Income Tax in British Virgin Islands

Income tax was abolished in 2006.

In 2004, the government announced that income tax for both companies and individuals would be abolished with effect from 2005, with the introduction of a payroll tax.

In January, 2005, the Legislative Council approved the new payroll tax.

Payroll Tax:

Every employer who undertakes business in the British Virgin Islands is required to pay payroll tax in light of:

·        Remuneration paid to each employee by the employer;

·      Deemed remuneration paid by the employer to every deemed employee for services offered by the employee irrespective of whether or not the remuneration is paid in the British Virgin Islands.

Self-employed persons are liable to pay payroll tax on their deemed remuneration. A partner in a partnership undertaking business in the British Virgin Islands is viewed as a deemed employee of the partnership if he/she offers services to the partnership and thus participates in the contribution of the company’s income.

Similarly, a shareholder of a company that is undertaking business in the British Virgin Islands is viewed as a deemed employee of that company if he/she offers service to the company and thus participates in the company’s income.

Remuneration is inclusive of wages, leave pay, bonus, money paid under a profit-sharing scheme, severance pay, salary, residential rent and other benefits paid in kind.

The status of the employer determines the rate of payroll tax.

Class 1 Employers are smaller organizations that satisfy the three outlined criteria in the given financial year:

·        Payroll costs not exceeding US$ 150,000;

·        Turnover not exceeding US$ 300,000;

·        Less than seven employees.

All employers or self-employed persons who do not qualify for Class 1 Employer category automatically falls under Class 2 Employer Class.

Payroll tax rate for Class 1 employers is 10% while that of Class 2 employers is 14%.

An employer may opt to deduct 8% of the remuneration paid to an employee in any financial year to cover the liability of payroll tax.

The balance of the payroll tax liability for each employee, the self employed and the deemed employee is paid by the employer less 2% for Class 1 employer and 6% for Class 2 employer.

The payroll liability for the employee and employer is exempted for the first US$10,000 of remuneration per employee.

British Virgin Islands Tax Haven:

The British Virgin Islands, or BVI for short, is a group of fifty islands in the Caribbean forming a British Overseas Territory. The main islands within this group are called Tortola, Virgin Gorda, Anegada and Jost Van Dyke. They have been autonomous from Britain since 1967. While the official name is the Virgin Islands, they are usually called the British Virgin Islands to separate them from the nearby American Virgin Islands.

Their economy is currently focused on financial services and tourism. Financial services is by far the most economically important sector and over 50% of the territory’s income comes from license fees paid to the government by off-shore firms. The British Virgin Islands has since the 1960s become one of the most important players in the financial off shore industry with more than 45% of all off shore companies being incorporated in the BVI. Its beneficial tax legislation, as well as high degree of privacy regarding financial transactions have made BVI one the most important so-called “tax havens”.

A tax haven is – according to the OECD – a jurisdiction that seeks to make itself attractive to businesses and business owners seeking more favorable tax treatments than those available in their country of origin or residence. As such a tax haven provides beneficial terms under which either new companies can be incorporated or off-shore entities of already existing companies can be established.

The “British Virgin Islands tax haven” has come about through the creation of a very simple set of corporate taxation rules that offer a highly beneficial taxation system. The British Virgin Islands does not have any capital gains tax, gift taxes, sales tax, value added tax, profit tax, inheritance tax or corporation tax. Salaries paid to employees employed by an off-shore company established in the BVI tax haven are taxed at 8% for the employee the remaining percentage up to 12% or 14% for the employer for any salaries above $12,000.

The relative simplicity of these tax regulations along with the low tax rates explain why British Virgin Islands has become one of the most popular places for off-shore establishment of businesses. The BVI tax haven also offers another important benefit – relative privacy of details regarding financial transactions as well as corporate incorporations. This allows companies to configure their own corporate structure without harmful interference or risk of competitors gaining access to undue information.

Advantages of forming a company in the British Virgin Islands:

Forming a company in the British Virgin Islands tax haven means setting up a so-called British Virgin Islands Business Company or BVI BC. These are the most popular form of off-shore companies in the world. They are available to residents of any country in the world and can be formed as a continuation of another company in another part of the world. There are many benefits to a BVI BC:

·        0% corporate tax

·        0% capital gains tax

·        0% profit tax

·        0% gift tax

·        0% sales tax / Value Added Tax

·        0% inheritance tax

·        No stamp duty except for land transactions in the British Virgin Islands itself

·        No restrictions on doing business anywhere in the world

·        Ability to transfer and repatriate money without fees

·        No currency exchange fees or limitations

·        No need to publicise company directors, officers, owners or shareholders

The British Virgin Islands tax haven is backed by a politically stable government with a long history of providing a beneficial off shore environment for companies. The BVI has never been blacklisted by the OECD and due to its long history is also a well-known location for off shore establishments. This means that external entities such as banks are well familiar with the British Virgin Islands tax haven incorporation and registration documents and structures. The British Virgin Islands tax haven legal system is also based on English Common Law, making it well-known and familiar to both in-house legal and administrative teams as well as external corporate lawyers. However, the BVI is a completely independent juridical entity and their great dependence on the financial services industry means that any new laws made are created in consultation with the financial services sector.

The British Virgin Islands tax haven also has no double taxation agreements with any other countries except for Japan and Switzerland. This is an important feature as it means that the BVI is under no requirement to disclose or share any information about income, profits or other transactions of any BVI BC, directors, shareholders or beneficial owners. This is in part due to the fact that the BVI have kept a high standard of living and never needed to enter into such agreements in order to secure aid or access to goods and services from other countries.

Another important benefit in the British Virgin Islands tax haven is the fact that the US dollar is the official currency. This greatly simplifies reporting and management of business finances for an off-shore registered in BVI – whether it is a subsidiary of a company elsewhere or a company fully incorporated in the BVI. Further, as English is the official language an incorporation procedure in the British Virgin Islands will be conducted entirely in a familiar language without the need of costly translations of forms and/or official documents.

Who can benefit from company formation in the British Virgin Islands?

Almost any company or individual involved in international business can benefit from a BVI BC. This is illustrated by the fact that the large share of off-shore registrations are done in the British Virgin Islands tax haven. The British Virgin Islands tax haven’s beneficial and simple taxation and regulation structures allows for both efficient and cost-effective registration as well as ongoing administration.

An incorporation in the British Virgin Islands is especially beneficial for those who seek to have a highly confidential and private corporate set-up – perhaps in the context of potential interest in the corporate’s accounts by competitors or other agencies. The unique flexibility offered in incorporating BVI BCs mean that companies with highly specialised requirements as to their structuring from both an administrative and financial perspective can easily set up the type of corporate structure they require.

The fact that British Virgin Islands has good links to all other areas of the world both through transportation, shipping and air as well as financial services combined with a reputation for being a well-managed tax haven and recognition as one of the oldest and most well-known tax havens in the world means that it is especially suitable for those whom offer services and products in unstable or remote parts of the world and need a trusted base for their financial operation.

Incorporation in the BVI tax haven can also be of great benefit to high net worth individuals seeking to establish a home for their personal businesses as it allows them to flexibly manage both their current assets as well as potential future estate. The lack of inheritance taxes as well as the ability to nominate a small number or even only one director means that they can protect their family wealth both from excessive taxation as well as outside influence.

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Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.