payroll tax

We can assist in all payroll tax matters so you are left to focus on other key areas of your business.

Payroll tax is levied at a rate of 14%, 8% of which is paid by the employee and the remainder by the employer, although the first $10,000 of income will remain tax free. However, the contribution for small business, defined as those employing less than seven people and with a payroll of less than $150,000 per year, will be only 2% whilst all other businesses will contribute 6%.

Legislation:

• Payroll Taxes (Ammendment) Act 2007
• Payroll Taxes (Ammendment of Schedulle Order) 2006
• Payroll Taxes (Ammendment) Act 2005
• Payroll Taxes Act 2004

The Payroll Taxes Act, 2004 (the “Act”) came into force on 1st January 2005.  Under this tax system, individuals and corporations are taxed at a flat rate based on the employer’s payroll with a percentage being recoverable from the employer and employee.

Payroll tax is charged on every employer who carries on business in the British Virgin Islands (BVI) in respect of:

1. Remuneration paid by him to every employee, and
2. Deemed remuneration paid by him to every deemed employee

for services rendered by the employee or deemed employee wholly or mainly in the BVI, whether or not the remuneration is paid in the BVI.

Additionally a self-employed person (a sole trader) is liable to payroll tax on his deemed remuneration (that is actual or notional remuneration, whichever is higher).

Remuneration has a very broad meaning under the Act and includes wages, salary, leave pay, bonus, gratuity, fees, money paid under a profit-sharing scheme, severance pay, residential rent and other benefits in kind. 
The following are examples of items not included in remuneration – dividends paid by a company registered in the BVI and payments made by an employer for the benefit of an employee to any health insurance scheme or pension scheme approved by the Commissioner of Inland Revenue.

Employers are divided into two classes for the purpose of calculating the tax liability depending on the size of their payroll, annual revenue and number of employees.

A monthly tax return (P6) has to be submitted along with the tax payable to the Commissioner no later than the 21st of the following month.

Failure to submit a monthly tax return within 21 days, results in a penalty of 5% of the tax owed, or a minimum of $50. Tax arrears attract interest at the rate of 4% per annum.

On or before 31st March following each fiscal year, the taxpayer is required to submit a copy of his financial statements together with a self-assessment of notional remuneration (P11 return) for each of his deemed employees and any tax payable thereon. The Commissioner may increase the assessment if he/she concludes that it is not adequate.

On or before the 30th April following each fiscal year, the taxpayer is also required to submit an Annual Return of Payroll Tax (Form P1) together with a Record of Employees Income and Tax Payable (Form P7).

Income Taxes

Up until December 31, 2004, Income tax was administered and collected under the Income Tax Ordinance of 1946, as amended. On January 1, 2005 the corporation tax and income tax rates were adjusted to zero, and the Payroll Taxes Act, 2004 (as amended by the Payroll Taxes (Amendment) Act, 2005) came into force.

Other Taxes

Custom duties are administered and collected by the Customs department and other taxes are administered through various departments of the Ministry of Finance.

Other taxes include custom duties, stamp duties, license and registration fees, hotel accommodation tax, cruising permits, social security contributions, departure tax, and property taxes.

Individuals resident in the EU, are subject to withholding tax on any interest received on savings income held in the BVI. Please refer to ‘Implementation of the EU Savings Tax Directive in the BVI’ for more information.

At present there are neither capital gains taxes nor inheritance tax in the BVI.