British Virgin Islands - Facts to Know on Philippine Property Ownership

CASE STUDY :

Recently I was asked by an associate regarding taxes on condominiums / properties owned thru British Virginia Islands ( BVI ) account. Now in the past, particularly during the BIR Henares administration, some taxes imposed were at 6% ( http://pcij.org/…/bir-chief-ready-to-investigate-pinoys-wi…/ ).

This form of Company identity has had it's advantages over other kinds of ownership.

Classifying offshore companies

Historically, offshore companies were broadly divided into two categories. On the one hand were companies which were statutorily exempt from taxation in their jurisdiction of registration provided that they did not undertake business with persons resident in that jurisdiction. Such companies were usually called International Business Companies, or IBCs. Such companies were largely popularized by the British Virgin Islands, but the model was copied widely. However, in the early 2000s the OECD launched a global initiative to prevent "ring fencing" of taxation in this manner, and many leading jurisdictions (including the British Virgin Islands and Gibraltar) repealed their International Business Companies legislation. But IBCs are still incorporated in a number of jurisdictions today including Anguilla and Panama.

Separately from IBCs, there are countries which operate tax regimes which broadly achieve the same effect: so long as the company's activities are carried on overseas, and none of the profits are repatriated, the company is not subject to taxation in its home jurisdiction. Where the home jurisdiction is regarded as an offshore jurisdiction, such companies are commonly regarded as offshore companies. Examples of this include Hong Kong and Uruguay. However, these tax regimes are not limited to conventional offshore jurisdictions: the United Kingdom operates on broadly similar principles in relation to taxation of companies.

Separately there are offshore jurisdictions which simply do not impose any form of taxation on companies, and so their companies are de facto tax exempt. Historically the best example of these countries were the Cayman Islands and Bermuda,[5] although other countries such as the British Virgin Islands[6] have now moved to this model. These could arguably fit into either of the previous two categories, depending on the fiscal point of view involved.

To the Offshore Company definition, applies five (non-cumulative) limiting conditions: (1) The government in the country of incorporation does not levy an indirect tax on the OAC (however, the OSC must pay an annual fee to the government). (2) Separate laws and regulations apply. (3) The OSC doesn’t have its own physical office (address), personnel, means of communication etc. This means that the OAC must have a representative (registered agent) and office address (registered office) in the county of the incorporation. (4) The OSC must be managed and governed by (an employee of) a local trust or law office. (5) There is an instance of elements that benefit anonymity such as bearer shares and no or limited filing obligations.

Characteristics of offshore companies

They are broadly not subject to taxation in their home jurisdiction.Although all offshore companies differ to a degree depending upon the corporate law in the relevant jurisdiction, all offshore companies tend to enjoy certain core characteristics:

  • The corporate regime will be designed to promote business flexibility.
  • Regulation of corporate activities will normally be lighter than in a developed country.

The absence of taxation or regulation in the home jurisdiction does not, of course, exempt the relevant company from taxation or regulation abroad. For example, Michael Kors Holdings Limited is incorporated in the British Virgin Islands, but is listed on the New York Stock Exchange, where it is subject both the U.S. taxation and to financial regulation by the U.S. Securities and Exchange Commission.

Another common characteristic of offshore companies is the limited amount of information available to the public. This varies from jurisdiction to jurisdiction. At one end of the scale, in the Cayman Islands and Delaware, there is virtually no publicly available information. But at the other end of the scale, in Hong Kong companies file annual returns with particulars of directors, shareholders and annual accounts. However, even in jurisdictions where there is relatively little information available to the public as of right, most jurisdictions have laws which permit law enforcement authorities (either locally or from overseas) to have access to relevant information, and in some cases, private individuals.

In relation to flexible corporate law, most offshore jurisdictions will normally remove corporate fetters such as thin capitalisation rules, financial assistance rules, and limitations on corporate capacity and corporate benefit. A number have also removed or watered down rules relating to maintenance of capital or restrictions on payment of dividends. Beyond the common themes, a number of jurisdictions have also enacted special corporate provisions to try and attract business through offering corporate mechanisms that allow complex business transactions or reorganisations to occur more smoothly.

Just about a few months ago, a sale was done on a high end condominium in the Bonifacio Global City area and the "Examiner" from the Bureau of Internal Revenue stated that taxes on sale of BVI owned properties ( used or brand new ) are now subject to 30% not 6% as per previously charged.  Inspite of documents that showed and proved that the Condominium unit was never used together with an Affidavit of Non Tenancy from the Condominium Corporation, the case is hanging, therefore, the Certificate Authorizing Registration ( CAR ) hasn't not been released pending balance of unpaid taxes that need to be paid. The case has been brought to higher level but in the meantime, the new owner still doesn't have a Condominium Certificate of Title under their name.

Again, systematic regulation on our tax system must be standardized so as to bring up the Philippines level of transparency for all Real Estate practitioners ( Investors, Dealers, Developers, Licensed Real Estate Brokers, End Users ) which is an important variable for foreign investors worldwide and more so for emerging countries such as the Philippines.

To date the case on BVI still remains.

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Thank you.

robert

Robert G. Sarmiento Properties

Professional Affiliation :

Philippine Association of Real Estate Boards

Member, City of Taguig Real Estate Board 2016, 2017

Real Estate Broker’s Association of the Philippines 2000 - 2015

President, Greenhills Chapter 2008, 2009

Philippine Association of Real Estate Boards

San Juan Mandaluyong Chapter 1998, 1999

PRC # 6569

PRC Lecturer’s License # 0294

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