Tax aspects of Israel – British Virgin Islands

Tax aspects of Israel - British Virgin Islands

Tax aspects of Israel – British Virgin Islands

British Virgin Islands – Background

The British Virgin Islands are a group of over 50 islands (15 inhabited) in the Virgin Islands archipelago in the Caribbean Sea in the western Atlantic Ocean which belong to Great Britain. The rest of the islands in the archipelago belong to the United States. The main islands are Tortola, Virgin Gorda, Anegada and Joost van Dyke. As a British territory, the British Virgin Islands are under the rule of the British Crown represented by a governor. England is responsible for the islands’ foreign relations and security. Internal affairs are managed by the elected local parliament. The population of the islands is 30,000. The capital city Road Town lies off the coast of the largest island, Tortola. The official language in the Virgin Islands is English. The official currency is the US dollar (USD).

British Virgin Islands economy

The two pillars of the economy of the Virgin Islands, one of the most prosperous economies in the Caribbean, are financial services, primarily tax planning, offshore companies (tax havens) and the tourism industry. It is the tourism industry that employs most of the country’s citizens, and unlike many countries, the tourism infrastructure in the islands is mostly locally owned. Tourism is responsible for almost half of the Virgin Islands’ revenue, while licensing fees for international companies is the other half. The Virgin Islands are considered one of the largest offshore financial centers in the world.

The tax regime in the British Virgin Islands

The British Virgin Islands Business Companies Act (BVI BC Act) of 2004, states that all local companies incorporated in the British Virgin Islands are completely exempt from paying taxes. International Business Companies (IBC) registered in the Virgin Islands are also automatically included in the Business Companies Law and are entitled to the same conditions.

Corporate tax: 0%.

Capital gains tax: 0%.

Foreign branch tax: 0%.

Withholding tax: 0%.

OFFSHORE companies in the British Virgin Islands

Most of the foreigners who establish offshore companies in the Virgin Islands for trade and investment purposes establish international business companies (IBC).

The conditions for establishing a company in the British Virgin Islands:

  • The company name and all incorporation documents must be in English.
  • The address of a rented office must be presented in the corporate documents.
  • It is mandatory to appoint one director (individual or company), there is no obligation for a local director.
  • Mandatory registration of at least one shareholder (individual or company).
  • There is an obligation to prepare annual financial statements, but there is no obligation to submit them.

Restrictions on foreign companies in the Virgin Islands:

  • Foreign companies are not allowed to engage in banking, insurance, and trust, unless they have incorporated under: “Bank and Trust Companies Act, 1990” and received a permit from the Financial Services Conference of the Virgin Islands.
  • Foreign companies are not allowed to trade in the territories of the state and own real estate (except leased for business purposes).

Although companies are exempt from tax in the Virgin Islands, they must pay annual licensing fees depending on the scope of their business activity and value.

Business activity in the British Virgin Islands

Our office helps professionals who conduct business in the British Virgin Islands to enjoy treaty benefits to prevent double taxation, even though there is no treaty between Israel and the Virgin Islands for double taxation.

Transfer of funds

According to section 170 (a) of the Income Tax Ordinance, all money transfers from Israel to the British Virgin Islands require the approval of the Tax Authority in advance, if this approval is not received, the bank will deduct 25% of the money transferred at the source. Our office specializes in assisting in obtaining an exemption from withholding tax when transferring funds to the British Virgin Islands, although in most cases the money is found in other solutions for transferring the funds to other territories.

Treaty for the prevention of double taxation in The British Virgin Islands

The Virgin Islands is not a signatory to any treaty to prevent double taxation. The treaties signed by Great Britain and including the Virgin Islands with Japan and Switzerland are also not used in practice.

Information exchange agreements

The British Virgin Islands has signed an agreement for mutual information exchange between the tax authorities with 28 countries including Canada, China, USA, Japan, Great Britain and 16 European countries including France, Germany, Ireland, and the Netherlands.

In 2014, the Virgin Islands signed the Foreign Account Tax Compliance Act (FATCA) agreement with the USA. All institutions in the Virgin Islands are obliged to act in accordance with the regulations of the FATCA agreement and automatically report on American citizens operating on its territory.

In 2016, the British Virgin Islands signed the common reporting standard (CRS) Convention, and all its institutions are obliged to act in accordance with the rules and regulation of the CRS – Financial Institutions in a jurisdiction signed up to CRS or FATCA are obliged to collect and report certain information to their tax authority. This information can then be exchanged with another jurisdiction.

“Economic substance requirements”

On January 1, 2019, the requirements, and regulations of the “Law of Economic Essence” promoted by the OECD and the European Union entered into force in the Virgin Islands. The new law establishes new conditions for companies registered in the Virgin Islands and engaged in “key activities”, in order for them to benefit from the tax benefits in the Virgin Islands. It is important to note that there has been no change in the tax regime in the Virgin Islands following the entry into force of the regulations.

The main requirements:

  1. The company is managed from the jurisdiction of the British Virgin Islands.
  2. The company has an adequate amount of local and qualified employees for its activities.
  3. The company has annual expenses in the jurisdiction and physical offices registered by the company in the British Virgin Islands.

“Key activities” according to the new law definition:

  1. Banking
  2. Insurance
  3. Fund management
  4. Financing and leasing
  5. Shipping
  6. Intellectual property
  7. Investment management
  8. Holding companies that generate income from any of these key operations.

Companies that do not comply with the new regulations will be expected to be fined by the Virgin Islands authorities.

The new rules and the legal framework in the BVI mean that many company owners seek to dissolve the companies in the BVI and settle the tax liability arising from previous holdings in these companies. (Or alternatively the obligation to report, if the holding of the company in the BVI was not reported as required through Form 150 and in the annual reports to the Tax Authority).

British Virgin Islands – Background

The British Virgin Islands are a group of over 50 islands (15 inhabited) in the Virgin Islands archipelago in the Caribbean Sea in the western Atlantic Ocean which belong to Great Britain. The rest of the islands in the archipelago belong to the United States. The main islands are Tortola, Virgin Gorda, Anegada and Joost van Dyke. As a British territory, the British Virgin Islands are under the rule of the British Crown represented by a governor. England is responsible for the islands’ foreign relations and security. Internal affairs are managed by the elected local parliament. The population of the islands is 30,000. The capital city Road Town lies off the coast of the largest island, Tortola. The official language in the Virgin Islands is English. The official currency is the US dollar (USD).

British Virgin Islands economy

The two pillars of the economy of the Virgin Islands, one of the most prosperous economies in the Caribbean, are financial services, primarily tax planning, offshore companies (tax havens) and the tourism industry. It is the tourism industry that employs most of the country’s citizens, and unlike many countries, the tourism infrastructure in the islands is mostly locally owned. Tourism is responsible for almost half of the Virgin Islands’ revenue, while licensing fees for international companies is the other half. The Virgin Islands are considered one of the largest offshore financial centers in the world.

The tax regime in the British Virgin Islands

The British Virgin Islands Business Companies Act (BVI BC Act) of 2004, states that all local companies incorporated in the British Virgin Islands are completely exempt from paying taxes. International Business Companies (IBC) registered in the Virgin Islands are also automatically included in the Business Companies Law and are entitled to the same conditions.

Corporate tax: 0%.

Capital gains tax: 0%.

Foreign branch tax: 0%.

Withholding tax: 0%.

OFFSHORE companies in the British Virgin Islands

Most of the foreigners who establish offshore companies in the Virgin Islands for trade and investment purposes establish international business companies (IBC).

The conditions for establishing a company in the British Virgin Islands:

  • The company name and all incorporation documents must be in English.
  • The address of a rented office must be presented in the corporate documents.
  • It is mandatory to appoint one director (individual or company), there is no obligation for a local director.
  • Mandatory registration of at least one shareholder (individual or company).
  • There is an obligation to prepare annual financial statements, but there is no obligation to submit them.

Restrictions on foreign companies in the Virgin Islands:

  • Foreign companies are not allowed to engage in banking, insurance, and trust, unless they have incorporated under: “Bank and Trust Companies Act, 1990” and received a permit from the Financial Services Conference of the Virgin Islands.
  • Foreign companies are not allowed to trade in the territories of the state and own real estate (except leased for business purposes).

Although companies are exempt from tax in the Virgin Islands, they must pay annual licensing fees depending on the scope of their business activity and value.

Business activity in the British Virgin Islands

Our office helps professionals who conduct business in the British Virgin Islands to enjoy treaty benefits to prevent double taxation, even though there is no treaty between Israel and the Virgin Islands for double taxation.

Transfer of funds

According to section 170 (a) of the Income Tax Ordinance, all money transfers from Israel to the British Virgin Islands require the approval of the Tax Authority in advance, if this approval is not received, the bank will deduct 25% of the money transferred at the source. Our office specializes in assisting in obtaining an exemption from withholding tax when transferring funds to the British Virgin Islands, although in most cases the money is found in other solutions for transferring the funds to other territories.

The list of countries with which the British Virgin Islands has signed a Treaty for the prevention of double taxation

The Virgin Islands is not a signatory to any treaty to prevent double taxation. The treaties signed by Great Britain and including the Virgin Islands with Japan and Switzerland are also not used in practice.

Information exchange agreements

The British Virgin Islands has signed an agreement for mutual information exchange between the tax authorities with 28 countries including Canada, China, USA, Japan, Great Britain and 16 European countries including France, Germany, Ireland, and the Netherlands.

In 2014, the Virgin Islands signed the Foreign Account Tax Compliance Act (FATCA) agreement with the USA. All institutions in the Virgin Islands are obliged to act in accordance with the regulations of the FATCA agreement and automatically report on American citizens operating on its territory.

In 2016, the British Virgin Islands signed the common reporting standard (CRS) Convention, and all its institutions are obliged to act in accordance with the rules and regulation of the CRS – Financial Institutions in a jurisdiction signed up to CRS or FATCA are obliged to collect and report certain information to their tax authority. This information can then be exchanged with another jurisdiction.

Economic substance requirements

On January 1, 2019, the requirements, and regulations of the “Law of Economic Essence” promoted by the OECD and the European Union entered into force in the Virgin Islands. The new law establishes new conditions for companies registered in the Virgin Islands and engaged in “key activities”, in order for them to benefit from the tax benefits in the Virgin Islands. It is important to note that there has been no change in the tax regime in the Virgin Islands following the entry into force of the regulations.

The main requirements:

  1. The company is managed from the jurisdiction of the British Virgin Islands.
  2. The company has an adequate amount of local and qualified employees for its activities.
  3. The company has annual expenses in the jurisdiction and physical offices registered by the company in the British Virgin Islands.

Key activities according to the new law definition:

  1. Banking
  2. Insurance
  3. Fund management
  4. Financing and leasing
  5. Shipping
  6. Intellectual property
  7. Investment management
  8. Holding companies that generate income from any of these key operations.

Companies that do not comply with the new regulations will be expected to be fined by the Virgin Islands authorities.

The new rules and the legal framework in the BVI mean that many company owners seek to dissolve the companies in the BVI and settle the tax liability arising from previous holdings in these companies. (Or alternatively the obligation to report, if the holding of the company in the BVI was not reported as required through Form 150 and in the annual reports to the Tax Authority).

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