The vast majority of companies formed in the BVI for offshore purposes are incorporated under the International Business Companies Act 1984 (see below). However this law did not supersede the existing Companies Law 1963, also known as Cap. 285, which is based on English law and is used to form various types of company used by businesses trading in the BVI, and also for certain other special purposes.

Companies formed under the Companies Act 1963 are often referred to as 'CAC', 'CapCo', or 'Cap. 285' companies. They can be private companies limited by shares, by guarantee, or hybrid; or they can be unlimited, but that is rare. Public companies can also be formed under the Act. For all these types of company, Memorandum and Articles of Association must be filed at the Companies Registry, along with the registration fee. For companies limited by shares the Articles of Association can follow the Memorandum - 'Table A' applies if no Articles are registered.

Foreign companies can re-establish themselves in the BVI without the necessity for reciprocal arrangements in the original country of incorporation. An IBC wishing to leave the BVI may do so.

Responding to international pressure, the BVI Government has legislated to restrict bearer shares. The International Business Companies (Amendment) Acts of 2003 and 2004 provide the legal framework for immobilising bearer shares. The Acts came into force on 1 January 2005. The Financial Services Commission (Amendment) Act of 2004 addresses the regulatory framework for immobilising bearer shares, in particular the rules governing custodians.

Companies formed before 1 January 2005 will have until 31 December 2010 to comply with the new rules. Companies formed after 1 January 2005 must comply from their date of formation.

Those eligible to apply as an “authorised” custodian will be service providers licensed under any BVI financial services legislation, as well as bodies corporate incorporated or formed outside the BVI that are not resident in, and do not have a place of business in, the BVI. Those eligible to apply as a “recognised” custodian will be investment exchanges or clearing organizations that operate securities clearance or settlement systems in a jurisdiction which is a member of the Financial Action Task Force.

All applicants to be “authorised” custodians will have to satisfy the Financial Services Commission that they meet certain “fit and proper” criteria and have the necessary systems in place for safe custody of their bearer shares. For bodies corporate, the Commission will consider the prudential regulation and anti-money laundering regulations with which the bodies have to comply.

Commenting on the new bearer shares regime, Robert Mathavious, Managing Director and CEO of the Financial Services Commission, said, “These measures enable the BVI to comply with all international standards, including the 40 anti-money laundering recommendations of the Financial Action Task Force. They are the result of close cooperation between the BVI private sector, government and regulator.

A company issuing bearer shares must provide the Custodian with:

• the full name of the beneficial owner of the shares; and
• the full name of any other person having an interest in that share or a statement to the effect that no other person has any interest in the share.

In October 2004 new Chief Minister Dr. D. Orlando Smith informed the country’s Legislative Council that a two-year transition period will be put in place to smooth the changeover to the proposed new Business Companies Act, which will lower the income tax rate to 0% for both local and International Business Companies.

The new legislation, expected to take effect on 1st January 2005, has been drafted to ensure the territory is fully compliant with the European Union (EU) Savings Tax Directive and EU Code of Conduct on Business Taxation, as required by the United Kingdom of all its Overseas Territories.

Under the transition arrangements announced by Dr Smith, new incorporations will still be possible under old legislation throughout 2005. Then, in 2006, new incorporations must be made under the new Business Companies Act, although companies already on the register will be permitted to operate under the old IBC Act or Companies Act for an additional year. By 1st January 2007, it is expected that all companies will operate under the new legislation.

The Act requires companies to use a registered agent to ensure compliance with the new laws, and the government intends to launch an educational initiative to raise awareness of the impending changes.

Ordinary Resident Company

An ordinary resident company limited by shares is usually formed for the purposes of carrying on local business. It must:

• have two or more members;
• restrict the transfer of its shares;
• not invite the public to subscribe for its shares; and
• must not have more than 50 members.

Residence depends on the location of management and control; usually, if more than half of the directors are resident in the BVI, then so is the company. If a resident company carries on business in the BVI it must obtain a Trade License, and will pay a license fee depending on whether the shareholders are residents or foreigners. The fee due on incorporation is $200 plus $15 for each $10,000 of nominal capital in excess of $10,000. Annual registration fees are from $25 to $10,000 depending on the gross value of the company's external (non-BVI) assets.

Ordinary Non-Resident Company

An ordinary non-resident company limited by shares is subject to the same rules as a resident company; see Offshore Legal and Tax Regimes for details of the taxation of non-resident companies. Fees on incorporation are as for resident companies; the annual registration fee is $250.

Company Limited by Guarantee

Under the Companies Act, a company limited by guarantee must have a minimum of two members; the Memorandum of Association contains a statement of the amount up to which the members guarantee the company's debts. The Articles can provide for the members to have differing 'shares' of the assets and liabilities.

The Company Limited by Guarantee has certain advantages, including that there is no list of members on the annual return, and that control over assets can be achieved without the use of shares; in some jurisdictions, profits realised from such companies are classified as capital gains rather than as income. Specialist advice is required by anyone considering the use of a company limited by guarantee.

Companies limited by guarantee can be resident or non-resident, as for those limited by shares. The fee payable on incorporation is $100, and annual registration fees are as for companies limited by shares.

Hybrid 'Cap 285' Company

A hybrid company under the Companies Act usually has a group of shareholding members which is distinct from the group of guarantors. The shareholders can have 100% of the voting power, and can execute a trust deed in respect of their shareholdings; under the BVI's trust legislation (see Law of Offshore) a trust Protector can be appointed to oversee the trustees' actions. The result, if the company is set up correctly (specialist advice needed!), is to separate control and membership of the company from beneficial interest, which is sometimes desirable.

Hybrid companies can be resident or non-resident, as for companies limited by shares. The fee payable on incorporation and the annual registration fees are as for companies limited by shares.

Public Company

A public company formed under the Companies Act is similar to a private company limited by shares except that it must have 5 or more members, and the restrictions listed above do not apply.

International Business Company

The International Business Company is the most widely used vehicle for offshore operations in the BVI; it normally takes the form of a private company limited by shares. The governing legislation is the International Business Companies Act 1984, updated by the International Business Companies (Amendment) Act 1990 and the International Business Companies (Amendment) Acts of 2003 and 2004, which immobilise bearer shares (see above) and impose record-keeping requirements on professional intermediaries. Existing IBCs will be able to amend their Memoranda of Association to state that they are authorised to issue only registered shares and that these may not be exchanged for bearer shares. They will be required to file this statement with the BVI Registrar of Companies, along with a declaration that they have no bearer shares in issue.

Under the International Business Companies (Amendment) Act 2003, from December 31, 2004, all international business companies (IBCs) located in BVI are required to establish and maintain a Register of Directors, and must appoint their first director within 30 days of the IBC's incorporation. Other statutory requirements however remain minimal, and flexible:

• Only one director and one shareholder are required;
• Shareholders, directors and officers need not be resident in the BVI and there is no stipulation as to their nationality;
• There is no minimum capital requirement; shares may be either registered or bearer and may be issued in any currency (bearer shares now have to be deposited with an authorised intermediary, who must record the identity of the beneficial owner);
• Accounts need not be kept; however, if they are kept there is no requirement for an audit;
• No returns are needed of shareholders, directors or officers;
• Shareholders' and directors' meetings need not be held in the BVI and can be held by telephone;
• The Memorandum and Articles of Association are the only documents to be held on the public record.

IBC status is granted subject to certain conditions:

• No business may be transacted with residents in the BVI;
• No ownership interest in real property in the BVI is permitted; property may be leased for office use only;
• Banking or trust business may be carried on only if an appropriate license is issued;
• Likewise, a licence is required to carry on insurance or re-insurance business;
• Engaging in the business of company management or providing registered facilities for BVI incorporated companies is not permitted.

IBCs are permitted to own shares in other BVI companies, maintain bank accounts in the jurisdiction and employ the services of local professionals. IBCs are exempt from BVI taxes by statute.

It is usual to use a registered agent in the BVI to incorporate an IBC (eventually it is obligatory to appoint one anyway; there are about 70 of them, licensed by the Government). Fees for incorporation of an IBC are based on the company's authorised share capital. Normally, the incorporation process takes no more than one day; however, for banks, trust companies and insurers the process is lengthier .

Statutory incorporation fees are $300 for capital up to $50,000 and $1,000 thereafter. The annual license fee is:

Limited Partnership

BVI Limited Partnerships are governed by the Limited Partnerships Act 1996; as regards general partnerships this act reproduces almost exactly the common law provisions of the English Partnership Act 1980, but the clauses dealing with limited partnerships follow modern US Delaware precedent.

Formation of a limited partnership is normally carried out by a registered agent (it is obligatory to nominate one on formation in any event). The agent files the Memorandum and Articles of Association with the Registrar of Limited Partnerships, who issues a Certificate of Limited Partnership; the partnership then exists; but if there is no certificate, the partnership will be deemed to be a general partnership. The fee payable on registration if $500 and there is an annual license fee, also $500.

The rights and limitations of limited partnerships under the Act mirror those of the International Business Company (see above); however the Act distinguishes between local and international partnerships - local partnerships may transact local business but are not tax-exempt, while international partnerships are tax-exempt but barred from local business.

The BVI limited partnership legislation was designed to facilitate the use of such vehicles in investment and mutual funds. As is usual in limited partnerships, there are one or more general partners with unlimited liability and management responsibility, while limited partners are liable only to the extent of their capital contributions, and their identity does not need to be disclosed. It is possible for the same person to be both a general and a limited partner in the same partnership. A limited partner's interest in the partnership is assignable. There are no minimum capital requirements or prescribed debt:equity ratios.

Trusts

The trust law of the British Virgin Islands is based on English trust law. The Trustee Amendment Act 1993 (the "Amendment Act") updated the original British Virgin Islands Trustee Act (itself largely based on the English Trustee Act 1925).

The Amendment Act introduced a fixed perpetuity period not exceeding 100 years, and has modern 'wait-and-see' provisions to deal with interests that might vest outside the perpetuity period. The Amendment Act also introduced purpose trusts.

BVI trusts are exempt from registration under the Registration and Records Act, and trustees are exempt from any need to file annual returns and from any other reporting requirements.

The majority of BVI trusts are exempt from all taxes provided there are no beneficiaries resident in the BVI, and that the trust does not conduct any business in the BVI or own any land in the jurisdiction; see Offshore Legal and Tax Regimes for further details. A trust duty of $50 is imposed on each trust instrument subject to BVI proper law.

The Amendment Act provided for the appointment of a 'protector of trust', effectively a supervisor of the trustee(s), and also managing and custodian trustees. A company offering trust services must obtain a licence under the Banks and Trust Companies Act 1990 and conform to various conditions.

With effect from 1 March 2004, three new pieces of Trust Legislation came into force in the BVI:

• The Virgin Islands Special Trusts Act (VISTA);
• The Trustee (Amendment) Act; and
• The Property (Miscellaneous Provisions) Act.

The Vista Act allows trustees of VISTA trusts which hold a shareholding in a BVI International Business Company to disengage the trustee from management responsibilities. The use of trusts to cater for the succession of shares in companies has historically been impeded by the 'prudent man of business' rule of English trust law which is designed to help preserve the value of trust investments. The new legislation leaves the responsibility for managing the company to the directors of the company.

The new Act applies only where there is an enabling provision in the trust instrument. Where the new Act applies, designated shares will be held on “trust to retain” and the trustee’s duty to retain the shares as part of the trust fund will have precedence over any duty to preserve or enhance their value. It is also possible to amend existing trusts to allow the provisions of the VISTA Act to apply to them.

The Act is confined to shares in BVI International Business Companies and Companies Act companies; and the trustee of a VISTA trust must be a company which holds a licence to undertake trust business under the Banks and Trust Companies Act, 1990.

The Trustee (Amendment) Act makes a number of amendments to the BVI Trust law. These include: new regulations improving the BVI's purpose trusts regime and some amendments in relation to conflicts of laws provisions, including robust, comprehensive and carefully crafted provisions protecting BVI trusts (and dispositions to their trustees) against “forced heirship” claims.

Trust duty has increased from $50 to $100.

The Property (Miscellaneous Provisions) Act provides that deeds executed by individuals no longer need to be sealed.

In the British Virgin Islands there is no capital gains or capital transfer tax, no inheritance tax, and no sales tax or VAT. The main tax for resident companies is income tax; there are also stamp duties on certain transactions, and property taxes.

In September 2002, Chief Minister and Minister of Finance, Ralph T O'Neal confirmed that the government was seriously considering the abolition of both personal and corporate income tax on the Islands. Although he explained that no pressure had been brought to bear on the BVI government to impose a zero rate of income tax, as it stands, the jurisdiction's current tax regime could come under fire for 'ring-fencing' certain tax advantages; one of the criteria laid out by the OECD for defining 'harmful preferental tax regimes'.

In October 2004 new Chief Minister Dr. D. Orlando Smith informed the country’s Legislative Council that a two-year transition period will be put in place to smooth the changeover to the proposed new Business Companies Act, which will lower the income tax rate to 0% for both local and International Business Companies.

The new legislation, expected to take effect on 1st January 2005, has been drafted to ensure the territory is fully compliant with the European Union (EU) Savings Tax Directive and EU Code of Conduct on Business Taxation, as required by the United Kingdom of all its Overseas Territories.

Under the transition arrangements announced by Dr Smith, new incorporations will still be possible under old legislation throughout 2005. Then, in 2006, new incorporations must be made under the new Business Companies Act, although companies already on the register will be permitted to operate under the old IBC Act or Companies Act for an additional year. By 1st January 2007, it is expected that all companies will operate under the new legislation.

The Act will require companies to use a registered agent to ensure compliance with the new laws, and the government intends to launch an educational initiative to raise awareness of the impending changes.

Under the new legislation, the current income tax system for employees will also disappear. However, in its place, a new payroll tax is to be levied at a rate of 14%, 8% of which will be paid by the employee and the remainder by the employee, although the first $7,500 of income will remain tax free. However, the contribution for small business, defined as those employing less than seven people and with a payroll of less than $150,000 per year, will be only 2% whilst all other businesses will contribute 6%.

Furthermore, local firms will be required to pay annual licence fees, whilst IBCs will face a maximum 20% rise in their annual licence fees.

Income Tax

Income tax (now abolished) was levied on the chargeable income of resident BVI Companies Act Companies. As applied to a company, 'resident' means that the management and control of its business is exercised from the BVI. Normally, if more than half of the directors are resident in the BVI, then so is the company. There are three possible cases:

• the company is resident, in which case it paid income tax of 15% on its world-wide chargeable income;
• the company is non-resident, in which case it paid 15% income tax on its chargeable income arising in or remitted to the BVI; or
• the company is resident but is an 'offshore trading company', meaning that 90% of its profits arise from activity conducted outside the BVI, and it paid tax at the rate of 1% on its world-wide income.

Chargeable income was assessed after deduction of expenses; tax credits are allowed on foreign tax paid in treaty countries and certain other countries.

Taxation of Trusts

Trust income is exempt from tax if:

• the trust is created by or on behalf of a non-resident person; and
• owns no land in the BVI; and
• does not carry on business in the BVI.

Withholding Tax

There are no withholding taxes in the BVI. However, the BVI, like other British 'dependent territories', will be forced to apply the EU's Savings Tax Directive from 1st July, 2005, and has chosen to apply a withholding tax (initially of 15%) to the returns on savings paid to nationals of EU Member States. The Directive does not apply to corporate entities.