An offshore company is a company where the legal space is decoupled from the real space where the firm is located. Offshore companies are usually used to avoid some kind of legislation (tax, financial or regulatory).
We describe the history and the main characteristics of the tax havens The British Virgin Islands (BVI). We discuss the financial channels used in these jurisdictions to move money and assets across borders, such as the incorporation of corporations (known as International Business Corporations), trusts that are financial holding companies, asset management companies, and captive insurers.
British Virgin Islands (BVI)
BVI are a British overseas territory with a population of 25,000 inhabitants. In spite of the small size, they host over 800,000 offshore companies’ financial services represent 36% of BVI’s GDP (£206 million).
The main area of specialization of the BVI is the incorporation of corporations (known as International Business Corporations) trusts that are financial holding companies, asset management companies, captive insurers, and the like.
The BVI are also the second largest global domicile for investment hedge funds (Sullivan, 2007) In addition, the BVI have also a strong position in insurance markets, where they tend to specialize in smaller captives (insurance companies).
The BVI tax haven has no taxes in place for BVI offshore companies that do not carry out business in the jurisdiction. International business companies therefore pay zero taxes on the profits, interests, dividends and other types of incomes earned outside of the jurisdiction.
BVI offshore corporations pay no corporate tax, capital gains tax, estate tax, withholding tax or income tax. All an offshore company pays in the BVI is an annual fee which is paid to the relevant government authorities. For this reason the BVI can be regarded as a pure offshore tax haven.
In addition, BVI imposes no taxes on offshore bank accounts. This makes the BVI an ideal jurisdiction in which to set up offshore bank accounts.
The development of BVI as a tax haven started in 1984 when the BVI authorities enacted the International Business Companies Act. The International Business Companies Act introduced a new legislation that allowed the formation of offshore companies that were exempt from local taxes. Since then, the BVI have become one of the most important tax havens in the world. This makes the BVI the largest registry of international companies in the world and, thus, they hold an important place in the global financial infrastructure. Like in other tax havens, most of the registered BVI companies undertake all of their financial activities outside of the BVI. Therefore, money and transactions do not flow through the BVI.
The BVI as a tax haven also provide confidentiality and privacy to the beneficial owners and directors of offshore business corporations through the BVI’s offshore business corporations’ act. The names of the offshore company’s shareholders, directors and the company’s minutes of meetings and resolution documents are not filed with the Registrar of Companies. Information about the beneficial owners is not made public. This means that this information does not become public. Such information is only known to the registered agent of the company who is also responsible for keeping the information. The offshore business legislation provides further privacy by allowing offshore corporations in the BVI to be incorporated using nominee directors and shareholders.
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