Virgin Founder Uses a BVI Company as his Holding Company for his Worldwide Interests
Companies in the British Virgin Islands can be a useful vehicle to reduce taxes when they’re used correctly. They are used for holding company structure and to own individual assets. BVI companies are the most used offshore companies in the world. This is due to the English common law use in the BVI and the BVI being one of the first countries to offer offshore companies.
Richard Branson is a billionaire and one of the world’s most famous entrepreneurs. He owns the airline Virgin Atlantic and more recently his Virgin Galactic was one of the first companies to offer civilians flights to space. Branson has set up hundred of businesses over the years.
Branson’s Offshore Corporate Structure
Branson uses a British Virgin Islands company, Virgin Group Holdings, as his ultimate holding company. This company, in turn, owns shareholdings in dozens of onshore companies operating around the world.
Companies operating in high tax countries must, of course, pay tax on profits generated in those countries. However, the use of a BVI company as a holding company opens up many opportunities for Branson to reduce his tax liabilities in the jurisdictions where his companies operate.
The BVI companies are able to charge management fees and licensing fees to the onshore companies. In this way they can legitimately reduce their taxable profits. The BVI companies are also able to buy assets and lease them to the onshore companies. This could be office buildings, vehicles or anything required to carry on their business. Virgin’s BVI company can also lend money to the subsidiary companies and legitimately charge arrangement fees and interest on the loans.
How Branson Avoids CFC Rules
Most major high tax countries have controlled foreign corporation rules (CFC). CFC rules are there to discourage people in high tax jurisdictions from using offshore structures. The rules can be complex and vary by jurisdiction. The basic premise is that if an offshore company is owned by residents of the company where it’s operating the tax authorities will tax the company as if it’s a domestic company. Branson avoid this by having his main residence in the British Virgin Islands. He famously owns Necker Island, which is one of the British Virgin Islands.
Own Intellectual Property in Offshore Companies
Branson’s most profitable business is licensing his Virgin brand to others. He charges a license fee to other companies that use his brand. This is either a fixed amount or a percentage of revenues. Businesses like Virgin Money, Virgin Media and Virgin Galactic which Branson doesn’t own pay him millions in license fees every year to use his brand name. Businesses that he owns 100% will do the same.
When an offshore company owns your brand, a licensing fee can be charged to companies in high tax jurisdictions to lower the profits there and move them to low tax or zero tax jurisdictions like the BVI.
Tax Free Dividends
All dividends paid to companies in the British Virgin Islands are tax free too. So instead of being hit with a tax on dividends after paying corporation tax this money can be extracted tax free. Even if the company in the high tax country is likely to need working capital, it’s best to extract a high dividend tax free and lend it back if necessary. This is a key strategy that Branson has used to build his wealth.
Control Companies Without Being a Director
Branson has been careful to maintain the integrity of his structure. He doesn’t appear as an officer of the company in the public records of his UK businesses. Being a director in ahigh tax jurisdiction could cause problems for him and be a reason for the tax authorities to challenge his overseas residency.
Richard Branson operates a smart tax efficient corporate structure. This likely helped ensure that he had cash available to restructure his travel businesses when they suffered during the pandemic. It allows him to compound his wealth at a vastly superior rate than if he had to income tax and higher corporate taxes.
I think there are better options available in terms of privacy and asset protection than BVI companies. But, in this case, they work well for Branson.
This kind of structure is available to anyone who finds themselves paying high corporate and personal taxes.