1. BVI as a jurisdiction for incorporation
The British Virgin Islands (BVI) is a popular and incredibly efficient jurisdiction in which to incorporate (and operate) a variety of business entities, including funds, multi-shareholder companies, joint venture companies and holding companies. Trusts and partnerships are also becoming increasingly prevalent in the jurisdiction.
Unlike other offshore jurisdictions, during its development as a financial centre the BVI looked to Delaware law for inspiration (in addition to English law), with the resulting International Business Companies Act and subsequent BVI Business Companies Act blending the best features of US and English corporate law. This approach has been particularly successful, with the BVI: (i) leading all other offshore financial centres in the number of company incorporations; and (ii) becoming a major transactional jurisdiction.
In addition to the beneficial amalgam of US and English law (as well as the various advantages common to a number of offshore jurisdictions), the following factors also ensure the BVI maintains its position as an attractive jurisdiction for incorporations and corporate transactions:
•Speed/Cost of Incorporation. Subject to satisfying relevant know-your-customer (KYC) requirements (see point 4 below), companies can be incorporated in the BVI very quickly by licensed registered agents. The cost of incorporation is also relatively inexpensive compared to other offshore jurisdictions such as the Cayman Islands and Bermuda, as well as most mid-shores such as Hong Kong or Singapore.
•Confidentiality/Privacy. While safeguards exist in the BVI to prevent money laundering and organised crime, high levels of privacy are afforded to BVI companies. Neither the register of directors nor the share register of a company is required to be publicly filed in the BVI, and while BVI registered agents are required to collect KYC information on beneficial owners, this information is currently only accessible via a private, centralised and restricted database.
•Corporate Flexibility/Capitalisation Requirements. Company law in the BVI is designed to provide maximum flexibility; companies are permitted to undertake any lawful act or activity, and there are no corporate benefit restrictions. Further, the BVI does not impose capitalisation rules or impose any general maintenance of capital requirements. In addition, BVI companies are able to provide financial assistance to a third party for the acquisition of its own shares.
•Regulation-Light Jurisdiction. Outside of certain very specific industries (e.g. investment funds, banking and insurance) BVI companies do not need regulatory approval to conduct their affairs. The BVI provides “light but effective” regulation to minimise unnecessary regulatory burdens.
•Tax Neutral. The BVI has no income tax, corporation tax, capital gains tax, wealth tax or similar fiscal laws. Using a BVI company can therefore create tax neutral layers in a corporate structure.
•Debt Financing. The BVI has a simple and relatively quick system relating to secured creditor registration, which facilitates leveraging assets in order to raise capital. The BVI also has the most developed insolvency system of the offshore jurisdictions, which is often a key consideration for lenders.
2. Recent activity/developments in the BVI
Generally, the fortunes of the BVI (and those of all offshore financial centres) are tied to the global economy, and in particular the economies of the USA, UK and China. In the last twelve months, the COVID-19 pandemic has caused a high degree of uncertainty in the deal market as government lockdowns have impacted businesses worldwide. Notwithstanding this uncertainty, and despite global deal volume contracting in the first half of 2020, we saw a quick rebound in offshore activity, with corporate transactions continuing as companies look to take advantage of a number of opportunities (e.g. undervalued businesses and/or assets) and, at the other end of the spectrum, distressed businesses seek to shed assets and/or seek transactional solutions to solvency. We anticipate corporate transactions will progress at varying paces, depending on sector and geography and based on the certainty of market demand shifts.
3. New BVI legislation impacting companies
Following the EU’s threat of blacklisting the BVI (along with a number of other offshore jurisdictions) as a non-cooperative jurisdiction for tax purposes several years ago, the Economic Substance (Companies and Limited Partnerships) Act, 2018 (the ES Act) was introduced in the BVI. The ES Act has had an impact on company incorporations in the BVI and has in some cases required changes to our client’s existing business models.
The ES Act requires all legal entities carrying on a relevant activity during a financial period to establish economic substance in the BVI. The effect is that offshore companies carrying on certain businesses must have bricks and mortar as well as mind and management in the BVI. Further, irrespective of whether or not a company falls within the definition of “legal entity” or conducts a “relevant activity,” all BVI companies and all limited partnerships with legal personality are required to make a report under the ES Act as to their compliance with the ES Act during the previous financial period.
To help clients quickly determine whether a BVI company is in compliance with the economic substance requirements, Conyers has developed an ‘economic substance calculator’ accessible here. Similar guidance is available from other law firms.
Law firms continue to assist clients with questions about the operation of (and their obligations under) the ES Act and, where necessary, help clients implement required structural and/or business model changes.
4. Hurdles in incorporating a BVI company
In addition to the economic substance rules referred to above, the main hurdle for clients to overcome when looking to incorporate a new entity in the BVI are the KYC/DD requirements. At a high level, the information required to satisfy these requirements will generally include:
•Information about the ownership structure of the entity. Where intermediary holding companies are present in the ownership chain, subject to certain exemptions, further information will be required (for example, in the case of a company, the name, address, date and place of incorporation of the company and the names and addresses of all shareholders and their percentages of ownership will be required); and
•Information/identification documentation for all beneficial owners. Beneficial owners are individuals who will ultimately beneficially own or be entitled to (on a look-through basis) a 10% or more interest in the BVI entity. Such documentation will generally include: (i) a copy of the beneficial owner’s passport or another government-issued photographic identification document; (ii) verification of address; and (iii) a personal declaration.
Outside of these requirements, there are very few obstacles to incorporating a company in the BVI, which is one of the main reasons it remains the leading offshore jurisdiction for company incorporations and corporate transactions.