British Virgin Islands direct corporate taxes

In the British Virgin Islands there is no capital gains or capital transfer tax, no inheritance tax, and no sales tax or VAT. There are stamp duties on certain transactions, and property taxes.

In September 2002, then Chief Minister and Minister of Finance, Ralph T O'Neal confirmed that the government was seriously considering the abolition of both personal and corporate income tax on the Islands. Although he explained that no pressure had been brought to bear on the BVI government to impose a zero rate of income tax, as it stood, the jurisdiction's tax regime could have come under fire for 'ring-fencing' certain tax advantages; one of the criteria laid out by the OECD for defining 'harmful preferential tax regimes'.

In October 2004 former Chief Minister Orlando Smith informed the country’s Legislative Council that a two-year transition period would be put in place to smooth the changeover to the Business Companies Act, which has lowered the income tax rate to 0% for both local and International Business Companies.

The new legislation, which took effect on 1st January 2005, was drafted to ensure the territory is fully compliant with the European Union (EU) Savings Tax Directive and EU Code of Conduct on Business Taxation, as required by the United Kingdom of all its Overseas Territories.

Under the transition arrangements announced by Dr Smith, new incorporations were still possible under old legislation throughout 2005. From 2006, new incorporations were made under the new Business Companies Act, although companies already on the register were permitted to operate under the old IBC Act or Companies Act for an additional year. Since 1st January 2007, all companies are operating under the new legislation.

Under the new legislation, the existing income tax system for employees has disappeared. However, in its place, a new payroll tax is levied at a rate of 14%, 8% of which is paid by the employee and the remainder by the employee, although the first $7,500 of income will remain tax free. The contribution for small business, defined as those employing less than seven people and with a payroll of less than $150,000 per year, will be only 2% whilst all other businesses will contribute 6%.

Furthermore, local firms will be required to pay annual licence fees, whilst IBCs will face a maximum 20% rise in their annual licence fees.

British Virgin Islands Income Tax

Income tax (now abolished) was levied on the chargeable income of resident BVI Companies Act Companies. As applied to a company, 'resident' meant that the management and control of its business was exercised from the BVI. Normally, if more than half of the directors are resident in the BVI, then so is the company. There were three possible cases:

the company was resident, in which case it paid income tax of 15% on its world-wide chargeable income;
the company was non-resident, in which case it paid 15% income tax on its chargeable income arising in or remitted to the BVI; or
the company was resident but was an 'offshore trading company', meaning that 90% of its profits arise from activity conducted outside the BVI, and it paid tax at the rate of 1% on its world-wide income.

Chargeable income was assessed after deduction of expenses; tax credits were allowed on foreign tax paid in treaty countries and certain other countries.

British Virgin Islands Taxation of Trusts

Trust income is exempt from tax if:

the trust is created by or on behalf of a non-resident person; and
owns no land in the BVI; and
does not carry on business in the BVI.

British Virgin Islands Withholding Tax

There are no withholding taxes in the BVI. However, the BVI, like other British 'dependent territories', was forced to apply the EU's Savings Tax Directive from 1st July, 2005, and chose to apply a withholding tax (initially of 15%, rising to 20% post July 1, 2008) to the returns on savings paid to nationals of EU Member States. The Directive does not apply to corporate entities.