Why Choose BVI?

The British Virgin Islands (BVI) is one of the most popular offshore jurisdictions. As of 31 March 2023, there were 372,439 business companies registered in its records. The year 2021 saw the incorporation of 36,178 business companies. In 2022, this figure was 28,077. 

The BVI company law draws inspiration from the English common law and the Delaware law. Thus, it has incorporated some of the best features of the two legal systems. 

The BVI has a Corporate Registry for all enlisted companies. It maintains the records of all companies incorporated in the country.  The Financial Services Commission (FSC) in the BVI manages the Registry. 

Some general characteristics of BVI

A BVI business company must maintain a registered office within the territory of the British Virgin Islands. It must also have a registered agent who will help with every stage of the incorporation. These are some of the expert services we provide so there is no burden on companies. 

The BVI uses the US dollar (USD) as its official currency. Same is the case with Belize, Panama and Marshall Islands. As such, there can be no currency control measures. The local government cannot manipulate the money supply. 

No distinction between offshore and domestic companies

The BVI was the pioneer in establishing international business companies. It enacted the International Business Companies Act in 1984. The law marked its first steps into becoming a popular offshore financial jurisdiction. In 2005, the BVI Business Companies Act, 2004 came into force. It replaced the old act and removed the distinction between offshore and domestic companies. Now, all companies in the BVI are in the same register. This includes those that operate locally in the BVI or internationally outside the BVI. They are governed by the same law. The new law also replaced the term International Business Company (IBC) with Business Company (BC). 

Separate legal personality

A BVI business company has a separate legal personality. It enjoys the full capacity of a natural person. It can sue and be sued in its own right. 

Types of business companies allowed

The BVI Business Companies Act, 2004 allows for five main types of BVI business companies:

• Company limited by shares

The liability of its shareholders or members is limited to the extent of their stake in the company. This is the most common type of company in the BVI. The assets and debts of such companies are distinct from their shareholders. The latter’s personal assets remain secure in case of financial troubles. They can only lose their original investment.

For people looking to incorporate a business company, this is the go-to company structure

• Company limited by guarantee and not authorised to issue shares

In this type of company, there are no shareholders. Members of such a company act as guarantors for its liabilities. Each member is liable for the amount they have agreed to guarantee in the memorandum. This liability is attracted when the company enters into voluntary liquidation or insolvency liquidation under the Insolvency Act. They do not receive any dividends from profits. 

• Company limited by guarantee and authorised to issue shares

Such a guarantee company can issue shares. The details are to be included in the memorandum. 

• An unlimited company that is not authorised to issue shares, and

• An unlimited company that is authorised to issue shares

In an unlimited business company— with or without shares— the liability of the members or shareholders is not limited. They have a joint and several obligation to settle its outstanding financial liability in case of formal liquidation. During the normal course of business, only the company’s assets can be used. The assets of its members or shareholders are separate.

The BVI also allows for two other types of companies. These are a segregated portfolio company and a restricted purpose company. But, they must meet certain conditions.

Segregated Portfolio Company (SPC)

A segregated portfolio company (SPC) is a company limited by shares with separate portfolios. The assets and liabilities of each portfolio are segregated from each other. They are also separate from the general assets and liabilities of the company. To incorporate an SPC, a written permission from the BVI FSC is required. Such permission is only given if the company is, or will be:

1. Licensed as an Insurer under the Insurance Act.
2. Recognised as a professional or private fund, or registered as a public fund under the Securities and Investment Business Act.

An SPC is a popular vehicle for insurers, investment funds and certain non-regulated BVI business companies. Apart from the BVI, the Cayman Islands, Delaware and Bermuda also allow for SPCs. 

Restricted Purpose Company

A restricted purposes company is a type of company limited by shares. It can undertake transactions only within the specific purposes stated in its memorandum. It is generally used for securitisations, joint ventures and even estate planning. Another of its use is to create quasi-security. Here, the company’s purpose is restricted to incurring specific security obligation and holding the security asset. 

The BVI does not allow the setting up of foundations. But other offshore jurisdictions such as Seychelles and Panama allow them. 

Use of foreign characters in company name

A BVI business company can use a foreign character in its name. This is usually done to assign names with Chinese characters. It helps companies (especially from China, Hong Kong and Taiwan) to expand their reach. The foreign character name does not have to be an exact translation of its English name. But, it must be approved by the Registrar and not be offensive.  

The foreign character name must reflect in the company’s constitutional documents, along with its full English name. It should also be included in all the written communication and legal documents executed by or on the company’s behalf.

No authorised share capital 

There is no need for a BVI business company to state its authorised share capital. The share capital may be in any currency and does not have to be fully or partially paid on incorporation. 

A BVI business company can issue shares with or without par value. It is subject to its memorandum and articles of association. There are no external conditions. Panama also allows shares with no par value. But the company must fulfil certain conditions (Article 22, Corporation Law).

The consideration for the shares can be in the form of money, a promissory note or other written obligation to contribute property or services or a contract for future services. The Belize Companies Act also contains similar provisions. A par value share can be issued in any currency. The consideration for the issued share can be in any form. By contrast, Seychelles follows a different rule. There, the shares must be issued for money or other valuable consideration. 

Except for a company limited by guarantee or an unlimited company that cannot issue shares, BVI business companies can issue and cancel shares, hold treasury shares, issue securities that can later be converted to shares and grant options over unissued company and treasury shares. 

Subject to its memorandum, a BVI business company can issue fractional shares. But it is not allowed to issue bearer shares. It also cannot convert or exchange registered shares into bearer shares. On the other hand, Panama allows offshore companies to issue bearer shares. But these have to be deposited with an authorised custodian. 

Minimum one shareholder and director

A BVI business company requires at least one shareholder. They can be a natural or legal person or do not have to be a BVI resident. Similarly, there should be at least one director. They may be a natural or legal person or may be a resident or non-resident. 

Other offshore centres such as Cyprus, Belize, Marshall Islands and Seychelles also need at least one director. Panama requires a minimum of three directors. 

The details of shareholders are not publicly available. This was also true for directors. But the BVI Business Companies (Amendment) Act 2022 introduced some changes. Earlier, the register of directors was private. But with the amendment, the full names of directors can be accessed by the public. It has to make a request to the Registrar for the same. In Singapore too, any person can pay the prescribed fee and inspect the register of directors. The UK also has a public register of directors. Privacy of directors remain in countries like Belize and Seychelles.  

Secure database for beneficial ownership 

In 2017, the BVI enacted the Beneficial Ownership Secure Search System Act (BOSS Act). The Act established a secure database for BVI companies to use, unless they were exempt. They can use it to report about their beneficial owners. The registered agent (RA) of the BVI company has to create a RA database. It then has to input details of all the beneficial owners of the company. 

The RA database and the BOSS system are not open to the general public. Only designated persons and competent regulatory authorities can access them. These systems are also in place in other jurisdictions such as Panama and Seychelles. 

Tax-neutral jurisdiction

The BVI has a territorial tax system. Business companies that are incorporated in the BVI but transact business outside the country are not taxed. 

Like most popular offshore jurisdictions, the BVI does not levy a corporate tax for IBCs. There is no tax on capital gains, income, profits, dividends, interests and inheritances. 

A BVI business company only has to pay a payroll tax if it employs a local workforce. Except for the transfer of BVI land, there is no stamp duty on transactions and instruments about the transfer of any type of property, shares, securities or debt obligations to or by a BVI business company. 

Tax benefits to UK business angels

UK business angels can enjoy tax benefits when they invest in BVI business companies. But these benefits are subject to certain conditions. The UK government has specific schemes to benefit angel investors. These are the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS). 

A company can qualify for the above schemes if:

• It can establish that it has a permanent establishment in the UK: This means that the company either: 

• has a fixed place of business in the UK through which its business is wholly or partially conducted; or
• it has an agent who acts on its behalf and regularly exercises the authority to enter into contracts on behalf of the company.

The permanent establishment has to be maintained for three years from the date of issuing the EIS/SEIS shares. 

• It is not listed on a recognised stock exchange at the time of investment.
• It carries out a qualifying trade.
• It intends to spend the investment on a qualifying trade.
• It is not controlled by another company.

Both EIS and SEIS have further qualifying individual requirements. If a BVI registered parent/holding company wants to raise money through these schemes, it must have a permanent establishment in the UK. Having a subsidiary is not enough. Conversely, if a UK-parent or holding company raises money through these schemes, it can use it in an overseas BVI subsidiary company. It will depend on the conditions provided under each scheme. 

Tax relief for angel investors

When UK angel investors invest through these schemes, they can claim relief on income and capital gains tax. Under the EIS, they can claim relief of up to 30% of their investment in qualifying companies. This 30% of the amount is a credit. This reduces their individual income tax for that year when they buy the shares. The maximum annual investment that they can claim relief on is up to £1 million. This can go up to £2 million if they invest at least £1 million of the amount in knowledge-intensive companies. They can also get 100% relief in capital gains tax and apply for relief for capital losses against income.

The SEIS allows for even more tax reliefs. Angel investors can claim 50% income tax relief (capped at £200,000) on their investment when they invest in early-stage companies which are less than 2 years old. They can also get 50% capital gains tax relief (capped at £100,000) and apply for relief for capital losses against income.

To avail these benefits, UK business angels must hold their shares for at least three years. Also, the companies must complete a compliance statement.

The UK and the BVI have a Double Taxation Agreement in force. This is to prevent UK angels from paying double the tax for their income and capital gains earned in the BVI. The two nations also have a Tax Information Exchange Agreement (TIEA) in place. It facilitates the exchange of information for tax purposes. 

Economic substance reporting

In 2018, the Council of the European Union published a scoping paper. It set out economic substance requirements for offshore jurisdictions. Pursuant to this, the BVI enacted the Economic Substance (Companies and Limited Partnerships) Act, 2018 (ESA). Under this Act, all BVI companies that are tax resident there and carry on “relevant activities” have to pass the economic substance test. They must show their adequate presence or conduct substantial economic activity to justify their profits. Relevant activities include the following:

• Banking
• Insurance
• Fund management (activity requiring an investment business licence under the Securities and Investment Business Act, 2010)
• Shipping
• Finance and leasing
• Intellectual Property business
• Pure equity holding business
• Distribution and service centre business

All BVI companies and entities engaged in any of the above activities have to report to government authorities. 

To pass the economic substance test, the company has to show that:

1. the relevant activity that it conducts is physically in the BVI.
2. it carries out core incoming generating activities in the BVI: these activities vary depending on the sector the company is in. They are provided in section 7 of the ESA.  
3. it has economic substance in terms of adequacy and appropriateness: This means that the company will have to show that:

• It has enough qualified employees physically present in the BVI (either employed directly or working for the entity).
• it incurs adequate expenditure in the BVI. 
• it has physical offices in the BVI.
• if the relevant activity pertains to the intellectual property business that requires specific equipment, then such equipment is located in the BVI.

Such economic substance reporting is also in force in other jurisdictions such as the Bahamas, Bermuda, Jersey and the Cayman Islands. 

Creditor-friendly jurisdiction

The BVI is creditor-friendly as it offers a range of options to secured creditors. It has a public security registration system that allows secured creditors to register a charge and secure its priority. When compared to other offshore jurisdictions— such as the Cayman Islands where the security interests of a Cayman company are private records— this is a positive indication. 

The BVI Insolvency Act is a modern legislation. When a liquidator is appointed over a company, it places a moratorium over claims against the company. But a secured creditor can still enforce its security without having recourse to the liquidator or taking leave of the court. This protection provided to secured creditors is different from Chapter 11 in the US. That is geared towards debtors and allows them to reorganise their debt. 

Extra restructuring tools

The BVI offers two unique extra tools for restructuring companies. Part IX of the BVI Business Companies Act allows the board of directors to approve arrangements to reorganise the company. These can be implemented after getting the court’s permission. Additionally, Part II of the BVI Insolvency Act permits a company in financial distress to enter into arrangements with its creditors. The arrangements are carried out under the supervision of a licensed insolvency practitioner. This allows it to restructure its debt without involving the court.  

High standards of transparency

The BVI is a member of the Organisation for Economic Co-operation and Development (OECD). It is a party to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and the Multilateral Competent Authority Agreement (MCAA). It also has an intergovernmental tax agreement with the U.S. with respect to the Foreign Account Tax Compliance Act (FATCA). Under this agreement, foreign financial institutions in the BVI have to report information on US taxpayer’s accounts to the Internal Revenue Service (IRS). It also has a similar agreement with the UK. 

The BVI was one of the earliest adopters of the Common Reporting Standards endorsed by the OECD. These standards allow for the annual exchange of financial information between jurisdictions. It is also a member of the Caribbean Financial Action Task Force and the International Organization of Securities Commission.

Protection against confiscation of shares

A BVI business company may disregard the seizure of its shares or any other interest by a foreign authority for expropriation, confiscatory tax or other governmental charge. It can apply to the BVI court for such an order. Further, it can continue to treat the person from whom the shares were seized as the holder of shares. 

Annual Fee

A BVI business company has to pay an annual licence fee to the Registrar. It depends on the number of shares that it can issue. For instance, a company authorised to issue a maximum of 50,000 shares has to pay $550. A company with more than 50,000 shares has to pay $1,350. The registered agent takes care of these fees.

Financial records and annual return

A BVI business company has to mandatorily maintain its financial records for a minimum of five years from either: 

1. The date of completion of the transactions to which the financial records pertain or 
2. The date of termination of the business relationship to which the financial records relate. 

These financial records can be kept at any location. But the company must inform its registered agent in writing of the address where they are maintained.

With the BVI Business Companies (Amendment) Act, 2022, BVI companies now have to file an annual financial return with their registered agent. It must be filed within nine months after the end of the financial year to which the return relates. This includes accounts and records like profit and loss statements and balance sheets. Auditing is not required. Additionally, the companies do not have to share their transaction history and supporting documents with the registered agent. 

The annual financial return is not available to the public and the requirement does not apply to: 

1. Listed companies. 
2. Companies regulated under BVI financial service regulations. 
3. Companies that pay taxes in the BVI.

These reporting requirements are not unique to the BVI. Other offshore jurisdictions have them too. Seychelles, the UK, Cyprus and Singapore also require business companies to file with their registered agent an annual report containing accounting records. These records must explain the company’s transactions and determine its financial position. 

Enhanced directorial autonomy in joint ventures 

Common law places a duty on directors to act in the best interest of shareholders in a joint venture. But a BVI company has the flexibility to adopt provisions that negate this duty. They are instead free to act for the benefit of the party which appointed them. The parties know that the join venture represents their interests. Because of this, several eminent joint ventures are BVI holding companies.

There are no additional listing requirements under the BVI law. Thus, a business company can be easily listed on a global stock exchange. The laws and regulations of the jurisdiction where the exchange is located will apply.

Conclusion

The BVI is one of the most prominent jurisdictions to set up an offshore company. It reflects commercial sensibilities in every aspect of governance. The BVI government also realises the importance of offshore businesses. Hence many global businesses choose to set up business companies there.

Offshore financial centres usually carry a negative reputation of being tax havens. But the BVI is compliant with the best practices of transparency and reporting. It offers everything from minimal compliance and tax neutrality to administrative simplicity. Its laws are commercially sound. There is a conducive atmosphere for business. Considering these factors, the BVI can be your go-to offshore jurisdiction.