New tax laws for the BVI next year 

by Norman 'Gus' Thomas 
Caribbean Net News Special Correspondent
On assignment in the BVI

Friday, November 12, 2004

ROAD TOWN, BVI: The people of the British Virgin Islands will be getting new tax laws as of January 2005, and efforts are being made to bring the territory in line with international rules and regulations. So said, Deputy Chief Minister and Minister of Finance Ronnie Skelton in an announcement on Tuesday. 

According to Skelton, the territory's financial services sector is one of the two economic strongholds, providing funding for well over half of the government's operating budget which is said to be in excess of $100 million annually. 

"As a government, we have kept you, the people, fully apprised, for example, of the European Union Savings Tax Directive as well as initiatives by the Organization for Economic Cooperation Development (OECD), which has mandated that we alter our tax regime," said Skelton. 

Speaking at a Legislative Council meeting last month, Skelton pointed out that the amendments to the corporate and personal income tax structures in the territory were mandatory in order to do-away-with what is popularly called "ring fencing." 

Ring fencing is the system were there are different tax policies for individuals as well as local and international companies and this has given the BVI an advantage in attracting several financial services corporations. 

Known as International Business Companies or IBCs, these companies pay annual fees based on their net worth to locate in the territory but pay no income tax. Local companies pay a 15 percent tax on profits, and individuals are taxed based on their income. 

Caribbean Net News has learnt that the European Union (EU) and the OECD are maintaining the view that the BVI's tax policies create an unequal and prejudicial tax regime within the same jurisdiction. 

"Under the new international rules, agreed to by the United Kingdom government, the BVI is no longer permitted to allow IBCs to operate here tax-free, while we impose income taxes on other businesses," the Finance Minister said. 

With the coming system, instead of taxing income, the government will now impose payroll taxes on local companies and individuals. 

At present, residents in the BVI are taxed based on income: 

• $1 to $7,500 - exempt

• $7,501 to $15,000 - 10 percent

• $15,001 to $22,500 - 15 percent

• $22,501 and over - 20 percent

As of January 2005 the old system will be abolished and so will the 15 percent tax on profits for local businesses. 

Replacing it will be a new payroll tax levied at a rate of 16 percent, 8 percent to be paid by the employer and 8 percent to be paid by the employee. 

The present situation will still remain where the first $7,500 of employee’s income will remain tax-free. 

IBCs will now face higher annual fees based on company worth. The increases will be capped at 20 percent. 

Local companies also will have to pay more in annual license fees, but it was unclear Tuesday what that increase will be. 

The finance chief said that these changes represent serious reform of the country's tax machinery, pointing out that government is fully committed to working with the public and businesses to ensure that everyone understands the new policies. 

"I can assure you that the decision to change the tax code was not taken lightly. The Ministry of Finance, the attorney general's chambers, the BVI Financial Services Commission and the Fiscal Review Committee have worked diligently over the past months to find the best way to protect the strength of our economy, while also protecting our duty to a fair and equitable tax system. We are confident that the plan we have devised meets this test. 

It is our expectation that businesses will be able to continue to grow, employees will continue to get fair compensation for their work, planned pay raises will still go into effect and hard and honest labor will continue to be profitable," he concluded.

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