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BVI Companies - The Offshore Vehicle of Choice

Global Incorporation Guide [GIG] Editorial

October 23, 2017

No single offshore financial centre can really lay claim to be the world's best. Most offer similar tax advantages and there has been a tendency over the last 20 years or so for jurisdictions to specialize in certain areas of offshore finance. Nevertheless, in terms of the number of offshore companies registered, one jurisdiction stands out: the British Virgin Islands.

BVI: Introduction

Situated in the Caribbean Sea, the Islands are a dependent territory of the British Crown, and a member of the Commonwealth. The legal system is based on English Common Law and the Queen of England is the Chief of State who is represented by a Governor appointed by the Crown. The islands are largely self-governing since the 1967 Constitution and to a limited extent rely on UK statutes on international matters. The territory's political stability is one of its major selling-points.

The Financial Centre

For many years now, the Government has welcomed offshore business, and has created a legislative and regulatory structure which has attracted investors in their hundreds of thousands.

According to the jurisdiction's financial regulator, the Financial Services Commission (FSC), during the second quarter of 2017 there were 7,621 company incorporations, a figure which includes new incorporations, continuations, private trust companies, and new registrations of foreign companies. At the end of the second quarter, the cumulative almost 400,000. In total, over 800,000 companies have registered in the BVI.

The adoption of a comprehensive insurance law in late 1994, which provides a blanket of confidentiality with regulated statutory gateways for investigation of criminal offenses, made the British Virgin Islands even more attractive to international business.

The BVI banking sector, on the other hand, has been limited to a small number of international banks as part of the BVI's determination to exclude money-laundering.

Alongside ship and aircraft registration, fiduciary services and investment funds are other areas in which the BVI excels; indeed, in 2013 the jurisdiction was recognized in the Offshore 2020 Report by OIL Offshore Incorporation as the most important offshore financial services jurisdiction, being ranked first for asset protection and estate planning, individual tax planning, special purpose vehicles, and investment holding for corporations.

Naming the "best" IOFC might be a subjective exercise, but according to the report, the BVI is so well entrenched, its structures and services so well-known and well used, that "it would take a massive shift in client sentiment to displace" the jurisdiction from its top ranking.

The BVI also performed strongly in the September 2017 edition of the Global Financial Centres Index (GFCI 22) published by leading City of London think tank Z/Yen, in which it rose 14 places to 37th in a league table of 92 financial hubs.

The BVI's Tax Advantage

Obviously, the BVI's almost complete absence of taxation has driven much of this business to the jurisdiction; the new Business Companies Act (see below) lowered the income tax rate to 0 percent for both local and international companies, and there are no capital gains or capital transfer taxes, no inheritance tax, and no sales tax or VAT.

Flexible Regulation

However, just as important is the jurisdiction's robust yet flexible legal and regulatory framework that has had to adapt to demands for greater transparency from the likes of the OECD yet remain attractive in the face of strong competition from other offshore jurisdictions.

The Financial Services Commission Act, 2001, enacted in December 2001, established the FSC as an autonomous regulatory authority responsible for the regulation, supervision and inspection of all financial services in the BVI. Such services include insurance, banking, trustee business, company management, mutual funds business as well as the registration of companies, limited partnerships, intellectual property and ships. As a result, the Commission now oversees all regulatory responsibilities previously handled by the government through the Financial Services Department.

Internationally Reputable

The need for legislative and regulatory flexibility, and the desirability among the jurisdiction's client base for confidentiality has had to be balanced against new international standards in the area of tax transparency and anti-money laundering.

As a consequence, the BVI exchanges financial account information with the United States under the Foreign Account Tax Compliance Act, and has committed to exchange financial account information automatically by signing the Multilateral Competent Authority Agreement, a key mechanism of the new Common Reporting Standard. The BVI was due to make its first information exchange under the CRS MCAA with exchange partners, of which it has 48 (at the time of writing), in September 2017.

The BVI also has also committed to provide more transparency around company beneficial ownership, and in July 2017, a beneficial ownership database went live for the first time. The "Beneficial Ownership Secure Search system" (BOSSs) is a searchable platform, which provides the territory's law enforcement authorities with direct and immediate access to verified beneficial ownership information on the ownership of companies in the territory. The platform also meets the international standards of the Financial Action Task Force, the global body tasked with combatting money laundering and countering the financing of terrorism.

Furthermore, the BVI has confirmed that it will implement the OECD's base erosion and profit shifting (BEPS) minimum standards as a BEPS Associate member, and in January 2017, the Government said it would participate in the new "Inclusive Framework" announced by the OECD. As a member of the framework, the BVI is committing to implement the OECD's proposed minimum standards on harmful tax practices, tax treaty abuse, country-by-country reporting, and dispute resolution.

The BVI is a member of the Caribbean Financial Action Task force, and is mostly compliant with the FATF's 40+9 recommendations in the area of anti-money laundering.

The BVI Business Companies Act

On 1 January 2007 the British Virgin Islands Business Companies Act 2004 (the BVI BC Act) became the sole Business Companies Act in the jurisdiction, creating an environment where financial institutions and corporations can undertake a wide range of structured asset and project finance transactions in the BVI.

Under the 1984 IBC Act, which preceded the 2004 Business Companies Act, just one corporate form was available, that of the company limited by shares. Under the new regime, several different types of companies can be incorporated. These are:

  • Companies limited by shares. The most popular form of BVI company (see below).
  • Companies limited by guarantee not authorised to issue shares. This corporate form is likely to prove useful for not for profit organizations;
  • Companies limited by guarantee authorised to issue shares. This 'hybrid' type of company provides greater flexibility in structuring transactions, as a result of its combined equity and guarantee membership;
  • Unlimited companies authorised to issue shares. This structure provides greater transparency, as it is possible to look through the company to its shareholders; and
  • Unlimited companies not authorised to issue shares. This type of company could be used to ensure effective estate planning.

The Act also allows companies to be registered as Restricted Purposes or Segregated Portfolio Companies. The former would likely be used primarily in structured finance transactions, while the latter's use will be limited to mutual funds and insurance companies.

The legislation allows more flexibility on the name that can be used by a BVI business company, and allows the re-use of the name of a company which has been previously struck off from the register, has changed their name, or been dissolved. The Act also permits company names to contain foreign characters, which should be particularly attractive to company owners in the Far East.

The BVIBC Act has abolished the concept of authorised share capital and replaced it with a maximum number of shares that the company is entitled to issue.

It has also removed the requirement that a dividend can only be declared and paid out of "surplus," leaving in place the pre-existing solvency test requirement, and has boosted the rights of minority shareholders.

In addition, the Act formalized and tightened the record keeping obligations of companies.

Bearer shares are now prohibited unless authorised by the memorandum or articles of association and bearer share certificates must be deposited with a custodian who has been approved by the BVI Financial Services Commission.

Forming A BVI Private Limited Company

As mentioned in the previous section, the BVI Business Companies Act requires every BVI business company to have a registered agent and an application to the Registry to incorporate a BVI business company may only be made by the person who will be the first registered agent of the company. The Registrar is prohibited by the Act from accepting an application that is made by any other person.

Only a person who is licensed by the FSC as a company management company under the Company Management Act, 1990, or as a Class I or III trust company under the Banks and Trust Companies Act, 1990, can lawfully act as the registered agent of a BVI business company.

After a registered agent has been chosen and appointed, an applicant must take a number of steps before a company can be incorporated in the BVI.

Names

First, a suitable company name must be chosen. The Business Companies Act contains a number of restrictions on the names that may be used by a company, whether on incorporation or continuation, or when a company changes its name.

The Act requires a company's name to have a particular ending, which signifies its legal status. If the company is a limited company, the name of the company must end with:

  • the word "Limited", "Corporation" or "Incorporated;"
  • the words "Societe Anonyme" or "Sociedad Anominina;" or
  • the abbreviation "Ltd," "Corp," "Inc" or "S.A."

The name of an unlimited company must end with the word "Unlimited" or the abbreviation "Unltd."

The Registry is prohibited under the Act from registering a company with a name:

  • that is identical, or misleadingly similar, to a name that is already in use or has previously been used by a company, whether under the Act, the former IBC Act or the former Companies Act or that has been reserved
  • that contains a restricted word or phrase (unless the FSC has consented to its use)
  • that the Registrar considers offensive or otherwise objectionable
  • the use of which is prohibited under any other enactment.

The Registry is prohibited from registering a company name that includes a restricted word or phrase unless the Commission has given its written consent to the use of the name or phrase. The list contains words and phrases that:

  • suggest a connection with financial services business
  • suggest a connection with the Government
  • the Commission considers may be prejudicial to the reputation of the BVI if used in a company name
  • the Commission otherwise considers to be unsuitable for use in the names of ordinary companies

It is possible for the name of the company to be its BVI Company Number together with the required ending. For example, "BVI Company Number 12345" with the selected ending such as "Limited" or "Ltd."

A registered agent may apply to reserve a company prior to the incorporation of a company.

It is possible for a registered agent or the person applying to incorporate a company to search the registry's online database to ascertain whether their chosen name is already registered.

Registered Office

Every company must have a registered office. The registered office is where documents may be legally served on the company.

The registered office must be a real physical address in the BVI – a post box is not sufficient. The registered office of a BVI company may be, and usually is, the office of the company's registered agent.

Memorandum of Articles

Every company must have a memorandum and articles of association that complies with the Act. The memorandum and articles are the equivalent of a company's constitution. The matters covered by the memorandum and articles include the company's internal governance procedures and the relationship between its members. However, the Act provides that every company has "full capacity." subject to the memorandum and articles. This means that, unless the memorandum and articles provide otherwise, a company has all the powers that a natural person has. The role of the memorandum under the Act, therefore, is to impose any limitations on the company's powers rather than to define them.

The articles usually specify the more detailed rules for the company's internal management, and members of a company are bound by both the memorandum and the articles.

The BVI Business Companies Act is designed to be flexible so that the memorandum and articles can be tailored to meet the requirements of the company and its members. However, the Act does require the memorandum and articles to provide for certain matters.

The Act requires the memorandum of a company to state:

  • the company's name
  • the company's type (i.e. whether it is limited by shares, by guarantee etc)
  • the address of the first registered office of the company
  • the name of the first registered agent of the company
  • in the case of a company limited by guarantee, details of the members' guarantees

In the case of a company limited by, or authorized to issue, shares, the memorandum must also state:

  • the maximum number of shares that the company may issue (or a statement that the company is authorized to issue an unlimited number of shares)
  • details of any classes of shares that the company is authorised to issue
  • whether or not the company is authorized to issue bearer shares

The memorandum and articles of a proposed company must be filed with the application to incorporate and both the memorandum and articles must therefore be drafted before the application can be filed.

Directors and Shareholders

Every company limited by shares must have at least one shareholder and at least one director, who may be the same person. The registered agent has a period of 6 months from the incorporation of the company to appoint the first director(s) and it is the first director(s) who will issue the first shares in the company.

The Act contains a number of provisions regarding the duties of a director and the standard of conduct required of a director. The most important obligations set out in the Act are that a director must:

  • act honestly
  • act in good faith
  • act in what he considers to be in the best interests of the company
  • exercise his powers for a proper purpose
  • not act, or agree to the company acting, in a way that contravenes the Act or the memorandum and articles of the company.

The Act expects a director to act with the care, diligence and skill that a reasonable director would exercise in the same circumstances taking into account factors such as the type of company, the type of decision being made and the position and responsibilities of the director concerned.

The Act provides that a person, including a company, can be a director unless that person:

  • is an individual who is under 18 years of age
  • is disqualified from acting as a director under the Insolvency Act
  • is an undischarged bankrupt
  • is disqualified from being a director by the memorandum or articles.

The law in the BVI does not recognize "nominee directors." Nominee directors are persons who are appointed by another individual or company to act on their behalf.

Directors are responsible ensuring that the company maintains proper company records. The following must be kept at the office of the company's registered agent:

  • the memorandum and articles of the company
  • the registers of members and directors
  • copies of all notices and other documents filed by the company in the previous ten years

Although it is not essential to decide who the shareholders and directors will be before a company is incorporated, a company cannot commence its operations until at least one director has been appointed and at least one share has been issued.

Only licensed trust companies or licensed company managers may provide nominee shareholder services or act as a director by way of business.

Incorporation

Provided that the paperwork is correctly completed and there is no problem with the name chosen, an ordinary company limited by shares (without a foreign character name) is usually incorporated within one working day of the application being received by the Registry. The company is incorporated with effect from the date specified in the certificate of incorporation and has the name specified on the certificate.

Fees

The fees for incorporating a company limited by shares are as follows:

Where the company is authorised to issue less than 50,000 shares USD350

Where the company is authorised to issue more than 50,000 shares USD1,100

Where the company is authorised to issue an unlimited number of shares USD1,100

A company will also have to pay an annual fee of the same amount, commencing in the year after its incorporation.

Annual fees for a company that is authorized to issue bearer shares, whether or not the company actually issues any bearer shares, are significantly higher.

 

Tags: tax | business | services | offshore | standards | law | British Virgin Islands | Virgin Islands | financial services | insurance | fees | investment | banking | Offshore | Tax | BEPS | intellectual property | United States | legislation | money-laundering | environment

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