Understanding the basics of BVI company accounts
The British Virgin Islands (BVI) remains one of the most attractive and reliable no-tax jurisdictions for international business. Over a long time, the territory used to establish minimum statutory requirements for most BVI companies. In addition to the full exemption from profit tax, the BVI imposed no obligations on companies to prepare or file any accounts (except for local regulated entities).
Have things changed now? Has the jurisdiction expanded companies’ financial reporting responsibilities? Should they now submit company accounts? Do these accounts need to be audited? Such questions began to arise frequently among our customers this year. To help you figure it out, we have prepared a detailed overview of what has changed and what actions directors and owners of BVI companies should take.
Key elements of BVI company accounts
To date, there are only two main requirements related to a BVI company’s financial transactions. The first one implies keeping financial records and underlying documentation in the manner and within the period prescribed by law. This requirement is not new and has existed for many years. Most BVI company directors and shareholders are well aware of this rule.
The second requirement, by contrast, was introduced recently and involves filing an annual return with a company’s registered agent in the BVI. This annual return differs significantly from the full-fledged accounts (financial statements) companies usually prepare in most jurisdictions. It will not require an audit and will be unavailable to the general public.
Filing an annual financial return
From 1 January 2023, all BVI companies must submit a brief financial return to their registered agent under Article 98A of the BVI Business Companies Act, 2004 (as amended). The annual return consists of a balance sheet (or a statement of financial position) and an income statement. It does not need to be accompanied by any directors’ and (or) auditor’s report, other kinds of statements or explanatory notes.
The following entities do not file the annual return:
- Companies listed on a stock exchange;
- Entities that are regulated under financial services laws and provide financial statements to the Financial Services Commission (FSC);
- Companies that file annual tax returns together with their financial statements to the Inland Revenue Department;
- Companies in liquidation (except where the annual return became due before the commencement of the liquidation).
A company must file the annual return within nine months after the end of the reporting year. A company whose financial year matches a calendar year (2023) must file its first annual return by 30 September 2024.
If a company’s financial year does not correspond to a calendar year, it must file the annual return within nine months after its financial year-end. For example, if a company’s financial year ends on 31 March 2024, the deadline for submitting its first annual return will be 31 December 2024.
How to prepare and maintain BVI company accounts
Keeping accounting records
Preparing BVI company accounts begins with keeping adequate financial (accounting) records. Companies’ responsibilities regarding financial transactions are established in Article 98 of the BVI BC Act, 2004, which requires companies to:
- Keep their records and underlying documentation at the office of a registered agent or other place within or outside the BVI, at the directors’ option;
- Retain these records and documents for at least five years from the date of completion of the transaction or termination of the business relationship to which the records relate and
- Provide any records and underlying documentation at the request of the registered agent.
“Records and underlying documentation” mean invoices, receipts, contracts, agreements, bank statements, corporate resolutions and similar documents. They must reflect:
- All amounts received and expended by the company and the grounds of these receipts and expenditures;
- All sales and purchases made by the company and
- The company’s assets and liabilities.
The accounting records must be sufficient to show and explain the company’s transactions and enable to determine the company’s financial position at any time with reasonable accuracy. A company can keep the records and underlying documentation in written (paper) form or as electronic records, complying with the BVI Electronic Transactions Act requirements.
A company may keep financial records at the office of the registered agent or other place in any country. A company may elect to keep its records at a location other than the registered agent’s office. In this case, a company must inform the agent in writing of the physical address at which the records are kept and the name of the person responsible for their maintenance. A company also must inform the agent of any changes to this information within 14 days of the change.
Failure to comply with the record-keeping requirements constitutes an offence and can result in a fine of $50,000.
Submission of an annual return
The accounting records duly kept for the relevant financial year are the base for the subsequent completion of the annual return. The Schedule to BVI Business Companies (Financial Return) Order, 2023, issued by the FSC, contains the form of the Annual Return.
It consists of the balance sheet (or the statement of financial position) and an income statement. The balance sheet contains “Assets” and “Liabilities” columns broken down into several lines. The income statement outlines the company’s revenue, cost of sales, operating and other expenses and net income. The proper completion of both documents requires professional assistance.
The legal requirements for BVI company accounts
As previously stated, a BVI company files its annual return with the registered agent, not a government body. However, the FSC or other competent authority may request the registered agent to provide a copy of the annual return regarding a company of interest.
A registered agent must keep the annual return received from a company for at least five years from the date the company ceases to be under this agent’s administration.
If a company fails to submit an annual return, the registered agent must notify the Registrar of Corporate Affairs of that fact not later than 30 days after the submission is due.
A company that fails to file the annual return timely is liable to the penalty of:
- $300 for the first month or part of the month after the filing was due, and
- $200 for each subsequent month up to a maximum of $5,000.
Where a company is liable to the maximum penalty and has not filed its annual return, the Registrar may strike its name off the Register.
Financial statements and audit for a BVI company
There is no obligation for BVI-incorporated companies (except for regulated entities) to prepare full-fledged annual financial statements and submit them to a registered agent or any authorities. However, BVI companies often prepare audited financial statements for various reasons, in particular:
- according to corporate policies or management needs;
- when negotiating share purchase or similar agreements;
- at the request of a bank or a counterparty to a transaction for due diligence purposes;
- due to the needs of the company’s controlling persons (ultimate beneficial owners) in their country of residence. Some countries require UBOs to declare their foreign profits to local tax authorities under “controlled foreign companies” (CFC) rules.
If a company prepares a full set of audited financial statements, it is still required to file the annual return with the registered agent.
Financial statements in the BVI can be prepared under the International Financial Reporting Standards (IFRS) or Generally Accepted Accounting Principles (GAAP) applied in the United Kingdom, the United States or Canada. They can be audited by local or foreign auditors in accordance with International Standards on Auditing (ISA).
The importance of properly handling BVI company accounts
Both statutory requirements (keeping accounting records plus filing financial returns) are closely linked since the annual return can only be drawn up on the basis of accurate and complete financial records. The accuracy of the company’s annual report will depend on the correct execution and proper maintenance of accounting records and underlying documents, for which the company directors are responsible.
The responsibility related to the annual return lies both on the company and its registered agent, who directly interacts with the regulatory authority and can be requested to provide them with the annual return. A company that does not submit the annual return to the registered agent in due time can face penalties of up to $5,000 and further strike-off from the Register.
If the registered agent cannot provide a copy of the annual return upon the request of the FSC or does not inform the Registrar of the company’s failure to provide the annual return after the prescribed deadline, it is liable to a fine of $3,000.
What to do to comply with the financial reporting requirements
The BVI companies whose financial year corresponds to the 2023 calendar year or starts in 2023 are advised to check whether all their financial transactions have proper documentary evidence. It includes accounting records and underlying documentation. To do this, they can seek an accountant’s advice on the adequacy and completeness of financial records and, if necessary, get them in order in good time.
After the end of the 2023 financial year, BVI business companies must arrange the preparation of their annual return and further submit it to their registered agent before 30 September 2024.
How Uniwide can help
Our accounting team can assist with maintaining accounting records or preparing the annual return or audited financial statements for your BVI company. If you need any of these accounting services or have any questions after reading this article, please do not hesitate to contact us.