BVI offshore industry establishes new record in 2006 and goes for more

It is nothing new if I say that the BVI is one of the most popular offshore jurisdictions and that BVI International Business Companies (or, in accordance with the new Business Company Act, Business Companies) are the most popular offshore entities ever registered. More than a year ago I mentioned that there are around 720,000 IBCs registered in the BVI. Now we have the new data from British Virgin Islands Financial Services Commission and International Finance Centre revealing the jurisdiction's new records.

The figures provided by the British Virgin Islands FSC and IFC have shown that in 2006 65,284 Business Companies were registered in the British Virgin Islands, which is a 12% increase as compared with 2005. This outstanding result is a new record for annual BVI company registrations set by the offshore centre. Previous record belongs to year 2000 when 64,000 IBCs were registered in one just year.

As to the total number on BVI Register, there were around 775,000 of both types of BVI companies – International Business Companies and BVI Business Companies – as at December 31, 2006.

Chief Operating Officer at the BVI International Finance Centre, Humphry Leue, commented that another record year for company registrations in the British Virgin Islands signifies that “the transition from the hugely popular BVI International Business Companies Act to the BVI Business Companies Act has been both seamless and effective in keeping this jurisdiction at the forefront of the international business industry”. He also added that the BVI continues to make its offer of financial services more diversified.

According to Humphry Leue, in 2006, 57 new captive insurers were registered, and the total reached over 400 captives – so, the BVI became the 3rd largest offshore centre for captive insurance business. Also, it gained a further 282 investment businesses in 2006, and the total for that sector was around 2,600 active mutual and hedge funds when year 2007 started. It also should be indicated that further growth is expected this year.

The statistics published by BVI FSC provides similar data. The total number of captive insurers as at December 31, 2006 is exactly 400 (not >400 as stated by IFC) and total number of active mutual funds is 2,571.

Mr. Leue noted that the feedback from private sector and Regulator is more important than the figures themselves, and the feedback that the quality and diversity of the business coming to the BVI is impressive means that the British Virgin Islands has been recognized “as a leading jurisdiction for the conduct of legitimate and value-added business”.

Year	BVI companies incorporated	Total number of companies on the BVI Register at the end of year
2002		535,178
2003	47,734	582,986
2004	60,668	643,718
2005	58,337	707,392
2006	65,284	774,573

In the table above and graph below I have summarized BVI IBC (BC) incorporation statistics for the last 4 years and I feel that more breaking records are eagerly expected in 2007.

New BVI Constitution Approved by British Privy Council

British Virgin Islands Chief Minister Orlando Smith announced the approvement of the Virgin Islands Constitution Order 2007 by the Privy Council in London. Orlando Smith informed that he received the corresponding letter from Lord David Triesman, Parliamentary undersecretary of state for the Foreign and Commonwealth Office. The new document will come into effect on the dissolution of the BVI Legislative Council, which should be made by July 10 with general elections constitutionally due by October. The appointment of a Cabinet Secretary will also take effect only after the elections.

A constitutional commission was established in the territory after the British government decided in 2001 to invite UK Overseas Territories to appoint local commissioners to review and make recommendations on the advancement of their constitutions. The Constitutional Commission was appointed in the BVI in April 2004. On April 15, 2005 the report was formally handed to BVI Chief Minister, based on the comments and opinions received from a wide part of the community. After the report was accepted by Executive Council, there were four rounds of constitutional negotiations, the last of which took place from February 26 to March 2. At the end of this final round, Orlando Smith reported that the BVI had 95% of the proposals.

Gov. David Pearey, the British government's representative in the BVI, also welcomed the announcement on Thursday. He congratulated all sides in the negotiations for their contribution to the creation of the new constitution. Pearey said, "This is an historic day for the BVI. The new constitution, now approved, is the first complete revision since 1976 and fully reflects the BVI's current political maturity."

BVI is 2nd largest source for Hong Kong, accounting for 22.2% in Q1

The Census & Statistics Department of Hong Kong has released the data that indicates the British Virgin Islands as one of the top destinations for Hong Kong's external factor income outflow and inflow in the 1st quarter of 2007.

According to the Census & Statistics Department, comparing Hong Kong's GNP with a year earlier, it rose 11.9% to $397.7 billion in the 1st quarter of 2007.

During the period, the GDP, estimated at $370.3 billion, recorded the growth of 6.6%. Accordingly, the value of Hong Kong's GNP was larger than that of Hong Kong's GDP by $27.4 billion in the 1st quarter, which represents a net external factor income inflow of the same amount and equivalent to 7.4% of GDP in the 1st quarter. Within total factor income inflow, direct investment income rose 28.8%, portfolio investment income grew 17.5% and other investment income – 43.7%. As to total factor income outflow, within it, direct investment income grew 15%, portfolio investment income and other investment income grew 13.6% and 24% respectively.

Analysed by country/territory, the British Virgin Islands was 2nd only to China, which remained the largest source of Hong Kong's external factor income inflow in the 1st quarter, accounting for 27.9%. The BVI had external factor income inflow that accounted for 22.2%. It was followed by the United Kingdom and the United States, at a share of 9.5% and 8.9% respectively.

As to Hong Kong's external factor income outflow in the same period, China and the BVI continued to be the most important destinations with quite insignificant difference – China accounted for 24.5%, while the BVI accounted for 23.2%. The two leaders were followed by the Netherlands, accounting for 10.6%, and the United States accounting for 7.1%.

BVI Shipping Registry to be Upgraded to Category 1 Red Ensign Group

The British Virgin Islands will be able to welcome megayachts to its shores for the first time since the country has started the launch of its tourism industry sector. At the Red Ensign Group (REG) Conference held in Guernsey it was announced that the Secretary of State for Transport has agreed to upgrade the British Virgin Islands Shipping Register (VISR) to Category One status limited to general cargo ships.

The decision was preceded by consultations between the Maritime & Coastguard Agency (MCA), the Foreign & Commonwealth Office (FCO), VISR and with the BVI Governor and his staff. The BVI has recently completed a 3 year programme to meet REG Category 1 standards.

The monitoring visit to the BVI was carried out by the MCA in October 2006, and the VISR was found to have met the technical requirements to become a REG Category One Register limited to general cargo ships including large commercial yachts.

The VISR upgrade to Category 1 status will be implemented by an order made under Section 18 of the Merchant Shipping Act 1995.

Red Ensign Group (REG), in addition to the United Kingdom, includes shipping registries of Anguilla, Bermuda, tne BVI, the Cayman Islands, the Falkland Islands, Gibraltar, Guernsey, St. Helena, the Isle of Man, Montserrat and Turks and Caicos Islands.

Annually, the REG meets in a member country to exchange views on policies and technical issues involving regulation, marine safety, etc. The decision to upgrade the BVI was made after consultation with the UK's Maritime and Coastguard Agency, the Foreign and Commonwealth Office, VISR and other BVI government officials.

The BVI Shipping Registry was officially launched in September 2006, and operated as a Category Two Red Ensign British Registry, which can register ships of up to 150 gross tons, and pleasure vessels of up to 400 gross tons.

Concerning the current upgrade, BVI Chief Minister Orlando Smith said, “This announcement is of great significance, as it will position the BVI to attract large cargo vessels of unlimited tonnage and megayachts of up to 3,000 gross tons."

Smith also said that the upgrade will create opportunities for new sources of government revenue from ship registration fees as well as positive prospects in a number of areas for private businesses. He also said that once the legal process is finalized, the decision will be approved formally by the Privy Council.

New Director Appointed to BVI Chamber of Commerce & Hotel Association

BVI Chamber of Commerce & Hotel Association (BVICCHA) has appointed Averil Henry as a new executive director replacing Christy Almeida.

Averil Henry has a master's degree in organization management and more than 20 years of work experience in this area. Most recently, she was organization development manager with the BVI Tourist Board. Now she is pursuing a doctoral degree in organization management.

For the last six years Henry worked with the board. In addition to her experience in the tourism industry, she was working as communications specialist with the Health Department, English teacher at BVI High School and information officer with the Department of Public Relations and Information.

BVI Chief Minister Informs about BVI Economic Growth and Government Accomplishments in 2007

British Virgin Islands Chief Minister Orlando Smith has presented his annual State of the Territory Address for the year 2007 before more than 500 people. In his 15-page and 53-minute speech he informed about the accomplishments of his government and said that the gross domestic product of the British Virgin Islands by the end of the year will top the US$1 billion mark. He noted that last year growth rate was 11% and made the level of GDP at US$992 million.

By words of BVI Chief Minister, this year growth is first of all due to financial services and tourism. "Today, our financial services sector is a world leader, and our regulatory system has earned a reputation that is second to none for ethics, transparency and good judgment," he said. As regards tourism, Orlando Smith mentioned the increased number of cruise visitors in the British Virgin Islands.

Among other initiatives that helped create a foundation for growth, Smith named restoring fiscal discipline in government and overhauling the tax system. In his speech he said, "The economic growth we are enjoying is no accident...It is the result of the hard work, creativity and drive of the people of the BVI, and it was made possible by your government's commitment to changing the policies of the past by making economic growth a top priority."

Orlando Smith affirmed that the government is committed to carrying on the telecommunications liberalization process, as well as controversial five-star resort hotel developments on Beef Islands, Scrub Island and Smuggler's Cove.

Russian FTS Considers the Need to Sign Double Tax Agreement with BVI

Russia's Federal Tax Service (FTS) has said that double taxation treaties should be concluded between the country and offshore jurisdictions, such as the British Virgin Islands, Gibraltar, the Normandy Islands and the Seychelles.

The opinion that Russia has to sign agreements on exchanging tax information with tax havens was expressed by deputy head of the FTS some days ago. Konstantin Sedov stated that Russia has agreements on avoiding double taxation with most countries in the world, but tax agencies are now exchanging information through those agreements only on direct taxes.

In his interview with the FTS' Russian Tax Courier magazine Sedov said that these agreements with offshore tax havens need to extend to indirect taxes to improve the exchange of information between the countries on this matter. He also informed that the Federal Tax Service has sent a proposal to the Finance Ministry to consider holding corresponding talks with the relevant agencies of foreign governments.

The fact that is worth mentioning here: British Virgin Islands are among the biggest direct investors in Russia in 2006, along with Cyprus, Britain, the Netherlands, Luxemburg, France, Germany, Switzerland and the United States.

Court Division in BVI Approved by OECS

Last week the heads of government of the Organization of Eastern Caribbean States have approved the establishment of a commercial division of the OECS Supreme Court in the British Virgin Islands. Clyde Lettsome, permanent secretary in the Chief Minister's Office, has reported this week the results of the 45th OECS Authority meeting that he attended from May 23 to 25 in Grenada. He participated in this meeting together with Najan Christopher, the assistant secretary for external affairs with the BVI International Affairs Secretariat.

At this meeting the heads of OECS states discussed, among other agenda items, setting up the court in the British Virgin Islands by the end of September. The secretary said that the heads unanimously approved and supported the establishment of this Commercial Division in the BVI. Lettsome also noted that the commercial court is of great significance to the territory, and actually is one of the most important developments from last week's OECS meeting.

Lettsome also mentioned a concern echoed by the various OECS heads regarding the criteria for appointing Queen's Counsels in different jurisdictions.

Other issues of significance to the BVI, by words of Lettsome, were an OECS transport initiative, which is of particular relevance to the territory in light of trade; the current salaries review for staff and its implications for each member-state's financial contribution to the organization, and a presentation by the secretary of state from the Commonwealth of Puerto Rico on the ongoing relationship between Puerto Rico and the OECS.

1Q China's export to British Virgin Islands - Information Released by China General Administration of Customs

By the data provided by Chinese governmental agency for the first quarter 2007, China's export to BVI in January reached 6,717,000 USD, and in January-March its level was 14,715,000 USD, that is down 48.9 % year on year. The following table released by the General Administration of Customs shows China's export to BVI in the period from 2004 to March 2007:

(Unit: 1,000 U.S. dollars)

	Current month	Cumulative total	% Change y-o-y (Cumulative total)
2004		820	-98.9
2005		22,182	2605.1
2006
January	7,421	7,421	7247.1
February	53	7,474	4721.7
March	21,321	28,795	12746.4
April	223	29,018	10266.1
May	9,567	38,585	11573.0
June	347	38,933	11181.8
July	13,841	52,774	13001.2
August	857	53,631	11710.9
September	11,702	65,332	14288.0
October	10,323	75,656	13267.3
November	1,285	76,941	1138.0
December	44,063	121,004	445.5
2007
January	228	228	-96.9
February	7,770	7,999	7.0
March	6,717	14,715	-48.9

At first glance it seems that China-BVI export indice is showing decline, however it is too early to make any serious conclusions. Although the 1st quarter indice is 48.9% below previous year cummulative export amount, it should be noted that there are very high fluctuations month over month and as we can see from historical data, counting only for February China’s export to BVI this year is 147 !!! times higher than in February 2006. On the other hand, the amount in March previous year was the 2nd highest in the whole year 2006.

There are many factors influencing China-BVI exports level and we should clearly recognise that this is also closely related to Foreign Direct Investments from the British Virgin Islands companies to Chinese economy.

Recent activities toward unification of China's corporate tax rate for both foreign and domestic companies (instead of around 33 percent for local companies and 15 percent for foreign companies) as well as warnings about taxation of world-wide income of companies incorporated in tax havens but having no double taxation agreement with China are just the latest factors we can observe. Currently the Republic of China has more than 80 bilateral treaties on double taxation, but British Virgin Islands are not among these countries, so there is potential threat that the amount of economic co-operation between China and British Virgin Islands can decrease in the future.

Digicel vs BVI Telecommunications Regulatory Commission

Legal action that was taken by Digicel against telecommunications regulators of the British Virgin Islands, has been settled 2 weeks ago in favour of the license holder. Digicel's application for a mobile telecommunications license was rejected in February 2007 by the BVI Telecommunications Regulatory Commission, and on April 30 the company filed the application against the TRC in the BVI High Court; the company also once again expressed its interest in entering the BVI market.

Digicel's victory against the BVI government in the BVI High Court means that the Regulatory Commission has to consider the same application of this telecoms operator for providing telecommunications services on the territory.

Digicel claimed that its application to operate a GSM license in the British Virgin Islands had not been addressed in accordance with the Act, which stipulates that each application must be considered on an objective, transparent and non-discriminatory basis. On May 18 it was ruled by the Court that Digicel's application for a Judicial Review into the issuing of licences by the BVI Telecommunications Regulatory Commission succeeds on the reason that the TRC had acted unreasonably.

In the end of April, BVI government gave final approvement of Telecommunications Liberalization Policy, having invited the three currently licensed public suppliers to apply for licenses to operate across fixed line, mobile and cable sectors. By this other applicants were excluded from the process, among them were Digicel and Virgin Live Media.

In the opinion of the BVI government, it was not constitutionally or legally obliged to open the market immediately to full competition. The government also stated that Digicel had no unfettered right to apply for a license.

Justice of the High Court Rita Olivette argued that the Act provides no barriers to applicants wishing to receive license other than meeting the criteria defined by the legislation. Olivette also issued an order requiring the TRC to consider and determine Digicel's application filed on February, and ruled that the TRC must pick up Digicel's costs.

Financial Conference Held in BVI by OCTA

The Overseas Countries and Territories Association financial services conference took place on May 21-22 in the British Virgin Islands. It was described by BVI Chief Minister Dr Orlando Smith as a tangible demonstration of the benefits OCTA members could gain from working together. The conference received financial support from the European Commission.

Opening ceremony took place at Long Bay Hotel, first remarks were delivered by BVI Governor David Pearey, Chief Minister Orlando Smith and president of OCTA Clive Stanbrook. Orlando Smith stated that co-operation is the main idea for the conference, and added some information about the benefits to be gained from the conference. The main advantage was defined by him as helping the Overseas Countries and Territories to analyse both the opportunities and threats that can arise in the developing global economy.

Governor David Pearey in his speech specifically emphasized the achievements made by the British Virgin Islands during the last 25 years of its involvement in offshore industry, and its development in one of the most regarded OFCs. Clive Stanbrook credited the BVI for its initiatives in developing the local financial services sector.

The presenters were drawn from the International Monetary Fund, the Caribbean Financial Action Task Force, the Netherlands Central Bank, the University of Sydney, the Bank of England, the Eastern Caribbean Central Bank, the BVI Financial Services Commission and others. They represented such jurisdictions as Anguilla, Aruba, Bermuda, the Cayman Islands, French Polynesia, Greenland, the Isle of Man, Montserrat, the Netherlands Antilles and the Turks and Caicos Islands among other OCTA members.

Making statements before the conference, Chief Minister Orlando Smith named the main issues to be covered, including the role and impact of International Finance Centers in the global economy, IFCs as an ongoing development tool, the role of the private sector and the role of supranational organizations such as the Organization for Economic Cooperation and Development and the Financial Action Task Force.

About 50 delegates on the financial services conference represented regional and international agencies. The BVI International Affairs Secretariat director Lorna Smith said "As a mature financial services jurisdiction, it is very important for the BVI to host this conference and continue the dialogue about the importance of the financial services, transparency and sound regulations."