The BVI’s role as a connector in cross-border transactions and the global financial system

The British Virgin Islands (“BVI”) has long been recognised as a leading offshore international financial centre that facilitates international trade and cross-border transactions. The reasons for this are many, but in each case, BVI companies play a unique and often poorly understood role in driving wealth for the economies in which they operate. For example, a report[1] commissioned by BVI Finance (the “Capital Economics Report”) shows that the BVI is home to a globally respected international business and financial centre that facilitates an estimated US$1.5 trillion in cross-border trade and investment. The Capital Economics Report also identifies that BVI companies support around 2.2 million jobs globally, and generate revenue of around US$15 billion each year in taxes for governments worldwide.

Although the Capital Economics Report precedes the global tensions that characterise the last few years, it is readily apparent that a trusted, neutral jurisdiction such as the BVI assumes even greater importance in an era that is plagued by geopolitical conflict and trade wars. In fact, the most recent statistical bulletin published by the BVI Financial Services Commission[2] confirms that the number of new BVI incorporations rose to 6,142 in the first quarter of this year, compared to 5,830 incorporations during the same period last year. This brings the total number of BVI companies in existence to around 365,600 as of 31 March 2024[3] and is clear evidence of the BVI’s continuing relevance and role as a trusted and active participant in the global financial system.

The BVI Advantage

There are various factors that have contributed to the increasingly critical role of the BVI in facilitating cross-border transactions.

• A trusted and impartial legal system: The BVI operates under English common law principles, which provides a stable and predictable legal environment. There is a dedicated Commercial Court that is experienced in hearing complex cross-border disputes. Court cases are generally dealt with promptly and there is also a final right of appeal to the Judicial Committee of the Privy Council in London. Consistent with the BVI’s drive to offer best in class cross-border dispute resolution facilities, the BVI International Arbitration Centre provides support for BVI arbitration and mediation proceedings.

• Reputation: The BVI enjoys an excellent reputation owing in part to access to high-quality service providers that are well-versed in cross-border transactions and structures. In fact, to facilitate cross-border deal making, many major BVI service providers have a presence in Asia, London, and the Middle East, in addition to the Caribbean. The BVI also has representative offices in London and in Hong Kong which actively promote the important role that the jurisdiction plays in international dealmaking. Consistent with this theme, the BVI Government dispatched a 13-member delegation to Asia in May 2024 that was led by the Deputy Premier and Minister for Financial Services, Trade and Labour, owing to the importance of the Asian market which accounts for around 57 percent of all BVI company incorporations[4].

• Tax neutrality: There are no corporate or capital gains taxes in the BVI. Additionally, there are no withholding taxes. This is often misunderstood by the public and does not mean that the BVI facilitates cross-border tax evasion and/or avoidance. To the contrary, the BVI has consistently sought to combat malign tax practices and to comply with international standards and norms, including those set by the Organisation for Economic Co-operation and Development (“OECD”) with respect to base erosion and profit shifting. Importantly, unlike other offshore international financial centres, the BVI is not listed on the EU List of Non-Cooperative Jurisdictions for Tax Purposes, is a member of the OECD’s Global Forum on Tax and Exchange of Information and has implemented the economic substance regulations. The jurisdiction also adheres to both the OECD’s Common Reporting Standard (CRS) and the US Foreign Accounts Tax Compliance Act (FATCA) for the automatic exchange of tax information. These measures have helped to preserve the status of the BVI as a leading offshore international financial centre.

• A balance between transparency and confidentiality: Consistent with the requirements of the OECD’s Financial Action Task Force, the BVI has struck a well-considered balance between preserving the confidentiality of the controllers of a company on the one hand (thereby providing a certain element of protection against bad actors that may abuse publicly available information) and facilitating public disclosure on the other. For example, while the names of a director of a BVI company are a matter of public record, the details (including the date of birth, nationality and address) of any such director are not. Additionally, although the names of an ultimate beneficial owner of a BVI company are a matter of private record, their details are generally required to be recorded in the Beneficial Ownership Secure Search System. This is a secure encrypted system that is only accessible by competent regulatory authorities if prescribed conditions are satisfied. The nuanced approach that the BVI has taken with respect to confidentiality has continued to meet international best standards, while reassuring dealmakers and other market participants that the privacy of relevant information will not be compromised when concluding cross-border transactions.

• Corporate flexibility: BVI companies enjoy a high degree of corporate flexibility which is helpful in an international deal-making context where transacting parties often have different commercial objectives and/or expectations. For example, there are no restrictions under BVI law on the objects of a company which are most often unrestricted. Additionally, there is no concept of “share capital” under BVI law for companies incorporated under the BVI Business Companies Act, 2004. Instead, companies are authorised to issue up to the maximum number of shares specified in their memorandum of association (which may be unlimited), with or without par value. As a result, provided that the necessary solvency test is met, distributions can be made relatively easily without having to satisfy onerous capital maintenance requirements. Unlike companies that are incorporated in other common law jurisdictions, a BVI company’s memorandum and articles of association may provide that, where the BVI company is a wholly owned subsidiary, the directors may act in the best interests of the parent even where that action may not be in the best interests of the BVI company itself. This flexibility is helpful in a cross-border transactional context given that many BVI companies are pure equity holding companies with no operations of their own.

• Speed of incorporation and low incorporation and annual maintenance costs: Conducive to international deal-making, BVI companies can typically be incorporated within one day of completion of all applicable customer due diligence. The fees that are payable to the BVI Government upon incorporation of a BVI company and annually thereafter are also low, currently being US$550.00. There are no minimum capitalisation requirements.

• Bank accounts and exchange controls: BVI law does not mandate that a BVI company must maintain one or more bank account(s) in the BVI. On the contrary, to facilitate cross-border transactions, it is commonplace for such account(s) to be opened in the jurisdiction(s) where the proposed investments, business activities and/or any existing banking relationships are based. There is no exchange control legislation under BVI law, and the official currency is the US Dollar.

Capitalising on the BVI Advantage

The positioning of the BVI as a versatile and adaptable jurisdiction that seeks to comply with international best practices and standards has served it well in the context of cross-border deal-making in several ways. For example, the Capital Economics Report identifies that approximately 25 percent of all BVI companies are incorporated for corporate group structuring purposes. It also confirms that around 37 percent of BVI companies are incorporated for family, trust and succession planning purposes, whereas 18 percent are real estate holding companies and 21 percent are fund and investment businesses, joint ventures, listing vehicles and vessel or aircraft owning companies. Perhaps unsurprisingly, the BVI companies that are incorporated for corporate group structuring purposes account for the largest share of underlying value.

To provide further colour on the above, the Capital Economics Report estimates that slightly over 40 percent of all BVI companies have ultimate beneficial owners in Asia and the Pacific region, with Latin America and the Caribbean, the United Kingdom, the United States and Canada, and the European Union being important markets also. It also identifies that the BVI is home to part of the group structure of over 140 major businesses listed on the stock exchanges of London, New York and Hong Kong and that the International Finance Corporation and the European Bank for Reconstruction and Development use BVI companies to help fund projects around the world. These considerations underscore the important role that the BVI plays as a connector in the global financial system.

Although the BVI’s financial services offering is largely sector agnostic, the jurisdiction has taken great strides to innovate and attract high-quality market participants in cutting edge areas such as generative artificial intelligence, sustainable technology and more. This can be readily seen from the commercial and balanced approach to regulation that the BVI has adopted with respect to the virtual assets sector. For example, the BVI has not embraced high stakes “enforcement by regulation” which is widespread in the United States and certain other jurisdictions. Furthermore, the BVI has issued helpful guidelines on the distinction between utility tokens on the one hand (which are generally unregulated) and securities tokens on the other (which are regulated). Other jurisdictions do not draw this distinction or have overly broad definitions of “security tokens” rendering any distinction meaningless in practice. This commercial approach has rendered the BVI one of the leading jurisdictions in the digital assets sector, with widespread interest in its blockchain offering.

We anticipate that interest in the BVI as a connector in the global financial system will continue to grow. For the reasons discussed above, the BVI is very well-geared to facilitate efficient and secure cross-border transactions, and consistent with the jurisdiction’s track record in evolving to meet the needs of global businesses, investors and other market participants alike, we are confident that the BVI will remain one of the leading jurisdictions of choice for cross-border business.

References

[1] Creating Value: BVI’s Global Contribution [2017] – Capital Economics.

[2] Statistical Bulletin Vol. 74 [2024] – BVI Financial Services Commission.

[3] Ibid.

[4] https://bvi.gov.vg/media-centre/british-virgin-islands-companies-support-23-million-jobs-and-generate-us14-billion-tax