Knowledge

British Virgin Islands ("BVI") corporate law is flexible and permissive, and allows companies to be tailored to the needs of clients or local markets. As a consequence, we often see BVI companies being used alongside onshore companies, where the BVI company is used to solve a structural problem or to complement an existing structure.

Our experience, as BVI corporate law specialists in Singapore for the past decade, is that BVI companies can be used in a multitude of ways to solve legal problems and to add flexibility to structures for Singaporean clients.

We explore some examples below.

Access to capital

A Singapore private company limited by shares has a limit of 50 shareholders. If the Singapore company breaches this limit, it is required to convert into a public limited company, which gives rise to greater obligations.

This shareholder limitation can frequently give rise to structural issues, as it may impact on new structures where more than 50 investors are anticipated, existing structures where future investment rounds or new investors are sought, or mergers, which may lead to breach of the shareholder limit.

In order to solve these problems, BVI companies are frequently used as a shareholding vehicle.  The BVI company, which has no limitations on the number of investors, is structured above the Singapore company, so that investment is made through the BVI vehicle.  This allows the underlying Singapore company to attract more investors while remaining compliant with local legislation.

Free movement

The BVI has permissive corporate legislation which provides considerable flexibility in cross-border structuring.  One key advantage of the BVI is that it permits companies to re-domicile into and out of the jurisdiction.

Singapore only permits the re-domiciliation of companies into the jurisdiction, but does not permit companies to migrate out. As a result, companies that migrate to Singapore do so on a one-way basis, and companies formed in Singapore must remain there.

In some cases, a company may wish to change domicile.  For instance, a change in circumstances (such as taxation, regulation or a change in strategic focus) may lead a business to consider migration. To take another example, on a merger or acquisition, the deal structuring may require transfer to another jurisdiction. In each case, this would not be possible to achieve with a standalone Singapore company.

For this reason, it is sometimes prudent to incorporate a BVI company within the structure in order to retain the ability to migrate at the BVI level. Where a BVI company is incorporated, either as the ultimate shareholder or a holding company in relation to a specific asset or business line, this avoids being 'locked in' should the need to migrate arise.

Accounting flexibility

A BVI company has considerable discretion in its choice and manner of accounting. In general, there is no requirement that a BVI company has audited accounts, adopts any specific or prescribed accounting standard, or has consolidated accounts.

Aside from the choice and flexibility this brings, this may also lead to other advantages where the BVI company is part of a group including a Singapore company. For instance, under the amended Section 10L of the Singapore Income Tax Act, new rules impose taxation on gains arising from disposals of foreign assets. The rules will apply to relevant entities within the group, where the member of the group has accounts which are included in the consolidated financial statements of the parent. A discussion of Section 10L is outside the scope of this briefing, and the advice of local counsel should be sought, but it is clear that prudent structuring using BVI companies may assist maximizing corporate value.  

Taxation advantages

BVI companies are exempt from taxes and, consequently, no tax will arise at the BVI level in any acquisition or divestment of a BVI company. 

In contrast, Singapore has a corporate tax rate of 17%. Singapore also imposes stamp duty, unless a statutory exemption arises, and the stamp duty on the sale of shares of a Singapore company will amount to 0.2% on the higher of the consideration paid or the value of the shares. 

As a result, taxation considerations may also play a role as to whether a BVI company should be introduced into the structure. For example, if there are plans to sell an asset or specific business at some point in the future, it may be practical to structure this under a BVI holding company to optimize tax advantages.

Our team has long experience of how BVI companies – and Cayman Islands, Guernsey and Jersey companies – can be used by clients in Singapore to make structures more flexible, and to support forward-planning. Please get in touch with any of the contacts listed to discuss this in more detail.