BVI companies well set to invest in Indonesia

By Michael Gagie and Iain Anderson, Maples and Calder

The British Virgin Islands (BVI) company has long been a vehicle of choice for Indonesian corporate and finance deals. Foreign direct investment (FDI) into Indonesia structured through BVI entities totalled US$157.4 million in Q1 of 2014 in respect of 70 projects. This put the BVI ninth in terms of FDI into Indonesia, behind only such financial heavyweights as the US and Hong Kong, and traditional trading partners such as the Netherlands. BVI companies are involved in large-scale, tangible and valuable projects in Indonesia across a spectrum of sectors including mining, retail, and the food industry, and bring the corresponding benefits of FDI injection into these areas.

Michael Gagie Managing partner Maples and Calder Singapore office and global head of its British Virgin Islands law practice
Michael Gagie
Managing partner
Maples and Calder
Singapore office and global head of its British Virgin Islands law practice

Investors into Indonesia remain attracted to the BVI for its common-law legal principles, administrative simplicity and ability to ring-fence liabilities. BVI as a jurisdiction is recognized by regulators worldwide, enabling investors to exit through a private sale or a listing on a major stock exchange. BVI companies can list their shares on major international stock exchanges, including the London Stock Exchange, the New York Stock Exchange and the Hong Kong Stock Exchange.

The BVI does not impose a double layer of tax or regulation. BVI companies are flexible in their structure and handling, and there are few prescriptive statutory requirements. Ultimately, a BVI business company will be more flexible in operation, particularly if the company needs to raise equity finance for working capital purposes. The incorporation and ongoing costs of using a BVI company are low, while high standards are maintained as required by the International Organization of Securities Commissions (IOSCO), of which the Financial Services Commission in the BVI is a member.

The BVI has established robust business- friendly corporate jurisprudence with an ultimate appeal to the Privy Council in the UK. A large volume of international joint venture disputes pass through the courts in the BVI, with The Economist noting that “the courts in the British Virgin Islands hear a good share of all disputes involving international joint ventures”.

Additionally, structuring benefits of using a BVI company include:

• BVI law no longer requires a company to have a share capital, and the concept of capital maintenance has been abolished;

• Flexibility to upstream profits via dividend, subject to a simple solvency test;

• A BVI company may acquire the shares of a member and there are no financial assistance restrictions;

• BVI law permits creation of the parties’ desired voting majorities for approving corporate matters, and is not restricted to prescribed statutory majorities;

• A wide variety of transactions may be carried out by way of a court-approved scheme or plan of arrangement;

• Shares in a BVI company can easily be granted as security; and

BVI companies may merge with one or more BVI or foreign companies, and the surviving company may be in a foreign jurisdiction, and a BVI company may migrate from the BVI to another jurisdiction.


While Indonesian companies can have different share classes, preference and other share class structures remain uncommon and somewhat untested in Indonesian courts. Local Indonesian law firms advise that “deal execution risk is significantly increased, from an Indonesian regulatory perspective, if a complex capital structure involving multiple types of shares is used”.

This risk can be mitigated if the complex capital structure is at the offshore holding company level. The ability of a BVI company to create separate share classes is enshrined in BVI legislation. BVI companies can provide a low-cost, minimal regulation, tried- and-court-tested mechanism to incorporate a non-vanilla capital structure.

Iain Anderson Associate Maples and Calder Singapore
Iain Anderson
Maples and Calder

Should an investor require collateral for investment, enforcing security over Indonesian assets can prove to be problematic. Enforcement always requires registration and enforcement in Indonesia. One solution is to have a BVI company act as the holding company for Indonesian assets. The shares in a BVI company can easily be mortgaged, such that upon enforcement the investor obtains control of the structure without requiring any action at the Indonesian level. The security documentation can be governed by the same governing law as the relevant transactional documentation (typically English or Singaporean law).

Indonesian companies are subject to various Indonesian regulatory authorities, including the Capital Investment Co-ordinating Board and the Ministry of Law and Human Rights. While an investment into Indonesia will always involve some Indonesian regulatory considerations, having financing and joint venture arrangements at the offshore BVI holding company may provide a more efficient structure for international investors and cross-border transactions.

MICHAEL GAGIE is managing partner of Maples and Calder’s Singapore office and global head of its British Virgin Islands law practice. IAIN ANDERSON is an associate based in Singapore.

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