Everything you have to know and three actions to take
The British Virgin Islands (“BVI”) have become the leading jurisdiction regarding the incorporation of offshore companies, in addition to its condition of a leading venue for constituting trusts, investment funds, and companies that provide various kinds of financial services such as investment consulting, broker-dealers, etc.
This is so because, even when the jurisdiction obviously does acknowledge the significance of the battle against money laundering and the financing of terrorism, it has always intended to protect, to the greatest extent possible, the rights to privacy and private property of individuals deciding to settle their business there and/or use legal means, constituted in that jurisdiction, to carry out such companies.
In other words: the BVI has always been sensitive to international pressures (mainly from the OECD and the G-20), while seeking to be compliant with new standards relative to transparency, and doing everything possible to facilitate international cooperation for fighting against the use of financial services for laundering assets, as well as other criminal behaviors, always defending the rights mentioned as much as possible. And we are confident that they will continue doing it.
WITHIN THIS CONTEXT AN ANNOUNCEMENT WAS MADE SOME DAYS AGO BY THE GOVERNMENT OF THE BVI INFORMING ABOUT CHANGES TO THE BUSINESS COMPANY ACT (“BCA”), THEIR LOCAL LAW ON BUSINESS COMPANIES. THE CHANGES REFERRED WILL APPLY AND WILL BECOME MANDATORY AS OF JANUARY 1st, 2023.
Although some of the changes we will explain here will imply a few additional burdens for clients, none of them will prove detrimental for the jurisdiction, which, once again, has shown serious wits for coordinating the various interests involved. In fact, the modifications will most likely aid in strengthening the jurisdiction’s reputation and reaffirming its condition as one of the most successful corporate domiciles worldwide, and by far the leader for Latin American users.
Considering the above, and since several of the changes relate to yearly obligations for this type of entity and are thus important for many of our clients, we have written this memo in order to explain the changes and provide instructions on what to do.
Again, nothing too serious is to be worried about, mostly considering the measures adopted by other jurisdictions that are BVI’s competitors.
THE MOST IMPORTANT CHANGES FOR CLIENTS WILL BE THE ONES BRIEFLY DESCRIBED BELOW
1- BUSINESS COMPANIES CONSTITUTED IN BVI, WILL HAVE TO SUBMIT YEARLY ACCOUNTING STATEMENTS TO THEIR REGISTRY AGENTS
In compliance with the current wording of the BCA, it is already an obligation for business companies incorporated in the BVI to keep financial records and underlying documents explanatory, at any given time and with reasonable accuracy, of their transactions, and they must be preserved for a minimum of five years’ time. Nevertheless, save for cases where a company operates a business subject to regulations by the BVI Financial Services Commission (“FSC”) (as in the case, for instance, of an investment fund or a funds manager), no requirements are in force regarding a specific format in which such records should be drawn or in relation to their auditing or submittal to any regulatory body or governmental authority
However, this will change as of January 1st, 2023, when BVI business companies will have the obligation to submit yearly returns containing specific financial information.
The obligation referred to, called “Annual Return”, implies submittal to the entity’s Registered Agent, in a specific format and within an established period.
The first submittal must be made in 2024 (meaning that the obligation has no retroactive effects) and it must take place within the nine months following the company’s calendar year-end (or the company’s fiscal year when it is not the same as the calendar year). The Registered Agent must keep it for at least five years. The requirement for companies to comply with their annual return will become one of the conditions for preserving their “good standing”.
Failing to submit an annual return could lead to fines of up to US$ 5,000.
Furthermore, upon the modifications made in its Business Companies Act, the BVI avoided the highly demanding requirements of, for example, Belize, Isle of Man, or Guernsey, where an annual tax return must be mandatorily submitted. The BVI have not gone along with St. Kits & Nevis either, where companies must submit a simple tax return with an indication as to whether activities take place in that jurisdiction or not. In the case of Panama, even when the submittal of accounting statements must be made to the Registered Agent as in the BVI, the regulations apply retroactively to the last five fiscal years.
WE MUST INSIST ON THE FACT THAT THE OPTION PROVIDED BY BVI IS SUPERIOR, SHOWING THE COMMITMENT ABOVE MENTIONED.
2- THE NAMES OF CURRENT DIRECTORS OF COMPANIES WILL BE AVAILABLE, THROUGH A SPECIFIC MECHANISM, TO ALL REGISTERED AGENTS LICENSED IN THE BVI
Similarly to the system applied in the Cayman Islands (another leading offshore jurisdiction in the Caribbean), the search for this information will be possible only by means of a specific system (called VIRGGIN in the case of the BVI, and accessed only by the registry agents).
Additionally, the only search possible will be by company name rather than by the name of directors. The Registry of Directors will also include the names of substitute directors if any.
ASPECTS TO BEAR IN MIND:
The full registry of a company’s directors (currently submitted to the registry agent in a private manner) will not be available for public access.
The information made available will not include birthdates, addresses or names of former directors.
Clients with BVI companies should remember to keep their registry of directors up to date so as to comply with the submittal requirements currently in force.
Other jurisdictions, such as Florida, have opted for publishing all information on the directors and/or authorized representatives of the company, and they continue to preserve that data even beyond the time of their substitution.
THE SIMPLEST WAY TO PROTECT THE PRIVACY OF A COMPANY’S DIRECTORS IS TO APPOINT CORPORATE DIRECTORS – ONE OF THE SERVICES WE HAVE ALREADY BEEN PROVIDING FOR SOME TIME TO NUMEROUS CLIENTS. IF YOU ARE INTERESTED, CONTACT US THROUGH YOUR USUAL CHANNELS WITH UNTITLED. ABSOLUTE PRIVACY WILL APPLY, IN RELATION TO THOSE WHO OCCUPIED DIRECTOR POSITIONS, FOR CASES OF APPOINTMENTS OF NEW DIRECTORS DATED UNTIL DECEMBER 31st 2023.
3- STRUCK-OFF & DISSOLUTION
“Struck-off” companies have always been a specific characteristic of the BVI business companies act. And in that sense, the current version of that law sets forth that, the Register of Corporate Affairs (the “Registrar”), which is the entity in charge of registering the jurisdiction’s business companies, may delete the name of a company from the Register of Business Companies for a number of reasons, most commonly the following:
when the company fails to pay for annual maintenance,
when the Company does not appoint a registered agent, and/or
when such registered agent resigns from office and is not substituted.
At present, when the name of a business company is struck-off from the Register, it is not actually deemed as automatically or immediately dissolved, for it continues to exist in a “suspended status” where neither Company, nor its directors, members, or any special auditor or liquidator may pursue any actions, or behave in any way related to that company’s assets. Such special status, which is a sort of legal limbo, is known under the name of “struck-off”.
The current BCA enables an extinguished company to be reinstated in a simple and quick manner, at any time (and as if it had never been stricken-off), upon the payment of the sums of money owed or with the remedy of any other non-compliance that has driven the company to such situation. However, if the entity in question does not proceed to such actions within a period of seven years, then it will be dissolved, and all its assets will be lost.
The liquidation regime presently in force will become effectively void on January 1st, 2023. Therefore, all companies whose names are deleted from the Register on that date, upon the reasons mentioned, will be dissolved by mere force of law on the date on which the Registrar publishes an annulment notice in the BVI Official Gazette (that is to say, almost immediately), meaning that the legal limbo will no longer be as of the year 2023.
Despite the existence of provisional clauses applicable to entities that have been, or are in the process of being, stricken-off prior to January 1st, 2023, it is crucial for all companies to verify whether they are up to date with their fees, and they must have a Registered Agent before the end of 2022.
4- INTRODUCTION OF REGISTER OF “PERSONS WITH SIGNIFICANT CONTROL
This is most certainly one of the central aspects of the amendment, considering the many rumors that have been circulating in that regard. In our opinion, this is another very good decision by the jurisdiction, for its in-depth analysis should bring reassurance to users.
Despite the fact that not every detail has been established, the amendment subject to analysis vaguely introduces the framework that might enable the BVI to define, at some point in the future, a public register of “persons with significant control” (basically ultimate beneficial owners, but with certain changes).
That is to say that, the changes made neither impose, nor create or turn the register of “persons with significant control” operational –as of January 1st, 2023, or even earlier, according to what has been said, perhaps with some evil intention by service providers from other jurisdictions. The changes rather authorize the creation of a register for future norms, specifying requirements as to format, management, data treatment, accessibility, and probable exceptions. Until such a time, the regulations added to the BCA will not suffice on their own to impose the register of ultimate beneficial owners of BVI business companies.
This Is consistent with the previous commitment by the BVI governmental authorities as to the introduction of some kind of register of actual beneficiaries, with public access, once such registers have become an international standard, which is clearly not the case now.
AT UNTITLED, WE HAVE BEEN WORKING ON THE SEARCH FOR ALTERNATIVES TO GUARANTEE OUR CLIENTS’ PRIVACY IF SUCH REGISTER IS EVENTUALLY CREATED, THOUGH WE ARE FAR FROM THAT INSTANCE YET.
What effects does this have on your company?
As of January 2023, new mandatory requirements will apply to your entity.|
- Prepare accounting information in a format still to be obtained, which will be made accessible in the near future.
- Analyze the possible convenience, or not, of changing directors.
- Be more keenly aware of yearly payments in order to avoid the company’s anticipated liquidation. And, in principle, nothing else than that.
As always, we will be at your disposal for any other doubts and/or questions regarding detailed information on the facts shared herein.