Under recently passed legislation, certain British Virgin Islands ("BVI") companies will be required to identify and collect details of the individuals who ultimately own or control 25% or more of the shares or voting rights or who otherwise exercise control over the management of the company, together with details of certain intermediate holding companies through which such interests are held (the "Regime").1
The new Regime codifies a commitment agreed by the BVI (together with other Crown dependencies and overseas territories) with the UK Government by way of an Exchange of Notes in April 2016, to enhance existing robust arrangements on the exchange of beneficial ownership information to assist law enforcement agencies combat tax evasion and money laundering.
Each BVI company that falls within the Regime's ambit (an "In-Scope Entity") will be required to identify and collect certain details of its beneficial owners and registrable legal entities, and provide those details to its registered agent, with an ongoing requirement to keep the details up to date.
There are specified exceptions that will exempt certain types of BVI companies from the requirement to identify, collect and provide details on their beneficial owners (notably those that are investment funds, listed companies or subject to certain direct or indirect regulatory oversight in the BVI or other recognised jurisdictions).
The registered agent of an In-Scope Entity must maintain a database containing details of beneficial owners of, and registrable legal entities, applicable to BVI companies for which it is registered agent. The database will not be public and the information will be accessible only by designated persons specified by BVI competent authorities, principally on proper and lawful requests made by UK law enforcement agencies.
This update provides a general overview of the Regime and summarises the obligations and actions that In-Scope Entities need to take to comply with the Regime.
Which entities are within scope?
Subject to specified exceptions, the Regime is intended to apply to companies incorporated or registered under the BVI Business Companies Act, 2004.
Which entities are out of scope?
The Regime does not apply directly to foreign companies, or foreign companies that are registered in the BVI as a 'foreign company' pursuant to Part XI of the BVI Business Companies Act, 2004. The regime does not apply to companies that were struck off the register of companies prior to 1 January 2016.
There are also a number of exceptions where certain categories of BVI companies will be exempted from the full Regime and will not need to maintain their own beneficial ownership information. Broadly, these exceptions will apply to companies either where they are:
(a) listed on a recognised stock exchange (e.g. NYSE, NASDAQ, London, Cayman Islands or Hong Kong Stock Exchanges);
(b) recognised, registered or otherwise approved as a mutual fund under the Securities and Investment Business Act, 2010 including an approved fund, an incubator fund, a public fund, a professional fund and a private fund;
(c) a BVI licensee (being a company licensed under the BVI financial services regulatory legislation, including an insurance company, bank or trust company);
(d) a 'subsidiary' of a company that is exempt under (a) or (b) above, being a company where 75% or more of the interests or voting rights are held, directly or indirectly, by an exempt person; or
(e) exempted by regulations.
Obligations of an In-Scope Entity
If no exemption applies, an In-Scope Entity must identify:
(a) whether any individual is a qualifying 'beneficial owner' (as described below) of that In-Scope Entity; and
(b) whether any legal entities (each a "registrable legal entity") would meet the definition of a beneficial owner in relation to that In-Scope Entity if they were an individual rather than a legal entity, and are:
(i) an out of scope entity as set out above;
(ii) an issuer of securities listed on a recognised stock exchange or any regulated exchange;
(iii) a BVI licensee or foreign regulated person; or
(iv) a sovereign state or a wholly owned subsidiary of a sovereign state.
This obligation may require an In-Scope Entity to enter into correspondence with its shareholders in order to determine its beneficial owners and, if applicable, registrable legal entities.
All individuals who are qualifying beneficial owners, and registrable legal entities, will have their details provided to the In-Scope Entity's registered agent.
Similarly, an In-Scope Entity must notify its registered agent within 15 days of becoming aware of a change in the particulars of a beneficial owner or registrable legal entity.
It is an offence for an In-Scope Entity or its registered agent to fail to comply with its obligations under the Regime.
Who is a beneficial owner?
Generally, a beneficial owner of a company will be an individual who ultimately owns or controls a company and includes (though is not restricted to) an individual who meets one of the following conditions with respect to an In-Scope Entity:
(a) In the case of a legal person other than a company whose securities are listed on a recognised stock exchange, a natural person who ultimately owns or controls, whether directly or indirectly, 25% or more of the shares or voting rights in the legal person;
(b) In the case of a legal person, a natural person who otherwise exercises control over the management of the legal person;
(c) In the case of a legal arrangement:
(i) the partner or partners who control the partnership;
(ii) the trustee or other person who controls the legal arrangement; or
(iii) the settlor or other person by whom the legal arrangement is made;
(d) In the case of a company that is in insolvent liquidation, administration or administrative receivership under the Insolvency Act, 2003, the natural person who is appointed as a liquidator, administrator or administrative receiver of the company;
(e) In the case of a receiver being appointed over 25% or more of the shares or voting rights in a company, the creditor who appoints the receiver; or
(f) In the case of a shareholder in the company who would otherwise be a beneficial owner but is deceased, the natural person acting as a personal representative of the deceased's estate.
A person shall not be treated as a beneficial owner only by reason of:
(a) having the benefit of a security interest over shares or voting rights in a company; or
(b) having a commercial exposure to the financial performance of a company pursuant to financial derivatives or similar contractual arrangements.
Required Particulars for Beneficial Ownership Register
The particulars of a beneficial owner that are required to be provided by an In-Scope Entity to its registered agent are set out in the legislation, and include details such as name, residential address, date of birth and nationality (or relevant corporate identifying information for a registrable legal entity). The registered agent's database must also contain details of the date on which such individual became or ceased to be a beneficial owner with respect to an In-Scope Entity.
What actions should BVI companies take?
All BVI companies will now need to take proactive steps to determine whether they are In-Scope Entities or whether they fall outside the scope of the Regime. Those entities which are exempt should also document their determination as to their status under the Regime.
In-Scope Entities should commence taking steps to identify, obtain and hold information about their beneficial owners and registrable legal entities.
In light of the obligations imposed under the Regime, we will be liaising with clients to assess the impact of the Regime on their entities registered in the BVI and to provide advice on next steps. We can also advise In-Scope Entities in relation to the creation and maintenance of a beneficial ownership register and such other matters required in order for In-Scope Entities to fulfil their legal obligations under BVI law.