The British Virgin Islands is internally self- governing with a ministerial system of government. The Governor is appointed by the British Crown and retains responsibility for defence and internal security, external affairs, the civil service and the administration of the Courts and finance.

The British Virgin Islands financial services industry introduced legislation in 1985 to permit the formation of International Business Companies(I.B.C.). The company law was modern and flexible and the islands flourished. There are now probably more offshore companies incorporated in the British Virgin Islands than anywhere else. In 2005 the I.B.C. Act was replaced by the Business Companies Act 2004, which brought the company law up to date. At the same time the British Virgin Islands introduced a zero rate system of corporate taxation to comply with the international obligation to treat resident and non-resident taxpayers equally. Companies incorporated under the Business Companies Act 2005 are not allowed to trade with the British Virgin Islands or own property there. As a British controlled territory, the British Virgin Islands are covered by the European Savings Tax Directive.