The British Virgin Islands (BVI) continues to attract virtual asset firms looking to capitalize on its status as a premier offshore financial center. Unlike other jurisdictions that have either banned certain types of digital assets or placed significant restrictions on them, BVI has become the jurisdiction of choice for clients wanting an efficient and competitive route to market.
Although the BVI is currently developing a bespoke regulatory framework with regards to digital assets, the author predicts that the BVI will continue to be very popular with fintech companies in Asia and beyond for issuing non-fungible tokens (NFT) and other digital tokens.
The advantages and benefits of establishing virtual asset businesses in BVI include:
(1) Stability and reliability. As a self-governing British Overseas Territory which applies the rules and principles of English common law, it has a proven and efficient judicial system, with a final right of appeal to the Privy Council.
(2) Establishment and maintenance costs. BVI companies are inexpensive to incorporate and maintain in good standing. There were approximately 370,000 active BVI businesses at the end of 2021, many of which are virtual asset businesses.
(3) Tax neutrality. No income, corporation, capital gains or wealth tax, withholding tax or other similar tax is imposed on BVI corporations under BVI law.
(4) Exchange Control. There are no exchange controls and restrictions under BVI law.
(5) Confidentiality. The shareholders and directors of a commercial BVI company are generally a private matter.
(6) Business Flexibility. The purpose, capacity and powers of a BVI company are generally unlimited. Most decisions can be made by the board of the relevant company, with only certain matters requiring shareholder approval. There is considerable flexibility to adapt the Memorandum of Association and Articles of Association to meet a client’s requirements.
The BVIs have not developed a specific regulatory framework for virtual assets. Therefore, whether an entity will need to be licensed or registered for its BVI Virtual Assets business will be determined in accordance with applicable financial services legislation.
Firstly, dealing, arranging transactions or managing investments, providing investment advice, custodial and/or administration services relating to investments and operating an investment exchange are regulated by the Securities and Investment Business Act (SIBA).
The BVI Financial Services Commission (FSC) has confirmed that a virtual asset, which is a medium of exchange to which no benefit or right other than ownership is attached (such as a utility token allowing its holder to purchase goods and services), will generally not constitute an “investment” within the meaning of the SIBA. Particular consideration should be given if any other benefits or rights are attached to the virtual asset, as these will determine whether it then constitutes an “investment”.
Second, the Funding and Monetary Services Act (FMSA) regulates international financing and lending activities in the peer-to-peer fintech market, including peer-to-business and business-to-business markets. and the transmission of money in any form. , including e-money, mobile money or cash payments. The FSC has confirmed that the transmission of virtual assets and related products will not be covered by the FMSA. However, a virtual asset business that deals in fiat currency on behalf of customers should carefully consider its position under the FMSA.
Third, the Banks and Trust Companies Act (BTCA) regulates “banking business” – which is defined as “the business of accepting deposits of money which can be withdrawn or refunded on demand or after a specified period, or after notice, by check or otherwise, and the use of such deposits, in whole or in part, (1) in the making or granting of loans, advances, overdrafts, guarantees or similar facilities; or (2) making investments, (in each case) for the account and at the risk of the person accepting such deposits. A virtual asset business and/or exchange with activities that include trading or holding fiat currency should therefore ensure that they are not inadvertently conducting “banking activities” under the BTCA.
Finally, Anti-Money Laundering (AML) legislation at BVI requires “Relevant Persons” carrying out “Relevant Activities” (such as funds and money transfer service providers) to establish certain AML policies and procedures. . While certain types of activities (such as utility token ICOs) are unlikely to fall under these regulations as they fall outside the scope of investment activities under the SIBA, admins should keep the AML framework in mind as a good business. governance – and as a way to sustain the business.
PETER VAS is a partner at Loeb Smith Attorneys in Hong Kong. Other members of the firm’s corporate group who also contributed to this article are GARY SMITH, SANTIAGO CARVAJAL, SANDRA KORYBUT and VIVIAN HUANG.
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