort to restore their image-especially after the Panama Papers-and those efforts are notable. To regain trust and transparency, a pro-active approach has been taken with stringent anti-money laundering regulations, followed by amendments including the one passed on April 1 this year.
Over the past ten years. the BVI’s position with the Organisation for Economic Co-operation and Development (OECD), has improved considerably. The latest records from April 2018 show a turnaround for the BVI, which had previously been classified as ‘non-compliant’, but this time is now rated as being largely compliant with respect to requirements for exchange of information upon request.
This initiative, in which all BVI regulators are involved, marks a momentous step towards broader global standards and openness, as well as transparent anti-money laundering efforts. At the same time it balances legitimate concerns for confidentiality on the part of IBCs.
There are just under 250 banks and trust companies in the British Virgin Islands . For IBCs wishing to open bank accounts in the BVI, there would either have to be an actual operating business with personnel stationed in the BVI or a separate “offshore bank account” for the BVI IBC set up under another jurisdiction (like Singapore) which understands and is accustomed with BVI structures.
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The features of the BVI that make it an attractive jurisdiction to form offshore companies for passive business activities or to use as investment holding vehicles include its ease of setup, territorial tax system and variety of structures.