Getting a head start in China has certainly helped the jurisdiction to claim a significant share of the country's investors who look to offshore centers to better manage their finances, and today, the British Virgin Islands is believed to be the second largest source of foreign investment into China after Hong Kong, with a reported US$5.8 billion entering the Chinese mainland as of June 2009. But having a presence since the early days wasn't enough to make the British Virgin Islands the world's leading offshore company formation center. Without a combination of key selling points with which to attract investors from around the globe, the British Virgin Islands could never have succeeded in coming as far as it has.
Among the jurisdiction's advantages that appeal most to Chinese investors is the fact that, since late 2010, British Virgin Islands companies can be listed on the Hong Kong Stock Exchange. When Winsway Coking Coal Holdings made its first initial public offering (IPO) in the city on October 2010, it generated approximately US$ 473 million, with experts predicting that these new conditions would raise the offshore center's profile, improving investors' perception of and confidence in the jurisdiction. Looking back today, it most certainly did.
A staggering 42 percent of the world's offshore companies are now reportedly formed in the British Virgin Islands, with approximately 70 percent of those in the jurisdiction owned by Asian investors. The British Virgin Islands Business Company (BC) is the most sought-after of the jurisdiction's offshore vehicles, to the extent that a recent report by the Walkers Group - an international law firm specializing in corporate and fiduciary services - wrote that "no other offshore corporate vehicle has had quite the impact in Asia as the British Virgin Islands' BVI Business Company (BC)."
The British Virgin Islands BC is by far the most popular choice among Chinese investors looking to incorporate a company, who use the structure for outbound offshore investments, as well as onshore investment within the Mainland too. Chinese investors welcome BCs' simple incorporation procedure, along with the fact that applicants can register their company with a Chinese name, for a nominal fee. Setting up a company in the British Virgin Islands is remarkably straightforward, and the entire process can be completed within a single day. There are no minimum capital requirements, and state of the art technology allows all incorporations and post incorporation filings to be done electronically, further minimizing client hassle, while increasing efficiency. BVI's fees for incorporating a company remain highly competitive, meaning that for less than US$ 500, investors can have an offshore company of their very own set up within 24 hours, without so much as leaving their home office.
Indeed, when it comes to managing a BC, owners have no cause to leave home at all. There are no statutory regulations requiring directors to hold annual general meetings, no requirements to file audited accounts, and no need to have resident directors. A British Virgin Islands corporation can be managed from anywhere in the world.
Reducing ones tax burden is foremost among the incentives for incorporating an offshore company, so naturally rates of taxation are a major factor for investors to consider when selecting a jurisdiction in which to domicile a company. In this respect, British Virgin Islands corporations have overwhelming appeal: apart from some very minor exceptions, investors are exempt from all local taxes - including income, estate and capital gains taxes - and are not subjected to stamp duties of any kind. Chinese investors' ability to reduce their tax burden is further enhanced by the fact that the British Virgin Islands and China signed a Double Taxation Agreement in December 2009.
Leading global firm, Ogier - which provides international legal services alongside trust, company and fund administration services - has found that real estate holding vehicles are among the most popular offshore structures used by its portfolio of Chinese clients. Such structures enable investors to benefit from a lack of stamp duty, tax transparency, increased liquidity and various other fiscal efficiencies, while giving business people the ability to manage and control real estate investment vehicles without the burden of local income tax or deductions for withholding. Real estate holding structures commonly take the form of offshore companies, limited partnerships and unit trusts and - to a lesser extent - private trusts and limited liability partnerships. "As more and more Chinese become internationally mobile, they are looking to make real estate purchases abroad and an offshore company or trust offers a practical and affordable vehicle to hold assets," explained one of Ogier's experts.
In writing about the popularity of the British Virgin Islands BC in Asia, the Walkers Group revealed, "BCs are also widely used for corporate bond issues - either as issuer or guarantor, mergers and acquisitions involving BCs as acquirer, or target entities and private equity investments where financiers require the BC to provide security over its assets. We also see BCs used by our clients involved in aircraft or shipping financing structures, as well as large secured financings. More recently we have seen BCs become eligible as listing vehicles for equity offerings in Hong Kong, while private transactions by high net worth individuals, such as acquiring luxury real estate, have continued."
British Virgin Islands BCs' versatility is one reason for their staying power. As the Walkers Group points out, BCs are present within most large corporate groups in Asia, and the use of the structure only seems to be growing. As of early 2010, almost 800,000 BCs were registered in the BVI, with approximately 500,000 companies incorporated in the territory since the adoption of its pioneering BC Act in 2004, although more recent data is often restricted.
Naturally, it is this same restriction on information that ensures investors' privacy, to which the British Virgin Islands is completely committed. Investors who have incorporated BCs are not obliged to submit organizational or accounting information with the jurisdiction's Registrar of Corporate Affairs. Kristy Calvert, an experienced international lawyer originally from Shanghai who runs Ogier's client office in the city pointed out that the British Virgin Islands' emphasis on confidentiality is one of its major draws for investors. "There are no public records of beneficial owners and the use of nominee shareholders can ensure complete confidentiality. In nearly all cases there are also no public records of directors available," she explained.
Regardless of the British Virgin Islands BC's eminence, the jurisdiction has continued to investigate ways in which to further enhance its competitiveness, and just three years after implementing its pioneering BC Act in 2004, it introduced the Private Trust Company (PTC). "Historically, clients have used British Virgin Islands companies primarily as holding companies," explains private trusts expert and Ogier partner, Zac Lucas, who operates out of the jurisdiction. "In recent years however, there has been an evolution in the private client requiring more sophisticated product offerings to structure their wealth. Given the familiarity with the BVI, the affordable costs for incorporating companies and the speedy turnaround time, the British Virgin Islands was well positioned to answer that call and in 2007, [it] introduced the private trust company."
Similar to its counterpart, the BC, the PTC's attributes include no minimum capital requirements, no obligation to have a resident director, no auditor requirements, and no necessary approval by the British Virgin Islands regulator before incorporating the PTC. The PTC does, however, have a few unique requirements of its own. The company is obliged to only engage in either unremunerated trust business or related trust business, such as acting as the trustee of trusts in the case where the beneficiary is either a charity or connected to the settler of the trust.
The PTC does also have attributes which give investors a higher level of control over their assets. One such attribute is the fact that PTC shares are held by a BVI Purpose Vista, enabling the client to implement rules which allow them to control the appointment and removal of directors serving on the PTC Board. BVI Purpose Vistas also have the advantage of "orphan ownership", meaning that beneficial ownership cannot be attached to any one individual.
According to an August 2011 OECD Peer Review Report for the British Virgin Islands, the jurisdiction had 718 Private Trust Company registrations, as of May 2011. "This indicates that in comparison to other international finance centers, the British Virgin Islands is the leading jurisdiction for PTC registrations," Mr. Lucas said, noting that "the primary users of British Virgin Islands companies are largely clients domiciled or resident in emerging market countries and in particular China." It has wide ranging appeal - both in terms of its features and its structuring - and "for these reasons combined with Chinese clients' familiarity with the British Virgin Islands, the affordable Private Trust Company set up and maintenance costs, and the British Virgin Islands company registration advantages, we expect to see continued market growth," he concluded.
The jurisdiction's stable political and legal system, flexible legislation and commitment to client protection and confidentiality have all helped it stay ahead of the competition in the offshore financial market thus far, but looking ahead is essential for the British Virgin Islands to ensure that it maintains its competitive edge. Market watchers can expect to see the territory targeting more and more Chinese investment heading to emerging markets, with investments on their way to Latin America showing significant potential for growth. British Virgin Islands investment vehicles are a trusted option for investors seeking tax efficient routes into Latin America, where the demand for natural resources is quickening its pace.
Kieran Walsh, co-head of law firm Maples and Calder's Latin American practice, told journalists, "For the same reasons that the British Virgin Islands has been a popular jurisdiction for use of investment vehicles into Asia, the Asian marketplace sees the British Virgin Islands as the ideal jurisdiction of choice for investment vehicles into Latin America." As long as Asia remains in the lead for the number of new high net worth individuals created each year, it seems the British Virgin Islands has nothing to worry about.
