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BRITISH VIRGIN ISLANDS
INCOME TAX
- BRITISH VIRGIN
ISLANDS TAXATION OF TRUSTS
- BRITISH VIRGIN
ISLANDS WITHOLDING TAX
In
the British Virgin Islands there is no capital
gains or capital transfer tax, no inheritance
tax, and no sales tax or VAT. There are stamp
duties on certain transactions, and property taxes.
In
September 2002, then Chief Minister and Minister
of Finance, Ralph T O'Neal confirmed that the
government was seriously considering the abolition
of both personal and corporate income tax on the
Islands. Although
he explained that no pressure had been brought
to bear on the BVI government to impose a zero
rate of income tax, as it stood,
the jurisdiction's tax regime could have come
under fire for 'ring-fencing' certain tax advantages;
one of the criteria laid out by the OECD for defining
'harmful preferential tax regimes'.
In
October 2004 former Chief Minister Orlando Smith
informed the country’s Legislative Council that
a two-year transition period would be put in place
to smooth the changeover to the Business Companies
Act, which has lowered the income tax rate to
0% for both local and International Business Companies.
The new legislation, which took effect on 1st
January 2005, was drafted to ensure the territory
is fully compliant with the European Union (EU)
Savings Tax Directive and EU Code of Conduct on
Business Taxation, as required by the United Kingdom
of all its Overseas Territories.
Under the transition arrangements announced by
Dr Smith, new incorporations were still possible
under old legislation throughout 2005. From 2006,
new incorporations were
made under the new Business Companies Act, although
companies already on the register were
permitted to operate under the old IBC Act or
Companies Act for an additional year. Since
1st January 2007, all companies are
operating
under the new legislation.
Under
the new legislation, the existing income tax system
for employees has disappeared. However, in its
place, a new payroll tax is levied at a rate of
14%, 8% of which is paid by the employee and the
remainder by the employee, although the first
$7,500 of income will remain tax free. However,
the contribution for small business, defined as
those employing less than seven people and with
a payroll of less than $150,000 per year, will
be only 2% whilst all other businesses will contribute
6%.
Furthermore, local firms will be required to pay
annual licence fees, whilst IBCs will face a maximum
20% rise in their annual licence fees.
British Virgin Islands Income Tax
Income tax (now abolished) was levied on the chargeable
income of resident BVI Companies Act Companies.
As applied to a company, 'resident' meant that
the management and control of its business was
exercised from the BVI. Normally, if more than
half of the directors are resident in the BVI,
then so is the company. There were three possible
cases:
- the
company was resident, in which case it paid
income tax of 15% on its world-wide chargeable
income;
- the
company was non-resident, in which case it paid
15% income tax on its chargeable income arising
in or remitted to the BVI; or
- the
company was resident but was an 'offshore trading
company', meaning that 90% of its profits arise
from activity conducted outside the BVI, and
it paid tax at the rate of 1% on its world-wide
income.
Chargeable
income was assessed after deduction of expenses;
tax credits were allowed on foreign tax paid in
treaty countries and certain other countries.
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British Virgin Islands Taxation
of Trusts
Trust
income is exempt from tax if:
- the
trust is created by or on behalf of a non-resident
person; and
- owns
no land in the BVI; and
- does
not carry on business in the BVI.
British Virgin Islands Withholding
Tax
There are no withholding taxes in the BVI. However,
the BVI, like other British 'dependent territories',
was forced to apply the EU's Savings Tax Directive
from 1st July, 2005, and chose to apply a withholding
tax (initially of 15%) to the returns on savings
paid to nationals of EU Member States. The Directive
does not apply to corporate entities.
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