New legislation in the British Virgin Islands (BVI) has come into focus in 2018 due to its reputation as the most popular tax haven. The recent legal development of BVI is also geared towards reinforcing the jurisdiction’s position as a premier offshore financial centre.
NEW ANTI-MONEY LAUNDERING LAW NOT WELCOMED IN THE BVI
BVI, along with the Cayman Islands and Bermuda, will be forced to disclose the ownership of companies based there after the UK approved new measures to tackle money laundering, tax evasion and terrorist financing. Former UK Prime Minister David Cameron proposed the new measures in 2013 amidst an international wave of political uproar about tax avoidance by large firms and wealthy individuals.
The new measures, announced in May this year, forced the territories to make public the owners of all their registered companies by the end of 2020, which expectedly, triggered backlashes from BVI authorities on the accusations of violating their sovereignty.
BVI is also worried about how the new legislation will affect its position as a financial hub. In the same month the measures were announced, over 1,000 people on BVI marched in protest against the enforced changes in the current transparency legislation.
Currently, BVI has set up registers for the beneficial owners of companies but the relevant information is only disclosed upon request to British law enforcement agencies. The BVI government has not decided whether it would start a legal war with the U.K. According to BVI Finance, the jurisdiction now generates around £3 billion ($3.89 billion) annually in tax revenue for the U.K. and supports around 150,000 jobs.
RELAXED RULES ON SEGREGATED PORTFOLIO
Controversial enforcement of new legislations aside, the BVI Business Companies (Amendment) Act, 2018 came into effect on Oct. 1 and repealed the 2004 version. Historically, BVI restricted the use of segregated portfolio company (SPC) structures to regulated funds and insurance companies. Under the changes by the new act, the restrictions are relaxed and the types of BVI companies eligible to use SPC structures are expanded to include nearly all companies.
SPCs are now used in closed-end fund structures, which can assist in the ring-fencing of assets and liabilities. The act also includes a new obligation for SPCs to notify the Financial Services Commission to reinstate their previous terminated portfolios. Under the new act, segregated portfolios of the same SPC can also contract with each other.
CHANGES TO LIMITED PARTNERSHIP
The BVI Partnership Act 2017 was enacted in December last year, an update from the provisions of the 1996 Partnership Act. As the growth in investment fund activities drove up the appetite for limited partnership structures, the new act was adapted to meet market practices and norms.
Under the new act, people can choose to form a limited partnership with or without legal personality. What is unique to BVI law is the ability for residents to publicly file a charge against a limited partnership with legal personality and obtain priority over later charges.
Another feature of the new act that is exclusive in BVI law is that limited partnerships are free to carry out key statutory reorganisation and reconstruction of structures, including to merge or consolidate limited partnerships.
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