Havenly bliss

Premier Natalio Wheatley of the British Virgin Islands discusses the strengths of the offshore jurisdiction that will keep it on the radar of Chinese investors for the foreseeable future

Earlier this year, Premier Natalio Wheatley of the British Virgin Islands (BVI) led a delegation of top officials on an Asia-Pacific tour that primarily covered Hong Kong, Macau, Shenzhen and Malaysia.

The visit coincided with a general sense of confusion in international trade prospects stemming from Donald Trump’s return to the presidency, a slowdown in listings using the variable interest entity (VIE) structure, and a global call for stronger economic substance that may shift the prospects of offshore financial services.

During an exclusive interview with China Business Law Journal at the start of the tour, the premier, who visited Law.asia’s office in Hong Kong, addressed these top investor concerns and more.

Law.asia: What are the BVI’s strategies for the Asia-Pacific market?

Premier Wheatley: The business that we have in Asia is so very important. Fifty-seven per cent of our business is conducted with Asia, and 44% is with Hong Kong, Macau and mainland China.

The BVI’s primary market focus for the past 35 years has been heavily China-centric, as well as extending into East Asian markets. This business has been funnelled primarily through Hong Kong and Singapore. In recent years, via Singapore and Labuan, the BVI has also serviced increasingly larger amounts of business from Vietnam, Thailand and Malaysia.

In keeping with the BVI’s market diversification strategy for 2025 to 2035, newer market targets include all of Asean, India and the MENA [Middle East and North Africa] region. India is the fastest-growing G20 economy in the world, averaging GDP growth above 6%, while Asean is the fastest-growing and modernising region in the world, averaging 5% GDP growth. Saudi Arabia’s modernisation drive is pulling in resources from many of its regional neighbours and investors worldwide.

Each of these markets has a nascent or maturing international financial centre such as Gujarat, Dubai and Labuan, presenting opportunities for strategic partnerships to facilitate the promotion of BVI business.

BVI business companies, funds and trust products are well recognised by regional regulators but remain underutilised in South and Southeast Asia. Expanding visibility and fostering formal co-operation, through targeted product development and strategic marketing in those jurisdictions, could significantly enhance the adoption and scale of the BVI business across the Asia-Pacific region.

Law.asia: How does the BVI maintain its competitive edge compared with other offshore and low-tax jurisdictions?

Premier Wheatley: We remain competitive, having established ourselves as an international brand in the Asia-Pacific for over 40 yeras. BVI business companies inspire confidence because they are established on a legal framework based on English common law, featuring a commercial court, well-respected commercial judges and the Privy Council as the final court of appeal, as well as access to the BVI’s International Arbitration Centre.

We are also well-regulated. We adhere to the highest standards of the Financial Action Task Force, the IMF, the OECD [Organisation for Economic Co-operation and Development] and all other multilateral bodies. We have demonstrated the ability to be agile and responsive in implementing and adhering to international standards.

The BVI Business Company is a special service vehicle, custom-made for cross-border trade and investments, which is, of course, perfect for the global businesses in China. The vehicle is based on tax neutrality, which means we do not add taxes for economic activities all over the world.

Law.asia: We are seeing increasingly strict requirements on “economic substance”. How do businesses engaging with the BVI comply with these requirements while maintaining tax efficiency?

Premier Wheatley: The BVI remains a leading jurisdiction for international business, offering tax neutrality alongside a flexible and navigable economic substance (ES) regime. While ES requirements have strengthened globally, the BVI’s framework is comparatively straightforward and does not generally impede well-structured entities from maintaining tax efficiency.

More than 90% of BVI business companies are not subject to full ES requirements. For instance, those companies used for passive asset holding are subject to substantially reduced ES requirements. Similarly, trusts themselves are outside the scope of ES, although BVI companies owned by trusts may be subject to compliance if they engage in a relevant activity under the ES framework.

In the investment funds sector, the BVI remains highly competitive in the offshore funds space due to its minimal ES obligations for certain structures, such as approved funds and single-asset private investment vehicles.

For the remaining 10% of BVI business companies that do fall within the scope of ES requirements, compliance can be efficiently managed by engaging licensed trust and corporate service providers or law firms. These providers facilitate substance solutions, including physical office space, employees and management functions in
the BVI.

The BVI ES regime also provides a pathway for businesses to claim tax residency in another jurisdiction, thereby exempting them from the BVI’s ES requirements, subject to the sufficient provision of documentary evidence of taxation in that jurisdiction.

Ultimately, the BVI’s economic substance regime is one of the most flexible and business-friendly frameworks globally, ensuring the jurisdiction remains a preferred choice for international structuring while complying with evolving regulatory standards.

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Law.asia: For Chinese companies, the VIE structure has been a key route to access overseas capital markets, but lately, we are seeing a slowdown in VIE-related listings, with the China Securities Regulatory Commission (CSRC) requiring all overseas listings to undergo mandatory filing and approval. How do you see the future of this mechanism?

Premier Wheatley: As it relates to China, for more than the past 25 years, the VIE structures were utilised to overcome legal obstacles to foreign investment and ownership in the mainland that impeded raising capital internationally. Those structures have been particularly effective as China’s investment rules and capital controls have taken time to evolve as China develops, modernises and further integrates into the global economy. Chinese companies have been able to effectively raise capital on international markets, and international investors and international enterprises have been able to set up shop locally in China, all of which VIE structures facilitate.

While IPO markets in the Asia region presently remain challenging, reports indicate that the pipeline for IPOs on the Nasdaq, the NYSE and Hong Kong Stock Exchange, which are the leading exchanges for exits out of Asia, remain robust. This is in part because of the diversity of the Asia footprint, which stretches beyond China.

To place the slowdown in proper context, since 2016, we have observed increasing political and investment risk, which in turn has complicated the process of investment between the largest economies in Asia, North America and Europe. National restrictions on cross-border investment, equity and capital markets, as well as in critical supply chain areas (including EVs and computer chips), limit investment by country or nationality. As a result, West-East and East-West investments face increased scrutiny, regulation and politicisation. All structures, including VIEs, have been subject to increased scrutiny, and projections for the next four years indicate the level of political risk and investment insecurity will increase rather than subside.

The impact of the “trial measures” issued by the CSRC on overseas offerings and listings will no doubt create challenges for companies and market participants. However, we are pleased to see a growing upward trend of the BVI listings, in particular, in the US markets by emerging growth companies under the US Jumpstart Our Business Startups Act. The cost-effectiveness and nimbleness of the BVI offerings are well-suited for the listing of small and medium-sized enterprises.

While overarching onshore listing slowdowns are extraneous to the BVI or any other small international financial centres, no structuring alternative to the VIE has been found to better serve the purpose of accessing foreign capital to and from China.

The BVI maintains its position as mainland China and Hong Kong’s second-largest foreign direct investment and outward investment partner in 2024, within which the VIE structures continue to play a central role. Until China’s investment and ownership rules change, the VIE structures will continue to be a vital tool for driving China’s inward-outward investment flows.

Law.asia: Are there plans to deepen the judicial linkage between China and BVI? For example, can the rulings of a Chinese or BVI court be recognised and enforced in the other jurisdiction?

Premier Wheatley: The BVI has always respected the independence and autonomy of China’s judicial system as a civil law jurisdiction and will continue to do so in the future.

The BVI houses a robust British common law legal system (based on statute and common law principles, including English common law) closely linked to the Eastern Caribbean Supreme Court of Justice, and having the UK’s Privy Council as its final court of appeal. As a result of the strong judicial linkages between the BVI and these two jurisdictions, BVI-issued judgments and rulings have persuasive authority and reverberate across common law jurisdictions worldwide. Those rulings are public, and all jurisdictions in the world are welcome to review those rulings in consideration of legal precedent as they deem necessary, including China.

Those transacting in the BVI have the added comfort that, at a high level, in certain circumstances, a judgment obtained in certain jurisdictions, including the PRC, may be recognised and enforced in the courts of the BVI at common law.

Law.asia: Are there any key judicial co-operation or reciprocal arrangements between the BVI government and China, either recent or planned in the future?

Premier Wheatley: In the area of international arbitration, the BVI has signed an MOU [Memorandum of Understanding] with the Shenzhen Court of International Arbitration, under which the BVI arbitration proceedings may be undertaken in Shenzhen, within mainland China. This development is groundbreaking given that China is the BVI’s single largest financial services market.

The BVI will, in the near future, seek a similar MOU with the Hong Kong branch of the Shanghai International Arbitration Centre, allowing BVI arbitration proceedings to be undertaken in Hong Kong itself. This will be an important development as the largest number of BVI practitioners outside of the BVI are located in Hong Kong.

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