Things You Should Know Before Incorporating in BVI & Caymans

Introduction: BVI vs Cayman Islands for Hong Kong Companies

Are you a Hong Kong company looking to expand your horizons? When it comes to setting up shop in an offshore location, the British Virgin Islands (BVI) and the Cayman Islands are two of the most popular choices. Both places offer amazing benefits like protecting your assets, favourable tax situations, and flexible legal frameworks. But how do you decide which one is right for you? It all comes down to what your business needs, what your investors expect, and what your long-term goals are. Let’s dive into a comparison of these two intriguing offshore destinations!

Overview of BVI and Cayman Islands Offshore Jurisdictions

The BVI and Cayman Islands are like the rock stars of offshore financial centers. They’re famous for being business-friendly and having tax-neutral environments. Companies love them because both places allow for flexibility, whether you’re setting up a holding company, an investment fund, or just about any other type of business. If you’re a Hong Kong company looking to go global, these jurisdictions might just be your best bet.

British Virgin Islands (BVI)

The British Virgin Islands (BVI) are a group of about 60 Caribbean islands. As A former British colony, until they were granted autonomy in 1967, it is well-known for being one of the most stable jurisdictions in terms of political and economic outlooks. BVI company law is extremely business-friendly and incorporated BVI companies are able to take advantage of the multitude of financial services available in the country. Also, 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 for BVI

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.

Law and Taxation for BVI

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.

It is not necessary for directors and shareholders of new IBCs in the BVI to be residents, which is one of the major advantages of BVI to become one of the most welcomed financial centers.. There is also no requirement that annual meetings be held in the BVI and they can be held anywhere worldwide.

Financial Infrastructure for BVI

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 agents to disclose firm ownership only upon legal request, such as a TIEA issued by another state. IBCs may also issue bearer shares through an authorized custodian in the BVI. However, this option is rarely used nowadays due to Common Reporting Standards (CRS) and Automatic Exchange of Information (AEI).

In the BVI, Trust Structures can hold the underlying IBC firm for privacy purposes. VISTA Trust is a Trustee for an International Business Company (IBC) established by a Private Trust Company (PTC). It allows the owners to manage their assets and business.

Timeline for Registration for BVI

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.

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 for Cayman

• 1 Director 
• 1 Shareholder

Directors do not need to live on the island.

Law and Taxation for Cayman

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 for Cayman

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.

Timeline for registration for Cayman

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, steps as followed:

1. 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

Key Considerations for Hong Kong Companies

Before you jump into choosing between the BVI and Cayman Islands, think about a few important factors. You’ll want to consider things like tax perks, how easy it is to set up your company, corporate governance rules, and the overall costs involved. By understanding the unique advantages and disadvantages of each location, you can make a smart choice that fits your business strategy.

Benefits of Using a BVI or Cayman Islands Holding Company

Ideal Business Types for BVI or Cayman Holding Companies

Both the BVI and the Cayman Islands are perfect for setting up holding companies, investment funds, or businesses involved in international trade or intellectual property management. If you’re a Hong Kong company, these spots can help you tap into global markets while keeping things running smoothly and confidentially.

Flexibility for Complex Share Capital Structures

One of the best things about both the BVI and Cayman Islands is their flexibility when it comes to structuring share capital. You can issue different classes of shares, which is a big plus if you’re dealing with complex investments like private equity or venture capital.

Benefits for Companies Seeking Investors and IPOs

If your sights are set on attracting investors or going public with an IPO, the Cayman Islands often take the cake. They’re well-known among international investors and regulatory bodies, making them a go-to choice for companies that plan to list on global stock exchanges, including the Hong Kong Stock Exchange (HKEX).

Comparative Analysis: BVI vs Cayman Islands Holding Companies

Corporate Structure and Flexibility

• BVI: If you’re looking for simplicity, the BVI is a great option. It has a straightforward and cost-effective corporate structure with minimal red tape. This makes it especially appealing for smaller businesses and startups that want to keep costs down.
• Cayman Islands: On the flip side, the Cayman Islands provide a more comprehensive legal and governance structure. This is ideal for larger companies with more complicated needs and regulatory demands.

Privacy and Confidentiality Features

• BVI: The BVI takes privacy seriously. They don’t require public disclosure of directors or shareholders, which means your business details stay under wraps.
• Cayman Islands: The Cayman Islands also value confidentiality, but they’ve added some compliance measures to keep up with international transparency standards.

Tax Benefits and Exemptions

• BVI: If you’re looking to minimize tax liabilities, the BVI is appealing. There are no income, capital gains, or withholding taxes, which means more money stays in your pocket.
• Cayman Islands: Just like the BVI, the Cayman Islands boast a tax-free environment. With no direct taxes, it’s a sweet deal for businesses aiming for tax efficiency.

Banking and Financial Services Infrastructure

• BVI: The BVI is developing its financial services industry, but it’s not quite on par with the Caymans.
• Cayman Islands: Known for its top-notch financial services infrastructure, the Cayman Islands are a favorite for hedge funds, private equity, and corporate banking services.

Economic Substance Requirements

Both the BVI and Cayman Islands have rules around economic substance to keep things compliant on a global level. These regulations require companies to show that they have real operations and management happening within the jurisdiction.

Key Legal Considerations for BVI and Cayman Islands Holding Companies

Stamp Duty on Transfer of Shares

• BVI: Great news! There’s no stamp duty on transferring shares in BVI companies, making it easier and cheaper for businesses that frequently change ownership.
• Cayman Islands: The Cayman Islands are also stamp-duty-free when it comes to share transfers, though some other fees might pop up depending on the situation.

Corporate Migration: Moving to Another Jurisdiction

Both the BVI and Cayman Islands allow for corporate migration. This means you can shift your company’s home base to a different jurisdiction without needing to dissolve and start fresh.

Repurchase of Shares and Capital Management

• BVI: BVI laws allow companies to repurchase their shares, giving you flexibility in managing your capital and ownership.
• Cayman Islands: Similarly, the Caymans let companies buy back shares, providing the same benefits for capital management.

Financial Assistance: Facilitating Transactions

In both locations, companies can offer financial assistance to help third parties buy their shares, which is handy for mergers and acquisitions.

Merger and Corporate Expansion Opportunities

Both the BVI and Cayman Islands provide straightforward legal processes for mergers and acquisitions, making them appealing for businesses looking to grow or reorganize.

BVI vs Cayman Islands: Which is Best for Your Company?

BVI: Flexibility and Cost-Effectiveness for Startups

For startups and smaller enterprises in Hong Kong, the BVI often shines as the better choice. With its low setup costs and relaxed regulations, it’s perfect for those wanting to keep things simple.

Cayman Islands: Robust Infrastructure for Large Enterprises

For larger companies or those planning to raise significant capital, the Cayman Islands offer a more developed legal and financial framework. This makes them ideal for businesses that need a bit more governance and investor confidence.

Compliance with Global Standards

Both the BVI and Cayman Islands comply with international standards on transparency, anti-money laundering (AML), and economic substance. This ensures that your Hong Kong business operates within a globally recognized legal framework.

Conclusion: Making the Right Offshore Jurisdiction Choice

Aligning Your Business Goals with the Best Jurisdiction

Choosing between the BVI and Cayman Islands really comes down to your business needs. If you want something straightforward and cost-effective, the BVI is a solid choice. But if you’re looking for a more robust framework to attract investors or grow your company, the Cayman Islands might be the way to go.

Ready to Take the Next Step?

Deciding where to set up your offshore company is a big deal, and we totally get it! At FastLane Group, we’re here to make this process as smooth as possible for you. Whether you’re drawn to the easygoing vibe of the British Virgin Islands or the strong infrastructure of the Cayman Islands, our friendly team is ready to help you find the right fit for your business needs.

Let’s figure this out together! Reach out to us today to chat about your options. We’ll help you find the best path for your company’s growth and success. Don’t leave your future up to chance—let’s partner up and make sure you’re making the smartest choice for your business!

FAQs: Economic Substance and Compliance

What is the Economic Substance Act in the BVI?
The Economic Substance Act requires some companies in the BVI to prove they have real operations and activities happening in the area.

Who Needs to Comply with BVI Economic Substance Requirements?
Companies in the BVI involved in relevant activities, like holding companies or managing intellectual property, need to meet these requirements.

What are Core Income-Generating Activities (CIGA)?
CIGA are the specific business activities that companies must carry out in the BVI to comply with economic substance rules, including management and decision-making tasks.

What are the Penalties for Non-Compliance with Economic Substance in the BVI?
Companies that don’t comply may face hefty fines or, in severe cases, could be removed from the BVI registry altogether.

What do you need to pay as the annual fee for BVI company?

The annual renewal fees consist of two parts: (A) mandatory fees, which cover the absolute minimum necessary to maintain the company in good standing, and (B) optional fees, for services that enhance and improve the offshore company, but are not compulsory.

For the (A) Part, It consists:

• Government fee
• Registered Office and Registered Agent fee
• Compliance fee

For the (B) Part, included:

• Third-party directorship services
• Nominee shareholders
• Third-party account signatory services
• Mail and fax forwarding, document remailing and call handling 
• Miscellaneous secretarial, legal and administrative services

What do you need to pay as the annual fee for the Caymans company?

The annual fee is due in January of every year after the year of incorporation for an exempted company in the Cayman Islands. The amount of the fee depends on the amount of the company’s registered capital (i.e. the capital authorized by its organizational documents).

*The amount may fluctuate slightly due to current exchange rate

A company which fails to pay the annual fee incurs the following penalties:

• 33,33% of the amount of annual fee if it is paid between 1 April and 30 June;
• 66,67% of the amount of annual fee if it is paid between 1 July and 30 September;
• 100% of the amount of annual fee if it is paid between 1 October and 31 December.