Technology and Innovation Guide 2022 – The British Virgin Islands

1. Are there any “sandbox” or other regulatory neutral zones?

Yes. In August 2020, the BVI Financial Services Commission (FSC) launched a regulatory sandbox  for companies whose proposed business model involves the development or implementation of a new system, mechanism, idea, method or other arrangement through the use of technology to create, enhance or promote a product or service with respect to the conduct or provision of a financial services business. The sandbox is designed to encourage technological innovation in financial services under a lighter touch regulatory regime.

An application for entry into the sandbox consists principally of a business proposal to cover, among other things: (i) the proposed product or service, and how this encompasses innovation to improve accessibility, efficiency, effectiveness, security, quality in the provision of, or addresses shortcomings or opens up new opportunities in, financial services or the regulation thereof; (ii) the testing already carried out on the proposed product (with the expectation that testing, to the extent permitted by legislation, will be carried out prior to entry into the sandbox); (iii) details on the proposed customers (including estimated numbers, investment experience and geographical reach); (iv) an analysis of the risk profile of the proposals and the measures to be taken to manage those risks; (v) an indication of the resources (whether financial, technological, human or otherwise) available to the application; and (vi) a strategy for exiting the sandbox.

2. Is there a Digital “incubator” or hub?

No special economic zones have currently been established within the BVI to benefit companies in the tech and innovation sector. Whilst the FSC has indicated that it is considering initiatives to encourage entities to operate physically within the BVI, any such project is unlikely to be viable without significant investment into infrastructure.

3. Are there any barriers to entry for foreign technology companies?

There are no significant barriers to entry for any companies who wish to be incorporated within the BVI, without any physical presence in the jurisdiction. Subject to certain exemptions available under investment business and financial services licensing regimes, companies seeking to carry on business within the local market must apply for a local trade licence issued by the BVI Department of Trade, Investment Protection and Consumer Affairs. For further information, see section G.

4. Have traditional institutions embraced new technologies?

To date, there has been no significant displacement of traditional financial service providers in the BVI. Nonetheless, as one of the largest international business and financial centres, it is expected that this will be an area of significant growth in the coming years, with recent drives from the BVI government for local entities to embrace FinTech and RegTech solutions. In order to stay competitive, it is anticipated that traditional service providers will look at new innovations driven by technology-focused new entrants to the market. Similar to other offshore jurisdictions, one area of focus is on technology solutions that deliver performance improvements to existing paper-based checks and balances in areas such as customer due diligence, fraud detection and beyond. For larger financial institutions with substantial compliance overheads, the promise of FinTech to replace manual processes with technologies that are cheaper and more cost effective at achieving compliance and managing risk has yet to be realised but the possibilities are certainly being explored.

5. What forms of legal entity are available for technology companies?

The most popular type of BVI entity has typically been the BVI business company. A business company is a corporate structure managed by its director(s), whereby the liability of interest holders for the company’s debts or liabilities can be unlimited, limited by guarantee or, most commonly, limited by shares.

Whilst a common structure in other jurisdictions, the limited partnership has traditionally been underused in the BVI. Nonetheless, in January 2018, the BVI reinvented its legislation governing limited partnerships in a manner that now makes these an attractive and commercially flexible option for new corporate entities. A limited partnership is regarded in most jurisdictions as fiscally transparent and will consist of limited partners, who will not be liable for the debts of the partnership beyond the amounts they have agreed to contribute to the partnership, and at least one general partner, who will manage the business of the partnership and have unlimited liability for the debts of the partnership incurred whilst they are a general partner. Under the new legislation, a limited partnership can be established with or without legal personality.

BVI has also recently introduced the Micro Business Companies Act, 2017, which offers a new form of corporate entity, limited by shares, with lower set up and ongoing costs and fewer obligations. This form of entity is aimed at sole-traders and start-up enterprises. Among other restrictions, this option is not available for any business licensed under any financial services regulation and micro businesses are subject to limitations on, among other things, turnover, share issuances and transfers.

6. What AML requirements apply to businesses in the BVI?

International standards of anti-money laundering and counter-terrorist financing are set by the Financial Action Task Force (FATF). As a member of the Caribbean FATF, the BVI implements recommendations promulgated by the FATF.

All BVI-incorporated entities are subject to the BVI Proceeds of Criminal Conduct Act, 1997 (as amended), which sets out the principal money laundering offences. Certain ‘relevant’ businesses (which would include, for instance, entities caught within BVI financial services regulations and other entities thought to be at a higher risk of money laundering) are further subject to the BVI Anti-Money Laundering Regulations, 2008, and the Anti-Money Laundering and Terrorist Financing Code of Practice 2008 (the AML Code) (each as amended), which prescribe certain identification, record keeping and internal control procedures for such businesses.

In August 2018, changes were made to the AML Code to permit entities in the BVI to digitally verify identities and receive electronic copies of documents instead of traditional “wet ink” paper-based processes. The amendments are further evidence of regulators in the BVI embracing the blockchain revolution and will set a new standard for AML verification in the region.

7. Are electronic signatures valid?

Under the BVI Electronic Transactions Act, 2001, the legal requirement for a ‘wet’ signature is satisfied by an electronic signature if:

• ​the electronic signature adequately identifies the signatory;
• the electronic record adequately indicates (i) the signatory’s approval of the information to which the signature relates, or (ii) for the witnessing of a signature or seal, that the signature or seal has been witnessed;
• ​the electronic signature is as reliable as is appropriate given the purpose for which and circumstances in which the signature is required; and
• ​the recipient or counterpart of the electronic signature consents to receiving the electronic signature and the electronic signature of each witness (if any).

Electronic signatures are usable for all documents signed by BVI entities and for BVI-governed agreements, save that BVI-law governed deeds should be signed in wet-ink.

8. How is personal data protected?

There is no formal legislation regulating data protection in the BVI; however, the BVI government has pledged that comprehensive data protection legislation, based on internationally recognised standards, will be enacted in the near future. Draft legislation is currently in circulation.

BVI courts recognise and subscribe to the common law duties of confidentiality and privacy, and English common law is persuasive, although not binding, in the BVI. As a result, while there is no overriding personal data protection legislation in the BVI, all entities that manage and maintain personal data will be subject to the common law duty of confidentiality described above.

The duty of confidentiality has also been codified in various aspects of BVI legislation, in particular the Banks and Trust Companies Act, 1990 (as amended), which regulates all banking and trust/fiduciary-related activities in the BVI. Licensed operators of such businesses, regulated by the FSC, are under a general obligation to maintain the confidentiality of a client’s personal data unless the individual has granted specific permission for its release or disclosure to third parties. This obligation may be limited where the licensee is required to deal with anti-money laundering and similar legislation.

For corporate entities, the Registrar of Corporate Affairs is currently permitted to release only limited information regarding the particulars of any registered company, which would include the name, type of company, date of registration/incorporation, registered office address and status of the company. Details of individual shareholders, directors and officers of the company are not available for public inspection and shall only be made available by the Registrar to competent authorities (for tax compliance or other law enforcement purposes) on written request.

1. Can a crypto-to-crypto exchange be established?

Yes. Currency exchanges operated by BVI-incorporated entities (whether or not operated fromwithin the territory) are governed by the BVI Financing and Money Services Act, 2009 (FMSA). Whilst no relevant definitions are set out within FMSA, the FSC have confirmed that cryptocurrency will not fall within the scope of ‘money’ or ‘currency’ within FMSA, and therefore exchanges between various cryptocurrencies and tokens will not constitute a ‘currency exchange’ and thus will not require licensing under FMSA.

Where traded tokens or cryptocurrencies constitute ‘investments’ for the purposes of SIBA (see question 1 of Section B), the exchange will need to be licensed under SIBA as an investment business. Operators of crypto-to-crypto exchanges may wish to ensure that issuers provide opinions as to the status of their token or cryptocurrency under SIBA prior to admission to the exchange.

As part of wider guidance on digital assets issued in July 2020, the FSC has allowed digital asset businesses which do fall within BVI financial services legislation, but have not obtained a license to date, a grace period of six months (expiring on 13 January 2021) to apply for a license under applicable legislation.

2. Can a crypto-to-fiat exchange be established?

Yes. However, to the extent that crypto-currencies can be both purchased and redeemed or exchanged for fiat currencies, this may fall within either the currency exchange or money transmission provisions of FMSA and therefore require licensing under such act.

3. Is a money services licence required for crypto-to-fiat conversion through an OTC desk?

We would not expect an OTC desk which trades crypto assets for fiat to require a money services licence under BVI law.

4. Can a virtual asset project establish a local bank account?

Unless the project establishes a physical presence in the BVI or otherwise can evidence a ‘nexus’ or connection between the BVI and its business operations, local banks have, traditionally, been reluctant to open accounts for BVI-incorporated entities (regardless of their line of business). Whilst BVI banks are working to increase their understanding and service offerings, we would not expect any short term change in this position.

It is typical for BVI entities to establish bank accounts elsewhere, whether in other overseas jurisdictions or onshore.

5.​ Can you register as a virtual asset custodian in the BVI?

There is currently no registration regime for custodians of digital assets which are not ‘investments’ for the purposes of SIBA.

Where the assets held in custody are ‘investments’ for the purpose of SIBA, a BVI custodian will require a custodian license under SIBA.

6. Are VASPs subject to the local AML regime?

As with all entities incorporated in the BVI, a BVI virtual asset service provider (VASP) would need to ensure it does not commit any offence under the BVI Proceeds of Criminal Conduct Act, 1997 (as amended).

BVI’s ‘enhanced’ AML legislation (being the BVI Anti-Money Laundering Regulations, 2008 and the AML Code) only applies to any business conducting a ‘relevant’ business. The BVI has yet to adopt the FATF recommendations on virtual assets and being a VASP is not, by itself, a “relevant business”. A VASP will only be subject to BVI’s ‘enhanced’ AML legislation to the extent it also conducts any other ‘relevant’ business, such as a licensed banking, financing or investment activities.

1. Does the British Virgin Islands impose economic substance requirements?

Yes.  The Economic Substance (Companies and Limited Partnerships) Act, 2018 (as amended, the ES Law) was brought into force on 1 January 2019 and has been supplemented by the Rules on Economic Substance in the Virgin Islands which, together with its explanatory notes, set out guidance on how the requirements of the ES Law may be met and interpreted.

The ES Law requires entities carrying on ‘relevant activities’ to show that they have an element of physical substance in the BVI in relation to certain ‘core income generating activities’. These relevant activities consist of:

• banking businesses;
• insurance businesses;
• fund management businesses;
• financing and leasing businesses;
• headquarters businesses;
• shipping businesses;
• distribution and service centre businesses;
• holding company businesses (which are subject to fewer requirements); and
• intellectual property businesses (which, in certain circumstances are subject to greater requirements).

Entities falling within the above businesses, or who are unsure if they would fall within the above businesses, should contact Appleby for guidance and for the steps that can be taken to establish economic substance.

2. Are there any reporting requirements in connection with economic substance?

Yes. All entities, regardless of whether they are conducting a ‘relevant activity’ are required to make an economic substance filing. Filings are made through an entity’s registered agent, and are due within 6 months of the end of the year to which they relate. For all entities incorporated or formed prior to 1 January 2019, the first economic substance filing will be due by the end of 2020, unless a shorter initial reporting period has been agreed with the BVI International Tax Authority (the ITA). For entities incorporated or formed on or after 1 January 2019, the first filing (which will relate to the first year of operation), will be due 18 months after incorporation, unless a shorter initial reporting period has been agreed with the ITA.

3. What penalty provisions apply in the case of non-compliance?

Non-compliance with the ES Law may result in an initial warning and fine. Penalties shall be subject to a minimum of US$5,000 and a maximum of US$20,000 (or US$50,000 for those IP businesses which are deemed higher risk).

Failure to act upon recommendations in a warning may result in a further penalty and a referral of the matter to the FSC. Such further penalties shall be subject to a minimum of US$10,000 and a maximum of US$200,000 (or US$400,000 for those IP businesses which are deemed higher risk).

Following the second warning (or at any point following the first warning, if the ITA determines that there is no realistic possibility of the entity complying with the ES Law), the FSC may strike the entity off the register. Where an entity is struck off, the entity and its directors, partners, members or liquidators may not carry on any business or otherwise deal with its assets.

1. Trade Licences

In order to conduct business within the BVI and subject to the below, entities must obtain a trade license under the Business, Professions and Trade Licences Act 1989. Trade license applications are typically processed in six to eight weeks from the date of application, but can take significantly longer if the proposed entity is not wholly or partially owned by BVI Belongers.

No trade licence is required for companies who wish to be incorporated within the BVI, without any physical presence or operations within the jurisdiction or for entities already licensed under SIBA, FMSA or certain other licensing regimes.

2. Tax Matters

The BVI is a tax-neutral jurisdiction with zero income, corporate or capital gains taxes for any entities incorporated within the BVI. Furthermore, there is no withholding tax on interest or distributions paid by BVI entities to investors, and investors will not otherwise be subject to income or capital gains tax within the BVI. Assuming the company does not hold, directly or indirectly, any real property in the BVI, no stamp duties or similar documentary taxes are imposed by or in the BVI.

If an entity employs anyone within the BVI, such person will be subject to payroll tax of between 10 and 14 per cent (8 per cent of which is paid by the employee, and the remainder paid by the employer) on remuneration (including severance pay, bonuses and money paid under profit-sharing scheme) for services rendered wholly or mainly in the BVI. Contributions will also be required for social security and national health insurance.

Certain persons who conduct money transmission activities from physically within the BVI to overseas jurisdiction will be subject to a withholding tax introduced in 2020.

3. Visas and Work Permits

Any persons travelling to the BVI for business may request to stay for up to seven days at a time, without the need to obtain a temporary work permit. This exemption does not apply to foreign-admitted lawyers, not admitted in the BVI. For longer visits, or where the exemption does not apply, a temporary work permit or periodic work permit may be required. Temporary work permits can be issued for up to a three-month period. Periodic work permits allows for a number of visits over a one year period (subject to renewal).

In addition to work permits, visas may be required depending on the residency of the visitor. No visa is currently required for visitors from, among other places, the United States, the United Kingdom, Canada and most EU member states.

For any expatriate who wishes to engage in more long-term employment within the BVI (whether self-employed, paid or unpaid, full-time or part-time), work permits must be obtained from the BVI Labour Department. Employers must give preference to any BVI Belonger who has applied and is qualified for the position. Work permits are typically issued for a one-year period.

4. Transportation Links

Whilst there has been discussion of establishing a direct flight route between the BVI and the conterminous United States, no such route is currently in operation. Passengers must transit through hubs such as Puerto Rico, or take a ferry to the nearby US Virgin Islands for transit onwards to mainland United States.

There is no direct route currently operating, or anticipated, between the BVI and the United Kingdom.

Up-to-date information on border closures should be sought whilst the COVID pandemic remains.