Technology and Innovation Guide 2024 – The British Virgin Islands

1. Are there any “sandbox” or other regulatory neutral zones?

Yes. In August 2020, the BVI Financial Services Commission (FSC) launched a regulatory sandbox for companies whose proposed business model involves the development or implementation of a new system, mechanism, idea, method or other arrangement through the use of technology to create, enhance or promote a product or service with respect to the conduct or provision of a financial services business. The sandbox is designed to encourage technological innovation in financial services under a lighter touch regulatory regime.

An application for entry into the sandbox will consist principally of a business proposal to cover, among other things: (i) the proposed product or service, and how this encompasses innovation to improve accessibility, efficiency, effectiveness, security, quality in the provision of, or addresses shortcomings or opens up new opportunities in, financial services or the regulation thereof; (ii) the testing already carried out on the proposed product (with the expectation that testing, to the extent permitted by legislation, will be carried out prior to entry into the sandbox); (iii) details on the proposed customers (including estimated numbers, investment experience and geographical reach); (iv) an analysis of the risk profile of the proposals and the measures to be taken to manage those risks; (v) an indication of the resources (whether financial, technological, human or otherwise) available to the application; and (vi) a strategy for exiting the sandbox.

2. Is there a Digital “incubator” or hub?

No special economic zones have currently been established within the BVI to benefit companies in the tech and innovation sector. Whilst the FSC has indicated that it is considering initiatives to encourage entities to operate physically within the BVI, any such project is unlikely to be viable without significant investment into infrastructure.

3. Are there any barriers to entry for foreign technology companies?

There are no significant barriers to entry for any companies who wish to be incorporated within the BVI, without any physical presence in the jurisdiction. Companies seeking to carry on business within the local market must apply for a local business licence issued by the BVI Trade Commission.  Companies registered as a virtual asset service provider are exempt from the requirement to hold a business licence for providing virtual asset services within the BVI[1].  For further information, see section G below.

[1] Note, a similar exemption applies to holders of an investment business licence under the Securities and Investment Business Act.  For further information regarding investment business licences, see section B below.

4. Have traditional institutions embraced new technologies?

To date, there has been no significant displacement of traditional financial service providers in the BVI. Nonetheless, as one of the largest international business and financial centres, it is expected that this will be an area of significant growth in the coming years, with recent drives from the BVI government for local entities to embrace FinTech solutions. In order to stay competitive, it is anticipated that traditional service providers will look at new innovations driven by technology-focused new entrants to the market. Similar to other offshore jurisdictions, one area of focus is on technology solutions that deliver performance improvements to existing paper-based checks and balances in areas such as customer due diligence, fraud detection and beyond. For larger financial institutions with substantial compliance overheads, the promise of FinTech to replace manual processes with technologies that are cheaper and more cost effective at achieving compliance and managing risk has yet to be realised but the possibilities are certainly being explored.

5. What forms of legal entity are available for technology companies?

The most popular type of BVI entity has typically been the BVI business company. A business company is a corporate structure managed by its director(s), whereby the liability of interest holders for the company’s debts or liabilities can be unlimited, limited by guarantee or, most commonly, limited by shares.

Whilst a common structure in other jurisdictions, the limited partnership has traditionally been underused in the BVI. Nonetheless, in January 2018, the BVI reinvented its legislation governing limited partnerships in a manner that now makes these an attractive and commercially flexible option for new corporate entities. A limited partnership is regarded in most jurisdictions as fiscally transparent and will consist of limited partners, who will not be liable for the debts of the partnership beyond the amounts they have agreed to contribute to the partnership, and at least one general partner, who will manage the business of the partnership and have unlimited liability for the debts of the partnership incurred whilst they are a general partner. Under the new legislation, a limited partnership can be established with or without legal personality.

BVI has also recently introduced the Micro Business Companies Act, 2017, which offers a new form of corporate entity, limited by shares, with lower set up and ongoing costs and fewer obligations. This form of entity is aimed at sole-traders and start-up enterprises. Among other restrictions, this option is not available for any business licensed under any financial services regulation and micro businesses are subject to limitations on, among other things, turnover, share issuances and transfers.

6. What AML requirements apply to businesses in the BVI?

International standards of anti-money laundering and counter-terrorist financing are set by the Financial Action Task Force (FATF). As a member of the Caribbean FATF, the BVI implements recommendations promulgated by the FATF.

All BVI-incorporated entities are subject to the BVI Proceeds of Criminal Conduct Act (as amended), which sets out the principal money laundering offences. Certain ‘relevant’ businesses (which would include, for instance, entities caught within BVI financial services regulations and other entities thought to be at a higher risk of money laundering) are further subject to the BVI Anti-Money Laundering Regulations (AML Regulations), and the Anti-Money Laundering and Terrorist Financing Code of Practice (AML Code), which prescribe certain identification, record keeping and internal control procedures for such businesses.

In August 2018, changes were made to the AML Code to permit entities in the BVI to digitally verify identities and receive electronic copies of documents instead of traditional “wet ink” paper-based processes. The amendments are further evidence of regulators in the BVI embracing the blockchain revolution and will set a new standard for AML verification in the region.

Following amendments to the AML Code which took effect from 1 December 2022, certain virtual asset services will satisfy the definition of ‘relevant business’ under the AML Code which may result in certain virtual asset service providers being treated as a ‘relevant person’ for the purposes of the AML Regulations. Such entities which satisfy the definition of ‘relevant person’ and ‘relevant business’ will be subjected to a reduced threshold of $1,000 for a one-off transaction.

7. Are electronic signatures valid?

Under the BVI Electronic Transactions Act, 2001, the legal requirement for a ‘wet’ signature is satisfied by an electronic signature if:

• ​the electronic signature adequately identifies the signatory;
• the electronic record adequately indicates (i) the signatory’s approval of the information to which the signature relates, or (ii) for the witnessing of a signature or seal, that the signature or seal has been witnessed;
• ​the electronic signature is as reliable as is appropriate given the purpose for which and circumstances in which the signature is required; and
• ​the recipient or counterpart of the electronic signature consents to receiving the electronic signature and the electronic signature of each witness (if any).

8. How is personal data protected?

The BVI Data Protection Act (DPA) came into full force on 9 July, 2021. Drafted around a set of EU-style data protection principles to which data controllers must adhere, personal data must be collected in a fair and transparent manner and only be used and disclosed for purposes properly understood and agreed to by data subjects. Any personal data collected must be adequate, kept up-to-date and should not be retained for longer than is necessary to fulfil the collection purposes.

Importantly, the DPA provides a standard framework for both public and private entities in the management of the personal data they use. Internationally active organisations will find many similarities between the DPA and data protection laws of other jurisdictions where they are active but there are some key differences. The DPA provides a lighter touch approach to data protection regulation than other jurisdictions in the region.

BVI courts recognise and subscribe to the common law duties of confidentiality and privacy, and English common law is persuasive, although not binding, in the BVI. As a result, all entities that manage and maintain personal data will be subject to the common law duty of confidentiality described above.

The duty of confidentiality has also been codified in various aspects of BVI legislation, in particular the Banks and Trust Companies Act, 1990 (as amended), which regulates all banking and trust/fiduciary-related activities in the BVI. Licensed operators of such businesses, regulated by the FSC, are under a general obligation to maintain the confidentiality of a client’s personal data unless the individual has granted specific permission for its release or disclosure to third parties. This obligation may be limited where the licensee is required to deal with anti-money laundering and similar legislation.

For corporate entities, the Registrar of Corporate Affairs is currently permitted to release only limited information regarding the particulars of any registered company, which would include the name, type of company, date of registration/incorporation, names of directors, registered office address and status of the company. Details of individual shareholders and officers of the company are not available for public inspection and shall only be made available by the Registrar to competent authorities (for tax compliance or other law enforcement purposes) on written request.

9. Are smart contracts enforceable in the British Virgin Islands?

There are no laws, regulations or BVI judicial decisions addressing the enforceability of smart contracts.

Provided that the defining features of a contract are present – offer, acceptance, the intention to be legally bound and consideration – smart contracts are capable of satisfying the requirements for a binding contract and are enforceable by the courts.

Arguably the role of contractual interpretation for smart contracts written wholly in computer code may be limited as the language (in this case code) will typically be clear and unambiguous, although issues may arise where the code is ill-defined or corrupted.

With the regard to the developer liability, although the point remains untested in BVI, our view is that developers of blockchain protocols are not fiduciaries. The role played by protocol developers in the governance of public blockchain networks does not pose the risks of abuse that characterise traditional legal fiduciaries and therefore does not require the imposition of fiduciary duties.

It should also be borne in mind that the risk of developer abuse in a publicly governed blockchain is minimal. By its nature, each update to the open-sourced code is analysed and tested by other network participants who have a significant economic interest and the technical abilities to audit the code before implementing it.

1. Can a crypto-to-crypto exchange be established?

Yes. Where traded tokens or cryptocurrencies constitute ‘virtual assets’ for the purposes of the VASP Act, the exchange will need to be licensed under the VASP Act as a virtual assets exchange. Virtual assets exchange service providers have additional obligation over and above other virtual asset service providers pursuant to the VASP Act. Where traded tokens or cryptocurrencies constitute ‘investments’ for the purposes of SIBA (see question 1 of Section B), the exchange will need to be licensed under SIBA as an investment business. Operators of crypto-to-crypto exchanges may wish to ensure that issuers provide opinions as to the status of their token or cryptocurrency under SIBA prior to admission to the exchange.

Currency exchanges operated by BVI-incorporated entities (whether or not operated from within the territory) are governed by the BVI Financing and Money Services Act, 2009 (FMSA). Whilst no relevant definitions are set out within FMSA, the FSC have indicated that tokens or cryptocurrency will not fall within the scope of ‘money’ or ‘currency’ within FMSA, and therefore exchanges between various cryptocurrencies and tokens will not constitute a ‘currency exchange’ and thus will not require licensing under FMSA.

2. Can a crypto-to-fiat exchange be established?

Yes. However, to the extent that cryptocurrencies can be both purchased and redeemed or exchanged for fiat currencies, this may fall within either the currency exchange or money transmission provisions of FMSA and therefore require licensing under such Act.

Where traded tokens or cryptocurrencies constitute ‘virtual assets’ for the purposes of the VASP Act, the exchange will need to be licensed under the VASP Act as a virtual assets exchange.

3. Is a money services licence required for crypto-to-fiat conversion through an OTC desk?

No, but such a provider (if a BVI entity) would likely be considered a virtual assets service provider and would need to register under the VASP Act.

4. Can a virtual asset project establish a local bank account?

Local banks have become more open to the establishment of a local bank account for virtual asset projects however the process remains difficult. Whilst local banks have, traditionally, been reluctant to open accounts for BVI-incorporated entities, there are a small number of banks who may consider establishing a bank account on a case by case basis.

It is typical for BVI entities to establish bank accounts elsewhere, whether in other overseas jurisdictions or onshore utilising existing group banking relationships.

5.​ Can you register as a virtual asset custodian in the BVI?

Yes. Under the VASP Act, a virtual asset custody service is defined as the acceptance for safekeeping of virtual assets or instruments that enable a VASP to exercise control over the virtual assets or instruments. This definition captures persons that hold or have access to, for or on behalf of other persons, the private keys or similar attributes that can control a virtual asset. Where the custodied tokens, cryptocurrencies or assets constitute ‘virtual assets’ for the purposes of the VASP Act, the company will need to be licensed under the VASP Act as a virtual assets custody service provider. Virtual assets custody service providers have additional obligation over and above other virtual asset service providers pursuant to the VASP Act.

6. Are VASPs subject to the local AML regime?

As with all entities incorporated in the BVI, a VASP would need to ensure that it does not commit any offence under the BVI Proceeds of Criminal Conduct Act.

BVI’s ‘enhanced’ AML legislation (being the AML Regulations and the AML Code) only applies to any business conducting a ‘relevant’ business. As noted above, following amendments to the AML Code which took effect from 1 December 2022, certain virtual asset services will satisfy the definition of ‘relevant business’ which may result in certain virtual asset service providers being treated as a ‘relevant person’ for the purposes of the AML Code. Such entities which satisfy the definition of ‘relevant person’ and ‘relevant business’ will be subjected to a reduced threshold of $1,000 for a one-off transaction.

7. How do Exchange, On-Ramps and Off-Ramps operate?

To the extent that cryptocurrencies can be both purchased with, and redeemed for, fiat currencies via a BVI entity, such transmission is likely to fall within the VASP Act. Whilst FMSA does not capture the transmission or lending of virtual currencies or the exchange of virtual currencies, it does capture the transmission of money in any form including electronic money and may therefore require a licence.

8. Are Virtual Assets considered “Property”?

The point is untested in the BVI. English law is persuasive but is not binding on BVI courts and therefore it is likely that the BVI courts would look to existing English court rulings and the findings of the UK Jurisdiction Taskforce on the legal status of digital assets. Digital assets would therefore likely be treated as property in the BVI and, consequently, could be the subject of a fixed or floating charge. Charge holders should seek to take custody of digital keys to ensure the effectiveness of any security taken.

9. Taking Security over Virtual Assets

The form of security will depend on the manner that the virtual assets are held and what characteristics the virtual assets have. Where tokens are held through a custodian or other agent, security could be taken over the rights that the obligor has against that custodian or agent. An assignment of rights would likely be governed by the same governing law as the custody or agency agreement and an opinion should be sought as to the enforceability of the assignment of rights agreement to ensure its enforceability in the BVI courts.

Where tokens represent underlying shares of a BVI company, security should to be taken in the British Virgin Islands in the usual way that security is taken over the equity interests of company, typically by way of an equitable share mortgage or charge.

In relation to security granted by a BVI company, companies are required to maintain a register of mortgages and charges at their registered office in the British Virgin Islands and a chargee would typically require registration of the security in the public register to preserve priority of the charge.   An equitable share mortgage over shares in a BVI company should be noted in the internal register of members held at the registered office and a copy of the annotated register of members may be filed on the public register pursuant to the BVI Business Companies Act.

10. Mining and Staking

There are currently no restrictions on the use of mining. The BVI has high electricity costs and therefore mining within the BVI, particularly on a large-scale, is unlikely to be efficient.

There are currently no restrictions on the staking of tokens.

1. Does the British Virgin Islands impose economic substance requirements?

Yes.  The Economic Substance (Companies and Limited Partnerships) Act, 2018 (as amended, the ES Law) was brought into force on 1 January 2019 and has been supplemented by the Rules on Economic Substance in the Virgin Islands which, together with its explanatory notes, set out guidance on how the requirements of the ES Law may be met and interpreted.

The ES Law requires entities carrying on ‘relevant activities’ to show that they have an element of physical substance in the BVI in relation to certain ‘core income generating activities’. These relevant activities consist of:

• banking businesses;
• insurance businesses;
• fund management businesses;
• financing and leasing businesses;
• headquarters businesses;
• shipping businesses;
• distribution and service centre businesses;
• holding company businesses (which are subject to fewer requirements); and
• intellectual property businesses (which, in certain circumstances are subject to greater requirements).

Entities falling within the above businesses, or who are unsure if they would fall within the above businesses, should contact Appleby for guidance and for the steps that can be taken to establish economic substance.

2. Are there any reporting requirements in connection with economic substance?

Yes. All entities, regardless of whether they are conducting a ‘relevant activity’ are required to make an economic substance filing. Filings are made through an entity’s registered agent, and are due within 6 months of the end of the year to which they relate. For all entities incorporated or formed prior to 1 January 2019, the first economic substance filing was due by the end of 2020, unless a shorter initial reporting period has been agreed with the BVI International Tax Authority (the ITA). For entities incorporated or formed on or after 1 January 2019, the first filing (which will relate to the first year of operation), will be due 18 months after incorporation, unless a shorter initial reporting period has been agreed with the ITA.

3. What penalty provisions apply in the case of non-compliance?

Non-compliance with the ES Law may result in an initial warning and fine. Penalties shall be subject to a minimum of US$5,000 and a maximum of US$20,000 (or US$50,000 for those IP businesses which are deemed higher risk).

Failure to act upon recommendations in a warning may result in a further penalty and a referral of the matter to the FSC. Such further penalties shall be subject to a minimum of US$10,000 and a maximum of US$200,000 (or US$400,000 for those IP businesses which are deemed higher risk).

Following the second warning (or at any point following the first warning, if the ITA determines that there is no realistic possibility of the entity complying with the ES Law), the FSC may strike the entity off the register. Where an entity is struck off, the entity and its directors, partners, members or liquidators may not carry on any business or otherwise deal with its assets.

1. Trade Licences

In order to conduct business within the BVI, entities must obtain a business licence under the Business Licensing Act 2022 or benefit from an exemption. Business licence applications are typically processed in six to eight weeks from the date of application, but can take significantly longer if the proposed entity is not wholly or partially owned by BVI Belongers.[1]   Companies registered as a VASP are exempt from the requirement to hold a business licence for providing virtual asset services within the BVI.[2]

No trade licence is required for companies who wish to be incorporated within the BVI, without any physical presence or operations within the jurisdiction.

[1] A ‘Belonger’ is a person who, under the BVI constitution, is deemed to belong to the BVI by virtue of birth and ancestry, or is otherwise naturalised in the BVI.

[2] Note, a similar exemption applies to holders of an investment business licence under SIBA.

2. Tax Matters

The BVI is a tax-neutral jurisdiction with zero income, corporate or capital gains taxes for any entities incorporated within the BVI. Furthermore, there is no withholding tax on interest or distributions paid by BVI entities to investors, and investors will not otherwise be subject to income or capital gains tax within the BVI. Assuming the company does not hold, directly or indirectly, any real property in the BVI, no stamp duties or similar documentary taxes are imposed by or in the BVI.

If an entity employs anyone within the BVI, such person will be subject to payroll tax of between 10 and 14 per cent (8 per cent of which is paid by the employee, and the remainder paid by the employer) on remuneration (including severance pay, bonuses and money paid under profit-sharing scheme) for services rendered wholly or mainly in the BVI. Contributions will also be required for social security and national health insurance.

3. Visas and Work Permits

Any persons travelling to the BVI for business may request to stay for up to seven days at a time, without the need to obtain a temporary work permit. This exemption does not apply to foreign-admitted lawyers, not admitted in the BVI. For longer visits, or where the exemption does not apply, a temporary work permit may be required. Temporary work permits can be issued for up to a three-month period.

In addition to the permit, visas may be required depending on the residency of the visitor. No visa is currently required for visitors from, among other places, the United States, the United Kingdom, Canada and most EU member states.

For any expatriate who wishes to engage in more long-term employment within the BVI (whether self-employed, paid or unpaid, full-time or part-time), work permits must be obtained from the BVI Labour Department. Employers must give preference to any BVI Belonger who has applied and is qualified for the position. Work permits are typically issued for a one-year period.

4. Transportation Links

A direct flight route between the BVI and Miami is due to start in June 2023. Alternatively, passengers must transit through hubs such as Puerto Rico, or take a ferry to the nearby US Virgin Islands for transit onwards to mainland United States.

There is no direct route currently operating, or anticipated, between the BVI and the United Kingdom.