Set Up a BVI Company for the Worst of all Worlds
British Virgin Islands Companies (BVI) are common in English speaking jurisdictions.
They are easy to incorporate.
The BVI is seen as a safe, English speaking jurisdiction. It’s somewhat easier to set up bank accounts for BVI companies than it is for some other offshore entities.
However all of these factors mean that a BVI offshore company is a bad choice for most people.
The reason is that to be considered the acceptable face of the offshore world the BVI has had to cave in to every directive from the OECD and from tax hungry western governments insisting on full transparency in the offshore world.
The main reasons most want to set up an offshore structure is to avoid high rates of taxation and to protect their assets. A BVI Company doesn’t do either of these things well.
The mistake that most people make when setting up an offshore company is failing to plan how they’re going to use it.
If your main residence is in the UK or USA they have controlled foreign corporation (CFC) rules. See our article on CFC rules here.
The CFC rules mean that if you’re resident in high tax countries like the UK and the USA the tax authorities will consider any offshore companies being controlled from the high tax jurisdiction to be the same as local companies for tax purposes.
Your expensive new BVI company where you are the only director and shareholder will do nothing to help avoid taxes in your home country.
Even worse, it might single you out for extra attention from your local tax collector.
For asset protection purposes the story is grim too. The BVI will recognise foreign judgements in their courts.
All your creditors have to do is get a judgement against your company in London or Miami and they can go to the local court in the BVI and get it endorsed.
Your creditor is then free to start seizing the assets of your offshore company.
We already see that BVI Companies are useless for tax avoidance and for asset protection but what about privacy?
Keeping some secrecy over your affairs can be another reason for forming a BVI company.
In my view a BVI company also fails on this count. The BVI nowadays are committed to transparency and you will have to disclose the beneficial owner to the registered agent in the BVI.
Any information you disclose to the registered agent in the BVI is freely available to any government agency who asks for it under Mutual Legal Assistance Treaties (MLAs).
BVI Companies fail on the three main cornerstones of your offshore strategy. They fail on asset protection, they fail on tax avoidance for most people and they fail on protecting your privacy.
There are much better options available. Nevis companies offer strong asset protection. Panama companies are good for privacy. The fact that they speak a different language provides another shield. Frankly, even an onshore company, correctly structured, is a much better option than a BVI company. You’ll have a much easier time opening bank accounts and establishing other counter party relationships with a well structured Irish or Serbian company than with a BVI company.
I just can’t see why anybody would incorporate in the BVI nowadays unless they live there and want to start a local business. You should exercise extreme caution if somebody is trying to sell you a BVI company.
BVI companies may have worked well 25 years ago. Sadly that is no longer the case.
