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British Virgin Islands
Why British Virgin Islands?
Featuring one of the most prosperous economies in the Caribbean, the British Virgin Islands (BVI) ranks top 20 in per capita GDP in the world. About 60% of country’s economy is based on financial services, primarily offshore financial services. With a bulk of the remainder based on tourism, BVI’s has transfromed into a cruise ship destination in recent years. In BVI, tourism is based on nearly perfect climate, sparkling beaches, tropical vegetation, and undersea coral reefs that provides about half of the islands’ income and is the largest employer. BVI islands are among the most favorable destination for the formation of offshore investment funds, after the Cayman Islands. Further, it attracts a huge amount of foreign direct investment and is second only to Hong Kong.
Known as a tax haven jurisdiction with significant levels of confidentiality, the British Virgin Islands (BVI) is one of the most favored place for offshore seekers. It’s welcoming business laws make the country a sound choice for offshore investments. The qualities listed below of the country make the jurisdiction as a most favorable jurisdiction for offshore investors:
BVI’s company law is intended to furnish maximum flexibility with common law legal frameworks. Under this law the companies are allowed to undertake any lawful act or movement, and there are no injuries relating to corporate advantage.
There is no income tax, corporation tax, capital gains tax and wealth tax applied in the country. Thus, doing business in the BVI brings considerable tax benefits giving BVI a status of a tax neutral territory.
Minimal corporate requirement
Any person who is interested to register a business entity in BVI is not troubled with over burden of document compliances or corporate necessities. A BVI company is explicitly empowered to financially assist a third party in securing of its claims.
Global business hub in the Caribbean
The country has the Caribbean’s global business hub and has long attracted businesses from around the world due to its strategic location and administrative benefits. Further, establishing an entity in the BVI is an easy and quick process. Moreover, ongoing entity maintenance is simple and compliance obligations are non-onerous.
Along with tourism, the financial services are one of the main economic drivers of the British Virgin Islands. There are about 950,000 companies registered in the Territory. The BVI is considered one of the major players in this sector.
Close ties to the U.S. Virgin Islands
BVI has close economic ties to its neighbor islands such as U.S. Virgin Islands, so it has adopted the U.S. dollar as its official currency. This makes BVI an easy and attractive location for U.S. companies to do business.
Simple Tax Regime
Individual income tax
In BVI, the individuals are not liable to pay income tax, land or housing taxes. Income tax was abolished in 2006 after approval of new payroll tax in January, 2005 by the Legislative Council.
Further, a payroll tax is levied at a rate of 14%, of which 8% is paid by the employer and the remainder by the employee, although the first US$10,000 of income is tax free. The contribution for small business, defined as those employing less than seven people and with a payroll of less than US$150,000 per year, is 10%.
There are some indirect taxes applicable in BVI, such as:
- An individual who resides in the British Virgin Islands will be liable to custom duties on most of imported goods like electronics, automobiles, furniture and clothing at a rate between 5% to 20% of their value.
- There are exemptions on some items such as books, computers and construction materials, to encourage investment, rebuilding efforts and infrastructural development within the territory.
The British Virgin Islands companies are not liable to pay corporate tax, capital gains tax, wealth tax, or any other taxes. They are exempted from income taxes and stamp duties regarding all instruments or deeds relating to company business, including the transfer of all property to or by the company and its securities transactions.
British Virgin Islands Companies
The country is a well recognized and the most favorable offshore worldwide jurisdiction for incorporation of an offshore entity. Moreover, under the Business Companies Act of the British Virgin Island, there are following main types of companies available:
Company limited by shares
This form of business entity is the most common type of company that is registered in the British Virgin Island. As the name suggests, a company limited by shares is the company having the ability to issue shares, and its member’s liability is separate from the company’s debts and obligations. Members of this company are holders of its shares. It requires to have at least one shareholder and at least one director, both of whom may be the same person.
Company limited by guarantee
This type of company is typically used for non profit organizations. However, under section 5 of the BVI Business Companies Act, a business is allowed to register a company limited by guarantee in two forms:
- A company limited by guarantee that is not authorized to issue shares.
- A company limited by guarantee that is authorized to issue shares.
Restricted purpose company
These companies have its name ending with ‘SPV Limited’ or ‘SPV Ltd’ and is quite similar to a BVI business company. These are for transactions and activities with limited purposes such as insolvency remote issues, securitization or off – balance sheet – financing work. The companies are prohibited to amend its memorandum or erase the statement for its type of company.
Segregated Portfolio Company
A BVI SPC is deemed a legal entity that has separate portfolios, whereas, the assets and liabilities of each individual portfolio are segregated from each other and from the general assets and liabilities of the company.
BVI islands are amongst the most favorable destinations for the formation of offshore investment funds, after the Cayman Islands. Further, it attracts a huge amount of foreign direct investment and is second only to Hong Kong.
Author: Chandrawat & Partners
Date: January 2023
Topic: Doing Business in BVI
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