Whether you operate a startup or a major corporation, establishing an offshore company can help your business grow, reach new markets or address different business needs.
Wonder which country will be the best for establishing an offshore company for your business? FastLane has prepared some information in the following article that may provide some insights to that query.
What you will learn:
British Virgin Islands (BVI)
The British Virgin Islands (BVI) are a group of about 60 Caribbean islands. As A former British colony, until they were granted autonomy in 1967, it is well-known for being one of the most stable jurisdictions in terms of political and economic outlooks. BVI company law is extremely business-friendly and incorporated BVI companies are able to take advantage of the multitude of financial services available in the country. Also, the BVI is one of the world’s most popular offshore jurisdictions.
According to a study, 40% of the world’s offshore enterprises choose the BVI to start their operation. The size, functions, and attributes of business enterprises in the BVI vary. According to the BVI company registry, as of September 2021, there were over 372,911 Business Companies (BCs) on the Register. This has confirmed the country’s position as one of the main hubs for company formation.
Incorporation Requirement
The following are the requirements for forming a Business Company, often known as an International Business Company (IBC):
- Director – 1
- Shareholder – 1
- Company Secretary – 1
All three of the roles above can be assigned to a single person.
It is not required by law for the directors or shareholders to be of a specific country. It is making IBCs simple and easy to incorporate in the BVI.
Law and Taxation
Business corporations are excluded from all requirements of the Income Tax Act (including dividends, interest, rents, royalties, compensation, and other amounts payable by the company to persons who are not persons resident in the BVI). Capital gains realized on any shares, debt obligations, or other securities of a corporation by persons, not BVI residents, are likewise free from all requirements of the Income Tax Act.
Except for interest payable to or for the benefit of an individual resident in the EU, no estate, inheritance, succession, or gift tax, rate, duty, levy, or other charge is payable on any shares, debt obligations, or other securities of the corporation by persons who are not residents in the BVI. Because the BVI has a “Territorial Tax System,” IBCs that incorporate in the BVI but operate outside the country pay no corporate taxes. Profits, dividends, interest, and royalties are exempt from certain businesses’ taxation.
Business operations on one of the BVI’s several islands or the hiring of local workers are examples of where IBCs are taxed. Fees for overseas company registration and licensing are sometimes much greater than fees for domestic incorporation. Since the BVI does not levy withholding tax, it has Tax Information Exchange Agreements (TIEA) rather than Double Tax Agreements (DTA). A TIEA requires the BVI to share tax-related information demanded by other jurisdictions.
The BVI cannot sign or ratify international company tax agreements because it is a British territory. Thus, BVI conventions closely mirror UK norms, and the UK may arrange for BVI ratification of any convention. One of the BVI’s key benefits as an offshore location for business formation is the ease of setting up an IBC.
It is not necessary for directors and shareholders of new IBCs in the BVI to be residents, which is one of the major advantages of BVI to become one of the most welcomed financial centers.. There is also no requirement that annual meetings be held in the BVI and they can be held anywhere worldwide.
Financial Infrastructure
The British Virgin Islands is home to almost 400,000 firms with a combined asset value of $1.5 trillion. You’d never know it if you walked through Road Town, the capital of this Caribbean island. Hens and roosters compete openly with motorists on Main Street’s single narrow lane. Law firms that set up and serve thousands of offshore businesses occupy modest buildings adjacent to brilliantly painted wooden houses that contain cheap beauty salons and apparel stores with names like Goodfellas.
Few roads are marked, except a few twisted green street signs on Main Street. Because the BVI does not have a postal service, its businesses and 32,000 citizens utilize post office boxes as addresses, which is why one P.O. Box in Road Town might be the nominal home to thousands of firms from all over the world. Hundreds of lawyers, accountants, and company agents work from buildings strewn around the main island of Tortola.
The BVI has a solid track record with business information confidentiality. Although the beneficial owner of a company is not required to be publicly disclosed at this time (this may change in the future), the IBC’s registered agent must have access to that information. Nominee directors and nominee shareholders can also be used to hide the ultimate beneficial owner, as long as there is paperwork in place to indicate the real owner of the firm, such as a declaration of trust. Currently, the only public record is Director Register.
The BVI requires registered agents to disclose firm ownership only upon legal request, such as a TIEA issued by another state. IBCs may also issue bearer shares through an authorized custodian in the BVI. However, this option is rarely used nowadays due to Common Reporting Standards (CRS) and Automatic Exchange of Information (AEI).
In the BVI, Trust Structures can hold the underlying IBC firm for privacy purposes. VISTA Trust is a Trustee for an International Business Company (IBC) established by a Private Trust Company (PTC). It allows the owners to manage their assets and business.
BVI Incorporation Common Questions
1. Do I have to be physically present in the BVI to incorporate a company?
No. You can incorporate your BVI company from abroad with the help of a professional service provider.
2. Do I need to provide any address for company formation in the BVI?
If you are incorporating a company as an individual, a residential address is required. For companies who wish to incorporate a subsidiary in the BVI, a registered office address or business address is required.
3. Is BVI a tax free country?
The British Virgin Islands (BVI) has an open economy that is driven largely by the financial sector, as well as tax laws coupled with a strong regulatory framework that highly favors doing business in the territory.
Thus, a BVI offshore company doesn’t have to pay income tax. There is also no taxable capital gains tax, nor gift taxes, inheritance taxes, sales taxes, or value added taxes
4. What you need to pay as the annual fee for BVI company
The annual renewal fees consist of two parts: (A) mandatory fees, which cover the absolute minimum necessary to maintain the company in good standing, and (B) optional fees, for services that enhance and improve the offshore company, but are not compulsory.
For the (A) Part, It consists:
- Government fee
- Registered Office and Registered Agent fee
- Compliance fee
For the (B) Part, included:
- Third-party directorship services
- Nominee shareholders
- Third-party account signatory services
- Mail and fax forwarding, document remailing and call handling
- Miscellaneous secretarial, legal and administrative services
Timeline for Registration
Although there is no set timeline, the incorporation process is fairly simple. As long as you’ve provided the paperwork, it should be an easy and smooth process. The following are the steps to incorporate in the British Virgin Islands:
- Step 1: Reserve your company name.
The first step is to reserve a company name with the BVI Registry. It must be a one-of-a-kind name, and the BVI Commercial Registry will do the company search. You will need to contact the BVI Commercial Registry.
- Step 2: Appoint a Registered Agent
When creating a business in the BVI, the BVI government requires you to have a registered BVI company registry agent.
- Step 3: Open a bank account
Before your firm can begin operations, you must first open a company bank account. This phase must be completed before the company documents are drafted.
Additionally, employers must register for social security payments.
- Step 4: Submit all needed paperwork.
At the same time, you will need to draft the company’s Articles of Association and the data of the registered agent and the business’s founders.
Once this paperwork is completed, it must be presented to the Companies Registry for approval. Once authorized, you should check to see whether you need to apply for any more permits before you can formally start your business. These licenses are available from the Financial Services Commission. Incorporation might take place in one or two days.
Cayman
The Cayman Islands is another standout option for establishing an offshore corporation in your consideration list. The Cayman Islands are located in the western Caribbean Sea. The country’s legal system is quite similar to that of the British Virgin Islands. This is because both are founded on English common law jurisdiction. Cayman is a top offshore financial hub for global firms and an attractive place of domicile for offshore investment funds in terms of the business climate.
A Cayman Islands limited liability company (LLC) is one of the most frequent business formats in the country. It can be used for a variety of applications. Investment funds, joint-venture businesses, private equity transactions, securitizations, and various other structures are examples.
Incorporation Requirement
- 1 Director
- 1 Shareholder
Directors do not need to live on the island.
Law and Taxation
A corporation does not have to appoint auditors or file financial statements (annually or otherwise) with the Registrar or other governmental authority unless it is a regulated firm subject to particular licensing requirements.
Annual audited accounts must be filed with the Cayman Islands Monetary Authority by regulated institutions such as banks, insurance firms, trust companies, corporate managers, mutual fund administrators, and regulated mutual funds.
While there are no detailed accounting standards requirements in Cayman, a Cayman corporation must keep accurate records of account for income flows, spending, and assets and liabilities that provide a fair and factual picture of the firm’s operations and explain its transactions. The records do not have to be held in Cayman, but a company that stores its books of account outside the Cayman Islands is required to transmit information about its books of account to its registered office on an annual basis.
Financial Infrastructure
Cayman allows this type of international investment because it is recognized as a major global financial hub, effectively linking law-abiding users and producers of investment capital and financing from all over the world.
Cayman as a jurisdiction has been the subject of years of due diligence by institutional investors, regulators, lenders, and other stakeholders. It is a tried, tested, and trusted jurisdiction, regarded as a transparent and compliant center of excellence by big respected international corporations such as banks and other financial institutions, as well as those seeking to raise investment capital. These users and providers are from several jurisdictions, each set of tax laws, legal frameworks, rules, and culture. Cayman provides them with a neutral platform to aggregate their financial funds.
The Cayman Islands is regarded as a fair and dependable jurisdiction with a strong and trustworthy legal system and proper rules, with no apparent “home field” advantage for any investor, stakeholder, or investment manager.
Caymans Islands Incorporation Common Questions
1. Do I have to be physically present in the Cayman Islands for company formation?
No.Company formation in the Cayman Islands can be completed abroad with the help of a professional service provider!
2. Do I need to provide any address for company formation purposes?
If you are contemplating company formation in the Cayman Islands as an individual, a residential address is required. For companies who wish to form a subsidiary in the Cayman Islands, a registered office address or business address is required.
3. Is Cayman Islands a tax free country?
Caymans have no corporate tax, making them an ideal location for multinational corporations to establish subsidiaries to shield their income from taxation.
Residents of the Cayman Islands do not pay any direct taxes. They do not pay income taxes, property taxes, capital gains taxes, payroll taxes, or withholding taxes. Therefore, they are considered tax neutral.
4. What you need to pay as the annual fee for the Caymans company
The annual fee is due in January of every year after the year of incorporation for an exempted company in the Cayman Islands. The amount of the fee depends on the amount of the company’s registered capital (i.e. the capital authorized by its organizational documents).
Amount of annual fee | Amount of annual fee | |
| Amount of registered capital | KYD | USD* |
| less than 42,000 KYD | 700 | 833.25 |
| from 42,000 to 820,000 KYD | 1,000 | 1,190.36 |
| from 820,000 to 1,640,000 KYD | 1,984 | 2,361.67 |
| more than 1,640,000 KYD | 2,568 | 3,056.84 |
*The amount may fluctuate slightly due to current exchange rate
A company which fails to pay the annual fee incurs the following penalties:
- 33,33% of the amount of annual fee if it is paid between 1 April and 30 June;
- 66,67% of the amount of annual fee if it is paid between 1 July and 30 September;
- 100% of the amount of annual fee if it is paid between 1 October and 31 December.
Timeline for registration
The Cayman Islands features a simple and easy-to-use online method for company formation. Depending on each step’s processing time, it takes 1-4 working days. The Registrar of Companies manages the process.
The registration fee varies depending on the business structure, steps as followed:
1. Reserving Your Company Name
Before choosing a company name, you must first decide on the type of structure that best suits your firm. The cayman company registry website has more information on the various structures.
After deciding on the business structure, you can reserve the name. You can include Chinese characters. You must check the General Registry to see if the name is accessible for your business.
2. Fill out and submit the incorporation form
The incorporation application requires a few documents.
Basic documents necessary are:
- The Memorandum of Association specifies the company’s name, address, purpose, and capital.
- Association Bylaws
- The company’s internal code of conduct
- CIMA Approval Required for Regulated Businesses
Key Takeaway
As you can see, both the BVI and the Cayman Islands are excellent countries for offshore company formation and business expansion.
Choosing between the BVI and the Cayman Islands appears to be a difficult option. It is very dependent on your company’s aims and objectives, so give it some thought. BVI has a lower incorporation charge and a shorter registration process, making it ideal for SMEs with limited resources and a worry about information disclosure.
Cayman is better suited for people with large firms searching for investment opportunities in the fund sector or considering the proposed company as a future holding structure.