Why the BVI is a popular choice in China

(China Business Law Journal March 2010)

Since the inception of the International Business Companies Act in 1984, the British Virgin Islands (BVI) has grown to become one of the world’s leading offshore jurisdictions. The BVI is widely used as a corporate domicile by consumers who seek a quality product and service providers, together with competitive pricing.

The financial services industry, together with high end tourism, is the principal generator of revenue in the  BVI and over the last twenty years, and the Government of the BVI has actively pursued a policy of promoting the growth of the sector by catering to the needs of consumers. Specifically, the Government has been at pains to develop both an up-to-date (and in some respects pioneering) legislative framework and the physical infrastructure that on-island   service   providers   require   for   the   purposes   of   conducting   business.   The Government continues to develop and introduce legislation to keep the BVI at the forefront of the offshore world. The BVI offers cost-effective, zero-tax companies, in a well-regulated but business-friendly environment. It has an excellent professional service base tailored to the needs of onshore  investors and institutions, in a dollar-denominated English common law  jurisdiction  with  its  ultimate  court  of  appeal  in  the  Privy  Council  in  London.  It  is considerably more cost-effective to set up and maintain companies in the BVI than in the other popular offshore jurisdictions (with government incorporation and annual fees being
$350 for standard companies with 50,000 shares or less). Following the implementation of the International Business Companies (Amendment) Act, 2003, a company incorporated in the BVI is able to have to an additional foreign (Chinese) character name approved by the BVI Registrar of Corporate Affairs.

The  BVI  has  an  excellent  track  record  for  being  the  jurisdiction  of  choice  for  Chinese investors, both for use of BVI Business Companies as vehicles for outbound investment, and for  investment  within  China.  According  to  the  US-China  Business  Council,  the  BVI  is consistently the second largest source of Non-Financial Foreign Direct Investment in China after  Hong  Kong,  with  approximately  $16  billion  invested  in  both  2007  and  2008.  BVI Business  Companies  accounted  for  more than five  times the  investment  in  China  than Cayman Islands companies did in the same period. In January this year, the Hong Kong Stock Exchange (HKSE) allowed BVI-incorporated companies to list on the HKSE, following the BVI signing a Tax Information Exchange Agreement with China on 7 December 2009.

Examples  of  deals  involving  China-related  entities  using  BVI  vehicles  in  their  structure include  companies  such  as  A-Power  Energy  Generation  Systems  Ltd.,  China  Cablecom Holdings Ltd., China Netcom Group Corporation Limited, and China Mobile Hong Kong (BVI) Limited are incorporated in the BVI  and used in structures for Chinese investment. China Mobile Hong Kong (BVI) Limited is the majority shareholder of China Mobile Limited which is listed on the NYSE and has a market cap of roughly $198 billion.
 
Using  BVI  companies  as  Special  Purpose  Acquisition  Companies  (SPACs)  has  recently increased in popularity among foreign investors and Chinese operating companies.  SPACs provide a corporate structure  which simplifies the process of listing on recognised stock exchanges around the world, enabling the SPAC to either raise additional capital or to allow the existing investors a market for their shares.

By Ken Okumura, Associate and Jose Santos, Partner, Forbes Hare.