BVI: Platform for Chinese overseas investment

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For close to 30 years, BVI Business Companies have been vehicles of choice for successful Chinese firms trading across the world. BVI business companies are among major businesses listed on the London, New York and Hong Kong stock exchanges. Well-respected companies worldwide use BVI business companies to manage their cross-border activities.

ELISE DONOVAN 英属维尔京群岛政府亚洲官方办事处董事 Director, BVI House Asia
ELISE DONOVAN
英属维尔京群岛政府亚洲官方办事处董事
Director, BVI House Asia

British Virgin Islands (BVI) business companies have been utilised in joint venture structures as part of mergers and acquisitions transactions, structures for project finance, and for the setting up of private equity funds.

The BVI demonstrates its flexibility and ability to cut through the complexity of different industries by arranging structures for projects and transactions in such areas as oil and natural gas, petrochemicals, metal industries, manufacturing and electronics.

The BVI’s attributes – a legal system based on English common law, internationally-compliant regulations and tax neutrality – make it an especially attractive jurisdiction to channel outbound Chinese investment.

The BVI is well-known for being trustworthy and robust, all of which plays a part in the globalised demand for the use of BVI structures. The BVI offers tax and jurisdictional neutrality, administrative convenience and country risk mitigation, among other benefits.

If there are disputes, the BVI business companies offer legal and commercial certainty and protection of investors and creditors via English common law.

In Asia and in China, particularly, there is a wide availability of seasoned and highly skilled professionals who deal with both the legal and financial aspects of working with BVI structures.

LIMITED PARTNERSHIP BILL

The BVI has introduced a new Limited Partnership Bill. The bill provides bespoke modern legislation for the formation and operation of limited partnerships.

The new bill has been designed with the requirements of private equity and venture capital in mind. It will introduce a modern, updated and business-friendly approach to limited partnerships, taking into account concepts and ideas used globally for limited partnerships as well as from the BVI Business Companies Act.

According to the Limited Partnership Bill, persons looking to form a limited partnership may choose between having a limited partnership either with legal personality or without legal personality. Those limited partnerships with legal personality may hold assets, enter into contracts and litigate directly in their own name rather than through their general partner.

The list of “safe harbour” activities of limited partners, which expressly do not constitute taking part in the management of the limited partnership business, will be expanded to provide limited partners with greater certainty that such activities will not expose them to liability.

It will also be possible to register a description of charge against a limited partnership formed with legal personality, and thereby obtain priority. For those limited partnerships not formed with legal personality, a filing will be possible against the name of the limited partnership to assist in putting the public on notice of the charge.

Subject to the limited partnership agreement, it will be possible to merge or consolidate a limited partnership with another limited partnership, and to squeeze out certain partners under provisions similar to section 176 of the BVI Business Companies Act, with protections provided to dissenting partners along the lines of section 179 of the BVI Business Companies Act.

Under the new bill, limited partnerships formed under the existing Partnership Act may be re-registered as limited partnerships formed under the new limited partnership act.

ARBITRATION IN BVI

The BVI is a signatory to the New York Convention, and the jurisdiction’s current Arbitration Act is based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration. The Arbitration Act gives the parties to arbitration the freedom to select a legal representative of their choice without restriction. The BVI officially opened the BVI International Arbitration Centre in November 2016 as a beacon for all alternative dispute resolution (ADR). The new arbitration centre is based in Tortola, and its mission is to become a regional hub for the settlement of all ADR cases in the Caribbean, the Americas and beyond.

Having an international arbitration institution in the BVI will reassure investors and users of BVI structures. It will validate the fact that such investments and structures are safeguarded by a modern ADR system, lowering the risk of operating such structures or making such investments.

The BVI International Arbitration Centre will administer arbitrations under its own rules, but it will also offer first class premises and support services to users of ‘ad hoc’ or other institutional arbitration. BVI arbitrations can be administered anywhere in the world, providing the facilities are conducive to arbitration proceedings. The aim of the government, the governing body of the BVI International Arbitration Centre and its CEO is to ensure that the institution becomes the regional centre of choice for the arbitration of disputes arising not only out of business activity, investments and projects worldwide, but also in the BVI, the Caribbean and beyond.

CRS COMPLIANCE

The BVI continues to demonstrate its strong commitment to regulatory compliance and international cooperation. Earlier this year, the BVI enacted domestic legislation implementing the Organisation for Economic Co-operation and Development’s (OECD) Common Reporting Standard (CRS).

CRS is the OECD initiative for the global automatic exchange of information (AEOI) for tax purposes. Currently over 90 jurisdictions, including the BVI, have committed to the implementation of the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters and over 60 jurisdictions have signed a Multilateral Competent Authority Agreement which permits participating countries to enter into agreements that, inter alia, provide for AEOI. These form the legal framework for the implementation of CRS.

The principles under the BVI CRS legislation are very similar to the US Foreign Account Tax Compliance Act (FATCA), although there are some important distinctions. For example, while US FATCA focuses on citizenship and tax residency, CRS only focuses on tax residency.

Elise Donovan is the Hong Kong-based director at BVI House Asia. She can be contacted on +852 3468 8532 or by email at: elise.donovan@bvihouseasia.com.hk