Preparing Financial Statements of a British Virgin Islands (BVI) Company. Service offer

The British Virgin Islands (where the type of entity most commonly used for business is a company limited by shares incorporated under the BVI Business Companies Act 2004 – a BVI Business Company[1]) is historically regarded as a so-called classic offshore territory. The BVI is believed to be home to approximately 40% of all offshore companies registered in the world.

In specialized vocabulary (in relation to corporate matters), the term “offshore” is used to refer to companies incorporated in certain jurisdictions. These jurisdictions do not, as a rule, coincide with the place of domicile (residence) of a company owner and the companies themselves do not operate in the country of their incorporation.

If they meet these conditions, such companies are exempt from submitting financial reports to the authorities or from paying any taxes in the country of incorporation, but they are required to annually pay a certain government fee.

Of course, this fact does not exempt such companies from paying taxes (and fulfilling other legal obligations) in the countries where they actually do business.

In accordance with the recommendations of the Organization for Economic Cooperation and Development (OECD) amendments were made in 2012 to the Virgin Islands Mutual Legal Assistance (Tax Matters) Act, 2003 that explain and expand the obligation to keep and retain business and accounting records of companies. It is important to note that:

• first, this did not mean an obligation to prepare and submit financial statements to the BVI authorities, but only required to maintain and keep the underlying business and accounting records;
• second, this obligation had in fact existed before 2012 (and there was even liability for non-compliance).

After the adoption of these amendments, the nature of this obligation was explained in greater detail:

1. it was clarified that a company must keep records sufficient to show and explain the company’s transactions; such records should at any time enable the financial position of a company to be determined with reasonable accuracy;
2. the minimum period for retaining such records was set – 5 years;
3. an indication was added about the place of keeping of such records: they must be kept either at the office of the company’s registered agent or at any other place (as the directors may determine), but the agent must have up-to-date information about the address where these records are kept.

The next step was the amendment of the BVI Business Companies Act that was made in 2015 and came into effect on 1 January 2016, introducing the new requirements for keeping a company’s records and underlying documentation (with a transitional period until 31 December 2016).

The amendments transposed to the BVI Business Companies Act the records and underlying documentation retention provisions previously contained in the Mutual Legal Assistance (Tax Matters) Act and slightly expanded the existing requirements for the retention of a company’s records and underlying documentation.

In particular, they introduced an obligation to inform the registered agent not only of the records keeping address, but also of the name of the person (individual or legal entity) who keeps and controls the records and underlying documentation of a company.

If the records and underlying documentation of a company are kept other than at the office of the company’s registered agent, the company must inform the registered agent in writing of the physical address at which the records and underlying documentation are kept, and the name of the person who maintains and controls the company’s records and underlying documentation. A P.O. Box is not allowed as records keeping address.

In the case of any change in this information (address and/or person), the company must, within 14 days of the change, provide its registered agent with the new location of the records and underlying documentation and/or the name of the new person who maintains and controls the company’s records and underlying documentation.

If required to do so by the British Virgin Islands Financial Services Commission (BVI FSC) or by any other BVI competent authority empowered by law, the registered agent must request records and underlying documentation from the company.

Failure to comply with this requirement may make the company liable to a fine of up to USD 50 000.

Whereas failure to provide records and documentation in response to an international cooperation request under one of the British Virgin Islands tax information exchange agreements increases the fine to as high as USD 100 000 (in addition to the fine, the law also provides for imprisonment for up to 5 years).

Additionally, the Financial Services Commission issued a consultation paper in 2021, proposing amendments to the BVI Business Companies Act 2004. The proposed amendments included changes to the maintenance of records and underlying documentation of companies.

The document noted that, despite all the existing regulations, there may be instances where a competent authority requests records and underlying documentation for the company (for example, in an international cooperation request), and the registered agent in turn sends this request to the company, but records and underlying documentation will not be provided or provided fully (for example, if the company is struck off the register or dissolved by that time). As a result, the British Virgin Islands will not be able to fulfil its obligations under the existing international agreements and respond to the request (or will not be able to provide information in a timely manner).

Therefore, it was proposed to make the following amendments to better ensure the proper keeping of information and its availability whenever it is requested by competent authorities:

• it was proposed to maintain the current approach requiring that records and underlying documentation be maintained either in or outside the BVI if the place of keeping and the person responsible for keeping the records and underlying documentation are identified;
• however, if records and underlying documentation are maintained outside the BVI, it was proposed that copies of such records and underlying documentation should be filed by the company with its registered agent at least once a year;
• copies of records and underlying documentation to be filed with the registered agent must relate to a company’s financial statements (audited or, if unaudited, the unaudited statements), balance sheet, profit and loss account with relevant schedules and annual reports;
• if a company is struck off the register, the directors of the company must, as at the date of striking off, compile and file with the company’s registered agent all the company’s records and underlying documentation held and maintained outside the BVI; such records are to be retained by the registered agent for a period of at least 5 years from the date of striking off;
• in addition, a proposal was made to amend the Act to ensure the provision of accounting records by voluntary liquidators in cases of the voluntary liquidation of a company; accordingly, a voluntary liquidation would be considered as incomplete if the relevant report and the accounting records were not provided.

It was expected that those provisions would not apply in respect of a company that maintains its records and underlying documentation in the BVI with its registered agent (except the requirement to maintain records and underlying documentation for at least 5 years after striking off / liquidation, which was actually already in force, but without the obligation to provide records and underlying documentation as at the date of the strike-off of the company / in the course of its voluntary liquidation).

In 2021, similar changes came into force in another offshore jurisdiction – the Seychelles. As these changes are made under pressure from international organizations such as the OECD, their introduction was only a matter of time. As a result, the Act[3] amending the BVI Business Companies Act was published on 12 August 2022. The amendments became effective on 1 January 2023 and include, among other things, the obligation of the company to provide its financial information in a certain format.

The agreed form for preparation and submission of such an Annual Financial Return is provided below:

The new rules require to file such a return within 9 months from the end-date of the company’s financial year. The registered agent must notify the Financial Services Commission that the return has not been received[4].

The requirement to file an annual return does not apply to:

• listed companies (companies whose shares are traded on a stock exchange);
• companies regulated under a financial services legislation;
• companies that file their tax returns to the Inland Revenue Department (IRD).

In essence, the BVI can be said to have introduced a requirement for the preparation and filing of simplified financial statements. The financial information provided to the registered agent is not publicly available (returns will be kept by the registered agent and will be provided to the BVI authorities upon request). There is no requirement to audit these simplified financial statements.

As for the Financial Services Commission’s proposal for amendments to ensure that voluntary liquidators provide accounting records in the event of a company’s voluntary liquidation, such proposal has also been taken into account. From 1 January 2023, voluntary liquidators are required to collect and retain accounting records of a voluntarily liquidated company and to provide copies of these records to the company’s registered agent who in turn is obliged to keep them for at least 5 years from the date of receipt.

Our fees for accounting support of a company are charged at hourly rates of USD 100 to USD 200[5] depending on the qualification of a specialist involved.

The indicative fees for our services depending on the number of transactions and other factors are:

The fees for preparing financial statements for such company start at USD 1 500 and will depend on the location, use, type and the book (estimated) value of the property.

To put together a set of documents for preparing the financial statements, we ask clients to provide information on the company’s activities in the relevant accounting period:

1. statements of accounts at banks and EMIs;
2. contracts and agreements made in the accounting period;
3. previously made contracts and agreements which continue in the accounting period in question (for example, loan agreements);
4. other underlying documentation related to the activity during this period / disclosing the business of the company in the accounting period (invoices, statements of work performed, way bills, etc.).

It is enough to provide copies of the above documents.

The general rule is that BVI Business Companies are not obliged to audit or file their financial statements with any authorities.

However, this is not the only type of entity for doing business in the BVI and others may be subject to different rules. For example, private, professional and public funds and licensed entities in the BVI are required to annually prepare and file audited financial statements (unless expressly exempted from this requirement).

However, a company incorporated under the BVI Business Companies Act may also need to conduct an audit.

For example, an audit may be needed for the following purposes:

• opening a bank account or updating the company’s profile at the bank;
• estimation of the company’s value (for example, for sale).

An auditor’s report on the financial statements made according to the International Financial Reporting Standards (IFRS) will cost from EUR 1 500.

[1] Companies registered as International Business Companies (IBCs) under the previous International Business Companies Act were automatically re-registered on 1 January 2007 as BVI Business Companies (BVI BCs) operating under the BVI Business Companies Act.

[2] Meaning the law of an offshore jurisdiction (the British Virgin Islands in this case). The laws of the country where the beneficial owner is domiciled (resident) or of the country where the company does business may set other requirements for the preparation (and filing) of company financial statements.

[3] The BVI Business Companies (Amendment) Act, 2022 (“BCA Amendment Act”).

[4] The registered agent’s notice must state the name of the company, the year to which the return relates, and the last time the company filed a financial return with the registered agent.

[5] In some instances (such as higher complexity of the company’s document flow), the rate can be increased to USD 400 / hour.

[6] The fees are valid as at March 2024.

[7] It is about preparation of comprehensive financial statements (for example, for a bank).The minimum auditor’s fee (for financial statements made according to the IFRS) is EUR 1 500.

[8] In some instances (such as higher complexity of the company’s document flow), the rate can be increased to USD 400 / hour.

[9] Please note that the return preparation rates may be increased in the 2 months preceding the deadline due to the urgency of orders: 2 months to the deadline, the multiplying factor is 1.5; 1 month to the deadline – 2.

[10] For a tax certificate, it is necessary to order an original (non-apostilled) certificate of good standing first – USD 420.