BRITISH VIRGIN ISLANDS: An Introduction to Corporate & Finance including Investment Funds

The 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 Hurdles in Incorporating a BVI Company 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. The share register of a company is not 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 (eg, 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 neutrality 

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.

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. After the record-breaking year for M&A activity globally in 2021, M&A activity levels were markedly lower in 2022. The reduced deal volume in 2022 could be largely attributed to geopolitical and economic factors such as the Russian invasion of Ukraine and rising inflation coupled with increases in interest rates. We anticipate that M&A activity will recover to some degree in 2023, as inflation stabilises. We also see an increasing amount of capital being deployed in 2023 to boost the transition to greener sources of energy, therefore creating opportunities for M&A activity, both in carbon-emitting sectors and in new, more efficient technologies.

Recent BVI Legislation Impacting Companies 

There have been a number of changes to the BVI Business Companies Act, 2004 (the BC Act) which directly affect BVI companies. The key changes can be summarised as follows:

• With effect from 1 January 2023, there will be a further requirement for a BVI company to prepare and file with its registered agent an “annual return” containing certain prescribed financial information. The annual return must be filed within nine months after the end of the company’s financial/fiscal year to which the annual return relates. Several corporate service providers in the BVI will be offering a range of services to assist clients comply with the new obligation to prepare and file an annual return.

• There is currently a requirement for the register of directors of each BVI company to be filed with the BVI Registry of Corporate Affairs but such register was previously not accessible by the public in any way. With effect from 1 January 2023, the names of the current directors of BVI companies will be publicly accessible.

• With effect from 1 January 2023, companies that are struck-off the register will automatically be dissolved. Previously a struck off company could remain struck-off for seven years during which time it could be restored by paying the outstanding government fees, certain penalties and a restoration fee. If the company was not restored during the seven-year period, it was automatically dissolved. Under the new regime, the restoration procedure without going to court must be done within five years, rather than seven years.

• A voluntary liquidator of a BVI company (or, in the case of a joint liquidation, at least one of the liquidators) must now be resident in the BVI and must have certain experience and qualifications. Liquidators also have new obligations to collect copies of financial records, including the annual return of the company.

Law firms and other service providers in the BVI continue to assist clients with questions about the changes to the BC Act, and in particular, help clients prepare for the new filing requirements.

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/due diligence requirements. At a high level, the information required to satisfy these requirements will generally include the following.

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).

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 a BVI entity. Documentation requirements 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.