Pros and Cons of a BVI Entity

Up until the US invasion in 1989, Panama was the premier off-shore
jurisdiction but the BVI came to prominence after that event.  The British Virgin Islands (BVI) is often
called the grandfather of all IBCs.  IBC
stands for “international business company,” originally from the International
Business Companies Act of 1984 in the British Virgin Islands.  It has since been copied—with slight
variations—across many jurisdictions. 

For so many international entrepreneurs, the BVI is now the
go-to jurisdiction for an offshore company. When asked why the BVI? Most
entrepreneurs would probably say that it’s because it’s a well-known or popular
jurisdiction. Almost a synonym for an
offshore company. But is it worth it?

How does it work

The United Kingdom in general and the City of London in
particular, has long been considered a global financial center.  Today London is rivaled only by New York City
as far as financial hub cities go.  This
helps explain the popularity of the BVI. On one hand this overseas territory is a part of the United Kingdom.  On the other hand, it is a semi-autonomous
region which allows it to craft its own unique laws and financial regulations.

Companies and wealth managers who choose to offshore to the
BVI get to enjoy the reputation and supervision of the United Kingdom, while
also tapping into favorable offshoring regulations. English is the official language, it uses the
US dollar and is an ideal location for Americans looking to offshore.

Pros

  1. ·        Taxation – There is no corporate tax in BVI. The only taxes are in practice only paid by
    locally run companies with local employees. If you incorporate in BVI and have no
    local operations, you may not need to pay these taxes.
  2. ·        Public Records – Companies owned by nonresidents
    rarely register for the public records. The
    government does not know who the directors and shareholders of companies are.
    That information stays with the registered agent, which is bound by law to only
    disclose the information under a lawful request such as through a DTA or a Tax
    Information Exchange Agreements (TIEA).
  3. ·        No Taxes but Accounting Requirements remain – The
    BVI has no corporate income tax, customs duties, wealth tax, or VAT.
    Nevertheless companies are required to maintain proper records and prepare
    annual accounts. Accounts do not have to be filed and auditing is not required,
    but copies of the accounts must be held available for inspection.
  4. ·        Only 1 Director and 1 shareholder is
    needed. Can be a corporate shareholder
    and any nationality is allowed.
  5. ·        No minimum capital requirements.

Cons

  1. ·        Costs – Costs are generally higher than in other
    IBC jurisdictions, but nonetheless highly competitive. It’s rare to find BVI
    incorporation fees under $1,000 USD. Expect something closer to $1,500-$3,000
    with a high-quality, reputable service provider. Annual renewal fees are around $800 to $1,200
    in most cases.
  2. ·        Restricted activities – The following activities
    are not permitted for IBCs to be undertaken: offering banking or investment
    services to third parties; offering gambling, betting or casino services; offering
    insurance or reinsurance services; offering trust services to third parties.
  3. ·        Reputation – The BVI’s international reputation
    has been impacted by recent high profile and controversial cases of tax evasion
    and suspected money laundering. In addition,
    there has been some unfavorable ratings by organizations like the OECD.
  4. ·        Complicated – Setting up an IBC in the British
    Virgin Islands is a bit more complicated than some other offshoring hubs. All
    activities conducted must be legal in both your home country, and the BVI. The compliance screening usually comes up with
    follow up questions and the business details have to be clearly outlined. Some
    providers demand a full business plan.
  5. ·        Offshore Banking in BVI – The banking sector in
    BVI is very small. Accounts are almost always opened remotely or by visiting
    the bank in another country. Some banks
    often insist on a personal visit if there is no introducer or intermediary.

Recommendation

The BVI is a recognized jurisdiction in the international
financial services sector, but many are starting to opt for other Caribbean jurisdictions like Anguilla, Turks and Caicos, Cayman Islands, or even jurisdictions which aren’t British Overseas Territories, such as Mauritius or Singapore for their reputations.

In the past the BVI earned a bad reputation for money
laundering, but in recent years the country has strengthened its systems and is
now a part of major international agreements. But more robust compliance screening results in slightly higher costs
and slower registration.

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