BVI Incorporation
INTRODUCTION
The British Virgin Islands is a group of more than forty islands situated in the Caribbean approximately sixty miles east of Puerto Rico. It follows United States eastern standard time and is connected by numerous daily flights to San Juan in Puerto Rico. San Juan is an international juncture with direct flights to the United States, South America and Europe.
The British Virgin Islands is a British protected territory and a member of the British Commonwealth of Nations. It became self-governing in 1967 and has a democratically elected Legislative Council of eleven members and an Executive Council comprising the Governor and four Ministers drawn from the Legislative Council.
The legal system is based on the English Common Law. The judiciary are appointed by the territorial government. The ultimate appellate court is the Privy Council in London.
THE OFFSHORE INDUSTRY
The British Virgin Islands, by virtue of its double tax treaties, was a financial centre long before the enactment of the International Business Companies Act in 1984. In 1984 the Territorial Government enacted legislation to enable the jurisdiction to meet the increasing demands of the international financial community. The cornerstone of the corporate legislation is the International Business Companies Act, 1984. This legislation has proved so popular with the international financial community that the British Virgin Islands is now one of the world's pre-eminent offshore financial centres.
In keeping with its role as one of the world's pre-eminent financial centres, the Territorial Government has also been conscious of the need to provide the international financial community with a broader legal framework within which to provide offshore financial services. A legislative review programme was undertaken which has seen the amendment in 1993 of the Trustee Ordinance, 1961 and the enactment of the Partnership Act, 1996 and the Mutual Funds Act, 1996.
INTERNATIONAL BUSINESS COMPANIES
The International Business Companies Act, 1984 ("IBC Act") provides for the incorporation and administration of the International Business Company ("IBC"). Some of the specific features of IBC's include the following:
• IBC's incorporated pursuant to the IBC Act enjoy a complete exemption from income tax. This includes an exemption from capital gains tax, and all forms of withholding tax. There is no exchange control.
• Company names must include one of the following words: Limited, Corporation, Incorporated, Societe Anonyme, Sociedad Anonima or abbreviations of the aforementioned.
• Memorandum and Articles of Association are provided. The standard form is designed for a straight forward corporate structure. This structure may be amended after incorporation. Alternatively, special form Memorandum and Articles of Association can be tailored to meet a client's requirements prior to incorporation. A minimum of one subscriber is required.
• There are no minimum capital requirements and shares may be denominated in any currency. Shares may be issued with or without a par value and may be issued in different classes with special rights attached. Bearer shares may be used.
• The minimum number of directors is one. The first appointments are by the subscriber. Corporate directors may be used.
It is a requirement that IBC's have a registered office and registered agent in the British Virgin Islands where a copy of the share register and imprint of the corporate seal is kept.
The IBC Act provides an environment of administrative ease and flexibility. Specifically:
• There is no requirement to file annual returns or financial statements.
• There is no requirement to hold annual meetings of directors or shareholders.
• Directors and shareholders resolutions may be passed by telephone meetings or by circulating written resolutions (including facsimile copies) for signing. Meetings need not be held in the British Virgin Islands.
• A company need not have British Virgin Island resident directors.
• The books and records of the company may be kept at such place as the directors determine.
• Bank accounts may be opened anywhere in the world.
• A company may finance or repurchase its own shares out of surplus. Repurchased shares may be cancelled.
• Reductions of capital can be effected by resolution of the directors or shareholders. There is no necessity for a court order.
• There are minimal disclosure requirements and the ownership of shares and the names of directors and officers are not available on the public record.
The Group has shelf IBC's immediately available. Alternatively, an IBC can be incorporated to instruction within 24 hours.
The above is only intended as a general outline of some of the significant features of the laws relating to IBC's. Should you require any further information, please contact HKRC.
DUE DILIGENCE REQUIREMENTS
You may be aware that new due diligence procedures for the incorporation of companies are being implemented by law in most offshore jurisdictions. The British Virgin Islands financial community has introduced such procedures. We view these procedures as a positive step and believe they will help to protect the reputation of the British Virgin Islands. Ultimately this will be for the benefit of persons with proper uses for offshore services.
To comply with the new procedures we ask that when incorporating an International Business Company, you return to us the following:
• The name, address and occupation of each beneficial owner of shares in the company.
• A copy of the passport or other identity document of each beneficial owner of shares in company.
• A reference letter from a bank or professional service organization in respect of each beneficial owner of shares in the company.
• If HKRC provides a nominee director or nominee shareholder, please ensure that any beneficial owner of shares in the company who is liable to any U.S. or Canadian tax or reporting requirements, confirms to us in writing that they have been advised of their revenue reporting and compliance obligations in the US or Canada (as appropriate).
This information will be held confidentially in our British Virgin Islands office. Please do not hesitate to contact HKRC if you have any questions.
OFFSHORE TRUSTS
The general principles of English trust law apply in the British Virgin Islands but have been supplemented by a statutory overlay in the form of the Trustee Ordinance. This Ordinance was based on the English Trustee Act, 1925.
Apart from the recognition of the Hague Convention on the Law Applicable to Trusts, the Ordinance remained unaltered until 1993. In 1993 the Trustee Amendment Act was passed which has modernised trust law in the British Virgin Islands and allowed it to compete effectively with other major offshore trust jurisdictions.
Significant features of BVI trust law are as follows:
• Ability to fix the perpetuity period at a term not exceeding 100 years.
• Ability to protect settlors dispositions to a British Virgin Islands trust from forced heirship laws of the settlor's home jurisdiction.
• Broadened powers of investment for the trustee.
• Nil taxation regime in respect of offshore income and property.
• Inclusion of protector provisions to provide a "watchdog" in respect of trust assets and trustee decisions.
• Inclusion of purpose trust provisions enabling a trust to be settled for any lawful purpose.
• Inclusion of a Schedule of Powers, the provisions of which are able to be included in a trust deed by reference. The powers are typical of those commonly found in offshore trusts.
• The exclusion of any registration requirements.
• Inclusion of a provision deeming that the reservation of a power by a settlor in respect of the trust or the fact that the trustee is also a beneficiary are not necessarily inconsistent with the existence of a trust.
• Inclusion of a provision allowing a trust to be amended or revoked by the trustee provided such power is expressly contained in the trust deed.
The above is only intended as a general outline of some of the significant features of BVI trust law. Should you require any further information, please contact HKRC.
OFFSHORE BANKING
Offshore banking licences are available in the British Virgin Islands. They are governed by the Banks and Trust Companies Act, 1990. To be successful in an application the applicant will need to show evidence of banking experience and will also have satisfied extensive due diligence checks.
There are three categories of licence:
• A general banking licence which allows the holder to carry on banking business within and outside the British Virgin Islands without any restrictions. The applicant company needs a paid up capital of not less than $2,000,000 and must invest $500,000 in a manner prescribed by the Governor.
• A restricted class I licence which prevents the holder from taking deposits from or making investments with British Virgin Island residents other than another licensee or a company incorporated under the IBC Act. There is an exception where the transaction is with another licensee or the investment is the purchase of bonds or other securities issued by the Government. The applicant company is required to have a paid up capital of $1,000,000 and must invest $500,000 in a manner prescribed by the Governor.
• A restricted class II licence which has the restrictions imposed on the class I licence and in addition prohibits the soliciting of funds from any undertaking which has not been specified in the application as an undertaking that the licencee will be receiving funds from. The applicant company is required to have a paid up capital of $1,000,000 and must invest $500,000 in a manner prescribed by the Governor. This additional restriction makes the licence more readily obtainable.
The above is only intended as a general outline of some of the significant features of BVI banking law. Should you require any further information including assistance in making an application for a licence, please contact HKRC.
INTERNATIONAL PARTNERSHIPS
The Partnership Act ("the Act") was enacted on 6 June 1996. It includes many of the recent developments that have occurred in international partnership law.
The Act governs both general partnerships and limited partnerships.
International limited partnerships can be formed and must be registered under the Act. There is no restriction on the number of partners and the general partner can be a body corporate. The identities of the limited partners is not a matter of public record.
Each international limited partnership must have a Registered Agent in the British Virgin Islands and are provided with the same tax exempt status as IBC's.
The Act provides that an international limited partnership can reserve a name for up to 90 days.
A specific feature of the Act which advisors will find useful is its detailed provisions enabling limited partners to retain a large degree of control over partnership affairs and yet preserving the partner's status as a limited partner.
The above is only intended as a general outline of some of the significant features of BVI partnership law. Should you require any further information, please contact HKRC.
MUTUAL FUNDS
Prior to the Mutual Funds Act, 1996 ("MF Act") legislation did not exist in the British Virgin Islands to deal with mutual funds. However, the MF Act and recent amendments provide those engaged in the fund industry with a straightforward regulatory regime to oversee funds and their managers. This new legislation combined with the British Virgin Islands' history as a preeminent offshore jurisdiction offers a wealth of opportunity.
The MF Act is designed, among other things, to supervise and regulate mutual funds operating in or from the British Virgin Islands. It is worthwhile to note that the Registrar of Mutual Funds has commented that any fund constituted as a British Virgin Islands' company whether or not it carries on business in the British Virgin Islands is required to be registered or recognised, as the case may be, under the MF Act.
The MF Act is short and consists of five parts and a schedule dealing with public funds, private and professional funds and managers and administrators.
Private Funds
Generally, private funds are those mutual funds that either:
• restrict the total number of investors to no more than 50; or
• the constitutional documents of the fund specify that the making of an invitation to subscribe in the fund will be made on a private basis only.
Professional Funds
Professional funds are those funds that require a majority of the subscribers to make an initial investment of not less than USD100,000 and;
• only permit subscriptions to be made by persons whose ordinary business is the acquisition or disposal of the same or substantially the same kind of property as the property of the fund; or
• only permit subscriptions to be made by persons who have signed a declaration stating that they (together with their spouse) have a net worth of USD 1,000,000 and they consent to being treated as a professional investor.
Public Funds
Public funds are those mutual funds that are neither private funds nor professional funds. As public funds will in general offer their shares or units to members of the public, the MF Act seeks to achieve a balance between free market forces and the need for regulation to protect investors and encourage investor confidence.
Accordingly the MF Act requires that registered public funds maintain adequate records, prepare annual audited financial statements, file and publish a prospectus, and file an annual certificate of compliance where they operate under the laws of another country.
Mutual Fund Managers and Administrators
The MF Act provides a flexible definition of mutual funds managers and administrators. Any person wishing to carry on business in or from within the British Virgin Islands as a manager or administrator of a mutual fund is required to apply for a license. The system of licensing is simple and flexible, with the essential requirement being an application to the Registrar of Mutual Funds accompanied by a statement of the financial and human resources available to the applicant
Fund managers and administrators who are qualified and authorized under the law of a recognized jurisdiction, may be permitted to operate in or from the BVI without the need to be licensed. This alternative is only available where such fund managers and administrators are not ordinarily resident or domiciled in the British Virgin Islands and receive the written permission of the Registrar of Mutual Funds, which may be subject to conditions.
The above is only intended as a general outline of some of the significant features of BVI mutual fund law. Should you require any further information, please contact HKRC
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