The last few years have seen a steady flow of Chinese businesses choosing to incorporate entities in the British Virgin Islands (BVI), and Chinese lawyers seeking knowledge on the uses and advantages of BVI structures for their clients' transactions. Ashley Davies, partner, corporate & finance Group, of Campbells, discusses what has perked the Chinese interest in the BVI.
Over the last few decades, it is increasingly widely known that there has been a steady flow of Chinese businesses choosing to incorporate entities in the British Virgin Islands (BVI). And in tandem with the growing interest from Chinese enterprises looking to build businesses using the BVI, we are increasingly seeing more legal professionals based in China looking to become more knowledgeable about the uses and advantages of BVI structures for their clients' transactions.
According to the United Nations Conference on Trade and Development World Investment Reports, the BVI was the second largest investor in China from 2006 to 2012, providing $7.72 billion of inward foreign direct investment in 2012 alone. What's more, according to recent research by London-based economics consultancy Capital Economics, approximately two-fifths of all BVI business companies in 2017 had operations in mainland China, Hong Kong and Macau. Mainland Chinese and Hong Kong-based companies accounted for more than 40% of the $1.5 trillion in assets mediated through the BVI, according to the Vistra 2020 report The Disruption Advantage. But why have Chinese businesses chosen the BVI?
A Warm Relationship
The BVI and China have developed a close relationship over the last few years. This is because, in part, the BVI has developed itself as a world leader in offshore business incorporation. Quite simply, its legislative framework has made it quick, inexpensive and easy to set up a business company offshore. At the same time, participants in the rapidly growing Chinese economy have sought more ways to be able to do business with the rest of the world, and many have found incorporating companies offshore an excellent way of facilitating the flow of finance and transfer of assets effectively in and out of China and around the globe.
The BVI was aware of this growing demand early on and has purposely crafted an international business framework that provides a number of features attractive to international businesses, not least those in China. For example, the BVI was one of the first offshore jurisdictions to enable Chinese character names to appear on company certificates of incorporation. This wasn't a significant innovation from a legal perspective, but culturally it was huge – Chinese businesses were being welcomed with open arms to the BVI.
And that relationship has continued to blossom. It's not an exaggeration to say that there are likely more lawyers advising on the BVI law aspects of international transactions in Hong Kong today than there are in the BVI itself. And the BVI has become virtually synonymous in China with the very concept of an offshore company. The infrastructure is on the ground and in the right time zone for Chinese entrepreneurs, who know they can easily contact a professional in their time zone to arrange a new BVI company incorporation, speaking to the relevant experts in Chinese and dealing with paperwork that is for the most part conveniently available in their native language.
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Previously published in China Law & Practice
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