The British Virgin Islands (BVI) is a British overseas territory and is recognised across the globe as the premier jurisdiction for the registration of asset-holding companies. BVI corporate legislation is generally regarded as non-prescriptive, in that companies are able to devise the corporate structure and procedures applicable to their business, subject to certain limited statutory requirements. The corporate structure and procedures applicable to a BVI company are set out in the company's constitutional documents (i.e., its memorandum and articles of association), which govern the relationship between the company, its members and its directors. The ?exibilities inherent in such a system make BVI companies extremely attractive as part of asset-holding structures. Based on the attractiveness of BVI corporate vehicles for international businesses, asset holding and investments, there has been a steady increase in the use of BVI companies as holding and operating companies across the technology industry.
In August 2020, the BVI launched a fintech sandbox to encourage
technological innovation in financial services under a lighter
touch regulatory regime.
TECHNOLOGY AND INNOVATION
1. ARE THERE ANY "SANDBOX" OR OTHER REGULATORY NEUTRAL ZONES?
Yes. In August 2020, the BVI Financial Services Commission (FSC) launched a regulatory sandbox for companies whose proposed business model involves the development or implementation of a new system, mechanism, idea, method or other arrangement through the use of technology to create, enhance or promote a product or service with respect to the conduct or provision of a financial services business. The sandbox is designed to encourage technological innovation in financial services under a lighter touch regulatory regime.
An application for entry into the sandbox will consist principally of a business proposal to cover, among other things: (i) the proposed product or service, and how this encompasses innovation to improve accessibility, efficiency, effectiveness, security, quality in the provision of, or addresses shortcomings or opens up new opportunities in, financial services or the regulation thereof; (ii) the testing already carried out on the proposed product (with the expectation that testing, to the extent permitted by legislation, will be carried out prior to entry into the sandbox); (iii) details on the proposed customers (including estimated numbers, investment experience and geographical reach); (iv) an analysis of the risk profile of the proposals and the measures to be taken to manage those risks; (v) an indication of the resources (whether financial, technological, human or otherwise) available to the application; and (vi) a strategy for exiting the sandbox.
2. IS THERE A DIGITAL "INCUBATOR" OR HUB?
No special economic zones have currently been established within the BVI to benefit companies in the tech and innovation sector. Whilst the FSC has indicated that it is considering initiatives to encourage entities to operate physically within the BVI, any such project is unlikely to be viable without significant investment into infrastructure.
3. ARE THERE ANY BARRIERS TO ENTRY FOR FOREIGN TECHNOLOGY COMPANIES?
There are no significant barriers to entry for any companies who wish to be incorporated within the BVI, without any physical presence in the jurisdiction. Companies seeking to carry on business within the local market must apply for a local business licence issued by the BVI Trade Commission. Companies registered as a virtual asset service provider are exempt from the requirement to hold a business licence for providing virtual asset services within the BVI1. For further information, see section G below.
1. Note, a similar exemption applies to holders of an investment business licence under the Securities and Investment Business Act. For further information regarding investment business licences, see section B below.
4. HAVE TRADITIONAL INSTITUTIONS EMBRACED NEW TECHNOLOGIES?
To date, there has been no significant displacement of traditional financial service providers in the BVI. Nonetheless, as one of the largest international business and financial centres, it is expected that this will be an area of significant growth in the coming years, with recent drives from the BVI government for local entities to embrace FinTech solutions. In order to stay competitive, it is anticipated that traditional service providers will look at new innovations driven by technology-focused new entrants to the market. Similar to other offshore jurisdictions, one area of focus is on technology solutions that deliver performance improvements to existing paper-based checks and balances in areas such as customer due diligence, fraud detection and beyond. For larger financial institutions with substantial compliance overheads, the promise of FinTech to replace manual processes with technologies that are cheaper and more cost effective at achieving compliance and managing risk has yet to be realised but the possibilities are certainly being explored.
5. WHAT FORMS OF LEGAL ENTITY ARE AVAILABLE FOR TECHNOLOGY COMPANIES?
The most popular type of BVI entity has typically been the BVI business company. A business company is a corporate structure managed by its director(s), whereby the liability of interest holders for the company's debts or liabilities can be unlimited, limited by guarantee or, most commonly, limited by shares.
Whilst a common structure in other jurisdictions, the limited partnership has traditionally been underused in the BVI. Nonetheless, in January 2018, the BVI reinvented its legislation governing limited partnerships in a manner that now makes these an attractive and commercially flexible option for new corporate entities. A limited partnership is regarded in most jurisdictions as fiscally transparent and will consist of limited partners, who will not be liable for the debts of the partnership beyond the amounts they have agreed to contribute to the partnership, and at least one general partner, who will manage the business of the partnership and have unlimited liability for the debts of the partnership incurred whilst they are a general partner. Under the new legislation, a limited partnership can be established with or without legal personality.
BVI has also recently introduced the Micro Business Companies Act, 2017, which offers a new form of corporate entity, limited by shares, with lower set up and ongoing costs and fewer obligations. This form of entity is aimed at sole-traders and start-up enterprises. Among other restrictions, this option is not available for any business licensed under any financial services regulation and micro businesses are subject to limitations on, among other things, turnover, share issuances and transfers.
6. WHAT AML REQUIREMENTS APPLY TO BUSINESSES IN THE BVI?
International standards of anti-money laundering and counter-terrorist financing are set by the Financial Action Task Force (FATF). As a member of the Caribbean FATF, the BVI implements recommendations promulgated by the FATF.
All BVI-incorporated entities are subject to the BVI Proceeds of Criminal Conduct Act (as amended), which sets out the principal money laundering offences. Certain 'relevant' businesses (which would include, for instance, entities caught within BVI financial services regulations and other entities thought to be at a higher risk of money laundering) are further subject to the BVI Anti-Money Laundering Regulations (AML Regulations), and the Anti-Money Laundering and Terrorist Financing Code of Practice (AML Code), which prescribe certain identification, record keeping and internal control procedures for such businesses.
In August 2018, changes were made to the AML Code to permit entities in the BVI to digitally verify identities and receive electronic copies of documents instead of traditional "wet ink" paper-based processes. The amendments are further evidence of regulators in the BVI embracing the blockchain revolution and will set a new standard for AML verification in the region.
Following amendments to the AML Code which took effect from 1 December 2022, certain virtual asset services will satisfy the definition of 'relevant business' under the AML Code which may result in certain virtual asset service providers being treated as a 'relevant person' for the purposes of the AML Regulations. Such entities which satisfy the definition of 'relevant person' and 'relevant business' will be subjected to a reduced threshold of $1,000 for a one-off transaction.
7. ARE ELECTRONIC SIGNATURES VALID?
Under the BVI Electronic Transactions Act, 2001, the legal requirement for a 'wet' signature is satisfied by an electronic signature if:
- the electronic signature adequately identifies the signatory;
- the electronic record adequately indicates (i) the signatory's approval of the information to which the signature relates, or (ii) for the witnessing of a signature or seal, that the signature or seal has been witnessed;
- the electronic signature is as reliable as is appropriate given the purpose for which and circumstances in which the signature is required; and
- the recipient or counterpart of the electronic signature consents to receiving the electronic signature and the electronic signature of each witness (if any).
8. HOW IS PERSONAL DATA PROTECTED?
The BVI Data Protection Act (DPA) came into full force on 9 July, 2021. Drafted around a set of EU-style data protection principles to which data controllers must adhere, personal data must be collected in a fair and transparent manner and only be used and disclosed for purposes properly understood and agreed to by data subjects. Any personal data collected must be adequate, kept up-to-date and should not be retained for longer than is necessary to fulfil the collection purposes.
Importantly, the DPA provides a standard framework for both public and private entities in the management of the personal data they use. Internationally active organisations will find many similarities between the DPA and data protection laws of other jurisdictions where they are active but there are some key differences. The DPA provides a lighter touch approach to data protection regulation than other jurisdictions in the region.
BVI courts recognise and subscribe to the common law duties of confidentiality and privacy, and English common law is persuasive, although not binding, in the BVI. As a result, all entities that manage and maintain personal data will be subject to the common law duty of confidentiality described above.
The duty of confidentiality has also been codified in various aspects of BVI legislation, in particular the Banks and Trust Companies Act, 1990 (as amended), which regulates all banking and trust/fiduciary-related activities in the BVI. Licensed operators of such businesses, regulated by the FSC, are under a general obligation to maintain the confidentiality of a client's personal data unless the individual has granted specific permission for its release or disclosure to third parties. This obligation may be limited where the licensee is required to deal with anti-money laundering and similar legislation.
For corporate entities, the Registrar of Corporate Affairs is currently permitted to release only limited information regarding the particulars of any registered company, which would include the name, type of company, date of registration/incorporation, names of directors, registered office address and status of the company. Details of individual shareholders and officers of the company are not available for public inspection and shall only be made available by the Registrar to competent authorities (for tax compliance or other law enforcement purposes) on written request.
9. ARE SMART CONTRACTS ENFORCEABLE IN THE BRITISH VIRGIN ISLANDS?
There are no laws, regulations or BVI judicial decisions addressing the enforceability of smart contracts.
Provided that the defining features of a contract are present – offer, acceptance, the intention to be legally bound and consideration – smart contracts are capable of satisfying the requirements for a binding contract and are enforceable by the courts.
Arguably the role of contractual interpretation for smart contracts written wholly in computer code may be limited as the language (in this case code) will typically be clear and unambiguous, although issues may arise where the code is ill-defined or corrupted.
With the regard to the developer liability, although the point remains untested in BVI, our view is that developers of blockchain protocols are not fiduciaries. The role played by protocol developers in the governance of public blockchain networks does not pose the risks of abuse that characterise traditional legal fiduciaries and therefore does not require the imposition of fiduciary duties.
It should also be borne in mind that the risk of developer abuse
in a publicly governed blockchain is minimal. By its nature, each
update to the open-sourced code is analysed and tested by other
network participants who have a significant economic interest and
the technical abilities to audit the code before implementing
1. HOW ARE VIRTUAL ASSETS REGULATED?
The Virtual Asset Service Providers Act 2022 (VASP Act), came into force on 1 February 2023. Importantly, the VASP Act derives from recommendations made by the FATF in 2019 and updated in 2021. As the BVI is committed to meeting international standards with regard to anti-money laundering and countering the financing of terrorism (AML/CFT) measures, the VASP Act provides for the regulation of virtual asset service providers and for the registration and licensing of persons who are providing virtual asset services.
The primary piece of legislation regarding securities and investment businesses in the BVI is the Securities Investment Business Act, 2010 (as amended) (SIBA). SIBA provides for the licensing and control of persons engaged in investment businesses in or from within the BVI.
SIBA sets out an exhaustive list of financial instruments that constitute 'investments'. Cryptographic tokens are not expressly included in that list. However, whether the characteristics of a token or other digital asset could nevertheless render it an investment under SIBA is a fact-specific enquiry dependent on the unique functionalities exhibited by the token or asset. If a token qualifies as an investment, the issuer of the token will be either dealing in, or arranging deals in, securities, although the issuer's activities may fall within a list of excluded activities or safe harbours under SIBA.
A person who is not carrying on an investment business under SIBA may still bring themselves within the licensing requirements where they hold themselves out as carrying out an investment business. Care should be taken that, among other things, no words are used, in any language, which connote a securities investment business in the description or title of the business in question and that no representation is made in any document or in any other manner that a person is carrying on investment business.
The issuer of a token in the BVI will also be subject to the general criminal laws on fraud and common law governing intentional or negligent misrepresentation.
2. ARE VIRTUAL ASSETS SUBJECT TO THE LOCAL AML REGIME?
Following amendments to the AML Code which took effect from 1 December 2022, certain virtual asset services will satisfy the definition of 'relevant business' which may result in certain virtual asset service providers being treated as a 'relevant person' for the purposes of the AML Code. Such entities which satisfy the definition of 'relevant person' and 'relevant business' will be subjected to a reduced threshold of $1,000 for a one-off transaction.
Recent changes to the AML Code permit digital verification of identities and the receipt of electronic copies of documents instead of traditional "wet ink" paper-based processes. This change is particularly important in the context of an ICO where the number of token purchasers could run into the many thousands.
3. IS A PHYSICAL PRESENCE REQUIRED IN THE BVI TO CONDUCT A VIRTUAL ASSET SALE?
4. ARE GAMBLING PLATFORMS PERMITTED?
The Gaming and Betting Control Act 2020 (Gaming Act), came into force on 9 July 2021. The Gaming Act legalises and regulates certain gaming and gambling activities which were previously banned in the BVI. The Gaming Act provides that a person conducting any of the following activities must have a licence from the Gaming and Betting Control Commission: (i) owning or operating a gaming machine location for the purpose of conducting gaming; (ii) performing a specific function in connection with a licensed betting or gaming activity or in relation to a licensed premise; (iii) manufacturing, fabricating, assembling, programming, modifying or repairing equipment; (iv) selling, importing, supplying or distributing a gaming machine or associated equipment; (v) leasing gaming machines to an owner or operator of a gaming machine location in exchange for remuneration based on earnings in profit from a gaming operation; (vi) manufacturing, selling, supplying, installing and adapting gaming software; (vii) providing facilities for betting of any kind; and (viii) providing or utilising premises for the purpose of gaming or betting. While the Gaming Act does not appear to have been intended to have extra-territorial effect, in the absence of specific territorial limits the Gaming Act could be applied to any BVI company engaged in gaming activities outside of the BVI.
5. CAN DECENTRALISED FINANCE (DEFI) PRODUCTS BE LAUNCHED FROM THE BVI?
Yes. To date, the use of DeFi protocols is not regulated, subject to the financial business and virtual asset services licensing regimes discussed elsewhere in this Chapter, there is no general restriction on decentralised finance products being launched from the BVI.
6. ARE NON-FUNGIBLE TOKENS REGULATED IN THE BRITISH VIRGIN ISLANDS?
We have seen an increased interest around non-fungible tokens (NFTs) recently. It is clear that NFTs could open new revenue streams and are a source of earning potential for brands and many others in the "creator" economy. We expect interest in using the British Virgin Islands as a launch pad for such opportunities will continue to grow as the regulatory landscape becomes clearer. There is no separate legislation relating to the regulation of NFTs, however the characteristics of NFTs should be considered in relation to the virtual asset services regime.
7. CAN DECENTRALISED AUTONOMOUS ORGANISATIONS (DAOS) BE
ESTABLISHED IN THE BRITISH VIRGIN ISLANDS?
VIRTUAL ASSET SERVICE PROVIDERS (VASPS)
1. CAN A CRYPTO-TO-CRYPTO EXCHANGE BE ESTABLISHED?
Yes. Where traded tokens or cryptocurrencies constitute 'virtual assets' for the purposes of the VASP Act, the exchange will need to be licensed under the VASP Act as a virtual assets exchange. Virtual assets exchange service providers have additional obligation over and above other virtual asset service providers pursuant to the VASP Act. Where traded tokens or cryptocurrencies constitute 'investments' for the purposes of SIBA (see question 1 of Section B), the exchange will need to be licensed under SIBA as an investment business. Operators of crypto-to-crypto exchanges may wish to ensure that issuers provide opinions as to the status of their token or cryptocurrency under SIBA prior to admission to the exchange.
Currency exchanges operated by BVI-incorporated entities (whether or not operated from within the territory) are governed by the BVI Financing and Money Services Act, 2009 (FMSA). Whilst no relevant definitions are set out within FMSA, the FSC have indicated that tokens or cryptocurrency will not fall within the scope of 'money' or 'currency' within FMSA, and therefore exchanges between various cryptocurrencies and tokens will not constitute a 'currency exchange' and thus will not require licensing under FMSA.
2. CAN A CRYPTO-TO-FIAT EXCHANGE BE ESTABLISHED?
Yes. However, to the extent that cryptocurrencies can be both purchased and redeemed or exchanged for fiat currencies, this may fall within either the currency exchange or money transmission provisions of FMSA and therefore require licensing under such Act.
Where traded tokens or cryptocurrencies constitute 'virtual assets' for the purposes of the VASP Act, the exchange will need to be licensed under the VASP Act as a virtual assets exchange.
3. IS A MONEY SERVICES LICENCE REQUIRED FOR CRYPTO-TO-FIAT CONVERSION THROUGH AN OTC DESK?
No, but such a provider (if a BVI entity) would likely be considered a virtual assets service provider and would need to register under the VASP Act.
4. CAN A VIRTUAL ASSET PROJECT ESTABLISH A LOCAL BANK ACCOUNT?
Local banks have become more open to the establishment of a local bank account for virtual asset projects however the process remains difficult. Whilst local banks have, traditionally, been reluctant to open accounts for BVI-incorporated entities, there are a small number of banks who may consider establishing a bank account on a case by case basis.
It is typical for BVI entities to establish bank accounts elsewhere, whether in other overseas jurisdictions or onshore utilising existing group banking relationships.
5. CAN YOU REGISTER AS A VIRTUAL ASSET CUSTODIAN IN THE BVI?
Yes. Under the VASP Act, a virtual asset custody service is defined as the acceptance for safekeeping of virtual assets or instruments that enable a VASP to exercise control over the virtual assets or instruments. This definition captures persons that hold or have access to, for or on behalf of other persons, the private keys or similar attributes that can control a virtual asset. Where the custodied tokens, cryptocurrencies or assets constitute 'virtual assets' for the purposes of the VASP Act, the company will need to be licensed under the VASP Act as a virtual assets custody service provider. Virtual assets custody service providers have additional obligation over and above other virtual asset service providers pursuant to the VASP Act.
6. ARE VASPS SUBJECT TO THE LOCAL AML REGIME?
As with all entities incorporated in the BVI, a VASP would need to ensure that it does not commit any offence under the BVI Proceeds of Criminal Conduct Act.
BVI's 'enhanced' AML legislation (being the AML Regulations and the AML Code) only applies to any business conducting a 'relevant' business. As noted above, following amendments to the AML Code which took effect from 1 December 2022, certain virtual asset services will satisfy the definition of 'relevant business' which may result in certain virtual asset service providers being treated as a 'relevant person' for the purposes of the AML Code. Such entities which satisfy the definition of 'relevant person' and 'relevant business' will be subjected to a reduced threshold of $1,000 for a one-off transaction.
7. HOW DO EXCHANGE, ON-RAMPS AND OFF-RAMPS OPERATE?
To the extent that cryptocurrencies can be both purchased with, and redeemed for, fiat currencies via a BVI entity, such transmission is likely to fall within the VASP Act. Whilst FMSA does not capture the transmission or lending of virtual currencies or the exchange of virtual currencies, it does capture the transmission of money in any form including electronic money and may therefore require a licence.
8. ARE VIRTUAL ASSETS CONSIDERED "PROPERTY"?
The point is untested in the BVI. English law is persuasive but is not binding on BVI courts and therefore it is likely that the BVI courts would look to existing English court rulings and the findings of the UK Jurisdiction Taskforce on the legal status of digital assets. Digital assets would therefore likely be treated as property in the BVI and, consequently, could be the subject of a fixed or floating charge. Charge holders should seek to take custody of digital keys to ensure the effectiveness of any security taken.
9. TAKING SECURITY OVER VIRTUAL ASSETS
The form of security will depend on the manner that the virtual assets are held and what characteristics the virtual assets have. Where tokens are held through a custodian or other agent, security could be taken over the rights that the obligor has against that custodian or agent. An assignment of rights would likely be governed by the same governing law as the custody or agency agreement and an opinion should be sought as to the enforceability of the assignment of rights agreement to ensure its enforceability in the BVI courts.
Where tokens represent underlying shares of a BVI company, security should to be taken in the British Virgin Islands in the usual way that security is taken over the equity interests of company, typically by way of an equitable share mortgage or charge.
In relation to security granted by a BVI company, companies are required to maintain a register of mortgages and charges at their registered office in the British Virgin Islands and a chargee would typically require registration of the security in the public register to preserve priority of the charge. An equitable share mortgage over shares in a BVI company should be noted in the internal register of members held at the registered office and a copy of the annotated register of members may be filed on the public register pursuant to the BVI Business Companies Act.
10. MINING AND STAKING
There are currently no restrictions on the use of mining. The BVI has high electricity costs and therefore mining within the BVI, particularly on a large-scale, is unlikely to be efficient.
There are currently no restrictions on the staking of
1. ARE TOKENISED FUNDS REGULATED IN THE BVI?
In a tokenised fund, an investor's interest is represented by a cryptographic token, as opposed to shares or other interests or units offered to investors in a more traditional fund structure.
There is no separate framework for the regulation of tokenised funds in the BVI.
The primary piece of legislation in the BVI regulating funds is SIBA, which is supplemented by regulations including the Mutual Fund Regulations, the Financial Services Commission (Securities and Investment Business Fees) Regulations 2010 and the Securities and Investment Business (Incubator and Approved Funds) Regulations 2015, and is regulated by the FSC. The legislation only captures open-ended investment funds, being those which collect and pool investor funds and issue fund interests (such as tokens in a tokenised fund structure) that entitle the holder to receive on demand, or within a specified period thereafter, an amount calculated by reference to the net asset value of the fund. Such open-ended funds are categorised in the BVI as either public funds, professional funds (with only professional investors with a minimum initial investment), private funds (with no more than fifty investors), recognised foreign funds (being open-ended funds incorporated outside the BVI but who wish to offer inside the BVI), approved funds (aimed at family offices) or incubator funds (for start-up funds). Such open-ended funds must be approved or recognised by the FSC.
Closed-ended funds, being funds where the investor or token holder is not entitled to redeem on demand his interests at a sum calculated with reference to the fund's net asset value, were not traditionally caught by fund regulations within the BVI. The BVI enacted the SIBA Amendment Act and the Private Investment Funds Regulations, 2019 (the PIF Regulations), which came into force on 31 December 2019 and which legislation introduces a new regulatory regime for close-ended funds. Such closed-ended Private Investment Funds are required to apply for recognition as a private investment fund within 14 days of commencing business. The fund's constitutional documents must specify that either (i) the fund is not authorised to have more than 50 investors; or (ii) an invitation to subscribe for or purchase, fund interests issued by the fund must be made on a private basis only; or (iii) the fund interest shall be issued only to professional investors, with an initial investment of each professional investor, other than an exempted investor, not being less than US$100,000.
2. WHAT SERVICE PROVIDERS ARE REQUIRED FOR A TOKENISED FUND?
Public, private and professional funds must each appoint an administrator and, subject to exemptions available to private and professional funds on application (and public funds, in relation to custodian), an investment manager, custodian and auditor. Approved funds require an administrator.
All open-ended funds are required to appoint an authorised representative (who will act as the intermediary between the fund and the FSC).
All closed-ended funds are required to have, at all times, 'appointed persons'. Such 'appointed persons' are responsible for undertaking (i) the management of fund property; (ii) the valuation of fund property; and (iii) the safekeeping of fund property.
All corporate entities incorporated in the BVI are required to maintain both a registered agent and a registered office within the BVI. In almost all circumstances, the registered office of the entity will be that of the registered agent, who will be one of a number of registered agents operating and licensed in the BVI.
In addition, a tokenised fund is likely to appoint a smart contract auditor and/or a third-party KYC service provider to assist with the KYC process for subscribers. A tokenised fund may also opt to appoint trading counterparties, a distributor and/or placement agents.
All public, private (open-ended), professional and private investment (closed-ended) funds must submit audited financial statements to the FSC within six months of their financial year end.
3. WHAT AML/KYC IS REQUIRED FOR TOKEN HOLDERS?
As with all entities incorporated in the BVI, a BVI tokenised fund would need to ensure it does not commit any offence under the BVI Proceeds of Criminal Conduct Act, 1997 (as amended).
BVI's 'enhanced' AML legislation (being the BVI Anti-Money Laundering Regulations, 2008 and the AML Code) applies to any business conducting a "relevant' business, which would include regulated open-ended funds.
Accordingly, each regulated tokenised fund will need to receive, and, in order to protect itself under applicable proceeds of criminal conduct legislation, each unregulated fund should consider receiving, KYC documentation on each subscriber and every transferee of the token. Each transferee will also need to agree to the subscription terms for the tokenised fund.
Recent changes to the Anti-Money Laundering and Terrorist Financing Code of Practice 2008 permit digital verification of identities and the receipt of electronic copies of documents instead of traditional "wet ink" paper-based processes.
4. IS THERE A MINIMUM INVESTMENT AMOUNT?
For professional funds, the FSC requires that the initial minimum subscription per investor must be at least US$100,000 (or the currency equivalent thereof). For incubator funds, the initial minimum investment must be at least US$20,000 (or the currency equivalent thereof).
For all other types of regulated open-ended funds there is no minimum investment amount.
For all closed-ended funds, the fund's constitutional documents must specify that either (i) the fund is not authorised to have more than 50 investors; or (ii) an invitation to subscribe for or purchase, fund interests issued by the fund must be made on a private basis only; or (iii) the fund interest shall be issued only to professional investors, with an initial investment of each professional investor, other than an exempted investor, not being less than US$100,000.
5. CAN TOKEN HOLDERS REDEEM THEIR TOKENS OR TRANSFER THE TOKENS THEY HOLD?
Depending on the redemption rights set out in the terms of the fund, token holders may redeem their tokens for cash and/or payments in-kind (or a combination thereof). Where the amount received on redemption is calculated with reference to the net asset value of the fund, the fund will be regulated in the BVI as an open-ended investment fund.
Alternatively, or in addition, the terms of the fund may permit holders to transfer their tokens (usually with the written consent of the board). The attraction for holders of these tokens is that they also have the potential to offer liquidity through an exchange or through a peer-to-peer transfer. Where the only option for liquidity is to sell interests on a secondary market (whether on an exchange or peer-to-peer) rather than redemption by the fund, the fund will also normally benefit from being an unregulated, closed-ended fund.
In order to satisfy its requirements under AML laws, the fund will need to ensure that any potential transferee (whether pursuant to an exchange or peer-to-peer):
- provides sufficient KYC documentation to comply with BVI's AML laws, to the extent these are triggered by the investment amount;
- where regulated as a professional, private or incubator open-ended fund or certain private investment funds, provides sufficient information to demonstrate that they are an eligible investor; and
- agrees to the terms for the fund.
1. DOES THE BRITISH VIRGIN ISLANDS IMPOSE ECONOMIC SUBSTANCE REQUIREMENTS?
Yes. The Economic Substance (Companies and Limited Partnerships) Act, 2018 (as amended, the ES Law) was brought into force on 1 January 2019 and has been supplemented by the Rules on Economic Substance in the Virgin Islands which, together with its explanatory notes, set out guidance on how the requirements of the ES Law may be met and interpreted.
The ES Law requires entities carrying on 'relevant activities' to show that they have an element of physical substance in the BVI in relation to certain 'core income generating activities'. These relevant activities consist of:
- banking businesses;
- insurance businesses;
- fund management businesses;
- financing and leasing businesses;
- headquarters businesses;
- shipping businesses;
- distribution and service centre businesses;
- holding company businesses (which are subject to fewer requirements); and
- intellectual property businesses (which, in certain circumstances are subject to greater requirements).
Entities falling within the above businesses, or who are unsure if they would fall within the above businesses, should contact Appleby for guidance and for the steps that can be taken to establish economic substance.
2. ARE THERE ANY REPORTING REQUIREMENTS IN CONNECTION WITH ECONOMIC SUBSTANCE?
Yes. All entities, regardless of whether they are conducting a 'relevant activity' are required to make an economic substance filing. Filings are made through an entity's registered agent, and are due within 6 months of the end of the year to which they relate. For all entities incorporated or formed prior to 1 January 2019, the first economic substance filing was due by the end of 2020, unless a shorter initial reporting period has been agreed with the BVI International Tax Authority (the ITA). For entities incorporated or formed on or after 1 January 2019, the first filing (which will relate to the first year of operation), will be due 18 months after incorporation, unless a shorter initial reporting period has been agreed with the ITA.
3. WHAT PENALTY PROVISIONS APPLY IN THE CASE OF NON-COMPLIANCE?
Non-compliance with the ES Law may result in an initial warning and fine. Penalties shall be subject to a minimum of US$5,000 and a maximum of US$20,000 (or US$50,000 for those IP businesses which are deemed higher risk).
Failure to act upon recommendations in a warning may result in a further penalty and a referral of the matter to the FSC. Such further penalties shall be subject to a minimum of US$10,000 and a maximum of US$200,000 (or US$400,000 for those IP businesses which are deemed higher risk).
Following the second warning (or at any point following the
first warning, if the ITA determines that there is no realistic
possibility of the entity complying with the ES Law), the FSC may
strike the entity off the register. Where an entity is struck off,
the entity and its directors, partners, members or liquidators may
not carry on any business or otherwise deal with its assets.
The BVI is a common law jurisdiction that has a robust IP protection regime.
The main IP rights available under BVI law to protect branding are registered trade and service marks. FinTech companies will generally own a combination of an established brand or trade name, which can include logos or icons, protected as registered trademarks in the British Virgin Islands.
Copyright protection in the BVI is based on the United Kingdom's Copyright Act of 1956. The BVI does not have its own copyright registry.
Open-source code is not separately regulated or protected in the BVI.
2. TRADE MARKS
On 1 September 2015, the British Virgin Islands' Trademarks Act 2013 and Trademarks Rules 2015 came into effect, which allow the direct registration of service marks without an existing UK registration. Another significant aspect of the legislation sees the BVI align its classification system with the Nice Classification.
The Patents Act (Chapter 155), provides for local patent applications and applications to extend rights under a UK registration. In practice, the BVI Registrar of Trade Marks, Patents and Copyright will only re-register UK registered patents. A UK-based patent registration is valid for the same period as specified on the underlying UK registration on which it is based.
4. TRADE SECRETS
Currently, rules on confidentiality fall back on English common law principles. Where trade secrets have commercial value, a duty of confidentiality will be imposed in three primary circumstances:
- where there is an agreement between the parties that information should be kept confidential;
- where the relationship between the parties is one that the law imposes a duty of confidentiality with respect to; and
- where the nature and circumstances of the person obtaining the
information make it such that the law will require that they keep
the information confidential.
DOING BUSINESS IN THE BVI
Whilst BVI is an attractive jurisdiction for international business, holding and investment companies whose physical operations are located elsewhere, the BVI currently presents challenges for entities wishing to establish a physical presence within the BVI.
1. TRADE LICENCES
In order to conduct business within the BVI, entities must obtain a business licence under the Business Licensing Act 2022 or benefit from an exemption. Business licence applications are typically processed in six to eight weeks from the date of application, but can take significantly longer if the proposed entity is not wholly or partially owned by BVI Belongers.1 Companies registered as a VASP are exempt from the requirement to hold a business licence for providing virtual asset services within the BVI.2
No trade licence is required for companies who wish to be incorporated within the BVI, without any physical presence or operations within the jurisdiction.
1. A 'Belonger' is a person who, under the BVI constitution, is deemed to belong to the BVI by virtue of birth and ancestry, or is otherwise naturalised in the BVI.
2. Note, a similar exemption applies to holders of an investment business licence under SIBA.
2. TAX MATTERS
The BVI is a tax-neutral jurisdiction with zero income, corporate or capital gains taxes for any entities incorporated within the BVI. Furthermore, there is no withholding tax on interest or distributions paid by BVI entities to investors, and investors will not otherwise be subject to income or capital gains tax within the BVI. Assuming the company does not hold, directly or indirectly, any real property in the BVI, no stamp duties or similar documentary taxes are imposed by or in the BVI.
If an entity employs anyone within the BVI, such person will be subject to payroll tax of between 10 and 14 per cent (8 per cent of which is paid by the employee, and the remainder paid by the employer) on remuneration (including severance pay, bonuses and money paid under profit-sharing scheme) for services rendered wholly or mainly in the BVI. Contributions will also be required for social security and national health insurance.
3. VISAS AND WORK PERMITS
Any persons travelling to the BVI for business may request to stay for up to seven days at a time, without the need to obtain a temporary work permit. This exemption does not apply to foreign-admitted lawyers, not admitted in the BVI. For longer visits, or where the exemption does not apply, a temporary work permit may be required. Temporary work permits can be issued for up to a three-month period.
In addition to the permit, visas may be required depending on the residency of the visitor. No visa is currently required for visitors from, among other places, the United States, the United Kingdom, Canada and most EU member states.
For any expatriate who wishes to engage in more long-term employment within the BVI (whether self-employed, paid or unpaid, full-time or part-time), work permits must be obtained from the BVI Labour Department. Employers must give preference to any BVI Belonger who has applied and is qualified for the position. Work permits are typically issued for a one-year period.
4. TRANSPORTATION LINKS
A direct flight route between the BVI and Miami is due to start in June 2023. Alternatively, passengers must transit through hubs such as Puerto Rico, or take a ferry to the nearby US Virgin Islands for transit onwards to mainland United States.
There is no direct route currently operating, or anticipated, between the BVI and the United Kingdom.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.