Company Formations: A jurisdictional guide to setting up a business

QUESTION ONE – What are the most common structures used when international clients want to form a company in your jurisdiction? Any examples?

Examples of common structures utilised in the BVI, include:

Primary Vehicle for Operational Companies. BVI companies are often used as the primary vehicle under which a business is operated. This can be a factory, an import/export business, an IT consulting firm, or a product sales website. Such businesses, although incorporated in the BVI, typically operate in the country or countries adjacent to where the owner is based.

Holding Company for Investments. A BVI company is typically used to hold an investment for the benefit of an individual or family office. The form of investment may vary; for example, a portfolio of stocks and bonds at a global investment bank, a commercial complex in Singapore, a residential rental property in London, or an art collection, to name a few.

Ship Registration. Persons choosing to register ships in the British Virgin Islands typically use a British Virgin Islands company to own the ship.

VISTA Trusts Unique only to the BVI, a VISTA trust enables a settlor to set up a trust where the trustees are subject to limitations on their ability to intervene in the management and operations of the trust assets. So, for example, a settlor can create a trust to own shares in a BVI Company under which a family business operates, confident in the knowledge that he can exercise full control over the business except for rare situations where control reverts to the trustees.

Combining a BVI company with a VISTA trust allows a family to access the bene­fits of a trust arrangement such as estate and succession planning without being subject to trustee intervention and interference which are the hallmarks of standard trusts in other jurisdictions.

Funds BVI law allows for private, professional and public funds. Wealthy individuals are mostly attracted to the private funds which limit the number of investors to 50. A company can be used as the vehicle to set up the fund, and a director of the fund can thereafter manage assets subject only to restrictions contained in the fund offering documents. Shares can be easily issued to family members and they can be easily redeemed or separated into different classes with different rights.

Initial Coin Offerings – Initial currency offerings (ICO) for new crypto-currencies have become increasingly popular over the past two years. Although there is no specific crypto, blockchain or ICO provision built into any BVI Legislation at present, BVI companies provide certain inherent advantages. These have made the BVI an attractive jurisdiction with several successful launches in recent times.

QUESTION TWO – Please detail some of the favourable and unfavourable legislation that businesses considering establishing a presence in your jurisdiction should be aware of? How can you help them to streamline the process?

In keeping with its status as a jurisdiction committed to tax transparency, the BVI has recently enacted economic substance legislation which will require businesses carrying on relevant activities to demonstrate adequate substance in the BVI. The relevant activities include; banking, insurance, shipping, fund management, finance and leasing or intellectual property.

Unless they can prove that they are tax resident elsewhere, companies carrying on these activities will be required to conduct core income generating activities from within the BVI. They will also need to demonstrate economic substance, in accordance with other criteria such as having adequate staff numbers, incurring expenditure, renting physical offices and having key equipment located in the BVI.

This is a new and dynamic piece of legislation which may significantly impact how business is conducted in the BVI going forward. However, the detailed operational guidelines and reporting obligations are still in the development phase and at present, the industry is adopting a wait and see approach awaiting this critical information.

QUESTION THREE – What due diligence is required to be undertaken by company formations agents under anti-money laundering laws in your jurisdiction?

Anti-Money Laundering (AML) and Know Your Customer (KYC) due diligence requirements worldwide, are constantly evolving to keep pace with electronic, dig­ital and financial technology (Fintech) innovations. Not to be left behind, the BVI regulator has recently updated the AML and KYC requirements so that they remain relevant in the Fintech era.

The key objective for any KYC/customer due diligence program/AML regime is to ascertain the veracity of funding used in structures, the identity and proof of address of relevant persons (e.g. beneficial owners and directors) during the cus­tomer on-boarding stage; and to monitor on a regular basis thereafter, for any changes. The typical documents obtained and reviewed during this process are:

  • Passport or other approved government ID to verify identity
  • Utility bill or bank statement to confirm a physical address
  • Source of funds confirmation
  • Bank or professional reference to establish character/integrity of subjects when enhanced due diligence is called for.

Copies of passports and utility bills previously needed to be certified as true cop­ies. Specific wording was required to indicate that pictures were a true likeness of the original. Also, the identity and contact details of the certifier needed to be present and legible on the document. However, under the new rules, BVI regulated companies can now place greater reliance on copies sans the previous certifica­tions and requirements subject to them conducting an assessment to determine the applicable risks. Further than this however the new rules allow for firms to utilise fintech, digital tokens and blockchain innovations in carrying out this process.

Contributing Advisors