In August 1984, the International Business Companies Act introduced a new category of corporate entity in the British Virgin Islands, which is totally exempt from British Virgin Islands income tax and stamp duties. Following the introduction of the Act, the British Virgin Islands has become the premier choice for domiciling offshore companies. During each of 1996 and 1997 annual incorporation levels for International Business Companies ("IBC") have exceeded 50,000.

Incorporation

The basic procedure and requirements for the incorporation of a company in the British Virgin Islands under the International Business Companies Act, are set out below:

  • The name of the company should be chosen and the application for approval of the name submitted to the Registrar of Companies;
  • The memorandum and articles of association are filed with the Registrar of Companies, together with payment of the appropriate fee.
  • The memorandum of association of an IBC must include:
  • The name of the company with the addition of any of the following words or their abbreviations, ‘Limited’, ‘Corporation’, ‘Incorporated’, ‘Societe Anonyme’, ‘Sociedad Anonima’, as the last work in the name;
  • The address of the registered office;
  • The name and address of the registered agent;
  • The objects for which the company is to be established;
  • The currency or currencies in which shares are to be issued;
  • The authorised capital;
  • The number of classes and series of shares, number of shares of each class and series, par value of shares and/or whether shares may be without par value;
  • The designations, powers, preferences, rights, qualifications, limitations or restrictions of each class and series of shares or an express authority to the directors to fix such designations, powers, preferences, rights, qualifications, limitations or restrictions of each class and series of shares;
  • Whether shares may be issued as registered shares or bearer shares or both and, if shares can be issued to bearer, the manner in which notice is to be given to the holders of those shares;
  • A statement that the company may not carry out the activities that are expressly prohibited by the International Business Companies Act, unless licensed to do so.

The articles of association prescribe regulations for the internal governance of the company.

Incorporation is effective from the date of filing the memorandum of association with the Registrar.

The International Business Companies Act is very flexible and companies incorporated under it are subject to any limitations imposed within the memorandum and articles of association, which are normally drafted to permit flexibility. The memorandum and articles of association will normally provide that the memorandum and articles of association may be amended by a directors’ or members’ resolution.

A company incorporated outside of the British Virgin Islands can register as an IBC, provided the jurisdiction of its incorporation permits migration.

Prohibited Activities

The International Business Companies Act expressly prohibits any company incorporated under this Act from doing any of the following:

  • Carrying on business with persons or entities resident in the British Virgin Islands;
  • Owning an interest in real estate in the British Virgin Islands (other than leased premises for business use);
  • Carrying on banking or trust business, unless it is licensed under the Banks and Trust Companies Act, 1990;
  • Carrying on business as an insurance or reinsurance company, insurance agent or insurance broker unless it is licensed under the Insurance Act, 1994;
  • Carrying on the business of company management unless it is licensed under the Company Management Act, 1990;
  • Carrying on the business of providing the registered office or registered agent for companies incorporated in the British Virgin Islands.

Although an IBC may not carry on business with persons resident in the British Virgin Islands, it is permitted to do any or all of the following:

  • Make or maintain deposits with a person carrying on banking business within the British Virgin Islands;
  • Make or maintain professional contact with solicitors, barristers, accountants, bookkeepers, trust companies, administration companies, investment advisers or other similar persons carrying on business within the British Virgin Islands;
  • Prepare or maintain books and records within the British Virgin Islands;
  • Hold, within the British Virgin Islands, meetings of its directors or members;
  • Hold a lease of property for use as an office from which to communicate with members or where books and records of the company are prepared or maintained;
  • Hold shares, debt obligations or other securities in a company incorporated under the International Business Companies Act or under the Companies Act;
  • Have shares, debt obligations or other securities in the company owned by any person resident in the British Virgin Islands or by any company incorporated under the International Business Companies Act or under the Companies Act.

Capital And Dividends

The International Business Companies Act contains some detailed and rather unique provisions regarding capital and shares. For a proper understanding it is necessary to understand the meaning of ‘authorised capital’, ‘capital’ and ‘surplus’ as defined in the Act.

Shares may be issued as registered shares or shares issued to bearer, or both. The legislation permits multiple classes or series of shares with any kind of preferential or redemption rights.

All issued shares must be fully paid. The consideration for the issue may be cash, services rendered, other valuable assets or a combination of these. Shares with par value cannot be issued for an amount less than their par value. For shares of no par value the directors are required to designate how much of the consideration paid is to be treated as capital. The minimum issued and paid in capital can be one share. Share capital may be expressed in any currency or in multiple currencies.

It is possible to change authorised share capital of the company by:

  • Increasing or reducing the number of shares that a company may issue;
  • Increasing or reducing the par value of any of its shares; or
  • Any combination of the above.

The directors can declare and pay dividends in money, shares or other property. Dividends can only be declared and paid out of surplus, after solvency determination has been made by the directors. There can be a dividend of shares (ie, bonus shares).

Shareholders Or Members

An IBC requires only one shareholder. The directors may convene meetings of the members, as the directors consider necessary or desirable, or upon receipt of a written request from members holding more than 50% of the votes of outstanding shares in the company. Members may participate by telephone or other electronic means or alternatively directors or members can vote by proxy.

Directors And Officers

The business and affairs of an IBC are managed by a board of directors, consisting of one or more persons, who can be either individuals or companies. The first directors are elected by the subscribers to the memorandum of association and subsequently can be elected by the members or directors. Am IBC requires only one director.

Meetings of directors can be held by telephone or other electronic means or alternatively directors can vote by proxy. Directors can be resident in the British Virgin Islands, but there is no requirement to appoint directors that are resident in the British Virgin Islands.

The International Business Companies Act imposes the requirement that every director, officer, agent and liquidator of a company incorporated under this Act must act ‘honestly and in good faith with a view to the best interests of the company and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances’.

The Board of Directors can appoint officers, such as a President, Vice-President, Treasurer or Company Secretary by a directors’ resolution. The resolution can delegate such powers as the directors see fit, other than any action that would require a resolution of the directors.

Registered Office

The registered office has to be within the British Virgin Islands and the company is required to appoint a registered agent in the British Virgin Islands. An IBC must keep an imprint of the company seal and either the original or a copy of the share register at the registered office.

Administration And Confidentiality

The only annual statutory ‘filing’ obligation is for payment of the annual licence fee. There is no requirement for an annual return or any other information relating to shareholders or directors to be filed with the Registrar of Companies or any other public official in the British Virgin Islands, and therefore in practice, the only documents open for inspection at the office of the Registrar are:

  • Certificate of incorporation;
  • Memorandum and articles of association, together with any files amendments;
  • Correspondence between the Registrar and the Registered Agent concerning such matters as licence fee payments.

It is now possible to register with the Registrar, copies of the share register, register of mortgages and charges or the register of directors, but such registration is optional, not mandatory. The consequence of filing any of these documents is that the filed version is binding on the company.

Not only is the share register of an IBC, either the original or a copy that is maintained at the registered office, not open to the public, it is only open to the members of the IBC with the approval of the directors.

The International Business Companies Act exempts all IBCs from the compulsory registration under the Registration and Records Act of all deeds and other instruments relating to the transfer of property to or from an IBC, transactions in respect of share, debt obligations or other securities of an IBC or other transactions relating to the business of an IBC.

Taxation And Stamp Duty

The International Business Companies Act provides a specific exemption from all provisions of the Income Tax Act for:

  • A company incorporated under this Act;
  • All dividends, interest, rents, royalties, compensations and other amounts paid by he company to persons who are not persons resident in the British Virgin Islands;
  • Capital gains realised with respect to any shares, debt obligations or other securities of a company incorporated under the International Business Companies Act by persons who are not persons resident in the British Virgin Islands.

No estate, inheritance, succession or gift tax, rate, duty, levy or other charge is payable by persons who are not resident in the British Virgin Islands with respect to any shares, debt obligations or other securities of a company incorporated under the International Business Companies Act.

Depending on the nature of the business activity undertaken, there may be tax implications in other jurisdictions, eg. Non-resident withholding tax on interest and dividend income deducted at source.

All instruments relating to the transfer of property to or from an IBC, transactions in respect of the shares, debt obligations or other securities of an IBC or other transactions relating to the business of an IBC are exempt from payment of British Virgin Islands stamp duty.

Accounting And Reporting Requirements

A company incorporated under the International Business Companies Act is required to keep such accounts and records as the directors consider necessary or desirable in order to reflect the financial position of the company.

There is no statutory requirement to prepare financial statements, appoint auditors or file a copy of the financial statements with the Registrar of Companies, the Commissioner of Inland Revenue or any other public official in the British Virgin Islands, unless the company is also subject to specific licensing requirements laid down in other legislation.

Fees

Registration and subsequent annual licence fees are based on the authorised capital of the IBC:

  • For a company with authorised capital of up to $50,000

$300

  • For a company with authorised capital in excess of $50,000

$1,000

  • For a company with shares of no par value

$350

Common Uses Of International Business Companies

  • Finance companies;
  • Investment holding companies;
  • Mutual funds;
  • Insurance and reinsurance companies;
  • Holding intellectual property rights;
  • Real estate holding companies;
  • Yacht/ship holding companies;
  • Employment companies;
  • International trading companies;
  • Leasing companies;
  • Special purpose vehicles.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.