With an abundance of offshore financial centers to choose from - and jurisdictions like Hong Kong and Singapore that offer so-called "midshore" solutions on their doorstep - which are Chinese people's preferred jurisdictions, and how do they go about selecting them? In a relatively young market, with plenty of room for growth, it seems that the larger, more wellknown offshore centers, such as the British Virgin Islands and the Cayman Islands are often considered 'safe' choices for newcomers to the industry. Michael Liu, managing director of the CIL Group - a China-based company that advises high net worth individuals and corporate clients on wealth management and offshore company formation - has found that, apart from Hong Kong, the British Virgin Islands and the Cayman Islands are his Chinese clients' first two choices of jurisdiction when it comes to setting up offshore companies.
Although factors such as tax rates, double taxation agreements and capital requirements will always have significant bearing on decisions to make any kind of investments offshore, it appears that it may be even more important for potential clients from China to be familiar with the jurisdiction in question. "Familiarity matters the most", says Mr. Liu. "When there is a Chinese embassy [in the jurisdiction], people have more confidence in it. Jurisdictions like the British Virgin Islands and the Cayman Islands have the benefit of a good reputation in China because there are many Chinese enterprises using them when listing abroad."
The reputations that these two jurisdictions have built for themselves around the world as leading offshore financial centers are the fruit of several years as pioneers in this relatively new industry. Wealthy Chinese who use offshore structures are aware of the efforts made by these jurisdictions at the outset, and targeted marketing will have also played a role in making less experienced Chinese aware of the benefits of offshore products in both countries. "In the Chinese market , however, [their popularity] is also heavily influenced by the opinions of big law firms", says Mr. Liu.
The weight given to professional advice is one key difference in the way in which wealthy Chinese approach offshore finance, compared to their non-Chinese counterparts. "Many Chinese clients are not familiar with the structures typically offered in many international finance centers," says Ms. Jenner Davis, CEO of the Cook Islands Financial Services Development Author i ty. "Servi c e providers must generally be more handson and involved with the transactions of their Chinese clients. They require a more intense level of service and higher level of advice, whereas clients from other markets just want the entity required for their particular needs." Established and up-and-coming offshore centers - and everything in between - are all vying for business from the world's fastest growing population of high net worth individuals. Well aware of the expectations that this relatively new demographic of offshore investors has, Chinese language services have been recognized as essential by several jurisdictions.
Knowing how much effort is needed to obtain a competitive edge over the biggest players, Belize - which based its 1990 International Business Companies Act on the British Virgin Islands' model - has employed full time Chinese staff at its International Business Company Registry, says Deputy Registrar Katherine Haylock. Belize has a large Chinese population, Chinese people in government, banks as well as offshore offices, and "cultural familiarity" is one of the jurisdiction's biggest selling points, Ms. Haylock says. International Business Companies - for which the jurisdiction is best known - can be incorporated in Chinese clients' own language; Chinese language memoranda and articles of association can be filed, and an official certificate of incorporation can be issued in Chinese characters.
Although lesser-known than Belize, the Republic of the Marshall Islands has geography on its side. Its location within the Asia Pacific region is perhaps its biggest advantage when it comes to attracting clients from China, and the tiny Micronesian nation of islands is one of the fastest growing offshore jurisdictions in the world. Apart from being located much closer to China than its Caribbean counterparts, the Marshall Islands counts Chinese language services among their strong points. Annie Ng, Head of Asia for International Registries (Far East) Ltd - the only appointed company formation agent of the Marshall Islands government in Asia - recognizes how important it is for Chinese clients to be able to deal with their offshore financial affairs in their native language. Ms. Ng points out that the Marshall Islands' presence in Hong Kong and mainland China can be equated to a "one-stop after sales service for clients". International Registries offices in Hong Kong, Dalian and Shanghai mean that clients can conduct their business in person, and without language barriers.
Given that set-up fees and overall cost is still a factor for Chinese who are in the market for offshore financial products, having the option of Chinese language services is undoubtedly to these jurisdictions' advantage. In cases where an offshore jurisdiction does not have a dedicated Chinese-speaking staff, advisors such as CIL Group's Mr. Liu fulfill a much-needed intermediary role. "As a local Chinese consultant, we work with qualified agents and lawyers all over the world who provide offshore structuring services. We are the bridge between the two sides." Companies like the CIL Group identify clients' specific needs and suggest personalized financial solutions. "We use Chinese to serve the client and use English as a working language when co-operating with agents and lawyers", explains Mr. Liu.
Simplifying the offshore company formation process is big business, and today there are a growing number of companies offering these services. Offshore Incorporations Limited (OIL) is among the world's best-known company formation specialists, and like the CIL Group, OIL has found the British Virgin Islands and the Cayman Islands to be two of the most popular jurisdictions for Chinese high net worth individuals and corporations looking to form offshore companies. According to Martin Crawford, CEO of OIL, these long-established offshore financial centers are attractive to Chinese because of their "strong rule of law, low transaction costs, low risks and simple audit and accounting requirements".
Many wealthy Chinese find that a British Virgin Islands Business Company suits their needs best, both Mr. Liu and Mr. Crawford agree. "The British Virgin Islands has been the most popular jurisdiction for investment holdings", says Mr. Crawford. Many clients find the British Virgin Islands' holding companies particularly suitable for holding various assets. "When it comes to a holding vehicle, people are concerned with how low their tax burden will be and how easy it is when they want to transfer the assets under the holding vehicle's control. Confidentiality may also be important to them", say Mr. Liu. In selecting the ideal offshore structure, "You may find the answer is a type of company with no tax burden and minimal requirements for annual filing", he says. "It is not only the type of company, but also the jurisdiction that matters." "Every jurisdiction has its own specialty", Mr. Crawford agrees. The Cayman Islands - where Exempted Companies are utilized most often, by both Chinese and non-Chinese investors - has its own advantages. "Cayman Exempted Companies have similar characteristics to the British Virgin Islands Business Company", explains Mr. Crawford. "These offshore companies are very popular and widely used because of their administrative ease, flexibility, tax exempt status, and the fact that they are widely accepted and understood by the international financial community, as well as many of the world's popular stock exchanges ."
Tax exemptions have also helped Belize to secure a portion of the growing market of wealthy Chinese who are looking to invest their assets more carefully and, though the structure of the country's International Business Companies (IBC) was based on the British Virgin Islands' model, Belize is endeavoring to offer more to compete with one of the world's leading offshore centers. Catering to the Chinese market through its comprehensive Chinese language services are one way that the jurisdiction is aiming to stand out; efficiency and the ease with which companies can be incorporated is another. The Belize IBC can be formed within 24 hours after what the Belize Companies Registry 's Ms. Haylock describes as "an extremely simple and straightforward process." Other reasons for the Belize IBC's popularity include the fact that there are no mandatory filings of shareholders, directors, loans, contracts or charges, nor are there any mandatory filings for submissions of financial statements. "The Memorandum and Articles of Association of the company must be filed at the Belize IBC Registry and a certificate of incorporation will be issued within 24 hours afterwards", explains Ms. Haylock. "This must be done via a duly licensed Registered Agent." Clients' confidentiality is strictly protected by law.
"Choosing a jurisdiction that maintains a cretain degree of confidentiality is a must for the high net worth client", says Ms. Ng, highlighting one of the Marshall Islands' major boons. "Marshall Islands company information is kept quite safe by registered agents, and considering there are no diplomatic relations with China at this moment, there is therefore no informat ion exchange treaty between the Marshall Islands and the PRC." In terms of the type of offshore companies that the Marshall Islands offers, Ms. Ng says, "A Limited Liability Company (LLC) and an International Business Corporation (IBC) with both registered and bearer shares may be most practical for high net worth individuals."
An LLC has the advantages of both a limited company and a partnership company combined. "This kind of entity allows the profit to be allocated freely according to internal agreements, but the members of an LLC are only liable for the actual investment they put in. They are not personally liable for any debt [accumulated by] their Marshall Islands LLC. They only undertake risk in line with the ratio of shares in hand," Ms. Ng explains. The Marshall Islands have a different financial product offering to Belize which, in turn, is different to the British Virgin Islands or the Caymans. Every jurisdiction has its own specialty, as OIL's CEO, Mr. Crawford, pointed out, and clients' particular needs and circumstances will always play a part in determining the offshore route that they choose to take. As with any financial undertaking, information is power; keeping abreast of the latest offshore developments will only help China's burgeoning population of high net worth individuals to define what exactly they need from an offshore financial center and, in turn, become more proactive in making their money work for them.
