They say that the best way to protect your wealth is by diversifying your investments. Putting all your eggs in one basket is a considerable risk to any investor. Now, one of the best ways to mitigate this risk is by opening an offshore company. It is an investment decision that comes with numerous benefits apart from protecting your wealth. So let’s check what is a (BVI) British Virgin Islands Offshore Company – How to do!
What is an offshore company?
An offshore company is basically any company that is registered in a different jurisdiction than the one the primary owners or principals reside in.
However, operations of this company are carried out in the parent company. Some people may view this idea as a way to evade tax or carry out illegal activities, but the reality is that offshore companies are totally legal.
It is true some investors may open an offshore company to conduct some illegalities — most people, however, use the idea for legitimate reasons. That said, numerous countries allow businesses to incorporate offshore companies, and one of these is the British Virgin Islands.
The region is known as a tax haven for those who want to diversify their investments in the country. Before we continue, get to understand what a BVI company is.
What is a BVI offshore company?
Investors from different parts of the world have always viewed these islands as a perfect region to expand their businesses internationally. In the year 1984, the International Business Companies Act (opens in a new tab) was enacted, allowing the creation of International Business Companies (IBCs) in BVI. IBCs are what we may term offshore companies out here.
In the year 2004, a new act was enacted, the BVI Business Companies Act.
Its primary purpose is to remove the difference between local and offshore companies — all are now BVI companies. Since then, the islands became highly developed both economically and financially — the region stands out in the Caribbean.
Numerous investors from different parts of the world have formed offshore companies in the area, making the region significantly prosperous. BVI company formation in the Virgin Islands is quite fast and straightforward, which makes it one of the best financial centers in the world.
Other reasons for the popularity of BVI companies are tax benefits, strict confidentiality, political stability, US dollar currency, and flexibility of organization structures. A big part of the British Virgin Islands’ GDP is generated from BVI companies.
Some of the businesses you can do in the Virgin Islands include;
- Intellectual property management
- Inheritance provisions
- Forex trading
- Real estate, among others
Requirements to register BVI offshore company
Registering a BVI offshore company is quite easy.
However, it is only fast and straightforward if you understand your requirements, including the different costs of formation. You will need to identify an agent to help you in registering a BVI offshore company.
Remember that you must use an agent to register and incorporate your BVI business — you cannot do it on your own whatsoever. For your company to be fully incorporated, you will need about 3 to 6 days. However, if your approval of the company name takes longer, then the process might be delayed as well. It will also depend on how fast and accurately you provided all the documents required for incorporation.
Some of the costs that you should expect to pay include BVI formation fee, government fees, agent fee, and cost of shipping your documents to the country, among others.
Your agency will direct and help you in settling all these fees while providing you with all relevant information.
Here are other requirements you will need to put in place.
Name of your BVI company
You must provide a unique name for your offshore company, which must not be similar to any other existing company. In this case, you are required to submit three names and wait for approval of at least one.
Identify your local agent and address for your offices
Incorporation of a BVI requires you to work with a locally registered agent who will assist in setting up the BVI company. You need a local address as well, and it will be used for submission and requisition of official notices. You are not allowed to use a PO Box as an office address. However, you can use your agent’s office as your official local address.
Your offshore company requires at least one shareholder at all times but not during incorporation. The personal information of these shareholders are private and confidential and therefore must not be published in any public record. Shares need to get issued right after incorporation whether the company has a par value or not. If not, the director might become automatically liable for the contracts carried out by the company.
Your BVI company requires at least one director, and unlike in most jurisdictions, there is no strict need for local directors. Also, the directors can either be an individual or an entity. The company does not require a sectary during its incorporation.
Unlike many offshore companies, a BVI company does not require any authorized capital for its incorporation.
BVI companies do not pay any corporate tax — hence, a tax haven for investors across the world. However, your company is required to pay some annual fee, which is renewable annually. Since the costs can change from year to year or for different reasons, ask your agent about the same to ensure you follow the rules.
Accounting and auditing
With an offshore company in BVI, you are not required to maintain annual financial records. It is only local companies that need to record and publish their financial statements. These statements must also be audited by an independent auditor every year.
Every BVI business must hold an annual general meeting (AGM). However, the AGM can be held in any other country apart from BVI.
A BVI company is not required to share data about directors, shareholders, owners, or officers on public records. Therefore, the registrar of your company will not request this information unless your company decides to disclose it. However, you will need to submit the articles and memorandum of association to the registrar.
Due diligence requirements
The agent you choose to assist in the registration of your BVI Company is required to attain your information to ensure they are dealing with credible people. It is commonly known as a ‘know-your-client’ requirement. Provide them with information about the shareholders, directors, and any other partner as deemed necessary. This is to ensure that the agent is not assisting criminals to carry out their illegal activities such as money laundering in the name of starting a BVI business.
However, this information is kept confidential and can only be used for the purpose of compliance. In case of a legal claim against the company or its owners, the agent must remit this information to aid in the investigation.
BVI – British Virgin Islands Company registration
Registration of your BVI business is the most critical part of incorporating a company in the British Virgin Islands. The good thing is that the agent you choose will be responsible for the entire registration process.
The Registrar of Corporate Affairs in the country is responsible for maintaining the registry of both local and foreign companies. This is as per the BVI business companies Act enacted in the year 2004. The BVI Financial Services Commission is responsible for regulating financial services in the country.
You will need the commission to authorize your commercial business in BVI and receive a license from them as well. As for patents and trademarks, the commission is responsible as well. These details are essential, depending on the type of BVI business you intend to conduct in the country. During registration of your offshore company within BVI, remember to add a corporate suffix to the company name.
For instance, your BVI limited company may end with Ltd., Inc., Corp, or S.A., which are abbreviations for limited, incorporated, corporation, or Societe Anonyme, respectively. The registration process gets conducted electronically through your agent, which is one of the reasons why the registration process is usually fast.
Incorporation of a BVI company
Your BVI business gets incorporated in the Virgin Islands through the submission of articles and memorandum of association to the Registrar of Corporate Affairs.
Incorporation is considered valid immediately after filing these two documents. Once they are satisfied with the documents, it will take 3 to 5 days for the Registrar of Corporate Affairs to allocate you a company number. They will also issue you with a certificate of incorporation and return the documents they received from you — stamped memorandum and articles of association.
This happens through an electronic filing system known as VIRRGIN.
Unlike other regions where the concept of a subscriber of shares and the need for first directors are strict requirements, BVI incorporation does not require such. However, the company might request their agent to appoint a director and secretary if they deem it necessary.
Remember, every BVI company requires to retain at least one director at all times regardless of their residency.
These directors have the power to issue shares to shareholders once the company is incorporated— no need for a director before incorporation.
Remember that BVI is not required to have any authorized share capital during incorporation. Payment of shares can come in different forms, including money and promissory notes, among other written obligations to contribute towards future services if the company.
Now, in case a BVI business is issuing shares with a par value, the consideration paid, must correspond to that par value. If an investor pays less, then he must clear the difference between the par value and the issue price.
Forms of incorporating a BVI company
According to the BVI Bussiness Act, you can form different types of corporate vehicles within the British Virgin Islands.
Here is a brief insight into each.
Companies limited by shares
This is the most popular form of incorporation when it comes to BVI companies. A company limited by shares allows the issuance of shares to its members. These members are not liable for the debts incurred by the company. One thing you must notice is that BVI company law does not follow the traditional concepts of limited company formation, especially on authorized capital.
Now, the liability of a shareholder to contribute to the acquisition of assets of the company is limited to:
- Amount of shares held,
- Any expressed liability for the member in the articles or memorandum of association
- Any liability arrived-at as per the solvency requirements
The memorandum must identify;
- That the company is limited by shares
- Maximum number of authorized shares the company can issue
- Classification of shares and details therein
Companies limited by guarantee
A unique feature of these companies is that they do not have shares. Their members are not called shareholders but guarantee members. Most of the time, these companies are formed for social and charitable purposes across the world. However, they can also be incorporated as BVI businesses. The memorandum of association must state that the company operates as such, and they are not allowed to issue shares.
Companies limited by guarantee but authorized to issue shares
These BVI companies are similar to the companies limited by guarantee except that they allow issuance of shares to guarantee members. In this case, the memorandum must state that the company operates as such, and being a hybrid of the first and second corporate vehicles, it must fulfill the requirements for both.
Unlimited companies but not authorized to issue shares
This corporate vehicle does not issue shares to its members, which means it does not have shareholders. The members have unlimited liability, and this means that they are liable to contribute to the assets of the company. To some extent, this is contrary to the concept of separate entities in the formation of companies. Just like other incorporate vehicles, the memorandum must state that the company operates as such and must have at least one unlimited member at all times. The need for this one member or not a requirement during incorporation but after completion.
Unlimited company but authorized to issue shares
This is a partial hybrid of the first and fourth vehicle, whereby yes the company is unlimited, but it is authorized to issue shares. Its unlimited members are, therefore, shareholders. The company must fulfill the requirements of companies limited by shares and the concept of unlimited liability.
Restricted purpose companies
These are corporate vehicles that were introduced by the Companies Act in the British Virgin Islands to facilitate specific purposes in the business world. The name of these companies must end with the abbreviation, SPV.
To incorporate a restricted purpose company, one must ensure that:
- The company is limited by shares
- The memorandum must state that it operates as a restricted propose company
- The memorandum must specify the purpose of the company
While it is possible to transform a company from one vehicle to another by amending the memorandum, you cannot change any to become a restricted purpose company.
It must be incorporated as such from the beginning. However, the purpose of the company can be amended unless the same memorandum restricts the amendment.
Benefits of incorporating a BVI company
Why is BVI a popular destination for most investors with plans to incorporate an offshore company? There are numerous considerations that people make before committing to any investment, and here is why it is a viable idea to invest in a BVI business.
1. Flexible and efficient incorporation
Legislations governing the formation and registration of BVI companies are quite flexible and efficient as compared to most jurisdictions across the world. The companies do not face any restrictions when it comes to corporate benefits in the country, and this makes the entire process an easy one to complete. You are not required to visit the Island, but your chosen agent in the British Virgin Islands will help you throughout the registration and incorporation process.
2. You face minimal bureaucracies
In most cases, incorporating a company requires the submission of numerous documents. However, with BVI companies, you need very little, especially after incorporation. For instance, you are not even required to submit any reports, including financial statements. Companies only prepare the accounts for their own use, such as monitoring growth and assistance in future plans.
3. Tax benefits
BVI is a tax haven, and it is one of the main reasons why it’s famous for offshore company formations. Investors are not required to pay any tax from the revenues they make as long they are not subsequently repatriated in the UK. Otherwise, the BVI business may face some tax implications. The good thing is that the tax rate is quite low compared to rates in other parts of the world.
Remember, if your home government has signed to a double taxation treaty agreement, you might also be required to pay some taxes to your home country.
4. Privacy and confidentiality
Most investors want their personal data to remain confidential and anonymous, maybe to help them pursue their interests secretly without unnecessary analysis by competitors. This is the exact privacy you get by setting up a BVI business in the Virgin Islands. You are allowed to register a company without having to share your personal details with the registrar of companies.
The British Virgin Islands (BVI) are a tax haven?
The answer to this question is a big yes — the British Virgin Islands is a tax haven jurisdiction.
When we talk of a tax haven, it means a country that provides foreign investors with a low tax liability or exemption from paying tax. BVI fits perfectly in this definition.
The British Virgin Islands is both economically and politically stable for any business, including offshore companies. The country does not dictate where an investor, either individual or entity, should live or operate from to enjoy the tax benefits. Someone may wonder how such a country benefits from being a tax haven, and this is how.
A tax haven usually attracts capital from banks and other financial institutions, resulting in a stable financial sector. Other countries that fit in the definition of a tax haven include Belize, Andorra, Monaco, Panama, Cayman Islands, and Hong Kong.
However, for you to enjoy tax benefits from these regions, it will depend on the regulations of your home country. For instance, citizens and residents from the United States are expected to pay tax on incomes they earn domestically, and from other parts of the world.
Taxation requirements for businesses operated outside the BVI
The British Virgin Islands has a territorial tax system, and no tax is levied on any business incorporated in the BVI, even if you run a business outside BVI.
Items exempted from taxation include incomes, sales, capital gains, profits, dividends, inheritances, royalties, and interests. However, if an IBC runs some of its business locally, then the BVI government expects the company to pay some taxes.
For instance, if the offshore BVI company is trading with other BVI company’s in the islands or is hiring local employees, then they may not enjoy full exemption.
The government of BVI also receives fees from offshore IBCs during registration and licensing. These fees are quite high as compared to the amounts paid by local companies receiving similar services from the government. Since the BVI government does not charge any withholding tax to the BVI companies, it applies Tax Information Exchange Agreements (TIEA) with other jurisdictions instead of Double Tax Agreements (DTAs). In this case, a BVI business is required under TIEA to disclose its tax details if it is a requirement in their home country.
Also, remember that a BVI company is not allowed to ratify any international corporate tax conventions under its own right. BVI is a British Overseas Territory, and such agreements must, therefore, follow the UK’s right to allow a convention to be extended for the BVI.
Opening a BVI bank account
After setting up your business, you need to open a bank account to serve your offshore company. While some jurisdictions require the owners of the company to be there in person to open an offshore bank account, this is not the case with BVI. You can open it from wherever you are. Opening a bank account is not a requirement for the formation of BVI companies. You can register the company and use a bank account in a different country.
The account is for your own good if you choose one in BVI. Different banks will offer you various services and ask for different documentation. For instance, you might be required to submit a certificate of incorporation and details of the actual beneficial owner.
Other documents include a reference letter from your bank, a notarized copy of a passport, or a professional reference to prove your reputation and credibility. The BVI banking and Fiduciary services Division control the operation of banks in the British Virgin Islands to ensure that they meet all local and international standards.
There are a total of 7 banks in the Virgin Islands whereby one has a restricted licensing, while the government wholly owns another one. Most of the banks in BVI are subsidiaries of international banks from other countries, as per the details below.
Best bank accounts for BVI companies
The bank was established in the year 2001 and is located in Georgetown. It is a subsidiary of FirstCaribbean International Bank Ltd and provides different financial services, including treasury trading, wealth management, investment banking, and retail and corporate banking services. FirstCaribbean international bank has more than 20 banking centers, 50 branches, and seven regional offices across the region.
It is a bank that most foreign investors prefer for their BVI companies.
The bank was founded in the early 1970s in Tortola. Its primary purpose for formation was to provide local fishermen and farmers with loans. However, today it is a full commercial bank, offering different financial services. The government owns the bank and mostly serves domestic customers.
This is a subsidiary of Canadian national bank, the Bank of Nova Scotia. The bank offers financial and banking services in the Caribbean, Latin America, North, and Central America.
This bank was established in the year 1956, and it’s one of the leading institutions in the Liechtenstein financial center in Tortola. It focuses more on asset management for both individuals and corporates. VP Bank (BVI) Ltd is a subsidiary of VP bank. VP bank group has branches in other regions, including Luxembourg, Hong King, Singapore, Switzerland, and Russia.
This bank is also located in Tortola and was established in the year 1984. They serve both local and international customers in BVI, United States, and Puerto Rico. Services to expect include retail and commercial banking and insurance products.
The bank has been offering both financial and banking services in different countries, including BVI, United States, and Puerto Rico. They serve both local and international customers as individuals or entities.
The Bank of East Asia (BVI) Ltd
This bank was established in the year 2018, and it is a subsidiary of East Asia Financial Holding.
Dividends distribution in a BVI company
Before a BVI company can allocate dividends and other distributions to its members, they ought to satisfy some requirements, as explained below
According to the BVI law, a solvency test must be completed before the allocation of any distribution in the company. In this case, the directors need to determine whether a company will still remain on reasonable grounds after these distributions. The company must satisfy the solvency test when the value of liabilities is less than its assets, and it has always paid its debts faithfully. It must also satisfy that the planned distribution is a transfer of assets rather than shares held by a member or is a means of incurring debt for a member who owns shares in the company.
The test involves the valuation of balance sheet and cash flow statements, but this is not a routine audit because BVI businesses are not required to carry out annual audits. Once the directors are satisfied, the board can go ahead and authorize the distribution of dividends to every shareholder. If there are other distributions that the company is required to pay, they will get allowed at this stage as well. However, in case any of these distributions is of considerable value, such as more than fifty percent of the company’s net assets, shareholders’ approval will be required.
Improper distribution of dividends
In case a company decides to share dividends or any other distribution without the satisfaction of the solvency test, then everything paid might be subject to reversal. The reversal process is commonly known as ‘clawback’ as per the BVI Company Act. However, if the shareholders are not aware of the breach of the solvency test or they received the dividends in good faith, the law may not apply. The directors are held responsible in this situation for failing to follow the right steps.
Taxation of dividends received
Shareholders in BVI companies are not required to pay any tax from the distributions they receive from the company. However, one must be very careful when they earn income from other sources other than the company profits — they may be liable to pay tax. This also depends on the jurisdiction where this shareholder is getting his extra income.
BVI offshore company the bottom line
If you have been wondering whether BVI is a viable jurisdiction to consider for an offshore company, now you know, it one of the perfect destinations.
It is popular and worthwhile due to its flexibility in setting up the company, fantastic tax benefits, and the variability of company structures. Investors who want to retain their anonymity should consider BVI.
Based on this thoroughly researched context, a BVI company is a pre-eminent investment in the offshore world.