Why do businesses choose the British Virgin Islands?

The British Virgin Islands have solidified its reputation as one of the world's leading tax havens, attracting international businesses and investors with favourable tax policies, financial privacy, and minimal regulatory interference.

Located in the Caribbean, this overseas territory of the United Kingdom comprises over 50 islands, islets, and cays, offering a politically stable and economically prosperous environment for foreign direct investment.

A strategic tax haven

One of the primary draws of the British Virgin Islands is its advantageous tax structure. The jurisdiction imposes no corporate tax, estate tax, inheritance tax, or sales tax, making it an appealing destination for offshore company formation.

Offshore businesses incorporated under its Business Companies Act, introduced in 2004, enjoy streamlined processes, enabling quick and efficient company formation.

Nearly 40% of the world's offshore companies are incorporated in the British Virgin Islands, with over 600,000 companies formed to date. This sector contributes nearly one-third of the territory's GDP, primarily through licensing fees and financial services like offshore banking and investment.

Moreover, the British Virgin Islands provides robust legal and accounting frameworks, facilitating asset management and financial planning, positioning it as a competitor to other tax havens such as the Cayman Islands and Panama.

Controversy and reforms

The British Virgin Islands currently rank first on the latest update of the Corporate Tax Haven Index by the Tax Justice Network, which evaluates jurisdictions based on how complicit they are in helping multinational corporations underpay corporate income tax in other countries.

According to the findings, the British Virgin Islands contributes a 7.1% share to global corporate tax abuse.

The index further states the British Virgin Islands has an inward foreign direct investment of $1.1 trillion and an outward foreign direct investment of $1.4 trillion.

Nearly half of foreign investments made every year are estimated to be "phantom investments". These are "investments" a multinational corporation makes into a country that do not enter the country's economy and are purely a tactic to move finances around to underpay tax.

Moreover, high-profile leaks such as the Panama Papers highlighted the role of tax havens like the British Virgin Islands in global financial misconduct, according to Offshore Protection, which specialises in custom offshore strategies.

In response, the territory has introduced reforms to improve transparency measures and accountability in line with international standards.

It has recently signed the Multilateral Convention on Mutual Assistance in Tax Matters and remains compliant with the Financial Action Task Force, and the Organisation for Economic Co-operation and Development (OECD).

These efforts have prevented the British Virgin Islands from being blacklisted by global watchdogs, reinforcing its legitimacy while preserving business confidentiality.