While BVI offers tax benefits, consider:
- Increased regulations: More compliance and KYC requirements.
- Reputational concerns: Past association with offshore activities.
- Ongoing costs: Maintenance fees and potential audits can be higher.
- Limited local operations: Can't conduct business directly within BVI.
- Alternatives exist: Explore other jurisdictions based on your specific needs.
Consult professionals before deciding if BVI aligns with your legal and financial goals.
BVI now has strict economic substance regulations that require companies to have a local presence and meet annual compliance checks. Non-compliance can lead to fines or liquidation.
Registering a company in BVI involves a lengthy process with red tape. It can take 4-6 weeks for licensing, up to 3 months for opening a bank account, and 7-10 weeks for work permits.
BVI has a history of being associated with money laundering and financial crimes. This negative reputation can harm your business’s credibility and lead to challenges in securing clients or partnerships.
The costs for setting up and maintaining a company in BVI are high, ranging from $1,500-$3,000 for incorporation and $800-$1,500 annually for renewals. Additionally, it can be difficult to open a bank account due to BVI's poor reputation.
If you're looking at opening an offshore business, choosing where to incorporate it is a huge and important decision.
The British Virgin Islands (BVI) is one of the most popular places to create an international business company (IBC). This is because it's well-known as being a tax haven. Considering the good and bad sides of those offshore companies in the British overseas territory is important before deciding if you will have your own BVI business company.
BVI Company Disadvantages
BVI company registration is no doubt practical, making it one of the offshore tax havens. There is no corporate income tax, zero tax on capital gains, or value-added tax (VAT) for offshore BVI companies.
There are, however, a few negatives that you need to look at before you commit to creating a business in the British Virgin Islands.
They could very well lead you to change your mind.
1. Economic Substance Regulations
Back in the day, the British Virgin Islands was the wild west of off-shore entities.
There were almost no rules, and with no corporate taxes, it was the ultimate hot spot for new businesses.
Just recently, BVI was added to the white list of Organisation for Economic Cooperation and Development (OECD).
This helps its reputation after past scandals.
You can no longer offer gambling, betting, or casino services, and you also can't offer third-party financial services like banking, investment, insurance, or trust services.
It can only be direct.
Even though this helps BVI's reputation, it means that BVI now has to follow the same standards as the OECD.
There are certain requirements that each entity has to meet in order to comply with the new regulations.
They are that the entity needs to build local economic substance if it is commercial and feasible and that the entity needs to revise its operational and legal structure to align with the Act's strict standards.
Every year, the entity will have to be checked to see if it still meets the requirements, and if not, the entity will face fines, sanctions, and the possibility of liquidation.
2. Long Application and Approval Period
Another result of the economic substance laws under the Act is that all of the processes in BVI have been formalized, meaning that it's no longer a simple process to create an IBC in BVI. Previously, there weren't so many rules and regulations.
Now, even though a registered agent for formation of BVI business companies is there to help you, there might be a lot of red tape to go through.
If the business that's being registered is in the category of trust management, insurance, investment advice, or banking, then the entity has to get a license from the Financial Services Commission.
Getting a license for your offshore company formation requires backup checks and business plans and can take about four to six weeks to get approval on.
Additionally, the business will need to open an offshore bank account in the British Virgin Islands, which means all of the necessary documents will have to be organized and put together.
It typically takes three months if you open a bank account in BVI.
A rather long time to simply open an account.
There is also the matter of work permits.
It takes seven to ten weeks to get a work permit from BVI's Department of Labour and Workforce Development.
As you can see, getting fully set up and having staff in the British Virgin Islands is going to take a significant amount of time.
Some might decide to look at other options that aren't so arduous and complicated to make things easier.
3. Poor Reputation for Money Laundering
While the British Virgin Islands are known for being a tax haven with amazing weather and beaches, there have been some stains on their reputation over the years.
For example, the many Shell companies that are in BVI have been repeatedly a part of global crime and fraud schemes.
Unfortunately, these problems are ongoing.
The most recent case saw about $40 million in funds for COVID-19 relief siphoned off to political allies rather than going to the people and businesses that needed it.
In another case, $250 million worth of cocaine was found in a local policeman's home.
This kind of corruption is hard to ignore when you're looking to create a reputable business.
It's understandable to look at the cases and say that the entity you're creating will not be a part of any schemes, so your business's reputation will be fine.
However, when you're bringing on new clients who are educated or simply have read recent international financial news, they will have seen all of the negative press regarding finance in the British Virgin Islands.
You could lose business deals for choosing to create your company in BVI.
4. Costs and Bank Accounts
Last but certainly not least, setting up your IBC in the British Virgin Islands is that it's costly.
Along with all the bureaucratic red tape comes fees associated with each license and permit.
For a high-quality and reputable service provider, you're looking at paying between $1,500-$3,000 to get incorporated.
Then, on top of the fees associated with starting the entity, you're going to pay between $800 and $1,500 in annual renewal fees.
If you set up an IBC in the British Virgin Islands, you might want to have an account elsewhere that's associated with it rather than just the one in BVI.
That's easier said than done.
Because of all of the issues with reputation, it's hard to get a bank account for a company registered in BVI.
Many banks will reject your application outright, saying they won't do business with a company in BVI.
Set Up Your British Virgin Islands Company in Hong Kong
Opening a business in the British Virgin Islands is not the same as it once was, but navigating your business in certain ways can make it still a better choice than many continental registration alternatives.
Pairing your BVI business up with a global multicurrency business account could definitely soften the blow of the recent BVI policy changes if you're already registered there as well.
Register your company with Air Corporate today and get access to a multi-currency business account located in Hong Kong.
