New Amendments to BVI Business Companies Act: Impact on Hong Kong Companies and Companies Holding China Assets
On August 12, 2022, the British Virgin Island (BVI) government enacted the BVI Business Companies (Amendment) Act, 2022 (the “BVI Amendment Act 2022”), which contains significant changes to the BVI companies’ regime.
Similar to the Economic Substance Reporting requirement imposed on BVI companies in 2019, the new amendments are designed to comply with evolving international standards on transparency and the fight against financial crimes.
The new amendments take effect on January 1, 2023.
As a leading offshore financial center that provides flexible corporate structure, neutral taxation, and political stability, many Hong Kong businesses have their group holding companies or asset holding companies in the BVI. Moreover, BVI companies are often used as offshore listing vehicles in the variable interest entity (VIE) structure, which are adopted by many foreign investors to engage in sectors that are restricted or prohibited to foreign investment in China, such as telecommunication and education. These companies are suggested to pay attention to the BVI Amendment Act 2022, to evaluate the potential impact on their business structure and stay compliant.
In this article, we summarize major changes observed in the BVI Amendment Act 2022 and highlight the requirements that will have an immediate impact on the operation of relevant companies.
What are the key revisions of the BVI Amendment Act 2022?
Disclosure of director information
Starting from January 1, 2023, the names of directors of BVI companies will become publicly available by carrying out a company search at the BVI’s Registry of Corporate Affairs (“BVI Registry”). That is to say, the BVI Registry will provide the names of current directors to third parties upon receiving the payment of prescribed fees. However, former director information prior to the effective date of the BVI Amendment Act 2022 and sensitive personal information of the directors will not be publicly available.
Currently, the names, addresses, dates of birth, and nationalities of the directors of a BVI company are required to be filed with the BVI Registry. But such information is not publicly searchable and can only be provided by the company’s registered agent to a third party with the approval of the company.
Abolition of bearer shares
The BVI Amendment Act 2022 completely abolishes the bearer shares regime. By January 1, 2023, all existing bearer shares will be deemed converted to registered shares.
In fact, starting from January 1, 2010, the issuance of new bearer shares was prohibited. But bearer shares issued before 2010 have still been valid given that they are held by a licensed custodian and subject to certain record-keeping obligations.
New strike-off, dissolution, and restoration regime
Starting from 1 January 2023, any BVI company that gets struck off (usually for failing to pay government fees) by the BVI Registry will only have a maximum 90 days grace period to remedy the default actions and restore to normal status. After this 90-day grace period, the company will be treated as dissolved if it has not been restored. Currently, this grace period is up to seven years.
In addition, a new streamlined process shall be made available to restore the automatically dissolved company. The company that has been dissolved by way of strike-off can apply to the BVI Registry for restoration within five years after its automatic dissolution date, given that all the records in relation to its shareholders and directors are up-to-date and in good order. Also, such a streamlined restoration process must be agreed to and acted on by the registered agent.
The automatically dissolved company can still apply to the High Court to have the company restored but the applicable period has been shortened from seven years to five years after the automatic dissolution date.
To be noted, companies that get struck off prior to January 1, 2023, but are not yet resolved (still in a grace period awaiting the restoration of status), will be subject to some transitional provisions. Such companies will be automatically dissolved from July 1, 2023, if they are not restored before that. These automatically dissolved companies shall not be able to restore to normal status by applying for the streamlined process to the BVI Registry. Instead, they have to go through the more costly process involving the court and face penalties from the BVI Registry.
New requirements of financial reporting and record keeping
The BVI Amendment Act 2022 requires BVI companies to submit an annual financial return to its registered agent within nine months after the end of the fiscal year. This requirement applies to all companies other than listed companies, regulated entities, and BVI taxpayers. The form of the annual return has not been finalized, but it’s expected to consist of a balance sheet and profit and loss, which are not required to be audited.
The information filed with the registered agent will not be made publicly available, nor will the registered agent be obliged to file them with any regulator or BVI government authority.
The registered agent will have an obligation to report to the BVI Financial Services Commission if an annual return is not submitted within 30 days after its filing deadline. They are also obliged to retain the annual return for at least five years from the date it ceases to act as the company’s registered agent.
This development really highlights the BVI’s commitment to keeping pace with the global regulatory standards. We hope the form of annual return will be designed in a sensible and practical way which may spare the registered agent from unnecessary accounts retention burden. – Jennifer Lu, Director at Dezan Shira & Associates in Hong Kong.
How will the BVI Amendment Act 2022 impact Hong Kong companies and companies holding China assets?
Key revisions in the BVI Amendment Act 2022 mainly impact the compliance and reporting of companies at the BVI level, rather than the whole business structure.
However, Hong Kong companies and companies holding China assets are advised to check if their BVI companies are in normal status, pay annual fees on time, submit annual financial statements as required, and get ready to comply with the new legislation.
In particular, for those whose BVI companies with struck-off status prior to January 1, 2023 but not yet dissolved, they are suggested to restore the company status as soon as possible if the BVI companies still hold assets or assume liabilities. Otherwise, they’ll have to go through a more costly restoration process by applying to the High Court and face penalties from the BVI Registry.
Besides, companies should ensure the financial records of their BVI company are properly prepared for complying with the new filing requirements. However, those who plan to liquidate their BVI company are suggested to take necessary actions to commence the process before January 1, 2023, to avoid unnecessary troubles.
Moreover, due to the new disclosure requirement on directors’ information, directors who do not want their names known by a third party are suggested to make corresponding arrangements prior to January 1, 2023, as former director information prior to the effective date of the new amendments will not be publicly available.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at email@example.com.
Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.
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