Navigating the choice between BVI and Cayman Islands offshore corporate structures
Offshore incorporation can be a sound decision for a company that is looking to do cross-border business. Most often, an entity that is established outside of its primary location of operation will conduct the same activities as any other company, but will enjoy benefits that are not necessarily available in onshore jurisdictions. Arguably, the most reputable offshore financial centres are the British Virgin Islands (“BVI”) and the Cayman Islands, and a decision will often therefore need to be taken in each case as to which of these jurisdictions is better suited to any particular structure or project. To a certain extent, this choice will be dictated by the client’s objectives and relevant market practices.
Similarities in advantages
Notably, both BVI and Cayman Islands companies enjoy many of the same advantages.
Reputation: The BVI and the Cayman Islands are widely regarded as market leading offshore jurisdictions which have consistently sought to comply with international best practices and norms, including those set by the Financial Action Task Force (“FATF”) and the Organisation for Economic Co-operation and Development. Market participants, including investors, financiers, service providers and regulators, recognise this and are familiar with both jurisdictions which facilitates deal making and investment.
Tax neutrality: Companies incorporated in the BVI and the Cayman Islands enjoy tax neutrality, as there are no local taxes on corporate profits, capital gains, and/or wealth. Additionally, there are no withholding taxes.
Access to banking solutions and finance: Offshore and onshore banking solutions are readily available for BVI and Cayman Islands companies. Lenders are typically happy to advance funds to companies incorporated in these jurisdictions subject to completion of the usual credit and onboarding checks.
Reliability and flexibility: Both jurisdictions operate under English common law principles, providing a stable and reliable legal environment. With well-established judicial systems, they offer a robust framework for conducting business, including a final right of appeal to the UK Privy Council. BVI and Cayman Islands companies also benefit from flexible corporate structures, allowing unrestricted objects, capacity, and powers. Most decisions can be made by the board of directors of the relevant company, with minimal shareholder involvement. Exchange controls and restrictions on financial assistance are also absent.
Access to service providers: The BVI and the Cayman Islands offer access to high-quality service providers, including lawyers, registered office providers, accountants, trustees and administrators. Owing to the positioning of the BVI and the Cayman Islands as international financial centres, most service providers are well-versed in cross-border transactions and structures.
Redomiciliations: BVI and Cayman Islands law permits companies to continue in and out with relative ease. This is a unique proposition, as most jurisdictions either prohibit redomiciliations altogether or impose onerous conditions with respect to them.
Key differences to consider
Despite these similarities, key differences also exist between BVI and Cayman Islands companies.
Market practices and costs: The Cayman Islands continues to be the world’s premier offshore jurisdiction for established investment funds and listed companies owing to a first mover advantage, whilst the BVI is the more popular choice for startups and holding companies due to the lower government fees for incorporation and annual maintenance costs. The BVI has also proven to be a popular domicile for cryptocurrency trading companies, issuers of non-fungible tokens and other businesses in the digital assets sector as a result of the flexibility provided by BVI legislation. It is worth noting that although both jurisdictions expressly regulate virtual asset service providers, the approach that is taken is quite different, and clients are therefore best advised to seek legal advice to be able to make an informed decision as to the more appropriate jurisdiction.
Confidentiality: While both jurisdictions offer confidentiality, their approaches differ slightly in that the memorandum and articles of association of a Cayman Islands company are a matter of private record, whereas the constitution of a BVI company is publicly accessible. Whether this is material will depend on whether the memorandum and articles of association contain commercially sensitive provisions that have been agreed between the shareholders and the company. In both jurisdictions, the details of the directors and the shareholders of a company are a matter of private record, but the names of the existing directors are disclosable to a third party upon payment of a nominal fee to the relevant company registrar consistent with the FATF’s guidelines.
Secured lending: Although both jurisdictions are popular with secured creditors owing to the broad range of self-help remedies that are typically available in an enforcement, the BVI has the advantage of having a public security registration system which protects the priority of a registered security interest and places third parties on constructive notice of it. This is attractive to lenders.
Legal advice should be sought in every case to ensure that the most appropriate jurisdiction is selected for an offshore structure. Although certain key considerations are set out above, the decision will often be nuanced and require an analysis of relevant points of law and market practices.
