Accounting and Reporting Requirements for BVI Companies
The minimum accounting and reporting requirements for BVI Business Companies are quite uncomplicated and straightforward. Yet, even if your BVI company is exempt from any taxation in the Virgin Islands, there are still some essential accounting rules you must follow:
First, keep and maintain adequate accounting records.
Second, file a very basic financial return to your BVI registered agent once every year.
Here are those requirements, explained in detail:
BVI ACCOUNTING RECORDS REQUIREMENTS
BVI ANNUAL FINANCIAL RETURN
ACCOUNTING RECORDS RULES IN THE BRITISH VIRGIN ISLANDS
The legal basis for this is Section 98 of the BVI Business Companies Act.
What does the BVI law require?
A BVI company is legally required to keep “records and underlying documentation” that (a) are sufficient to show and explain the company’s transactions; (b), will enable the financial position of the company to be determined with reasonable accuracy at any time.
What are the "records and underlying documentation"?
Basically, all the documents that substantiate any money earned and spent by the company, as well as all assets held and liabilities incurred by the company. This includes bank statements, invoices, receipts, contracts, deeds, title documents, transaction statements, corporate resolutions and any other ledgers or documents that corroborate the business transacted by the company.
Where must these accounting records be stored?
The BVI rules are quite flexible here. The accounting books and records can be kept in one of the two possible locations:
- At the office of the company’s Registered Agent in BVI, or
- At any other physical location in the world, as determined by the company directors.
For how long must a BVI company keep its accounting records?
A BVI company must retain its books and records for a minimum of five years from the date a transaction was completed, or the business relationship has been terminated. Even if the company is struck off or dissolved, its directors remain under obligation to keep the historical accounting records for this mandatory five-year period.
The Mandatory Notification
If the directors choose to store the accounting records anywhere other than the Registered Agent’s office in BVI, the company must provide the Registered Agent with a formal written declaration of:
- The physical address of the place (or places) where the accounting records are kept.
- The name of the person who maintains and controls those records.
If the accounting records of a BVI company are stored electronically on a cloud server, and therefore it is impossible to pinpoint the physical location of those electronic files, the “Point of Access and Control” must be declared. In such case, the primary physical location from which those accounting records are accessed, maintained and controlled must be declared.
Typically, that would be the main operating office of the company, the primary residence or office of the company director who manages the records, or the physical office of the outsourced accounting firm that uploads and manages the documents.
Same as with physical records, the name of the controller of the electronic records must be declared. That would be the full name of the director, officer, or accounting firm that holds the administrator credentials and manages the cloud drive where the company’s accounting records are held.
If either the physical location of the records or the person controlling them changes, the company must notify and declare the new details to the Registered Agent no later than in 14 days.
So, to recap, if you, as the owner or director of a BVI company wish to keep the accounting records outside BVI, this is certainly possible. But in that case you must declare in writing to your BVI Registered Agent where exactly those records are held and who exactly has control and access to them.
Does the Registered Agent Need Access to the accounting records?
Not in real-time and permanently. But there are some very important exceptions!
If you elect to store your BVI company records outside BVI, we, as your Registered Agent, do not need full admin credentials to your accounting software or monthly copies of your invoices and bank statements. However, these are the exceptions:
Director services. If Fidesta has been asked to provide directorship services in your BVI company (an optional service), we will most definitely need immediate or almost-immediate access to the accounting records of the company. This is because “a director is a director”. I.e., there is a well-established legal obligation for the company director to be primarily responsible for the actions and activities of a company.
Regulatory Access “Without Delay”. if the BVI Financial Services Commission (FSC), the BVI International Tax Authority (ITA), or other BVI law enforcement agency demands to inspect the company’s records, those must be provided “without delay”.
In practice, if those records are kept outside BVI, they must be provided or access to them granted to the Registered Agent of the company “without delay”. In practice, that’s a notice of a couple of days at best. The company can be hit with severe penalties for non-compliance, as it’s deemed an offense under the BVI laws.
The Annual Financial Return (AFR): A standardized consolidated financial statement, also known as the Annual Financial Return, must be submitted by the BVI Business Company once a year. As the company owner or director, you may choose to prepare the AFR by yourself. In that case, all that your Registered Agent needs is just the final completed report.
However, you can ask your Registered Agent to prepare the Annual Financial Report for you (an optional service). In that case, we, as the Registered Agent of your BVI company, would of course need access to the full set of accounting records for the year. Otherwise, there would be no source data for the report.
BVI ANNUAL FINANCIAL RETURN
The obligation to produce Annual Financial Returns is stipulated by the BVI Business Companies (Financial Return) Order 2023.
What is the Annual Financial Return (AFR)?
AFR is a simplified financial summary.
It consists of a basic balance sheet and income statement.
Does not need to be audited.
Download the AFR form here.
Who must file the Annual Financial Return?
All BVI Business Companies and BVI Limited Partnerships, with very few exceptions.
The exceptions apply only “upwards” – i.e. those companies, who must file more sophisticated forms of report due to their status or activity, are exempt from the basic AFR. Typically, those would be all domestic taxpayers (because they file full financial statements to the BVI Inland Revenue Department), all regulated entities (because they must file full audited financial statements to the BVI Financial Services Commission, all entities whose shares are listed on a recognized stock exchange (i.e. public companies).
To whom must the Annual Financial Return be filed?
To the Registered Agent of your BVI company. Not to the BVI government.
Who can access the Annual Financial Return?
The AFR is confidential. The Registered Agent must keep the file under the same security protocols as all other files and records of your BVI company.
The BVI Annual Financial Return is not part of the public record and cannot be searched or accessed by the general public.
As an exception, the BVI competent authorities (such as the Financial Services Commission, the International Tax Authority and regular law enforcement agencies) may compel the Registered Agent to share the AFR in course of an official investigation.
The form of the BVI Annual Financial Return.
Although the AFR is quite simple in its contents, it has a fixed, mandated form.
The AFR is designed to be a high-level, simplified snapshot of the company’s financial standing. The BVI Business Companies (Financial Return) Order specifically mandates that the AFR must be submitted in this exact format without deviations.
Can we submit a “better” and more detailed Financial Return?
Submitting comprehensive management accounts, full IFRS-compliant financial statements or any alternative formats of the financials will not qualify as an AFR – regardless of how good and detailed it is in reflecting the economic standing of your company.
However, if asked to do so, we, as your Registered Agent, can distil the information from your more granular financial statements to produce the AFR. This is an optional service. This is very appropriate and even recommended in cases when Fidesta also provides a board position (directorship service) in your company.
Can the Annual Financial Return be prepared in a currency other than the US dollar?
Yes. If US dollars are not your standard accounting currency, you can prepare the AFR in your accounting currency, whatever it is.
Who must sign the Annual Financial Return?
There is no legal requirement to physically sign the Annual Financial Return. It’s basically an unaudited summary. Also, it can be submitted electronically without a mandatory use of secure digital signatures.
However, as your Registered Agent, we must apply a degree of due diligence as part of our AML and “know your customer” obligations. Therefore, for our record, we will require that Annual Financial Returns are confirmed as accurate by the company director, or – in case our directorship service is employed – by the company beneficial owner.
Under BVI law, the directors of the company hold the ultimate statutory responsibility to act with reasonable care and ensure that the figures submitted in the AFR accurately reflect the company’s financial position.
When is the filing deadline for the Annual Financial Return?
The AFR must be submitted no later than 9 months after the end of the financial year. So, if your company has adopted the calendar year as your financial year, the first annual financial return must be filed no later than on September 30 the following year. If the financial year for your company is different than the calendar year, then the same 9-month filing deadline applies accordingly.
Penalties for failure to submit the Annual Financial Return.
If a BVI company misses the deadline for filing the AFR, it faces escalating financial penalties, starting at US$ 300 and increasing by US$ 200 monthly, up to US$5,000. Continued non-compliance results in the loss of Good Standing and potential strike-off from the BVI register of companies.
Breach Notification: If you fail to file the Annual Financial Return for your BVI company, we as your Registered Agent, have a legal obligation to notify the BVI Registrar within 30 days of the missed deadline. (That’s how they will know to charge the fines.)
Cross-reference between the AFR and the Economic Substance Declaration.
In course of a review of an Economic Substance Declaration, the BVI International Tax Authority (ITA) can force the Registered Agent to disclose the contents of the Annual Financial Return, along with copies of the underlying accounting records that substantiate the business of the company.
Both returns (the ESD and the AFR) should better not be contradicting.
For example, if the company has claimed a “Nil” status in its Economic Substance Declaration, but its AFR and accounting records show massive royalty income from intellectual property, the discrepancy will trigger severe fines under the Economic Substance rules.
The Economic Substance Declaration is described in full detail here.
Feel free to contact us if You require yet more detailed clarification.
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