Introduction

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, to 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 spur on and ultimately lead to a more efficient way of doing business. This is a particularly valuable history lesson to look back upon in this time of increasing globalization and international trade.

International trade is essentially the exchange of capital, goods, and services across international borders, which has been significantly impacted by industrialization, advancement in technology, faster transportation, and the growth of multinational corporations. For companies trading and investing across borders, meaningful consideration must be given to the efficiency of their corporate structure, especially where investors, employees, and the end users of their products come from various parts of the world.

It goes without saying, therefore, that these companies will look to jurisdictions that possess legal stability, international credibility, and a solid company law structure that has adequate rules of protection yet enough flexibility to encourage creative thinking, quick decisions, and financially sound and efficient legal structuring for the benefit of the entity as a whole.

Because of these factors, as well as the general complexity of international trade transactions, more corporates, including some of the world's largest and sophisticated multinational corporations, look to offshore jurisdictions, such as the BVI, to provide some benefit and compliment their overall corporate structure. Certainly, employing an offshore structure will not benefit every situation, but where persons and corporations come to offshore financial centers with clean hands and a legitimate structure, the advantages often outweigh any disadvantage.

Why the BVI can provide advantage

The BVI is one of the world's most recognized offshore financial centers. 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, cross border trade and investment transactions have become a significant reason for the use of BVI companies, globally. 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.

Fast Incorporation

BVI companies may be incorporated at a relatively low cost 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, corporation tax, capital gains tax, inheritance tax, gift tax, wealth tax, or any other form of taxes applicable to a company conducting business outside of the BVI. There is also no currency exchange control applicable to a BVI company or 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 the constitutional 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 will give the company the power to conduct any type of activity subject to any applicable regulatory 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 a neutral tax playing field, notwithstanding their individual jurisdictional obligations. Further, it does not subject all the other investors to the typical issues that would arise if, for example, an onshore jurisdiction were used. One special feature under the BVI legislation with respect to joint venture arrangements is that the Act specifically provides that a BVI company has the ability to include a provision in its constitutional documents that allows a director of the BVI company in a joint venture scenario 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.

Legal System

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 that is able to deal with highly complex legal commercial cases and provide confidence to users of the jurisdiction that there is an efficient avenue when things go wrong.

IPO capability

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.

Conclusion

The history of international trade demonstrates that creativity, ingenuity, and stability, coupled with flexibility and a vision of the future is the most favorable formula. Businesses across the world, both large and small, have embraced offshore financial centers because, in many cases, they form a genuine part of the trade and investment process, today. In fact, some say that, notwithstanding the push back against offshore in certain arenas, offshore financial centers have, in fact, been vindicated in the global trade and investment market. As for the BVI, it is indeed a well-respected offshore financial center that has been tried and tested, and the advantages it offers will no doubt 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.