Whether you operate a startup or a major corporation, establishing an offshore company can help your business grow and reach new markets.
Offshoring is largely concerned with saving money by relocating operations to a less expensive place abroad. This allows you to reinvest the money you’ve saved towards expanding your firm.
But which country is the best for establishing an offshore company? This article will provide an answer to that query.
BVI
The British Virgin Islands (BVI) are a group of about 60 Caribbean islands. It is well-known for being one of the most stable jurisdictions in terms of political and economic outlooks.
Furthermore, the BVI is one of the world’s most popular offshore jurisdictions.
According to a study, 40% of the world’s offshore enterprises choose the BVI to start their operation.
The size, functions, and attributes of business enterprises in the BVI vary. According to the BVI company registry, as of September 2021, there were over 372,911 Business Companies (BCs) on the Register. This has confirmed the country’s position as one of the main hubs for company formation.
Incorporation Requirement
The following are the requirements for forming a Business Company, often known as an International Business Company (IBC):
- Director – 1
- Shareholder – 1
- Company Secretary – 1
All three of the roles above can be assigned to a single person.
It is not required by law for the directors or shareholders to be of a specific country. It is making IBCs simple and easy to incorporate in the BVI.
Timeline for Registration
Although there is no set timeline, the incorporation process is fairly simple. As long as you’ve provided the paperwork, it should be an easy and smooth process. The following are the steps to incorporate in the British Virgin Islands:
- Step 1: Reserve your company name.
The first step is to reserve a company name with the BVI Registry. It must be a one-of-a-kind name, and the BVI Commercial Registry will do the company search. You will need to contact the BVI Commercial Registry.
- Step 2: Appoint a Registered Agent
When creating a business in the BVI, the BVI government requires you to have a registered BVI company registry agent.
- Step 3: Open a bank account
Before your firm can begin operations, you must first open a company bank account. This phase must be completed before the company documents are drafted.
Additionally, employers must register for social security payments.
- Step 4: Submit all needed paperwork.
At the same time, you will need to draft the company’s Articles of Association and the data of the registered agent and the business’s founders.
Once this paperwork is completed, it must be presented to the Companies Registry for approval. Once authorized, you should check to see whether you need to apply for any more permits before you can formally start your business. These licenses are available from the Financial Services Commission. Incorporation might take place in one or two days.
Law and Taxation
Business corporations are excluded from all requirements of the Income Tax Act (including dividends, interest, rents, royalties, compensation, and other amounts payable by the company to persons who are not persons resident in the BVI).
Capital gains realized on any shares, debt obligations, or other securities of a corporation by persons, not BVI residents, are likewise free from all requirements of the Income Tax Act.
Except for interest payable to or for the benefit of an individual resident in the EU, no estate, inheritance, succession, or gift tax, rate, duty, levy, or other charge is payable on any shares, debt obligations, or other securities of the corporation by persons who are not residents in the BVI.
Because the BVI has a “Territorial Tax System,” IBCs that incorporate in the BVI but operate outside the country pay no corporate taxes. Profits, dividends, interest, and royalties are exempt from certain businesses’ taxation.
Business operations on one of the BVI’s several islands or the hiring of local workers are examples of where IBCs are taxed. Fees for overseas company registration and licensing are sometimes much greater than fees for domestic incorporation.
Since the BVI does not levy withholding tax, it has Tax Information Exchange Agreements (TIEA) rather than Double Tax Agreements (DTA). A TIEA requires the BVI to share tax-related information demanded by other jurisdictions.
The BVI cannot sign or ratify international company tax agreements because it is a British territory. Thus, BVI conventions closely mirror UK norms, and the UK may arrange for BVI ratification of any convention.
One of the BVI’s key benefits as an offshore location for business formation is the ease of setting up an IBC.
Unlike many other financial centers that need directors and shareholders to be residents, new IBCs in the BVI require one director and one shareholder. Annual meetings can be held anywhere globally and are not required to be conducted in the BVI.
Financial Infrastructure
The British Virgin Islands is home to almost 400,000 firms with a combined asset value of $1.5 trillion. You’d never know it if you walked through Road Town, the capital of this Caribbean island. Hens and roosters compete openly with motorists on Main Street’s single narrow lane. Law firms that set up and serve thousands of offshore businesses occupy modest buildings adjacent to brilliantly painted wooden houses that contain cheap beauty salons and apparel stores with names like Goodfellas.
Few roads are marked, except a few twisted green street signs on Main Street. Because the BVI does not have a postal service, its businesses and 32,000 citizens utilize post office boxes as addresses, which is why one P.O. Box in Road Town might be the nominal home to thousands of firms from all over the world. Hundreds of lawyers, accountants, and company agents work from buildings strewn around the main island of Tortola.
The BVI has a solid track record with business information confidentiality. Although the beneficial owner of a company is not required to be publicly disclosed at this time (this may change in the future), the IBC’s registered agent must have access to that information. Nominee directors and nominee shareholders can also be used to hide the ultimate beneficial owner, as long as there is paperwork in place to indicate the real owner of the firm, such as a declaration of trust. Currently, the only public record is Director Register.
The BVI requires registered business agents to divulge firm ownership only upon legal request, such as a TIEA issued by another state.
The BVI also allows IBCs to issue bearer shares through an authorized custodian. Still, this option is rarely used nowadays due to Common Reporting Standards (CRS) and Automatic Exchange of Information (AEI) (AEOI).
The BVI also allows for privacy by allowing Trust Structures to hold the underlying IBC firm. The BVI VISTA Trust is a Private Trust Company (PTC) established to function as a Trustee for an IBC. This trust allows the owners to manage their assets and firm.
Cayman
The Cayman Islands is another standout option for establishing an offshore corporation in your consideration list.
The Cayman Islands are located in the western Caribbean Sea.
The country’s legal system is quite similar to that of the British Virgin Islands. This is because both are founded on English common law jurisdiction.
Cayman is a top offshore financial hub for global firms and an attractive place of domicile for offshore investment funds in terms of the business climate.
A Cayman Islands limited liability company (LLC) is one of the most frequent business formats in the country.
It can be used for a variety of applications. Investment funds, joint-venture businesses, private equity transactions, securitizations, and various other structures are examples.
Incorporation Requirement
- 1 Director
- 1 Shareholder
Directors do not need to live on the island.
- Timeline for registration
The Cayman Islands features a simple and easy-to-use online method for company formation. Depending on each step’s processing time, it takes 1-4 working days. The Registrar of Companies manages the process.
The registration fee varies depending on the business structure; more information may be found here.
- Reserving Your Company Name
Before choosing a company name, you must first decide on the type of structure that best suits your firm. The cayman company registry website has more information on the various structures.
After deciding on the business structure, you can reserve the name. You can include Chinese characters. You must check the General Registry to see if the name is accessible for your business.
- 2. Fill out and submit the incorporation form
The incorporation application requires a few documents.
Basic documents necessary are:
- The Memorandum of Association specifies the company’s name, address, purpose, and capital.
- Association Bylaws
- The company’s internal code of conduct
- CIMA Approval Required for Regulated Businesses
Law and Taxation
A corporation does not have to appoint auditors or file financial statements (annually or otherwise) with the Registrar or other governmental authority unless it is a regulated firm subject to particular licensing requirements.
Annual audited accounts must be filed with the Cayman Islands Monetary Authority by regulated institutions such as banks, insurance firms, trust companies, corporate managers, mutual fund administrators, and regulated mutual funds.
While there are no detailed accounting standards requirements in Cayman, a Cayman corporation must keep accurate records of account for income flows, spending, and assets and liabilities that provide a fair and factual picture of the firm’s operations and explain its transactions. The records do not have to be held in Cayman, but a company that stores its books of account outside the Cayman Islands is required to transmit information about its books of account to its registered office on an annual basis.
Financial Infrastructure
Cayman allows this type of international investment because it is recognized as a major global financial hub, effectively linking law-abiding users and producers of investment capital and financing from all over the world. Cayman as a jurisdiction has been the subject of years of due diligence by institutional investors, regulators, lenders, and other stakeholders. It is a tried, tested, and trusted jurisdiction, regarded as a transparent and compliant center of excellence by big respected international corporations such as banks and other financial institutions, as well as those seeking to raise investment capital. These users and providers are from several jurisdictions, each set of tax laws, legal frameworks, rules, and culture. Cayman provides them with a neutral platform to aggregate their financial funds. The Cayman Islands is regarded as a fair and dependable jurisdiction with a strong and trustworthy legal system and proper rules, with no apparent “home field” advantage for any investor, stakeholder, or investment manager.
Conclusion
As you can see, both the BVI and the Cayman Islands are excellent countries for offshore company formation and business expansion.
Choosing between the BVI and the Cayman Islands appears to be a difficult option. It is very dependent on your company’s aims and objectives, so give it some thought. BVI has a lower incorporation charge and a shorter registration process, making it ideal for SMEs with limited resources and a worry about information disclosure.
Cayman is better suited for people with large firms searching for investment opportunities in the fund sector or considering the proposed company as a future holding structure.
