First of all, BVI owns the strongest supervisory system recognized by many international organizations, an innovative and sound legal system which has been implemented afterwards, high-quality service providers and professionals, and a regulatory system that effectively supervises financial services and industrial activities.
As a result, a large number of international clients are attracted to choose BVI as their preferred legal jurisdiction concerning corporate structure, property protection and wealth management. For instance, the BVI Business Companies Act, 2004 has been highly spoken of and recognized by legal practitioners across the globe for its flexibility. And BVI companies could launch at any stock exchange market around the world.
Secondly, BVI has been meeting the OECD (the Organization for Economic Co-operation and Development) requirements in terms of effective information exchange and transparency in a proactive and dedicated way, and has achieved identity verification and behavior supervision of investors. Up to now, BVI has entered into multiple revenue information exchange agreements with various countries and is working hard to ensure the effective implementation of the signed agreements.
BVI is home to nearly 1,000,000 enterprises of all kinds, including trusts and registered companies of other types. According to relevant survey data, 41% of global offshore organizations are registered in BVI and BVI enjoys the second largest share of overseas direct investment (ODI), which is preceded by only Hong Kong. All major offshore law firms have set up offices in BVI, enabling them to serve clients from different countries in an efficient way.
BVI sophistication and vitality are appealing to investors in different sectors of various countries and, many small and medium-sized multinationals are eager to venture into BVI given its low government fee, reasonable tax environment, and convenient and fast service.
As offshore business is developing in a diversified way on the global capital market, investors in different fields and of different sizes have gained deepened understanding of offshore business. Offshoring is not just a tool for taxation regulation and control. More importantly, it is regularized by strong laws and regulations system, and offers perfect capital operation environment which is highly welcomed by the public. Among others, BVI, as the earliest representative of offshore financial center, has been significant for mainland investors in recent years.
For instance, offshore companies, recognized and widely used by small and medium-sized foreign trade companies which emerged along the coastal cities in mainland China seven years ago, have safeguarded goods and information safety of buyers and sellers in the import and export via taxation regulation and control as well as information privacy protection. As such, a multitude of BVI companies have sprung up. The legal features of BVI companies have presented a new appearance to the relatively conservative and occlusive foreign trade companies in mainland China. For instance, the scope of law is free from any foreign exchange control and companies may open accounts freely across the globe; BVI companies act is based on the British Business Companies Act, which is truly appealing to overseas companies which shall abide by British and American legal system in international business practice; besides that, BVI companies adopt the system of registered agent, with little information disclosure, strict confidentiality rules, meaning that safety of companies are fully secured and risk factors have been greatly reduced; the government exempts all taxes and fees and employs the authorized capital system without actual capital verification, etc. The perfect legal system and operational environment have offered fresh air and refreshing institutional reform to mainland foreign trade companies.
As of now, BVI companies have been increasingly recognized by more and more high net worth individuals (HNWI) who have started to actively understand and to use BVI companies to the point. For example, personal information protection has helped investors avoid relation disputes, expensive taxation and other issues arising out of property distribution during property planning and heritage arrangement, making the entire operation humanized, private and convenient; when it comes to expanding investment and financing on overseas market, BVI companies are well-poised to avoid investment and disperse risks, thereby skillfully evading political and policy barriers and accelerating the globalization pace of Chinese companies; in the meantime, with regard to brand strategy and planning, more and more entrepreneurs have used the organization form of offshore to avoid the exposure of holder information, minimize risks and maximize profit.
Take a simple example in the field of overseas investment:
Two domestic television stations A and B plan to invest in the U.S., but as the mouthpiece of the country, they were subject to policy impediments of the U.S. government during the investment, making direct investment extremely difficult. Later, the two media organizations established a joint venture offshore company C in BVI, each holding 50% of the stake. Company C raise capital in Hong Kong as the main executor and then venture into and invest in the U.S. market smoothly. This case points out that when going global, we may employ the unique features of offshore company, including information privacy, structural safety and identity freedom, to reasonably plan overseas investment and financing projects, avoid political and policy barriers, thereby realizing the target indirectly.
We hereby give another example to brief on the risk avoidance feature of offshore companies in individual and company investments and financing projects:
Investors A, B and C intend to jointly establish a Company in HK to invest in three overseas projects:
We can find from the figure above that the original structure is subject to hidden danger of failure. To begin with, the information security of investors A, B and C couldn be protected; secondly, the joint venture - HK Company, featured by complete information transparency, lays bare all structures in subsequent investment; last but not least, HK Company owns three projects at the same time, which means severe hidden danger in risk prevention and dispersion. Let see the structural figure after our reasonable planning.
Each of investors A, B and C owns a separate BVI company, namely Company A, Company B and Company C. As such, based on the opaqueness of BVI companies, information of the three investors is completely classified, ensuring the security of the original investment information of the investors during the investment process. On top of that, Companies A, B and C jointly own a BVI company Company D, which makes investment in Project I; the BVI company Company E - joint owned by Companies A, B and C - invests in Project II; and Company F, the BVI company owned by Companies A, B and C, invests in Project III. Companies D, E and F are all BVI companies, which still ensure the information security of investment due to their opaqueness. Finally, three projects respectively held by Companies D, E and F realize risk dispersion. This simple case indicates that the complicated and diversified breakdown structure of investment and financing projects is subject to many potential yet deadly risks; however, the reasonable and clever use of offshore companies could exactly help us prepare for avoidance at the beginning, and as a result, many risks that couldn be reserved in the late stage are averted.
In fact, as early as in the 1950s, Chinese companies had already used offshore centers in business operation when they were expanding their international development space. Hundreds of Chinese companies engaged in overseas IPO and financing, investment and other business operations via offshore companies. The o Global strategic planning released by the Chinese government for companies has enabled more companies to seek international development space. In order to help enterprises participate in international competition, formulate strategic planning, avoid risk and reduce the cost of international operation, offshore business has become a way Chinese companies must take into account.
In 1984, BVI passed the first-ever offshore companies act, the International Business Company Act (renamed to Business Company Act in 2004). As of now, offshore company, the special form of business organization, has played an active role in international trade, international investment, international service, property protection, international taxation plan and other forms of business operation, and is regarded as the lubricant of international economic development by the professional society.
Among others, as the earliest initiator of offshoring and the most stable and sophisticated jurisdiction in the modern times, BVI has been highly welcomed for its perfectness. However, due to the increased supervision by local regulators recently, due diligence investigations on investors and other regulatory procedures have added more difficulties to the communication between service providers and terminal investors, and thus delay the contract signing. As a result, some investors deterred in face of complex formalities and a large number of certificates that need to be submitted. Alongside that, the difficulty of BVI companies in opening account at overseas foreign banks, and high threshold have undoubtedly thrown a wet blanket on many investors who were originally loyal to BVI investments. A large number of offshore jurisdictions have sprung up in recent years have reshuffled the offshore market with even lower government fee and more convenient operational procedures, and broadened the horizon of investors when selecting investment destination and corporate structure. This definitely represents a heavy disadvantage to BVI.
Anyway, most of the disciplined and over-cautious investors are still enthusiastic for BVI. They believe, as always, that BVI has been standing for the highest standard for transparency, supervision, coordination, execution and cooperation. It aces in maintaining advantages thanks to its sound reputation in meeting international standards. The most loyal investors are still willing to believe that BVI is the best and the most credible offshore jurisdiction.
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