Jurisdictions
Regions
Industry Sectors
12/08/20
The Great Connector: The BVI’s Critical Role In Global Finance
The British Virgin Islands (BVI), long heralded as a leading international finance centre, had its reputation further burnished when the European Union (EU) whitelisted the jurisdiction in February 2020. For multinational businesses, having a reliable third-party conduit such as the BVI is key to conducting successful international trade. A trusted neutral party assumes even greater importance in our era of growing geopolitical conflict and trade wars.
There are several reasons for this, and in each case, the BVI plays a unique but often little understood role in driving prosperity not only for companies, but also for the countries where they are domiciled.
A Mature And Trusted Legal System
For decades, the BVI has been a leading international financial centre, one that is synonymous with offshore business operations. One of the main reasons for its popularity is an effective and dependable legal system based on English common law—the same framework used in many international contracts.
The country’s modern, flexible, and easy-to-understand legal structure facilitates the formation of cross-border entities and guarantees strong shareholder protections that promote co-investing—protections that are not always available in other jurisdictions. In addition, the country has a dedicated Commercial Court that is expressly designed to deal with complex disputes involving cross-border business.
Court cases are dealt with promptly, and may be appealed where necessary, with the ultimate court of appeal being the Privy Council of the United Kingdom. Justice is delivered in accordance with onshore standards and is not plagued by bureaucratic delays. Fair and timely dispute resolution gives businesses the confidence that they can continue operations without undue disruption if disagreements arise. The BVI’s legal offerings have been further enhanced by the establishment of its International Arbitration Centre which offers state of the art facilities for alternative dispute resolution.
The BVI’s legal framework and court system have continued to evolve and develop over the years, with cutting-edge decisions and precedence set. As a result, more companies have opted for BVI vehicles when doing business, thus creating a virtuous circle of expansion and improvement in services to meet the needs of an increasingly sophisticated clientele. To satisfy the growing demand, BVI lawyers have established offices globally, not only in the Caribbean, but also in Hong Kong, London, and the Middle East, where they can assist international clients in their own languages and time zones.
Business Expertise That Continues To Gain Scale
In addition to the aforementioned mature legal system and expert legal services, the BVI also brings to the table first-class professional services, including accounting, audit, and restructuring, many of which are part of much larger multinational groups. As the BVI maintains its position as a leading jurisdiction, we will see these professional services expand in scale and expertise.
Company service providers, duly licensed and regulated in the BVI, provide companies with sophisticated assistance in nearly every dimension of creating and running an international business, from incorporating as a BVI Business Company or Partnership, to establishing and administrating a Trust or Fund, to registering vessels with the Virgin Islands Shipping Registry.
Professional services firms provide real value to the over 400,000 BVI-registered business entities. More than 140 major businesses listed on the London, New York or Hong Kong main stock exchanges use BVI-registered vehicles for their primary listing.
It takes time and concerted effort to develop such a wide-ranging network of professional expertise in an island jurisdiction. Since it passed the International Business Companies Act over 35 years ago in 1984, the BVI has vigorously pursued its goal of becoming a major player in cross-border business formation and operations, which it has achieved with notable success. The jurisdiction’s model now serves as a gold standard for international finance centres as they build out new capabilities long established in the BVI.
International Intermediary Providing Economic Advantages For All Parties
The BVI’s role as a neutral intermediary cannot be overstated. Clients can swiftly set up a new BVI structure that is globally recognised and accepted for international business. Many such clients are from emerging markets and economies, and it can be helpful for them to disintermediate, particularly at a time of international tension.
Such structures assist to provide economic stability and monetary benefits. In Asia, for example, some 75 per cent of Hong Kong’s Hang Seng Index consists of companies with direct linkages to the BVI, according to a 2017 report by Capital Economics Ltd. for BVI Finance.
The BVI’s tax neutrality provides important economic advantages, though the benefits of zero per cent corporate income tax are often misunderstood by the general public.
For example, a business in one country may use a BVI entity to invest in commercial real estate in another country. Any taxes levied on the commercial real estate and its tenants would be paid locally, and profits on the use of that commercial real estate are returned to the home country where the company pays income and other taxes on them. But the BVI intermediary collects no corporate taxes, leaving more money to be repatriated to the home countries providing and making use of the capital.
The sums involved are not trivial. BVI Business Companies hold US$1.5 trillion in assets – equivalent to 2 per cent of global GDP. In addition, the economic activity generated by the 2.2 million jobs supported by BVI Business Companies contributes an estimated US$15 billion per year to governments worldwide (per a 2017 report by Capital Economic Ltd. for BVI Finance). The international transactions that they enable translate into significant global investments in real estate, technology, factories, hospitals, transportation infrastructure, and more.
BVI companies also play an important role for developing countries. Several international development organisations, including the European Bank for Reconstruction and Development, and the World Bank’s International Finance Corporation, use BVI companies to boost infrastructure and business in developing countries around the world. Without the help of a neutral intermediary, many of these investments would lack the freedom and economic incentives they need for success, and as such, may cease to exist.
Cooperation With International Authorities
Companies operating as BVI entities retain beneficial ownership information privately while maintaining full compliance with international laws.
The country’s Beneficial Ownership Secure Search system (BOSSs) stores ownership information on a secure platform which BVI authorities can access and, when necessary, share with international legal and tax authorities. Ownership information is not made public, however, providing an important measure of safety for partners who might otherwise be targeted in scams or persecuted in their home countries.
As a member of OECD’s Global Forum on Tax and Exchange of Information and Financial Action Task Force (FATF), the BVI is held to the highest standards of financial integrity. It adheres to both OECD’s Common Reporting Standard (CRS) and the US Foreign Accounts Tax Compliance Act (FATCA) for the automatic exchange of tax information.
It also participates in other respected international financial regulatory forums, including OECD’s Global Forum on Tax Transparency and Exchange of Information, the Financial Action Task Force , and the Financial Stability Board, as well as the International Organisation of Securities Commissions (IOSCO) and the Egmont Group of Financial Intelligence Units.
Contrary to conventional belief, full cooperation with the strict standards of these authorities, combined with a lack of banking secrecy, means that businesses can operate with the assurance that they are upstanding members of the global financial community.
Looking Ahead
By building a strong network of expertise over the past 30 years and working hand-in-hand with international authorities, the BVI has come to assume systemic importance in the global financial services industry. Organisations ranging from publicly listed companies to pension firms and sovereign wealth funds have placed their faith in the jurisdiction’s legal system, professionalism, and strict but business-friendly compliance measures. The international stature it has achieved is bound to serve as a magnet that draws business to its shores.
For these reasons, when Vistra looks ahead to predict which jurisdictions will be thriving 10 years from now, the BVI is one to top the list.
Simon Filmer
Simon is Global Lead, Company Formation at Vistra. He has more than 20 years of senior management experience in the fiduciary services industry and has considerable experience in the areas of corporate business, trusts and investment business. Simon is regularly consulted by regulators and governments on financial services matters, and has served on numerous industry committees, especially in the BVI.
He is a frequent speaker at industry events, is recognized as a thought leader, and has been a driving force in the influential Vistra 2020 series, Vistra's flagship research on the corporate services industry.
Simon has a Bachelor of Arts Honours degree from the University of Manchester in the UK, is a Fellow of the Institute of Chartered Secretaries and Administrators, and a Member of the Society of Trust & Estate Practitioners.
