Economy of the British Virgin Islands
Encyclopedia
The economy
of the British Virgin Islands
is one of the most prosperous in the Caribbean
. According to the CIA World factbook, in 2004 the Territory had the 12th highest GDP per capita
in the world. The economy of the Territory is based upon the "twin pillars" of financial services
, which generates approximately 60% of government revenues, and tourism
, which generates nearly all of the rest.
, visited the islands in 1997. The bulk of the tourism income in the British Virgin Islands is generated by the yacht
charter
ing industry. The Territory has relatively few large hotel
s compared to other tourism centres in the Caribbean. The British Virgin Islands also entertain cruise ship
s, although these generate relatively little revenue. However, cruise ship passengers are an important source of revenue for taxi
drivers, who represent a politically important voice in the Territory.
The British Virgin Islands is now one of the world's leading offshore financial centres. Over 700,000 offshore companies
have been formed in the British Virgin Islands, although only approximately 450,000 remain active (the remainder having been dissolved or struck off). This would account for approximately 42% of the estimated 1.1 million offshore companies incorporated worldwide.
Former president of the BVI's Financial Services Commission
, Michael Riegels
, recites the anecdote that the offshore finance industry commenced on an unknown date in the 1970s when a lawyer from a firm in New York telephoned him with a proposal to incorporate a company in the British Virgin Islands to take advantage of a double taxation
relief treaty
with the United States. Within the space of a few years, hundreds of such companies had been incorporated.
This eventually came to the attention of the United States government, who unilaterally revoked the Treaty in 1981.
In 1984 the British Virgin Islands, trying to recapture some of the lost offshore business, enacted a new form of companies legislation, the International Business Companies Act
, under which an offshore company
which was exempt from local taxes could be formed. The development was only a limited success until 1991, when the United States invaded Panama
to oust General Manuel Noriega
. At the time Panama was one of the largest providers of offshore financial services in the world, but the business fled subsequent the invasion, and the British Virgin Islands was one of the main beneficiaries.
In 2000, KPMG
were commissioned by the British Government to produce a report on the offshore financial industry generally, and the report indicated that nearly 41% of the offshore companies in the world were formed in the British Virgin Islands. The British Virgin Islands is now one of the world's leading offshore financial centres, and boasts one of the highest incomes per capita in the Caribbean.
On 12 April 2007 the Financial Times
reported that the British Virgin Islands was the second largest source of foreign direct investment
in the world (behind Hong Kong
) with over US$123,000,000,000. Almost all of these sums are directly attributable to investment through the Territory's offshore finance industry
.
raising is the most important agricultural activity; poor soils limit the islands' ability to meet domestic food requirements.
Economic system
An economic system is the combination of the various agencies, entities that provide the economic structure that defines the social community. These agencies are joined by lines of trade and exchange along which goods, money etc. are continuously flowing. An example of such a system for a closed...
of the British Virgin Islands
British Virgin Islands
The Virgin Islands, often called the British Virgin Islands , is a British overseas territory and overseas territory of the European Union, located in the Caribbean to the east of Puerto Rico. The islands make up part of the Virgin Islands archipelago, the remaining islands constituting the U.S...
is one of the most prosperous in the Caribbean
Caribbean
The Caribbean is a crescent-shaped group of islands more than 2,000 miles long separating the Gulf of Mexico and the Caribbean Sea, to the west and south, from the Atlantic Ocean, to the east and north...
. According to the CIA World factbook, in 2004 the Territory had the 12th highest GDP per capita
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
in the world. The economy of the Territory is based upon the "twin pillars" of financial services
Offshore financial centre
An offshore financial centre , though not precisely defined, is usually a small, low-tax jurisdiction specializing in providing corporate and commercial services to non-resident offshore companies, and for the investment of offshore funds....
, which generates approximately 60% of government revenues, and tourism
Tourism
Tourism is travel for recreational, leisure or business purposes. The World Tourism Organization defines tourists as people "traveling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes".Tourism has become a...
, which generates nearly all of the rest.
Tourism
An estimated 350,000 tourists, mainly from the United StatesUnited States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, visited the islands in 1997. The bulk of the tourism income in the British Virgin Islands is generated by the yacht
Yacht
A yacht is a recreational boat or ship. The term originated from the Dutch Jacht meaning "hunt". It was originally defined as a light fast sailing vessel used by the Dutch navy to pursue pirates and other transgressors around and into the shallow waters of the Low Countries...
charter
Charter
A charter is the grant of authority or rights, stating that the granter formally recognizes the prerogative of the recipient to exercise the rights specified...
ing industry. The Territory has relatively few large hotel
Hotel
A hotel is an establishment that provides paid lodging on a short-term basis. The provision of basic accommodation, in times past, consisting only of a room with a bed, a cupboard, a small table and a washstand has largely been replaced by rooms with modern facilities, including en-suite bathrooms...
s compared to other tourism centres in the Caribbean. The British Virgin Islands also entertain cruise ship
Cruise ship
A cruise ship or cruise liner is a passenger ship used for pleasure voyages, where the voyage itself and the ship's amenities are part of the experience, as well as the different destinations along the way...
s, although these generate relatively little revenue. However, cruise ship passengers are an important source of revenue for taxi
Taxicab
A taxicab, also taxi or cab, is a type of vehicle for hire with a driver, used by a single passenger or small group of passengers, often for a non-shared ride. A taxicab conveys passengers between locations of their choice...
drivers, who represent a politically important voice in the Territory.
Financial services
In the mid-1980s, the government began offering offshore registration to companies wishing to incorporate in the islands, and incorporation fees now generate substantial revenues. An estimated 550,000 companies were on the offshore registry by the end of 2004. The adoption of a comprehensive insurance law in late 1994, which provides a blanket of confidentiality with regulated statutory gateways for investigation of criminal offences, is expected to make the British Virgin Islands even more attractive to international business.The British Virgin Islands is now one of the world's leading offshore financial centres. Over 700,000 offshore companies
Offshore company
The term offshore company is ambiguous. It may refer to either:# A company which is incorporated outside the jurisdiction of its primary operations regardless of whether that jurisdiction is an offshore financial centre i.e...
have been formed in the British Virgin Islands, although only approximately 450,000 remain active (the remainder having been dissolved or struck off). This would account for approximately 42% of the estimated 1.1 million offshore companies incorporated worldwide.
Former president of the BVI's Financial Services Commission
British Virgin Islands Financial Services Commission
The BVI Financial Services Commission is an autonomous regulatory authority responsible for the regulation, supervision and inspection of all financial services in and from within the British Virgin Islands, including insurance, banking, trustee business, company management, mutual funds business...
, Michael Riegels
Michael Riegels
Michael Riegels, QC was the inaugural chairman of the Financial Services Commission of the British Virgin Islands. He is a qualified barrister and was formerly the senior partner of Harneys from 1984 to 1997, and he also served the president of the BVI Bar Association from 1996 to 1998 and as...
, recites the anecdote that the offshore finance industry commenced on an unknown date in the 1970s when a lawyer from a firm in New York telephoned him with a proposal to incorporate a company in the British Virgin Islands to take advantage of a double taxation
Double taxation
Double taxation is the systematic imposition of two or more taxes on the same income , asset , or financial transaction . It refers to taxation by two or more countries of the same income, asset or transaction, for example income paid by an entity of one country to a resident of a different country...
relief treaty
Tax treaty
Many countries have agreed with other countries in treaties to mitigate the effects of double taxation . Tax treaties may cover income taxes, inheritance taxes, value added taxes, or other taxes...
with the United States. Within the space of a few years, hundreds of such companies had been incorporated.
This eventually came to the attention of the United States government, who unilaterally revoked the Treaty in 1981.
In 1984 the British Virgin Islands, trying to recapture some of the lost offshore business, enacted a new form of companies legislation, the International Business Companies Act
International Business Companies Act
The International Business Companies Act, 1984 was a statute of the British Virgin Islands which permitted the incorporation of International Business Companies within the Territory...
, under which an offshore company
Offshore company
The term offshore company is ambiguous. It may refer to either:# A company which is incorporated outside the jurisdiction of its primary operations regardless of whether that jurisdiction is an offshore financial centre i.e...
which was exempt from local taxes could be formed. The development was only a limited success until 1991, when the United States invaded Panama
Panama
Panama , officially the Republic of Panama , is the southernmost country of Central America. Situated on the isthmus connecting North and South America, it is bordered by Costa Rica to the northwest, Colombia to the southeast, the Caribbean Sea to the north and the Pacific Ocean to the south. The...
to oust General Manuel Noriega
Manuel Noriega
Manuel Antonio Noriega Moreno is a Panamanian politician and soldier. He was military dictator of Panama from 1983 to 1989.The 1989 invasion of Panama by the United States removed him from power; he was captured, detained as a prisoner of war, and flown to the United States. Noriega was tried on...
. At the time Panama was one of the largest providers of offshore financial services in the world, but the business fled subsequent the invasion, and the British Virgin Islands was one of the main beneficiaries.
In 2000, KPMG
KPMG
KPMG is one of the largest professional services networks in the world and one of the Big Four auditors, along with Deloitte, Ernst & Young and PwC. Its global headquarters is located in Amstelveen, Netherlands....
were commissioned by the British Government to produce a report on the offshore financial industry generally, and the report indicated that nearly 41% of the offshore companies in the world were formed in the British Virgin Islands. The British Virgin Islands is now one of the world's leading offshore financial centres, and boasts one of the highest incomes per capita in the Caribbean.
On 12 April 2007 the Financial Times
Financial Times
The Financial Times is an international business newspaper. It is a morning daily newspaper published in London and printed in 24 cities around the world. Its primary rival is the Wall Street Journal, published in New York City....
reported that the British Virgin Islands was the second largest source of foreign direct investment
Foreign direct investment
Foreign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...
in the world (behind Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
) with over US$123,000,000,000. Almost all of these sums are directly attributable to investment through the Territory's offshore finance industry
Offshore financial centre
An offshore financial centre , though not precisely defined, is usually a small, low-tax jurisdiction specializing in providing corporate and commercial services to non-resident offshore companies, and for the investment of offshore funds....
.
Agriculture
LivestockLivestock
Livestock refers to one or more domesticated animals raised in an agricultural setting to produce commodities such as food, fiber and labor. The term "livestock" as used in this article does not include poultry or farmed fish; however the inclusion of these, especially poultry, within the meaning...
raising is the most important agricultural activity; poor soils limit the islands' ability to meet domestic food requirements.
Dollarisation
Because of traditionally close links with the U.S. Virgin Islands, the British Virgin Islands has used the US dollar as its currency since 1959.- See generally: DollarisationDollarizationDollarization occurs when the inhabitants of a country use foreign currency in parallel to or instead of the domestic currency. The term is not only applied to usage of the United States dollar, but generally to the use of any foreign currency as the national currency.The biggest economies to have...