This is the story of Mr X, who was “well” advised to set up a company under the BVI law and buy the villa of his dreams.
He enjoyed this property his entire life with his family, his children and his later grandchildren.
Then came old age, followed by death. That's just the way of life.
His heirs then find themselves in joint ownership of the estate and enjoy the deceased's assets jointly and severally, in particular the shares in the BVI company, until the final division of the assets.
And that's when difficulties started to arise, with heirs wondering exactly what they have inherited.
They are therefore entitled to ask what the real advantages are of companies registered in the British Virgin Islands and what the limits are, particularly in terms of inheritance.
Before considering the legal and procedural aspects of the succession, we will briefly recall what the BVI companies are, including their interests.
- BVI COMPANIES
To begin with, geographically the British Virgin Islands is a British overseas territory in the Caribbean. As you might expect from its cultural heritage, the archipelago has adopted the British Common Law system as its legal system.
At present, the most common corporate form in the BVI is the International Business Corporation (IBC), which permits the management of structures and transactions at a low cost. This is why companies in the British Virgin Islands have become known as the leading 'off-shore' companies. Building on their past success, there are more than 850,000 foreign trading companies registered and operating in the BVI.
However, in recent years, in line with the trend towards fiscal transparency, a classification of countries by risk has emerged, classifying each country by color. White, for the most transparent countries, and black for the most opaque. The grey color is reserved for countries that show a need in improvement.
In 2023, the European Union recognised the British Virgin Islands as a 'cooperative' state, thanks to a solid remediation plan that enabled it to emerge from its opaque status. This recognition enabled the BVI to change its position in the ranking, finally moving to the grey list, which is a great victory in view of all the obstacles encountered up until then, linked to the difficulties caused by the opacity of the companies at the time.
However, despite this rather positive reclassification by the European Union, the Principality of Monaco has not moved one iota in its position, considering the British Virgin Islands as a high-risk state.
The new obligation to declare the Ultimate Beneficial Owner(s) and to provide company balance sheets will make it possible to provide greater transparency on the structure's consistency and thus create favourable legal certainty, which should enable the country to further improve its classification, and its outdated image as a tax haven.
- THE CONSIDERABLE ADVANTAGES OFFERED BY THE BVI COMPANIES OVER THE YEARS
For years, these companies have been very successful and widely used, but not because they have made it possible to hold and manage financial and/or property assets in a flexible and discreet way.
What's more, they are very quick and easy to set up. All that is required is one director and one shareholder, who may be legal entities and are not required to be resident in the BVI.
Also, as we have seen, even if these companies are less common now, they are still numerous, and in view of changes in various international regulations, problems relating to the settlement of partners' estates are arising more and more frequently.
- DISADVANTAGES AT THE TIME OF A PARTNER’S SUCCESSION
- Legal and administrative limitations
When one of the partners was resident, at the time of his death, in a "Civil Law" country such as Monaco, the problem of conflicts of inheritance and difficulties in applying local procedures arose.
The procedure before the courts of the BVI is complex. As mentioned above, the law of the British Virgin Islands is largely based on Common Law, although it does have some specific local features.
As we continue with the example of Mr. X, who was a Monegasque resident at the time of his death, we will explain to his heirs the numerous legal and administrative procedures to be put in place for the succession of his company in the BVI.
Depending on whether or not the deceased had anticipated his succession with a will, two distinct procedures apply: The Grant of Probate, or in the absence of a will, The Grant of Letters of Administration. In both cases, however, it will be necessary to consult a local lawyer.
This legal procedure requires a large number of documents to be drawn up, in our case by the notary who settled the estate in Monaco, and which must be certified and apostilled.
Round-trips and response times due to the remoteness of the BVI add to the difficulty and result in longer resolution times.
These difficulties may be exacerbated when the deceased. The beneficial owner of the BVI company/sole shareholder, was also the sole director and there is therefore no one left to sign the deeds...
- Financial limitations
Of course, as with all legal proceedings, local lawyers will charge fees. Often amounting to as much as $15,000, given the complexity of the procedure.
However, the heirs will also be responsible for the fees of the resident agents and the adviser assisting them.
So, despite the fact that there is no inheritance tax to pay in the British Virgin Islands, this procedure is nonetheless costly.
In addition to facing a long, complex and costly procedure that the heirs are not expecting, they will have to deal with the painful new regulations in Monaco, which was recently grey-listed.
- When Monaco gets involved
As we have seen, the procedures in the British Virgin Islands are complex, and the documents required are often difficult to obtain depending on the jurisdiction in which the estate was received, as is the case in our situation in Monaco.
Notaries consider these deeds to be incorrect and unnecessary. Although for their part, local lawyers and magistrates are often rigid in the face of these obstacles and will not accept any changes to the text sent. As a result, some notaries will refuse to draw up this type of deed.
Furthermore, these documents are required to be apostilled and it can be difficult to obtain the apostilles requested. For instance, the Court of the Principality of Monaco only issues apostilles for Monegasque documents.
Altiqa’s conclusion
As you will come to an understanding, the best advice we could give our clients to avoid these difficulties for their future heirs would be to anticipate their succession.
Various solutions are available in this case, depending on the composition of the assets and the client's plans. For example, winding up the foreign entity in favour of a Société civile immobilière (non-trading property company) could enable tax benefits to be enjoyed if the property acquired is in the Principality of Monaco. As stated in the law No.1.381 dated 29 June 2011, under which such allocations are taxed at 1% of the market value of the property held by the company.
Monaco doesn't have many villas on its territory, but Mr. X could have been offered alternative solutions if he had been our client, to make sure he had a smooth, and anticipated departure.
In all cases, we will always be able to guide the heirs through the legal maze of the estate they will have to deal with. Along with helping them find the best solution for their needs, in accordance with the regulations in force.