The BVI - Gateway to emerging markets
Following the global financial crisis, it is the BRIC countries (China, Russia, India and Brazil) that have emerged stronger than ever. The world has been looking towards these markets to kick start flagging economic growth in the West, and support burgeoning Western debt.
With rapidly expanding middle and upper classes, the BRIC countries have increasing numbers of entrepreneurs and high net worth individuals with capital to invest. This growing wealth has increased the appetite for offshore funds and companies, particularly in the British Virgin Islands (BVI).
The BVI is a popular jurisdiction for investors from emerging markets to use when structuring their affairs. The BVI has more offshore companies than any other country with just short of 500,000 active companies. It is also the second largest fund jurisdiction in the world, and the fourth largest insurance captive domicile. According to a Financial Times survey, the BVI is the second largest source of international foreign direct investment globally, with upwards of US$125 billion invested through the BVI each year.
China and Hong Kong
BVI companies are particularly popular with Hong Kong and Chinese investors. Use of BVI companies took off before the handover of Hong Kong, and their use has spread to main land China since.
Indeed, BVI vehicles are so popular that the BVI is now the second largest foreign investor into China behind Hong Kong. BVI companies accounted for about US$16 billion of new foreign direct investment (FDI) into China in 2008. This represents more than the US, Britain, France and Canada combined. It is not only inward investment that flows into China from the BVI, but also outward direct investment (ODI) from China into other countries. The US-China Economic and Security Review Commission estimated that in 2009 Hong Kong and British Virgin Islands entities collectively received 73% of China's FDI outflows.
BVI companies and structures are also popular with other BRIC markets, including Russia, South America and India. A BVI holding structure, utilising subsidiaries in Cyprus taking advantage of the double tax treaty between Cyprus and Russia, is typically the structure of choice for a large number of Russian investors and oligarchs.
The BVI is on the OECD ‘white list' reflecting a high level of tax transparency. Importantly, BVI companies can list on the New York Stock Exchange, London Stock Exchange and the Hong Kong Stock Exchange amongst others, providing an exit route for capital invested.
A study by the Reserve Bank of India shows a similar connection between India and the BVI. As at 28 February 2012, the BVI was the sixth largest recipient of overseas investment from Indian companies, having received US$1.55 billion since 2008, or nearly 2.8% of the total FDI outflow. This places the BVI above the UK, Hong Kong and Switzerland. The study shows that the BVI's share in India's outward FDI has increased while those of the US, the Netherlands and Singapore have declined.