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International Business Companies
I. Introduction
II. International Business Company Uses:
There are many different ways to effectively utilize an offshore company
in order to legally establish an efficient structure for tax purposes, for
international business and investment purposes, or to provide an additional
layer of privacy to your business operations. In the following paragraphs,
you will read about the various types of structures that can be implemented
using IBCs.
This is not intended to be a thorough examination of offshore
structures. The benefits which can be obtained by use of offshore
entities depends on a number of factors, including the owner's objectives,
the owners' residency or citizenship, as well
as the countries in which the IBC is doing business. The following are
hypothetical uses for IBCs and this text does not constitute legal advice
of any nature. Proper legal advice, both in the BVI and elsewhere, must
be obtained prior to the implementation of any of the following theoretical
uses for IBCs. Please contact our affiliated firm of
Hewlett Beck & Arad
if you do not currently have access to the proper legal counsel.
International Trading Company: A company engaged in international
trade of goods may benefit from establishing itself as an IBC in the BVI.
In particular, if a business in one country buys goods in a second country
and sells them to a third country, there is no particular need for the
business to be established in the home country. By using an IBC, it may
be possible to legitimately defer taxation on the profits, which are then
available for funding further international expansion. In addition, as
an exporter or importer, the IBC may be able to avoid the impact of costly
local regulations. Finally, international trading operations can benefit
by using a BVI IBC as a risk management mechanism. To the extent that the
goods in question have a product liability exposure, having a BVI IBC can
provide an added layer of protection, by isolating the risk in an entity
separate from the rest of the owner's businesses.
Joint Venture Company: When a Japanese company enters into a
joint venture with an English company and an Italian business, in order to
export products from Taiwan into Kazakhstan, how should they structure
their relationship? Many international joint ventures are established
using a BVI IBC as a vehicle. Firstly, English Common Law in general and
the BVI IBC Act specifically offer tremendous flexibility in structuring
the company, to allow for the most complex partnership relationships.
Furthermore, English Corporate and Commercial Law (as practiced in the BVI), is
internationally recognized as being very efficient and reasonable in
determining the parties' rights
in the event of a dispute. Finally, much of the complexity of the
international tax implications for all of the various parties can be
avoided by using a tax free entity, such as an IBC, in which to pool the
funds. Thereafter, each party need be concerned only with their own tax
liability in their home country.
Electronic Commerce: A BVI IBC is particularly well suited to
conduct business via the Internet or other electronic means. In developing
an electronic business, particularly in cases where the product or service can
itself be delivered electronically, the server hosting the data can
literally be located anywhere in the world. Operating through an IBC in
the BVI may offer a number of advantages including the avoidance of sales
or value added taxes (VAT), limiting the impact of existing or potential
restrictive regulations governing the Internet, limiting exposure to
liability and foreign jurisdictions, and possibly providing deferral of
tax so that profits may be reinvested in international expansion. In
addition, it may be beneficial to host a copy of key data in a Y2K-ready
offshore jurisdiction such as the BVI for extra protection.
Investment Company or Mutual Fund: Funds accumulated through
BVI IBCs can be invested or deposited throughout the world. While returns
or interest payable in respect of the fund's investments may be subject to
taxation in a foreign jurisdiction, generally capital gains are not. No
taxes are applicable to income or capital gains in the BVI, and as such
the Territory may be highly attractive as a venue for
Offshore Mutual Funds.
The effective tax deferral which a BVI fund can offer (subject to tax laws
applicable to investors) can significantly enhance the returns achievable
by the fund. In addition, the BVI Mutual Funds Act legislation enables
sponsors to offer investors a regulated fund at a fraction of the
establishment and compliance costs that such a fund would attract in, for
example, the United States or United Kingdom (note that foreign securities
regulation in the place of residence of investors still needs to be
considered and complied with if applicable).
Holding Company: A BVI IBC may be used as a holding company of any
kind of entity anywhere in the world. Such a structure enhances the owner's
privacy, facilitates ultimate sale of the underlying business and may have other
practical benefits in the course of day to day operations. For example, the
holding company could be used to provide loans to subsidiaries in various countries,
on which the subsidiaries may obtain the benefit of tax deductions on interest
paid. Since the holding company is situated in the BVI, where there are
no income or corporate taxes on IBCs and no dividend payment requirements,
profits which are accumulated in the tax free jurisdiction can be used to
fund subsidiaries' requirements or reinvested elsewhere.
Property Company: If real estate is owned by an IBC rather than
an individual, a vendor wishing to dispose of the property can sell the
company shares, rather than the property. This may be a legitimate means
of successfully avoiding capital gains tax and in some cases inheritance
tax implications. In addition, in certain jurisdictions it may be easier
to effect a sale by transferring the shares in the company, rather than
transferring the property owned by the company. A further advantage
includes the ability of several individuals to each own a part of the
interest in the property, without the problems involved in having them
each recorded as an owner of the property.
Confidentiality and Privacy: In certain circumstances, it could
be necessary to shield ownership of a company by establishing an IBC. A
high net worth individual with properties or other assets in a number
of countries may wish to hold these through the medium of an IBC as a
personal holding company. If all assets are transferred into the IBC,
upon his death probate could be applied for in the British Virgin Islands
rather than in each of the countries where he might hold assets. This
saves legal fees and avoids publicity. In addition, the owner's interest
would not be recorded in any foreign or domestic public filings (as would
be required in many jurisdictions).
Banking Company: Many offshore banking institutions have been
established in tax havens in recent years. Many of these institutions
are subsidiaries of major international banks. Such institutions pay
interest free of withholding tax and engage in international financing
from offshore bases, which are free from exchange controls. Such banking
institutions and their associated trust companies are able to provide a
wide range of financial services to their international clientele.
For smaller businesses and individuals, bank licenses are generally not
available unless they have an established banking operation in good
standing in another jurisdiction.
Shipping Company: The use of offshore shipping companies can
eliminate direct or indirect taxation on shipping. Shipping companies may
own or charter ships, the profits from which activities can be accumulated
tax free (as long as any charter business is carried on outside the BVI).
Tax and legal requirements generally dictate that the offshore company
owning a shipping vessel should as a rule be incorporated in the
jurisdiction whose flag the ship flies. The BVI has its own ship
registry and more information can be obtained by describing your plans to
us in detail: Contact Us.
Patent, Copyright and Royalty Companies: An IBC can purchase
or be assigned the right to use a copyright, patent, trademark or know-how
by its original holders with a power to sub-license. Upon acquisition of
the intellectual property right the IBC can enter into agreements with
licensees around the world, who would be able to exploit the intellectual
property right in various countries. It is thought preferable to acquire,
for example, a patent at the patent pending stage before it becomes very
valuable, so that the capital payment for the acquisition of the patent
can be set at a lower amount. Often royalties paid out of a high tax
area attract withholding taxes at source. In certain cases an interposing
holding company may allow a reduction in the rate of such tax, depending on
available tax treaty relief.
Captive Insurance: The BVI is particularly keen to encourage
the growth of captive insurance companies in the territory, and therefore
in 1994 enacted legislation (The Insurance Act) to make this domicile
attractive to potential investors. Captive insurance companies have been
created by many multinational companies to insure and re-insure the risks
of subsidiaries and affiliated companies. Captive insurance companies are
particularly suitable for the shipping and petroleum industries and for
the insurance of risks which might be insurable only at prohibitive
premiums. The advantages of setting up a captive company also include
access to reinsurance markets, which is not directly available otherwise,
and the ability to accumulate premium and investment income tax-free in
the BVI (subject to applicable rules in the owners' home country).
Again, before establishing an offshore company, legal advice from experienced
professionals should be considered. You may contact our affiliated law firm
of Hewlett Beck & Arad
to seek out such advice. The content of this article was
designed to provide general information on the subject matter covered. No
legal, tax or other professional advice is being rendered. Any liability or
loss incurred as a consequence, directly or indirectly from the use or
application of the information contained herein, is specifically disclaimed.
I. Introduction to the International Business Company
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