Chinese investors are increasingly looking abroad for investment opportunities to gain access to new markets, advanced technology and brand development. Chinese outbound investment has grown even during the financial crisis which, for cash-rich Chinese companies, has provided a market for lower-cost foreign asset acquisitions. Access to natural resources has been a driving force behind Chinese outbound investment in Asia, Australia, Africa and Latin America to meet China’s domestic demand. However, Chinese investors have also engaged in brand acquisitions in developed markets such as the US and the UK.
In recent years, it has been an increasingly popular practice for Chinese companies to conduct outbound investment through companies incorporated in the British Virgin Islands (BVI). A BVI company does not attract any corporate, profit or income tax and is not subject to any transaction or document-based taxes such as stamp duty in the BVI.
Joint venture BVI companies
BVI companies can be used to establish a joint venture (JV) vehicle to invest in an overseas market. Chinese investors can jointly own the JV with a partner from another country. One advantage of establishing a JV in the BVI is that it provides neutral ground for doing business with foreign companies. A company in China and a company in Brazil could establish a BVI JV in which each has a shareholding and each has certain appointed directors to the board. BVI law would govern the JV company and any shareholder agreements, which means that neither JV partner would have the benefit of better knowledge of the local laws or business customs. In turn, it makes good commercial sense to ensure that the JV vehicle is established in a jurisdiction where one’s partner is not in a position to use local influence with government officials to its advantage. This can be a legitimate cause for concern for Chinese outward investment in certain emerging markets.