The history of trade can be traced back for thousands of years, from the early days of bartering to the introduction of money, and now, modern, complex trade and finance arrangements between individuals, countries, and international trade groups. What has become clear over this period is that at every stage of the evolutionary process, ingenuity and creativity in trading mechanisms and concepts advance and ultimately lead to more efficient ways of doing business.
International trade—the exchange of capital, goods, and services across international borders—has been significantly impacted by industry expansion, technology advancement, improvements in transportation, and the growth of multinational corporations. For companies trading and investing across borders, meaningful consideration must also be given to the efficiency of corporate structure, especially where investors, employees, and end users of products come from various parts of the world.
Logically, companies that trade internationally prefer jurisdictions that possess legal stability and international credibility. Essential to such jurisdictions is the establishment and maintenance of a solid company law structure that provides financially sound and efficient legal structuring for the benefit of the entity as a whole. This means that the ideal jurisdiction for international trade will possess adequate rules of protection, yet allow enough flexibility to encourage creative thinking and quick decision-making.
Along with the general complexity of international trade transactions, more entities, including some of the world's largest and most sophisticated multinational corporations, are looking to offshore business and finance jurisdictions such as the British Virgin Islands to provide some benefit and compliment their overall corporate structure. Certainly, employing an offshore structure will not be the right fit in every situation. But, where persons and corporations come to offshore business and finance centres with clean hands and a legitimate structure, the advantages often outweigh any disadvantage.
The recent June 2017 report by leading UK consulting firm Capital Economics, which studied the BVI's contribution to global trade, solidifies the jurisdiction's legitimacy as an international business and finance centre. It is against this backdrop that this article looks at the BVI in the context of facilitating modern international trade and cross-border transactions.
Findings of the Capital Economics Report
The report, commissioned by BVI Finance, provides an evaluation of the economic, financial, and fiscal impact of the BVI and its investment vehicles on the world economy.
The report identified five key findings:
(i) Despite its relatively small size, the BVI is a real, balanced, and sustainable economy.
(ii) The BVI is home to a unique cluster of financial and professional services firms that form an "international business and finance centre."
(iii) The BVI business company is a widely used and dependable vehicle to facilitate cross-border trade, investment, and business.
(iv) The BVI is a sound and reliable centre that has worked harder than many bigger nations to meet international standards, and is not some supposed tax haven.
(v) Through its direct employment, trade, and most importantly, facilitation of cross-border business, the BVI supports jobs, prosperity, and government revenues worldwide.
The report further highlights that there are currently just under 417,000 active BVI business companies, roughly two-fifths of which originate from Asia. The assets held by these vehicles have an estimated worldwide value of US $1.5 trillion, which is equivalent to roughly two percent of global gross domestic product. Additionally, many major respected companies worldwide use BVI business companies to manage their cross-border activities. In fact, the BVI is home to part of the group structure of over 140 major businesses listed on the London, New York, and Hong Kong main stock exchanges. Further, the report also indicates that the BVI's mediated investment contributes over US $15 billion in annual tax revenue to governments around the world.
Why the BVI provides an advantage in international trade and cross-border transactions
The BVI is one of the world's most recognized offshore financial centres. Since 1984, over one million companies have been incorporated in the jurisdiction. And while many of those companies are purely used as holding vehicles for assets, increasingly, more are engaging in significant cross-border trade and investment transactions. The reason for this increase is the growing recognition of the advantages which BVI companies can offer in international trade and investment transactions, some of which are discussed below.
BVI companies may be incorporated at a relatively low cost and within 24 hours once the BVI registered agent is satisfied with the due diligence information supplied. A BVI company is incorporated by filing its constitutional documents at the BVI Registry of Corporate Affairs, and may include a foreign character name.
No taxation, currency restriction, or residency requirements
The BVI has no income tax, corporate tax, capital gains tax, inheritance tax, gift tax, or wealth tax, nor any other form of taxes applicable to a company conducting business outside of the BVI. Currency exchange control is not applicable to a BVI company, and there is no residency requirement for its directors.
Flexible constitutional documents
The BVI Business Companies Act, 2004 (the Act) provides tremendous flexibility as it relates to the constitutional documents of a BVI company. A primary benefit of this flexibility is that its documents can be tailored to mirror a specific transaction, such as a joint venture or listing scenario. Most companies will also have a wide objects clause that provides the power to conduct any type of activity, subject to any applicable licensing requirements.
Cross-border joint venture arrangements
Joint venture arrangements often involve investors from varying parts of the world, coming together to achieve certain goals with respect to a particular investment. The tax neutrality of the BVI allows each investor to have an objective playing field, notwithstanding their individual jurisdictional obligations. Further, it does not subject all other investors to typical issues that would arise if, for example, an onshore jurisdiction was used.
One special feature under BVI legislation is that the Act specifically provides the ability to include a provision in a company's constitutional documents that allows a director of the BVI company to act in the best interests of one or more shareholders of the company, regardless of whether such actions are in the best interest of the BVI joint venture company itself. This concept is seen as a great practical benefit to joint venture transactions given the usual shareholder and board director alignment.
Dividends and distributions
Another advantage of a BVI company is the ease with which profits can be released. In order to make a distribution to shareholders, a BVI company only needs to satisfy a solvency test. The solvency test is satisfied if: (i) the company's assets exceed its liabilities; and (ii) the company is able to pay its debts as they fall due. There are no distributable profits tests or similar requirements, which is the case in some other jurisdictions, particularly onshore jurisdictions.
The BVI has a well-developed legal system based on English law, with its final court of appeal being the Privy Council in London. It has a dedicated Commercial Court in Road Town, Tortola that is able to deal with highly complex commercial cases and which provides confidence to users of the jurisdiction that there is an efficient avenue when things go wrong. Also, the BVI has a state of the art arbitration centre, which compliments dispute resolution options.
BVI companies are used as listing vehicles on the worlds' most renowned exchanges, including the New York Stock Exchange, Nasdaq, London Stock Exchange (Main Board and AIM), Toronto Stock Exchange, Singapore Stock Exchange, and the Hong Kong Stock Exchange. These listings demonstrate the ability of companies set up in the BVI to compete effectively on the world stage.
O'Neal Webster attorneys have acted on behalf of BVI companies in many sophisticated transactions, and which demonstrate the firm's global reach and cross-border prowess. Examples include:
- Acted as BVI counsel to FBN Capital in a US $315 million financing for the acquisition of a majority interest in one of the largest power generating stations in Nigeria.
- Acted as BVI Counsel to Luminex Corporation in its US $50 million acquisition of molecular diagnostics firm GenturaDX and its subsequent restructuring.
- Acted as BVI counsel to Mercantil Colpatria, S.A. in connection with its sale to Bank of Nova Scotia of a 51 percent stake in Banco Colpatria, one of Colombia's leading banks. The deal was valued at approximately US $1 billion.
Validated and Vindicated
The history of international trade demonstrates that creativity, ingenuity, and stability, coupled with flexibility and vision is a favorable formula. Businesses across the world, both large and small, have embraced offshore financial centres in the past, and will continue to do so in the future because they provide essential benefits to the trade and investment process.
The Capital Economics Report validates what has been known for a long time in terms of international trade and cross-border transactions, and vindicates the BVI in all respects. The BVI jurisdiction provides a first class, well-regulated business, finance, and legal environment that is focused on facilitating corporate transactions, worldwide. Sophisticated and stable offshore jurisdictions such as the BVI offer explicit advantages, are vital to the global economy, and will continue to play a meaningful part on the complex stage of international trade.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.