British Virgin Islands (BVI) is well known as a global tax haven. However, as with anywhere, there are some pitfalls to watch out for.
Many international corporations look to set up an offshore corporation with BVI for the purpose of the tax haven policies. Noticeably, it is very cheap and straightforward to incorporate a BVI-registered company. Additionally, the maintenance of the BVI-registered company requires little cost and a low level of procedural effort.
For all the benefits that come about for incorporating a business in British Virgin Islands, keen business owners need to remember to look out for the pitfalls too. And be prepared for the required costs and efforts needed to ensure you’re running your business there properly.
Business in British Virgin Islands
BVI was recently added to the Organisation for Economic Cooperation and Development (OECD) white list. This undeniably gives it a positive reputation globally. However, this also incurs higher costs as BVI has to align its standards with OECD’s.
The BVI Economic Substance (Companies and Limited Partnerships) Act 2018 was implemented and was in effect from 1 January 2019. This Act introduced economic substance laws that implement a requirement for eligible BVI entities to maintain an appropriate level of economic substance. This economic substance includes:
- Building local economic substance. Entities can build and maintain economic substance if it is commercial and feasible
- Revision of the entity’s operational and legal structure in order to comply to the Act’s standards
If the entity fails to comply with the basic requirements listed above, it is very likely that the entity should be liquidated. Do take note that liquidation processes are put in place and must be followed as well.
Stemming from the implementation of the Act, there has been an increase in the costs needed to maintain your business in BVI. The administrative work has also increased with more paperwork and documentation being required by BVI’s official authorities. This is because tax-resident, locally-incorporated and BVI-registered foreign entities are now required to have a physical office with an active director or staff working from BVI. This results in an inflation of costs incurred for incorporation and maintenance of a BVI business. New costs like office rental (or buying land), utilities and employee incomes will be incurred.
With a BVI office address for businesses, this will mean that the business has to comply with the local BVI government regulations surrounding local businesses.
Long Application and Approval Period
With the implementation of the economic substance laws under the Act, many processes with the BVI have also been formalised and implemented. Therefore, business owners have to adhere strictly to the required permits and licenses processes.
For businesses that fall under banking, insurance, trust management, or investment advice services, a license must be obtained from BVI’s Financial Services Commission.
Businesses are also required to open a bank account based in British Virgin Islands. Business owners should prepare the needed documentation to open a bank account. This process is estimated to take around three months. Thus, to ensure smooth sailing, you should prepare your business accordingly. More information can be found on BVI FSC’s official website here.
Overall, setting up a business in British Virgin Islands does come with a list of additional procedures that leads to higher costs, effort, and time in comparison to other international business company jurisdictions. However, BVI has a reputable and well-implemented governmental system and a robust economy. BVI also ranks highly in terms of reputation internationally as the ideal country to set up an offshore company. Therefore, your business will also be able to latch on to these benefits and many more.
This article does not constitute legal advice.
The opinions expressed in the column above represent the author’s own.
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