Taxation in the British Virgin Islands
Encyclopedia
Taxation in the British Virgin Islands is relatively simple by comparative standards; photocopies of all of the tax laws of the British Virgin Islands
would together amount to about 200 pages of paper. Tax
ation in the British Virgin Islands is mostly notable for what is not subject to taxation. The British Virgin Islands has:
The absence of most major forms of taxation in the Territory has led to the country being included on most recognised lists of tax haven
s, although the jurisdiction prefers to style itself as a modern offshore financial centre
.
There are a number of forms of taxation and revenue collection in the British Virgin Islands, but the majority of the Government's revenues are obtained directly from annual licence fees for offshore companies
incorporated in the jurisdiction.
in relation to employment and "deemed employment" within the British Virgin Islands. The legislation was brought in at the same time as income tax in the Territory was reduced to zero. The numbers were not in fact a perfect balance, and the Government (deliberately) reduced the amount of tax revenue it received by moving to the payroll tax system.
The tax is paid at a graduated rate depending upon the size of the employer. The current rates (as at June 2007) are 10% for small employers and 14% for larger employers. 8% of the total remuneration is deduction from the employee, the remainder of the liability is met by the employer. The first US$10,000 of remuneration are free from payroll tax.
. The main application of the stamp duty legislation relates to transfers of real estate
, or transfers of shares
in companies which own real estate. The rate of stamp duty on such transactions varies according to the status of the transferee; if the transferee is a Belonger, then stamp duty on land transfers is assessed at 4%; if the transferee is a Non-Belonger, it is assessed at 12%.
The legislation also includes a number of "rump" taxes that were imposed many years ago and subsist only due to a lack of attention in relation to updating legislation; the amounts involved are tiny, and are never enforced in practice. For example, charterparties are technically subject to stamp duty at a rate of 50¢ in the British Virgin Islands, but despite the flourishing bareboat charter
industry stamp duty is rarely if ever paid by charterers.
Separately, the British Virgin Islands also imposes various documentary duties which are described as being distinct from stamp duty on various classes of instrument:
The reason for not referring to these documentary taxes as stamp duty was that under the old International Business Companies Act
(Cap 291), companies incorporated under that Act were exempt from stamp duty, and so to retain the payment obligations for those companies, they were referred to as 'cheque duty' and 'trust duty' respectively.
As with stamp duty, land tax rates are considerably higher for foreigners than for Belongers.
House tax is paid at the same rate for all persons, and is it assessed at 1.5% of the annual rental value
of the house. There is a general perception that rental values for owner-occupied homes tend be to be assessed as being lower than their actual true market rental value.
, the British Virgin Islands had the EU withholding tax
imposed upon it in relation to interest payments in the jurisdiction which are payable to natural person
s who are resident within the European Union
. The withholding tax is not mandatory; depositors can elect not to pay it by agreeing to full disclosure of their account information to the revenue authorities in their country of residence. The implication is that the withholding tax is only applied to those who are not properly declaring their income in their home countries. However, payment of the withholding tax does not exempt the income from any applicable income taxes in the home jurisdiction; there is no double taxation
relief under the relevant legislation.
The amounts raised by the EU withholding tax to date have been extremely modest. There are two likely reasons for this; firstly, for an Offshore Financial Centre, the British Virgin Islands has an underdeveloped banking infrastructure compared to (for example) the Cayman Islands
or Jersey
and so comparatively modest sums are deposited in the Territory's banks; secondly, the withholding tax only affects deposits held by natural persons - because most offshore tax structuring involves the use of either an offshore company
or an offshore trust
, this usually takes it outside the scope of the tax.
s and levies. These include:
British Virgin Islands
The Virgin Islands, often called the British Virgin Islands , is a British overseas territory and overseas territory of the European Union, located in the Caribbean to the east of Puerto Rico. The islands make up part of the Virgin Islands archipelago, the remaining islands constituting the U.S...
would together amount to about 200 pages of paper. Tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
ation in the British Virgin Islands is mostly notable for what is not subject to taxation. The British Virgin Islands has:
- no capital gains taxCapital gains taxA capital gains tax is a tax charged on capital gains, the profit realized on the sale of a non-inventory asset that was purchased at a lower price. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property...
, - no gift taxGift taxA gift tax is a tax imposed on the gratuitous transfer of ownership of property. The United States Internal Revenue Service says a gift is "Any transfer to an individual, either directly or indirectly, where full consideration is not received in return."When a taxable gift in the form of cash,...
, - no sales taxSales taxA sales tax is a tax, usually paid by the consumer at the point of purchase, itemized separately from the base price, for certain goods and services. The tax amount is usually calculated by applying a percentage rate to the taxable price of a sale....
or value added taxValue added taxA value added tax or value-added tax is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the "value added" to a product, material or service, from an accounting point of view, by this stage of its...
, - no profit taxProfit taxProfits tax in Hong Kong is Direct tax and also classified into Income tax.According to Cap 112 Hong Kong Ordinance - Inland Reveue Ordinance Section 14, unless otherwise provided, profits tax shall be charged at the standard rate on any person who carries on a trade, profession or business in...
, - no corporation tax, and
- no inheritance taxInheritance taxAn inheritance tax or estate tax is a levy paid by a person who inherits money or property or a tax on the estate of a person who has died...
or estate duty, but - contrary to popular belief, there is in fact income taxIncome taxAn income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
in the British Virgin Islands, but the rate of taxation has been set at zero.
The absence of most major forms of taxation in the Territory has led to the country being included on most recognised lists of tax haven
Tax haven
A tax haven is a state or a country or territory where certain taxes are levied at a low rate or not at all while offering due process, good governance and a low corruption rate....
s, although the jurisdiction prefers to style itself as a modern offshore financial centre
Offshore financial centre
An offshore financial centre , though not precisely defined, is usually a small, low-tax jurisdiction specializing in providing corporate and commercial services to non-resident offshore companies, and for the investment of offshore funds....
.
There are a number of forms of taxation and revenue collection in the British Virgin Islands, but the majority of the Government's revenues are obtained directly from annual licence fees for offshore companies
Offshore company
The term offshore company is ambiguous. It may refer to either:# A company which is incorporated outside the jurisdiction of its primary operations regardless of whether that jurisdiction is an offshore financial centre i.e...
incorporated in the jurisdiction.
Payroll tax
In 2005 the British Virgin Islands introduced a payroll taxPayroll tax
Payroll tax generally refers to two different kinds of similar taxes. The first kind is a tax that employers are required to withhold from employees' wages, also known as withholding tax, pay-as-you-earn tax , or pay-as-you-go tax...
in relation to employment and "deemed employment" within the British Virgin Islands. The legislation was brought in at the same time as income tax in the Territory was reduced to zero. The numbers were not in fact a perfect balance, and the Government (deliberately) reduced the amount of tax revenue it received by moving to the payroll tax system.
The tax is paid at a graduated rate depending upon the size of the employer. The current rates (as at June 2007) are 10% for small employers and 14% for larger employers. 8% of the total remuneration is deduction from the employee, the remainder of the liability is met by the employer. The first US$10,000 of remuneration are free from payroll tax.
Stamp duty
Certain limited transactions in the British Virgin Islands are still subject to stamp dutyStamp duty
Stamp duty is a tax that is levied on documents. Historically, this included the majority of legal documents such as cheques, receipts, military commissions, marriage licences and land transactions. A physical stamp had to be attached to or impressed upon the document to denote that stamp duty...
. The main application of the stamp duty legislation relates to transfers of real estate
Real estate
In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...
, or transfers of shares
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
in companies which own real estate. The rate of stamp duty on such transactions varies according to the status of the transferee; if the transferee is a Belonger, then stamp duty on land transfers is assessed at 4%; if the transferee is a Non-Belonger, it is assessed at 12%.
The legislation also includes a number of "rump" taxes that were imposed many years ago and subsist only due to a lack of attention in relation to updating legislation; the amounts involved are tiny, and are never enforced in practice. For example, charterparties are technically subject to stamp duty at a rate of 50¢ in the British Virgin Islands, but despite the flourishing bareboat charter
Bareboat charter
A bareboat charter is an arrangement for the chartering or hiring of a ship or boat, whereby no crew or provisions are included as part of the agreement; instead, the people who rent the vessel from the owner are responsible for taking care of such things....
industry stamp duty is rarely if ever paid by charterers.
Separately, the British Virgin Islands also imposes various documentary duties which are described as being distinct from stamp duty on various classes of instrument:
- Cheque duty is assessed at 10¢ on each negotiable instrumentNegotiable instrumentA negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time. According to the Section 13 of the Negotiable Instruments Act, 1881 in India, a negotiable instrument means a promissory note, bill of exchange or cheque payable either...
(including traveller's cheques) presented for payment within the Territory. - Trust instrumentTrust instrumentA trust instrument is an instrument in writing executed by a settlor used to constitute a trust...
s are assessed with trust duty of US$100 (unless they are charitable trustCharitable trustA charitable trust is an irrevocable trust established for charitable purposes, and is a more specific term than "charitable organization".-United States:...
s or bare trustBare trustA bare trust is a trust in which the beneficiary has a right to both income and capital and may call for both to be remitted into his own name. He is also entitled to take actual ownership and control of the trust property...
s).
The reason for not referring to these documentary taxes as stamp duty was that under the old International Business Companies Act
International Business Companies Act
The International Business Companies Act, 1984 was a statute of the British Virgin Islands which permitted the incorporation of International Business Companies within the Territory...
(Cap 291), companies incorporated under that Act were exempt from stamp duty, and so to retain the payment obligations for those companies, they were referred to as 'cheque duty' and 'trust duty' respectively.
Land tax and house tax
Real estate in the British Virgin Islands is subject to nominal taxation. Because the amounts payable are so small, it is not uncommon for householders to not pay the tax at all, and then discharge all back taxes and penalties when they come to sell their property. The total tax on residential properties rarely exceeds US$100 per annum. The tax costs more to collect than it raises. During the Territory's last review of taxation, considerations were made to amend the law to reduce the amount of taxation collection due to a perception that it penalised second home owners (but not to abolish the taxes).As with stamp duty, land tax rates are considerably higher for foreigners than for Belongers.
- Belongers pay annually:
- US$3.00 for the first acreAcreThe acre is a unit of area in a number of different systems, including the imperial and U.S. customary systems. The most commonly used acres today are the international acre and, in the United States, the survey acre. The most common use of the acre is to measure tracts of land.The acre is related...
, or part thereof, and - US$1.00 for each subsequent acre, or part thereof.
- US$3.00 for the first acre
- Non-Belongers pay annually:
- US$50 for the first half acre, or part thereof,
- US$150 for the second half acre, or part thereof, and
- US$50 for each subsequent half acre.
House tax is paid at the same rate for all persons, and is it assessed at 1.5% of the annual rental value
Rental value
Rental value is the fair market value of property while rented out in a lease. More generally, it may be the consideration paid under the lease for the right to occupy, or the royalties or return received by a lessor under a license to real property...
of the house. There is a general perception that rental values for owner-occupied homes tend be to be assessed as being lower than their actual true market rental value.
Customs duties
Imports into the British Virgin Islands are, subject to certain limited exceptions, subject to import duty. Although this raises a modest amount of government revenue, it tends to be used as a political tool, and to prevent excessive competition with local retailers from the nearby U.S. Virgin Islands.EU Withholding tax
In common with most British Overseas TerritoriesBritish overseas territories
The British Overseas Territories are fourteen territories of the United Kingdom which, although they do not form part of the United Kingdom itself, fall under its jurisdiction. They are remnants of the British Empire that have not acquired independence or have voted to remain British territories...
, the British Virgin Islands had the EU withholding tax
Withholding tax
Withholding tax, also called retention tax, is a government requirement for the payer of an item of income to withhold or deduct tax from the payment, and pay that tax to the government. In most jurisdictions, withholding tax applies to employment income. Many jurisdictions also require...
imposed upon it in relation to interest payments in the jurisdiction which are payable to natural person
Natural person
Variously, in jurisprudence, a natural person is a human being, as opposed to an artificial, legal or juristic person, i.e., an organization that the law treats for some purposes as if it were a person distinct from its members or owner...
s who are resident within the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
. The withholding tax is not mandatory; depositors can elect not to pay it by agreeing to full disclosure of their account information to the revenue authorities in their country of residence. The implication is that the withholding tax is only applied to those who are not properly declaring their income in their home countries. However, payment of the withholding tax does not exempt the income from any applicable income taxes in the home jurisdiction; there is no double taxation
Double taxation
Double taxation is the systematic imposition of two or more taxes on the same income , asset , or financial transaction . It refers to taxation by two or more countries of the same income, asset or transaction, for example income paid by an entity of one country to a resident of a different country...
relief under the relevant legislation.
The amounts raised by the EU withholding tax to date have been extremely modest. There are two likely reasons for this; firstly, for an Offshore Financial Centre, the British Virgin Islands has an underdeveloped banking infrastructure compared to (for example) the Cayman Islands
Cayman Islands
The Cayman Islands is a British Overseas Territory and overseas territory of the European Union located in the western Caribbean Sea. The territory comprises the three islands of Grand Cayman, Cayman Brac, and Little Cayman, located south of Cuba and northwest of Jamaica...
or Jersey
Jersey
Jersey, officially the Bailiwick of Jersey is a British Crown Dependency off the coast of Normandy, France. As well as the island of Jersey itself, the bailiwick includes two groups of small islands that are no longer permanently inhabited, the Minquiers and Écréhous, and the Pierres de Lecq and...
and so comparatively modest sums are deposited in the Territory's banks; secondly, the withholding tax only affects deposits held by natural persons - because most offshore tax structuring involves the use of either an offshore company
Offshore company
The term offshore company is ambiguous. It may refer to either:# A company which is incorporated outside the jurisdiction of its primary operations regardless of whether that jurisdiction is an offshore financial centre i.e...
or an offshore trust
Offshore trust
An offshore trust is simply a conventional trust that is formed under the laws of an offshore jurisdiction.Generally offshore trusts are similar in nature and effect to their onshore counterparts; they involve a settlor transferring assets on the trustees to manage for the benefit of a person or...
, this usually takes it outside the scope of the tax.
Miscellaneous other taxes
The British Virgin Islands has a number of other minor taxes, impostImpost
Impost may mean:*A type of extra tax*A handicap used in horse racing*Impost : a block or capital on which an arch rests*A tax levied on imports....
s and levies. These include:
- Car tax, under the Self-Drive vehicles (Rentals) (Taxation) Act (Cap 210)
- Hotel tax, under the Hotel Accommodation Taxation Act (Cap 205)
- Petroleum income tax, under the Petroleum Income Tax Act (Cap 209)
- Passenger tax, under the Passengers Tax Act (Cap 208)
- A tax is assessed on charterers, although it is characterised as a "permit" under the Cruising Permits Act (Cap 207)