The British Virgin Islands cover a geographical area of 152 square kilometers and are home to around 30,000 people – plus a major international business and finance center hosting more than 400,000 active incorporated business companies.

The level of financial and corporate activity on the islands appears incongruous to many audiences, and has prompted some campaigners and journalists to misguidedly brand the islands a “tax haven.” But the scale, success and economic contribution of international finance centers, like the BVI, should not be such a surprise – and nor should it be feared.
Our recent report, Creating value: The BVI’s global contribution, revealed five “surprising” facts about the jurisdiction that also demonstrate the global value of international finance centres.

Fact 1:

Despite its relatively small size, the BVI has a real, balanced and sustainable economy.

With levels of prosperity among the higher performers in the Caribbean and Latin America region, the territory has a remarkably balanced and sustainable economy underpinned by a thriving tourism sector as well as an innovative international business and finance center.

With more than one million visitors in 2016, tourism accounts for one in every four jobs in the BVI, and the international business and finance center one in 10. Half of all economic output derives from these two key sectors. The workforce is truly international, with roughly two-fifths employed on a work permit. A large majority of work permit employees are from the neighboring region, thus providing employment opportunities for those coming from nations with higher unemployment.

As a small economy, the BVI imports almost all the goods it consumes and many of its services. Spending on imports totaled roughly US$750 million in 2014, the majority of which were brought from the United States – supporting around 12,000 jobs there. But, with strong services exports, it ran an overall trade surplus in the order of US$45 million in the same year.

The BVI has maintained a sound fiscal position despite the impact of the global financial crisis. It is not a jurisdiction without taxes or with artificial taxes: it levies taxes on residents, visitors and locally operating companies in order to fund public services. It is, though, a tax neutral territory with a zero rate of tax on corporate profits. In addition to its general attractiveness for global investors, this ensures that any cross-border transactions mediated via the BVI are not at risk of double taxation.

Fact 2:

The BVI is home to a unique cluster of financial and professional services firms that form an international business and finance center.

In a world where national boundaries have ever decreasing significance to people and to businesses, it should come as no surprise that there is demand for services that facilitate efficient and secure cross-border transactions. Centers like the BVI have evolved to meet the needs of global businesses and investors, and internationally mobile individuals.

In Road Town, a cluster of specialist and expert firms has developed to help service the needs of those looking to carry out cross-border trade and investment and want the comfort of the jurisdiction’s well-regarded company law. The BVI’s international business and finance center employs 2,200 people directly and supports a further 3,000 jobs in the territory. More than two-thirds of all jobs in the center are held by “BVIslanders and Belongers” (i.e., those who are full citizens of or are constitutionally recognised to belong to the territory). It accounts for roughly one-third of the islands’ economic output and over three-fifths of government revenues.

Fact 3:

The ‘BVI Business Company’ is a widely used and dependable vehicle to facilitate cross-border trade, investment and business.

With its tax neutrality, a framework of common law, a highly regarded commercial court and ultimate right of appeal to the Judicial Committee of the Privy Council in London, the BVI has become a leading center specializing in the incorporation of vehicles for international business. The BVI provides legal structures through which companies, institutions and individuals across the world carry out cross-border trade and investment.

There are more than 400,000 active BVI Business Companies. Roughly two-fifths originate from Asia, while use by clients in ‘G7’ countries accounts for less than one-fifth. The assets held by these vehicles have an estimated worldwide value of US$1.5 trillion.

BVI Business Companies are much more than just a piece of paper, and are used in everything from global corporate group structuring through company listings and international joint ventures to succession planning and family wealth management. Even the so-called “shell companies,” which hold assets without active operations, have economic and legal substance and are vital to the efficient operation of an increasingly globalized business world.

Their importance in international investment flows is evident from data on foreign direct investment. According to the United Nations, the BVI was the ninth largest recipient of foreign direct investment, and the seventh largest source of outward flows in 2015.

Major respected companies worldwide use BVI Business Companies to manage their cross-border activities. The BVI is home to part of the group structure of more than 140 major businesses listed on the London, New York or Hong Kong main stock exchanges. In addition, BVI Business Companies are used by major international development banks, including the World Bank’s International Finance Corporation and the European Bank for Reconstruction and Development, to help fund projects around the world.

Fact 4:

The BVI is a sound and reliable center which has worked harder than many bigger nations to meet international standards, and not some supposed tax haven.

There is little to be gained for those seeking to launder ill-gotten gains, or evade or avoid other countries’ taxes, through the use of BVI Business Companies.

There are no banking secrecy laws and, anyway, the BVI has a relatively small banking sector which is focused on serving domestic customers. There simply isn’t cash stashed on the islands.

The territory has a good record of compliance with the Financial Action Task Force’s recommendations. The BVI has met 40 of their 49 requirements for combating money laundering, terrorist financing and the financing of nuclear arms proliferation. This compares favorably to many much bigger nations, such as France, the Netherlands and Luxembourg with 38, 35 and 22 compliant or largely compliant recommendations met, respectively.

Indeed, the BVI is ahead of the United Kingdom, which has met 37 recommendations, and the United States’ 39.

And, the BVI works with tax authorities worldwide to help them crack down on evasion by their taxpayers. The territory was an early adopter of the Common Reporting Standard for the automatic exchange of tax information and exchanges information under the United States Foreign Accounts Tax Compliance Act. It has adopted and implemented the European Union Directive on the Taxation of Savings Income and currently has signed 28 tax information exchange agreements, putting it ahead of many big name international finance centres on this measure of transparency, including Switzerland and Ireland with ten and 25 signed tax information exchange agreements respectively. The BVI is also part of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which provides a platform for the exchange of information with over 90 countries worldwide.

Fact 5:

Through its direct employment, trade and, most importantly, facilitation of cross-border business, the BVI supports jobs, prosperity and government revenues worldwide.

It is all too easy to assume that what appears to be the surreal and remote world of international finance makes no difference to the real lives of employees, voters, families and businesspeople. But these substantial cross-border investments provide the underlying finance that enables real world economic investment in homes, factories, hospitals, railways, broadband, machinery, entrepreneurs, etc. – or they provide the essential liquidity for the secondary markets that underpin and provide confidence in these primary real world investments.

We estimate conservatively that BVI Business Companies hold US$1.5 trillion of assets. These holdings reflect cross-border investment in the widest variety of physical, corporate and financial assets – and support material levels of employment, prosperity and tax receipts across the globe.

It is, of course, impossible to know with any certainty how many jobs result from any specific dollar of investment – but we can make reasonable and cautious estimates of the orders of magnitude involved. Our analysis indicates that the investment mediated by the BVI supports around 2.2 million jobs worldwide, with China (including Hong Kong) accounting for nearly two-fifths of them – and one-fifth in Europe. The economic activity and incomes generated by 2.2 million jobs worldwide will likely contribute over US$15 billion annually to government coffers worldwide.

It shouldn’t be a surprise that international finance centers, like the BVI, play an important and positive role in an increasingly globalized world economy. But too few politicians, opinion makers or journalists in larger “onshore” nations understand this. Understandably, they are easily swayed by the inaccurate and poorly-evidenced but vocal and passionate rhetoric of campaigners.

The facts of international finance are poorly understood and narrowly communicated. This isn’t the fault of the media in London, politicians in Washington or officials in Brussels; it is the responsibility of those in the international financial centres themselves. It is time to get vocal and passionate about the global contribution of IFCs.