The International Business Companies Act, 1984 was a
statute of the
British Virgin Islands
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which permitted the incorporation of
International Business Companies (IBCs) within the Territory. The Act played in a huge role in the economic and financial development of the Territory in the 1990s. It has been called "''the most important piece of legislation in BVI history since the emancipation''".
The original Act was copied widely by other
offshore financial centre
An offshore financial centre (OFC) is defined as a "country or jurisdiction that provides financial services to nonresidents on a scale that is incommensurate with the size and the financing of its domestic economy."
"Offshore" does not refer ...
s.
Enactment
The Act was drafted principally by five people: Lewis Hunte, the then
Attorney General of the British Virgin Islands
The Attorney General of the British Virgin Islands is the principal legal adviser to the Government of the British Virgin Islands. Under the Constitution of the British Virgin Islands the Attorney General sits ''ex officio'' in both the House of ...
; Neville Westwood,
Michael Riegels
Michael Riegels (pronounced ) was the inaugural chairman of the Financial Services Commission of the British Virgin Islands. He is a qualified barrister and was formerly the senior partner of Harneys from 1984 to 1997, and he also served the ...
and Richard Peters, who were partners at the law firm,
Harneys
Harney Westwood & Riegels (or Harneys) is a global offshore law firm that provides advice on British Virgin Islands, Cayman Islands, Cyprus, Luxembourg, Bermuda and Anguilla law to an international client base that includes law firms, financia ...
; and Paul Butler, a partner from the U.S. law firm of
Shearman & Sterling. The Act was subsequently amended several times, but most significantly in 1990.
The Act was passed in a partial response to the cancellation by the U.S. government of a
double taxation
Double taxation is the levying of tax by two or more jurisdictions on the same income (in the case of income taxes), asset (in the case of capital taxes), or financial transaction (in the case of sales taxes).
Double liability may be mitigated in ...
relief treaty between the British Virgin Islands and the United States. The British Virgin Islands was not alone in this regard; this was part of a policy of mass-repeal by the United States of double tax relief treaties with "
microstates".
Despite the British Virgin Islands being an English
common law
In law, common law (also known as judicial precedent, judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions."The common law is not a brooding omnipres ...
jurisdiction, the Act drew heavily upon elements of
Delaware
Delaware ( ) is a state in the Mid-Atlantic region of the United States, bordering Maryland to its south and west; Pennsylvania to its north; and New Jersey and the Atlantic Ocean to its east. The state takes its name from the adjacent Del ...
corporate law. This reflected the market for British Virgin Islands
companies
A company, abbreviated as co., is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specific, declared go ...
prior to the repeal of the double-tax treaty. The essence of the Act was that a company
incorporated under that legislation was prohibited from conducting business with people resident within the Territory (i.e. it was for International Business), and in exchange the company was exempt from all forms of British Virgin Islands
taxation
A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, o ...
and
stamp duty.
Parts of the Act were quite radical for the time. The Act abolished the concept of ''
ultra vires
('beyond the powers') is a Latin phrase used in law to describe an act which requires legal authority but is done without it. Its opposite, an act done under proper authority, is ('within the powers'). Acts that are may equivalently be termed ...
'' for companies, considerably restricted the requirement for
corporate benefit, it permitted companies to change their corporate
domicile
Domicile may refer to:
* Home, a place where someone lives
* Domicile (astrology)
In astrology, a planet's domicile (or less commonly house, not to be confused with the astrological house system) is the zodiac sign over which it has rulership ...
from one jurisdiction to another, it allowed "true
merger" of two different corporate entities, and introduced the concept of
voting trust A voting trust is an arrangement whereby the shares in a company of one or more shareholders and the voting rights attached thereto are legally transferred to a trustee, usually for a specified period of time (the "trust period"). In some voting ...
s to the jurisdiction.
The Act was passed into law by the Territory's
legislature
A legislature is an assembly with the authority to make law
Law is a set of rules that are created and are enforceable by social or governmental institutions to regulate behavior,Robertson, ''Crimes against humanity'', 90. with its p ...
on 15 August 1984 where Chief Minister
Cyril Romney
Cyril Brandtford Romney (1 March 1931 – 19 July 2007) was a British Virgin Islander politician who served as Chief Minister of the British Virgin Islands from 1983 to 1986. He also served as a member of the Legislative Council of the British V ...
hailed it as the most important legislation of the decade.
Growth
Initially, market response to the legislation was slow, but by 1988 a steady core of incorporation work was evident. However, in 1990 the U.S. invaded
Panama
Panama ( , ; es, link=no, Panamá ), officially the Republic of Panama ( es, República de Panamá), is a transcontinental country spanning the southern part of North America and the northern part of South America. It is bordered by Co ...
and arrested General
Manuel Noriega
Manuel Antonio Noriega Moreno (; February 11, 1934 – May 29, 2017) was a Panamanian dictator, politician and military officer who was the ''de facto'' ruler of Panama from 1983 to 1989. An authoritarian ruler who amassed a personal f ...
. At the time, Panama had been one of the market leaders in the provision of
offshore companies
The term "offshore company" or “offshore corporation” is used in at least two distinct and different ways. An offshore company may be a reference to:
* a company, group or sometimes a division thereof, which engages in offshoring business pr ...
. However, the invasion badly shook investor confidence in Panama, and incorporations in the British Virgin Islands under the Act soared from 1991 onwards.
From 1991 the Act was remarkably successful generating large numbers of incorporations. The Companies Registry in the Territory had to be expanded twice to cope with the volume of incorporations. The Act was then copied widely by other Caribbean offshore financial centres.
Despite its American focus, the key market for IBCs incorporated within the Territory developed in
Hong Kong
Hong Kong ( (US) or (UK); , ), officially the Hong Kong Special Administrative Region of the People's Republic of China (abbr. Hong Kong SAR or HKSAR), is a city and special administrative region of China on the eastern Pearl River Delta i ...
. Use of British Virgin Islands IBCs became so ubiquitous in Hong Kong, that in commercial jargon offshore companies generally were generically referred to there as "BVIs".
In 2000,
KPMG
KPMG International Limited (or simply KPMG) is a multinational professional services network, and one of the Big Four accounting organizations.
Headquartered in Amstelveen, Netherlands, although incorporated in London, England, KPMG is a net ...
were commissioned by the British Government to produce a report on the offshore financial industry generally, and the report indicated that approximately 45% of the offshore companies in the world were formed in the British Virgin Islands, making the British Virgin Islands one of the
world's leading offshore financial centres. As a direct result the Territory has one of the highest incomes per capita in the Caribbean.
Repeal
In 1999, a series of international initiatives were commenced against
tax haven
A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...
s by supra-national bodies such as the
OECD
The Organisation for Economic Co-operation and Development (OECD; french: Organisation de coopération et de développement économiques, ''OCDE'') is an intergovernmental organisation with 38 member countries, founded in 1961 to stimulate e ...
, including an initiative against what was termed "
unfair tax competition". One of the concerns of the OECD was that jurisdictions such as the British Virgin Islands had a "
ring fence
The hypothecation of a tax (also known as the ring-fencing or earmarking of a tax) is the dedication of the revenue from a specific tax for a particular expenditure purpose. This approach differs from the classical method according to which all g ...
d" tax regime, whereby companies could be incorporated under the International Business Companies Act which could not actually trade in the Territory, but would also be exempt from
most British Virgin Islands taxes. After a series of discussions, the British Virgin Islands government agreed to repeal the ring-fencing provisions in its tax legislation.
Because of the sheer volume of companies involved, the transition to a new legislative framework was accomplished over a two-year transition period. To protect the offshore business, the British Virgin Islands abolished both
income tax
An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...
and
stamp duty on all transactions except those relating to land in the Territory. Then the government enacted the
BVI Business Companies Act
The BVI Business Companies Act (No 16 of 2004) is the principal statute of the British Virgin Islands relating to British Virgin Islands company law, regulating both offshore companies and local companies. It replaced the extremely popular and ...
(No 16 of 2004). The slightly cumbersome name was designed to slightly reflect the name of the earlier statute and cash-in on the "IBC brand" which had grown under the former legislation. From 1 January 2005 to 31 December 2005 the two Acts ran in parallel, and it was possible to incorporate a company under either form of legislation. from 1 January 2006 until 31 December 2006, one could no longer incorporate a company under the International Business Companies Act, and all new incorporations had to be conducted under the BVI Business Companies Act. During 2006 detailed transitional provisions were enacted to allow companies formed under the old legislation to adapt to the new legislation without having to significantly amend their
constitutional documents
In relation to juristic persons, the constitutional documents (sometimes referred to as the charter documents) are the documents which define the existence of an entity and regulate the structure and control of that entity and its members. The pr ...
.
The International Business Companies Act was then finally repealed in full on 31 December 2006.
[Although the Act has formally been repealed, certain parts of the Act remain indirectly in force under the BVI Business Companies Act, 2004 - particularly in relation to de-registration of ]security interest
In finance, a security interest is a legal right granted by a debtor to a creditor over the debtor's property (usually referred to as the ''collateral'') which enables the creditor to have recourse to the property if the debtor defaults in makin ...
s registered under the Act.
A special arrangement between the BVI government and one of the key
trust companies
A trust company is a corporation that acts as a fiduciary, trustee or agent of trusts and agencies. A professional trust company may be independently owned or owned by, for example, a bank or a law firm, and which specializes in being a trust ...
in the Territory meant that the last company incorporated under the Act was named "The Last IBC Limited". It was company number 690583.
External links
Video: The Story of the IBC Act
Footnotes
{{Reflist
Economy of the British Virgin Islands
Offshore finance
British Virgin Islands law
British Virgin Islands company law
1984 in law
1984 in the British Virgin Islands