O'Neal Webster

Business environment in the BVI Changes in 2023 that impacted the business environment The British Virgin Islands (BVI) is a vital cog in the global economy. Investment mediated through BVI Business Companies has been hugely beneficial for the worldwide economy, facilitating $1.4 trillion in cross-border trade and investment, equivalent to 1.5 per cent of global GDP, and supporting around 2.3 million jobs globally, according to the research report Beyond Globalisation, commissioned by BVI Finance. Close collaboration between industry, government and regulatory agencies such as the BVI Financial Services Commission and the Department of Trade, Investment Promotion & Consumer Affairs make for a business-friendly environment. The BVI is administered as a British overseas territory. The election of a new government in 2023, along with improvements in internal self-governance, is a positive, forward-looking indicator. The new government has welcomed greater emphasis on governance structures following the difficult years after hurricanes Irma and Maria in 2017 and the worldwide COVID-19 pandemic. The elected representatives who form the new government are drawn from across the political spectrum, which can make considerable progress on initiatives ranging from infrastructure to fintech. A new financial services ministry has been created and is expected to help support the BVI’s product offerings to the global economy. The BVI’s reputation as a desired jurisdiction for the digital asset economy continues to grow. With a new regulatory regime implemented in 2023, the territory is outpacing the world’s largest economy, the United States (U.S.), as a provider of choice. Advantages of the BVI as a business location The BVI is a politically and economically stable, English-speaking British overseas territory, constitutionally autonomous from the United Kingdom (UK) and internally self-governing. The British Government appoints a governor to represent the British Crown in the territory. The governor is responsible for defence, external affairs, civil service, the local police force and the administration of justice. The voting age in the BVI is 18. The BVI shares the same time zone as the Eastern U.S., except during Daylight Savings Time. Additionally, it is four hours behind Greenwich Mean Time. Direct air access to the BVI is available from Miami and several North American and European cities, connecting through San Juan, Puerto Rico, which is only 45 minutes away by air. North American travellers can also reach the BVI by flying to St. Thomas, U.S. Virgin Islands, then connecting via ferry. The BVI Business Company is one of the world's most widely used corporate vehicles. Once the BVI registered agent is satisfied with the due diligence information supplied and has filed the company’s constitutional documents at the BVI Registry of Corporate Affairs, a business company can be incorporated at a low cost in under 48 hours. The BVI attracts global professionals renowned for their expertise across all sectors of financial services, maritime business and tourism. Investors can feel confident that the talent pool is more than adequate to meet their needs. One of the BVI's great strengths is its dynamic legal system rooted in English common law. The jurisdiction has a dedicated commercial court and commercial registry, allowing for faster resolution of disputes involving BVI Business Companies and their shareholders and directors. The Commercial Division is regarded internationally as a fair and efficient venue. It has gained and kept the confidence of those needing to resolve commercial disputes in the BVI. Business structures in the BVI The most common business structure is the BVI Business Company. However, general and limited partnerships and trusts are often used as well. BVI Business Companies are generally used as asset-holding vehicles that may or may not include an operating business. Commencing 1 January 2023, most BVI Business Companies must file an Annual Financial Return with their BVI registered agent. This exemplifies how the BVI’s regulatory structure keeps pace with global standards. Robust regulation and tax-neutral status make BVI Business Companies ideal for cross-border transactions. No income, corporation, capital gains, inheritance, gift or wealth taxes, or any other form of tax would affect a company doing business outside of the BVI. This makes them attractive for special-purpose acquisitions, private equity finance and venture capital structures. BVI limited partnerships are also popular as investment vehicles, primarily in private equity. In 2018, the laws related to limited partnerships were refreshed by enacting the BVI Limited Partnerships Act, leading to additional flexibility for the limited partnership as an investment vehicle. As such, new limited partnerships have legal personality by default (though they can opt-out), enabling the limited partnership to enter into transactions and own assets in its name. The Act contained additional improvements, including rules relating to the merger and consolidation of partnerships, including with foreign partnerships, the continuation of foreign partnerships into the BVI and the widening of activities a limited partner can engage in without losing its status as a limited partner. The BVI is now considered one of the world’s leading international financial centres in which to set up trusts. BVI trusts are established for various reasons, including commercial purposes, succession planning, probate avoidance and making provision for vulnerable relatives. It has some of the most sophisticated trust legislation in the world, which, combined with the protective features of English common law and equity, make BVI trusts highly attractive. Professional trustees operating in the BVI must obtain licenses from the Financial Services Commission, ensuring they are robustly regulated. The Virgin Islands Special Trusts Act creates a unique and highly popular trust regime (the VISTA trust regime) tailored to holding shares in companies in the trust. Private trust companies offer a way to combine the corporate benefits of limited liability and perpetual existence with the flexibility of a trust. The link is here to read or download a PDF of a complete BVI Trusts overview prepared by O’Neal Webster Partner Chris McKenzie.   How to invest in the BVI Economy and currency strength The official currency of the BVI is the U.S. dollar because of its close historical ties with the neighbouring U.S. Virgin Islands. Inflation rates According to a report published by the Central Statistics Office of the BVI Government, inflation in the BVI during 2021 was just 2.8%. Global Data puts the Consumer Price Index for the BVI at 2.21% for 2023. Main trade sectors The BVI has a diverse economy with several key trade sectors: Financial Services: The BVI is a major offshore financial centre, offering services such as company incorporation, limited partnerships, trusts, investment funds and offshore banking. Tourism: The tourism industry is significant in the BVI, driven by its stunning beaches, sailing opportunities, and natural beauty. It attracts visitors for activities such as yachting, diving, and eco-tourism. Maritime Services: The BVI's strategic location in the Caribbean makes it a hub for maritime services, including ship registration, yacht management, marine insurance and dispute resolution. Real Estate: The BVI's attractiveness as a destination for tourism and offshore business has led to a thriving real estate market, particularly in luxury properties, vacation rentals, and resort developments. Professional Services: The BVI offers a range of professional services, including legal, accounting, and consulting services, catering to both domestic and international clients. These sectors contribute significantly to the BVI's economy and are crucial to its economic development. Current opportunities and prospects The BVI is the world’s second-largest offshore investment funds domicile. BVI investment funds are regulated under the Securities and Investment Business Act and have many advantages. Investment policies, strategies, performance or other compensation arrangements have no regulatory restrictions. Directors, functionaries and auditors do not need to be domiciled in the BVI. Among the attractive features, BVI funds can have various structures, including single-class, multi-class, master and feeder funds structured as private and public funds or as approved and incubator private investment funds. Statutory segregated portfolio ring-fencing provides asset protection. The startup and ongoing fees and costs are highly competitive. The Approved Manager regime is straightforward and efficient and complements the overall investment funds regime. Fund managers can begin doing business seven (7) days after applying, and ongoing regulation is compliant with international standards but is manageable. The low startup costs are ideal for small to medium-sized fund managers. The BVI has taken a bold step in prescribing rules for the regulation of virtual assets service providers, a necessary step as the fintech space continues to grow significantly. The new Virtual Asset Service Providers Act, 2022 (VASP Act) came into force in 2023, ensuring robust regulation of this growing sub-sector. The VASP Act established a registration and licensing scheme for service providers involved in the issue, holding and exchange of virtual assets. It requires providers to have an approved compliance officer and to comply with international standards on KYC (know your customer), money laundering, terrorist financing and risk assessment. The VASP Act also provides clarity in many areas, and further guidelines are expected to enhance understanding of the Act and how it applies to various types of businesses and ideas in an evolving environment. Legal system The BVI legal system is based on the English legal system, adopting English common law and principles of equity together with certain elements of English statute law and Acts of the British Virgin Islands Legislative Assembly. UK statute law does not generally apply to the BVI except where the UK Parliament has specifically extended legislation to the territory. The BVI has domestic corporate, insolvency, employment and other governing statutes. The BVI judiciary is part of the Eastern Caribbean Supreme Court (ECSC), the regional judicial body, serving the full Organisation of Eastern Caribbean States members and two associate members. The ECSC consists of the High Court of Justice and the Court of Appeal. The BVI has two resident High Court judges who handle a wide range of civil and criminal cases. It also has its own commercial court, a division of the Eastern Caribbean Supreme Court, with two dedicated judges and a commercial court registry. Based in England, the Judicial Committee of the Privy Council is the final court of appeal. Decisions handed down by English and superior Caribbean courts continue to be highly persuasive in the BVI courts, except when based on legislation peculiar to the UK or the Caribbean State. Jurisprudence from other common law jurisdictions with similar legislation is also persuasive. The territory boasts an international arbitration centre, which offers a vetted panel of experienced arbitrators and mediators and effective dispute resolution mechanisms. Overall, the BVI legal system ensures efficiency, which is crucial for commercial operations. It also provides certainty in the law and a familiar and reliable foundation for international businesses.   Foreign investment restrictions Regulatory environment The BVI complies with all its international obligations, including various initiatives by the Organisation for Economic Co-operation and Development (OECD), European Union (EU) and the U.S. to curb anti-money laundering, terrorism financing, tax evasion, base erosion and profit-shifting. The BVI has entered into various international agreements for sharing information, such as the Foreign Account Tax Compliance Act (FATCA), Common Reporting Standard (CRS), Country-by-Country Reporting (CbCr) and economic substance. The jurisdiction has also enacted the appropriate legislation to support its international obligations. At the same time, the BVI has maintained its position as a tax-neutral jurisdiction and aims to facilitate international transactions and trade without adding any undue complications or costs. An excellent example of this is the recently introduced VASP Act mentioned above. While that Act introduces a regime to license and regulate virtual asset service providers, it contains no similar licensing requirements for most token issuers. The result is sufficient industry regulation without stifling innovation and growth. BVI business is regulated by different local bodies depending on the type of business pursued. In the financial services realm, business is regulated primarily by the BVI Financial Services Commission (FSC) and the BVI Financial Investigation Agency (FIA). Both the FSC and the FIA are autonomous bodies created by statute. The FSC regulates major financial services entities such as banks, insurance companies, investment funds, crypto and digital asset businesses and other investment businesses, including those operating outside the BVI using BVI entities. The FIA regulates Designated Non-Financial Businesses and Professions (DNFBPs), such as lawyers, accountants, real estate agents and other businesses deemed DNFBPs, primarily for anti-money laundering purposes. The BVI also has additional legislative rules specific to and regulating DNFBPs’ practices. For example, lawyers must comply with the regulations set out in the BVI Legal Profession Act, 2015.   Direct investment Restrictions on foreign capital The BVI does not restrict foreign capital. However, landholding by foreign citizens requires a licence. New regulations for licensed BVI “non-belonger” landholders, which are scheduled to come into effect shortly, include several welcome policy changes, such as fixed timelines for processing applications once submitted and built-in rental permission, subject to obtaining a trade licence. In addition, the standard required development period for residential properties is to be increased from three to five years, with the possibility of an additional two-year extension. These updated procedures will come with the caveat that they are subject to change in order to accommodate legislative amendments and market conditions. Foreign exchange controls The BVI operates without foreign exchange controls. Renowned for its accommodating regulatory framework in international business and finance, the jurisdiction generally permits unrestricted capital movement, including foreign exchange transactions. Nonetheless, it is crucial to remain informed about any alterations to regulations or policies impacting foreign exchange operations within the BVI. Top takeaway tips: “What to know before Investing.” The BVI is a well-regulated jurisdiction where the rule of law is respected, and many capable professionals are available to assist a person or entity interested in investing in the BVI. The jurisdiction’s reputation as a global financial centre and a major player in facilitating cross-border transactions is supported by flexible business structures that give investors substantive options to secure their investments. Conclusion In conclusion, doing business in the BVI offers numerous advantages and opportunities. The jurisdiction boasts a favourable regulatory environment supported by close collaboration between industry, government and regulatory agencies. The election of a new government in 2023 signals a positive trajectory for the BVI, with a renewed emphasis on governance structures and forward-looking initiatives. The BVI's reputation as a desired jurisdiction for the digital asset economy continues to grow with the implementation of a new regulatory regime in 2023, positioning it ahead of major economies like the U.S. The BVI's political and economic stability and robust legal system rooted in English common law further enhance its appeal as a business location. Investors and entities can take advantage of various business structures in the BVI, including the widely used BVI Business Company and flexible limited partnership and trust options. The jurisdiction's tax-neutral status, efficient regulatory framework, and dedicated commercial court contribute to its attractiveness for cross-border transactions and asset protection. Furthermore, the BVI's diverse economy, encompassing key sectors such as financial services, tourism, maritime, real estate, and other professional services, provides ample investment and economic growth opportunities. Overall, the BVI offers a well-regulated environment supported by a reliable legal system and international partnerships, making it an attractive destination for investors seeking stability, flexibility, and opportunities for business expansion.   Authored by: Kerry Anderson and Willa Tavernier Contributors: Chris McKenzie Christopher Simpson Nadine Whyte Laing Jenelle Archer