The Virgin Islands, commonly referred to as the British Virgin Islands (BVI), is a British Overseas Territory consisting of four larger islands to the east of Puerto Rico in the Caribbean.
The islands were named by Christopher Columbus after the legend of Saint Ursula and the 11,000 virgins – which sounds like a backstory perhaps best left to your own curiosity.
First settled by the Dutch in 1648 then taken over by English planters in 1666 and the islands became a dependent United Kingdom territory in 1967. BVI is distinct from the US Virgin Islands which, though a mere 40kms away, is a territory of the United States consisting of three larger islands.
Any list about incorporating offshore companies would be incomplete without the British Virgin Islands. That’s because BVI offshore company formation provides lucrative benefits for your business with tax-free options, affordable maintenance, limited reporting and complete privacy.
BVI is one of the oldest and most reputable jurisdictions in the offshore industry, with around 40% of all the world’s offshore companies registered there. Depending on the type of company you establish here, you can pay zero corporate tax. There is also no audit requirement. We’ll cover all the benefits in full later, but first, let’s start by establishing some facts.
What’s an Offshore Company?
An offshore company is a company that you own in a jurisdiction that you are not living or residing in. Contrary to what is so often portrayed in the media, offshore companies are neither illegal nor incredibly complex. An offshore company is nothing more than a legal entity in a country other than the one where you operate.
There are some fundamental reasons why at Nomad Capitalist we often advise our clients to establish offshore companies. For the entrepreneur or investor, it’s about benefiting from government competition in achieving the lowest tax rate, but that’s not all.
From doing business overseas, owning foreign real estate, achieving the optimal company structure and protecting your assets, having an offshore company can make your life easier.
The optimisation benefits that come with a properly established offshore company structure can reduce your tax bill and grow your wealth giving you more money to enjoy and invest.
All of this is achievable when you incorporate in the British Virgin Islands. So, let’s get into some of the specific advantages available there.
Tax Advantages of a BVI Company
A BVI Business company is exempt from any taxation, regardless of its source of income. In short, BVI companies pay no corporate tax, no capital gains tax, no value added tax (VAT) and no withholding tax.
The same applies to dividends, interest, rents, royalties, compensation, and other expenses paid by a company. The only tax that exists in BVI is a payroll tax on the remuneration paid to local employees. The payroll tax rate is 10% for small companies and up to 14% for large employers. Eight percent of the remuneration can be reimbursed at the expense of employees, and the first US$10,000 paid to an employee each year is exempt.
A BVI business company is also exempt from stamp duty on transactions that relate to the transfer of property, shares, debt, assets or securities. However, land-ownership transactions are subjected to stamp duty ranging from 4% to 12%.
Corporate Governance
Other than having a registered address and agent there, in the BVI there are no mandatory corporate governance requirements. A BVI company is a separate legal entity and entitled to the same powers as a natural person.
Although a BVI company is required to have at least one director, one shareholder and one company secretary, all these roles can be fulfilled by one person, regardless of their nationality. They can be natural persons or legal entities like corporations.
Unlike other jurisdictions where an entrepreneur may have to deposit a certain amount with a bank or notary when incorporating a business, in BVI there is no minimum capital paid requirement.
A BVI Company’s structure is flexible and can be designed to reflect a company’s management requirements and business needs.
Quick, Simple Registration Process
The following types of companies were established by BVI Business Companies Act:
- Company Limited by Shares
- Restricted Purpose Companies
- Segregated Portfolio Company
- Company Limited by Guarantee
- Unlimited Companies.
Offshore companies in BVI have no annual reporting or audit requirements. However, these offshore companies cannot conduct any business in BVI.
While there is no fixed timeline, it can take as little as a few days to incorporate a BVI company if you are prepared. In comparison to other jurisdictions, the steps are minimal:
Step 1: Reserve a company name with the BVI Commercial Registry that conducts a search to ensure the name is unique.
Step 2: You must appoint a registered agent when incorporating in the BVI. By doing this, you obtain a registered legal address for your BVI company. The registered agent maintains the safe custody of your business document, such as the Memorandum and Articles of Association, to be available for inspection by the directors and shareholders of the BVI company.
Step 3: It is mandatory to open a bank account in the BVI before your company documents are drafted.
Step 4: Finally, you must draw up and submit the company’s Articles of Association and details of the registered agent and business founders to the Companies Registry for approval. Once approved, you may also need to apply for relevant licences to officially commence your business activities.
Additional licensing requirements apply to a company proposing to act as a bank or deposit-taking institution, money service business, insurer or certain types of investment fund. A licence is also required by a corporate service provider or corporate trustee.
Lower Costs for a BVI Company
When compared to other offshore jurisdictions, setting up BVI Company is generally considered to be cost-effective. The cost of setting up a BVI company varies depending on the type of company, the services required, and the service provider chosen.
The costs include:
- Incorporation fees: currently US$500 for a BVI company authorised to issue up to 50,000 shares
- Registered agent fees: expect to pay up between US$500 and US$1,000 per year
- Government licence fees: very between a few hundred and a few thousand US dollars
- Legal fees: depend on complexity but budget for several thousand US dollars
- Cost of premises: costs vary depending on location and quality.
It is not currently mandatory for a BVI company to undertake annual reporting and tax filing. This can make them more cost effective.
Reporting requirements
Under changes to comply with international transparency standards some regulated entities include fund management, insurance companies and banks must maintain financial records and documentation that show their transactions.
Companies that are not regulated by the BVI Financial Services Commission (FSC) have no requirement to file any financial accounts, annual returns or records.
Since there are no corporate taxes in the British Virgin Islands, there is no requirement to file a corporate tax return.
Increased Confidentiality
The BVI has a long-established track record in business information confidentiality. As such, there are currently no requirements for the beneficial owner of a company to be made public. An extra layer of privacy is also extended to nominee directors and nominee shareholders.
Provided there are documents in place to reflect the actual owner of a company, they can act for the ultimate beneficial owner. As of now, the only record made available to the public is the Register of Directors and this can only be disclosed on the basis of a lawful request. Other than that, records do not need to be kept within BVI and will not appear on any public forum.
Corporate Banking Benefits
In many overseas jurisdictions, opening a local bank account is a condition of incorporation, however these facilities are often lacking. While BVI is a recognised financial jurisdiction, you can’t open a bank account there unless you have economic substance in BVI.
This entails an entity having a suitably qualified number of staff who are physically present there and maintaining a premises on the island. As this is often not the preferred option for someone incorporating an entity in BVI, many chose to open bank accounts elsewhere and bank overseas.
However, in general terms, BVI is a significant offshore financial centre, known for its private and secure financial services. In fact, BVI is home to a number of reputable financial institutions, known for their high-quality service and sound finances. VP Bank, the county’s only private bank, offers investment and asset management services, supported by a Standard & Poor’s ‘A’ credit rating.
Achieving Your Business and Personal Goals
There are several good reasons to incorporate your business or part of it overseas. Aside from reducing your tax obligations, offshoring your business can increase your asset protection because in some countries, you can achieve a more favourable legal framework.
By having your business separate from your personal residence an independent offshore entity limits your liability. It means those assets are protected from third parties who might otherwise have been to make a claim against you personally and get any assets from your company. For example, if you have creditors or litigations, certain jurisdictions provide better benefits for you than the third party.
In most cases, and certainly in the British Virgin Islands, you will benefit from reduced taxes, but there is also the bigger picture to consider.
If you want to harness your wealth and make sure that future generations can enjoy that without any concerns, structuring your business offshore is a good way to provide for your estate. So, another good reason to establish an offshore company is to better plan your succession.
You have to take into consideration your personal tax and your corporate situation and, to make sure that you’re choosing a country that’s going to work well with the rest of your circumstances.
One other thing to take into consideration, is that the country that you’re going to has the infrastructure that you need, for example banking, support services, legal and so on. Setting up an offshore company should not impact your customer or change their experience and you certainly don’t want that to negatively affect your revenue stream.
Another aspect that is very important is reputation. Certain jurisdictions that have 0% corporate tax and easy regulations can be somewhat controversial in global financial terms – not the British Virgin Islands.
Yes, it could rightly be described as a tax haven but neither the Financial Action Task Force (FATF) nor the Organisation for Economic Co-operation and Development (OECD) has ever blacklisted the British Virgin Islands as an offshore services location. So, you can feel confident that the jurisdiction is has a solid reputation.
The BVI has also entered into 28 Tax Information Exchange Agreements with jurisdictions that include Australia, Canada, China, France, Germany, Ireland, Japan, New Zealand, Portugal, South Korea, the United Kingdom and the United States.
BVI is a preferred jurisdiction for foreign investors on the basis of its simplicity so you don’t have to jump through hoops to establish a company there. It’s also a member of the British Commonwealth with strong ties to the United Kingdom and the European Union as well as the US. In fact, the US dollar is the currency used there and the islands are English speaking.
BVI companies are widely used as listing vehicles, both as operating and holding companies. However, BVI is the world’s most popular offshore holding structure as an effective route to creating tax neutral layers in a corporate holding structure.
The British Virgin Islands is one of the most business-friendly jurisdictions in the world, and there are substantial tax benefits to setting up a company there. It offers a versatile corporate structure for establishing various business entities.
The Final Piece of Your Puzzle
In many ways, the BVI is an ideal place to streamline the establishment of a tax-friendly offshore presence.
But if you’re looking for for a Plan B you will need to plan this carefully.
That’s where Nomad Capitalist comes in. We help seven- and eight-figure entrepreneurs and investors create a bespoke strategy using our uniquely successful methods. We’ll help you keep more money, create new wealth faster, and be protected from whatever happens in just three steps. Become a client today.
