BVI’s regulatory landscape for virtual asset issuers

The British Virgin Islands (BVI) has established itself as a premier offshore jurisdiction for the incorporation of virtual asset issuers and token offerings. With cryptocurrencies and token sales seeing success and enjoying popularity globally, the BVI has benefited from its business-friendly legal framework that supports innovation while providing regulatory clarity.

Regulatory flexibility for token issuers

Peter Vas
Partner
Spencer West
T: +852 5225 4920
E: Peter.Vas@spencer-west.com

The Virtual Assets Service Providers Act (VASP Act), which creates the legal framework for the registration and supervision of virtual assets service providers operating in and from the BVI, was brought into force in February 2023. Notably, the VASP Act does not regulate the sole act of issuing virtual assets or tokens. Instead, token issuance remains subject to investment business laws where applicable. The absence of direct regulation on token issuance maintains the BVI’s appeal for token projects seeking regulatory flexibility, without compromising investor protection pursuant to applicable investment business legislation.

BVI law does not make a distinction among various types of virtual assets, such as governance tokens, payment tokens, and non-fungible tokens. The principal legal consideration is whether a token qualifies as an “investment”, which determines whether investment business laws apply.

Utility-driven token offering advantages

Issuers may conduct token offerings for multiple purposes, including capital raising, rewarding project contributors, or promoting protocols. Unlike an initial public offering, where investors receive securities reflecting ownership or debt in a company, token purchasers typically receive a blockchain-based token representing utility or governance. These tokens may confer voting rights or provide access to a platform but usually do not represent an equity interest and/or confer rights typically associated with equity ownership.

Most tokens do not meet the regulatory definition of “investments” in the BVI because their value derives mainly from demand for utility, rather than profits or debt repayment by the issuer. This distinction allows token offerings to bypass some of the typical costs and regulatory burdens associated with public securities offerings, making them particularly attractive to start-ups and early-stage technology ventures.

Flexible structuring for token issuers

A typical token offering in the BVI involves incorporating a new issuer as a BVI business company pursuant to the BVI Business Companies Act (BCA). This company benefits from separate corporate personality and limited liability, and issues tokens on a blockchain network in exchange for tokenholder funds. Tokenholder proceeds are then deployed according to the project’s whitepaper, or litepaper.

Ownership structures vary depending on the nature of the project. Centralised projects may keep the issuer as a subsidiary of a holding company or under direct founder control, while decentralised projects may “orphan” the issuer entity to limit liability and distance founders from day-to-day operations. Various incorporation and corporate structuring techniques in the BVI enable flexible governance and ownership arrangements suited to different project goals.

Key advantages of BVI incorporation

BVI business companies enjoy well-known advantages, including:

1. 1. Tax neutrality. The BVI does not impose direct taxes on companies or distributions, offering tax efficiency;
   2. Cost-effectiveness. Incorporation and annual maintenance costs in the BVI are comparatively low versus other offshore jurisdictions, such as the Cayman Islands or Bermuda;
   3. Corporate flexibility. The BCA facilitates efficient incorporation and ongoing company management without onerous formalities;
   4. No exchange controls. BVI law does not impose any exchange controls;
   5. Transaction fluency. As one of the world’s largest and most reputable offshore financial centres based on English common law, the BVI benefits from an experienced community of lawyers, accountants and corporate service providers, enabling smooth and efficient transactions; and
   6. Legal recognition of electronic transactions. The Electronic Transactions Act ensures that electronic signatures, contracts, and records used in token offerings have full legal validity, underpinning blockchain and token issuance.

Regulatory considerations for token issuers

While token offerings are not typically regulated under BVI financial services laws, issuers must still be mindful of potentially applicable regulations:

1. 1. Investment business laws. As noted, if a token’s return is tied to the performance of a business or asset, it could be classified as an “investment”, potentially triggering licensing and registration requirements under the Securities and Investment Business Act;
   2. Anti-money laundering (AML). All BVI persons, even if not regulated, are subject to the Proceeds of Criminal Conduct Act and related regulations. Therefore, BVI issuers must ensure that they do not inadvertently become party or accessories to money laundering, sanctions breaches or other criminal activity. Although issuers of utility tokens are not “relevant persons” under the Anti-Money Laundering Regulations, 2008, issuers should nonetheless implement measures to prevent misuse for criminal activity; and
   3. Beneficial ownership. The BVI beneficial ownership regime requires most BVI companies to maintain a register of beneficial owners (BOR) based on the international standards developed by the Financial Action Task Force. Tokenholders typically do not have to be registered in a company’s BOR unless tokens confer control rights analogous to voting shares.

Outlook for token offerings in BVI

Increasingly, entrepreneurs and companies looking for an efficient, business-friendly environment to launch their tokens choose the BVI. In the author’s view, the BVI will continue to play a leading role in the evolving global virtual assets landscape owing to the balanced approach to regulation under the VASP Act, and BVI financial services law generally.

SPENCER WEST

Tel: +852 5225 4920
Email: Peter.Vas@spencer-west.com

www.spencer-west.com