Economy of the British Virgin Islands

The economy of the British Virgin Islands is one of the most prosperous in the Caribbean. Although tiny in absolute terms, because of the very small population of the British Virgin Islands, in 2010 the Territory had the 19th highest GDP per capita in the world according to the CIA World factbook.[2] In global terms the size of the Territory's GDP measured in terms of purchasing power is ranked as 215th out of a total of 229 countries.[3] The economy of the Territory is based upon the "twin pillars" of financial services, which generates approximately 60% of government revenues,[4] and tourism, which generates nearly all of the rest.

Historically the British Virgin Islands has normally produced a Government budget surplus, but during the financial crisis of 2007–2008 the Territory began to run at a deficit, which continued after the global recession receded. In 2011 the Territory had its largest ever budget deficit, of US$29 million (approximately 2.6% of GDP).[5] By 2012 public debt had quadrupled from pre-crisis levels to approximately US$113 million (approximately 10.3% of GDP).[6] Nearly 84% of that public debt was attributable to a new public hospital built in Road Town between 2003 and 2014.[7] The Economist argued that deteriorating economic conditions in the British Virgin Islands were caused "not [by] sagging revenues but public-sector profligacy".[8] By 2014 public debt had been reduced to US$106 million and the annual deficit reduced to US$25 million (including budgeted capital expenditure).[9]

By 2016, the Government had returned to a primary budget surplus,[10] but public debt had increased to approximately US$141 million[11] and debt service accounted for over US$12 million of the primary surplus. However, because of an ongoing aggressive capital investment programme, and budget overruns on key public projects,[12] the Government ran dangerously low on available cash. Cash in the consolidated fund fell below US$7 million (with average monthly expenditure at nearly US$30 million), and Government accrued over US$13 million in due but unpaid invoices.[13]

Economy of British Virgin Islands
Roadtown, Tortola
Road Town, Tortola
CurrencyU.S. dollar (USD)
1 Apr - 31 Mar
Trade organisations
CARICOM (Associate member)
Statistics
GDP$1.027 billion (2017 est.)[1]
GDP rank177th (nominal) / 190th (PPP)
GDP growth
3.2% (2017 est.)[1]
GDP per capita
$34,246 (2017 est.)[1]
GDP by sector
agriculture: 1.8%, industry: 6.2%, services: 92% (2005 est.)
0.85% (2015 est.)[1]
Population below poverty line
NA% (2004)
Labour force
12,770 (2004)
Labour force by occupation
agriculture: 0.6%, industry: 40%, services: 59.4% (2005 est.)
Unemployment8.7% (2010 est.)
Main industries
tourism, financial services
External
Exports$38.5 million (2011 est.)
Export goods
rum, fresh fish, fruits, animals; gravel, sand
Main export partners
United States Virgin Islands, Puerto Rico, US (2004)
Imports$275.1 million (2011 est.)
Import goods
building materials, automobiles, foodstuffs, machinery
Main import partners
United States Virgin Islands, Puerto Rico, US (2004)
Public finances
$173.3 million (2017 est.)[1]
Revenues$310,470,000 (2016 est.)[1]
Expenses$288,640,000 (2016 est.)[1]
Economic aidrecipient: $NA (2004)
Main data source: CIA World Fact Book
All values, unless otherwise stated, are in US dollars.

Business environment

In 2015, British Virgin Islands has been assessed as the 34th in terms of global financial centres.[14] This was the highest ranking of any offshore financial centre, and of any Latin American country. The Territory scored strongly in areas such as local taxation, rule of law, regulatory environment and quality of law for human resources. It scored less highly on infrastructure, access to capital and access to labour. The G-20 considers it a tax haven[15] and its banking system is described as 'opaque'.[16]

2017 Government Budget

The most recent national budget to be delivered was the 2017 budget (the Territory's fiscal year runs from 1 April to 31 March).[1] That budget presented a picture of declining revenues and increasing costs. It was also delivered prior to the devastating effects of Hurricane Irma later in the year, which is likely to have an deleterious effect on the economy and on Government revenues.[17]

The 2017 budget predicted that 2016 final revenue figures of $310,470,000 which was a decrease of 6.2% from the year before. It also predicted recurrent expenditure for 2016 at $288,640,000 which was an increase of 3.6% on the preceding year. That would mean a primary budget surplus of $21,830,000 which would be a decrease of 56.6% from the preceding year.[1]

In addition there was an estimated $21,000,000 of capital expenditure in 2016 (down 38.3% from the previous year), and debt service of $20,200,000 leaving a primary deficit of $19,370,000. In 2017, after accounting for transfers to reserves, there is budgeted to be a structural deficit of $31,674,000. This was to be financed by new borrowing and transfers from the consolidated fund.[1]

The Government's total borrowings were $106.5 million, but the Government has also underwritten significant loans made to the BVI Electricity Corporation and the BVI Ports Authority, meaning that the Government's total loan exposure is $178.3 million.[1]

Much of the Government's increased expenditure arose from staffing costs. Staffing consumes 37.7% of Government expenditure, and increased in 2016 by 10.2% from the year before. The budget calls for it to increase again, but only by 2.6% in 2017.[1]

The bulk of Government revenues (60%) comes from taxes on goods and services. The next largest segment is payroll taxes, which account for a further 16%. Property taxes account for less than 1% of revenue.[1]

Tourism

In 2015, a total of 922,372 people visited the islands (of whom 529,354 were cruise ship passengers and 393,018 were overnight visitors), mainly from the United States.[1] The bulk of the tourism income in the British Virgin Islands is generated by the yacht chartering industry. The Territory has relatively few large hotels compared to other tourism centres in the Caribbean. The British Virgin Islands also entertain cruise ships, 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.

Between 2007 and 2011, tourist visitors to be the British Virgin Islands declined by approximately 12.4%, largely due to the global recession which particularly affected North America, a key source of visitors for the Territory.[5] However, by November 2013 tourist numbers had begun to recover.[18]

According to the World Travel and Tourism Council:[19]

  • In 2013, the direct contribution of travel and tourism to the Territory's GDP was US$274 million (accounting for 27.0% of total GDP), and was forecast to rise by 2.8% in 2014, and to rise by 2.7% per annum for the period 2014-2024.
  • The total contribution of travel and tourism to GDP was US$780.8 million (76.9% of GDP) in 2013, and is forecast to rise by 3.2% in 2014, and to rise by 2.6% per annum for the period 2014-2024.
  • In 2013, travel and tourism directly supported 3,300 jobs in the Territory (33.2% of total employment). This was expected to remain unchanged in 2014 and fall by 0.3% per annum to 3,000 jobs (29.6% of total employment) by 2024.
  • The total contribution to employment in 2013 (which includes jobs indirectly supported by the industry, was 90.1% of total employment (8,850 jobs). This was expected to rise by 1.9% in 2014 to 9,050 jobs, but fall by 0.2% per annum to 9,000 jobs in 2024 (80.9% of total).
  • Travel and tourism investment in 2013 was US$35.8 million, or 14.8% of total investment. This was expected to rise by 10.1% in 2014, and rise by 2.0% per annum over the next ten years to a total of US$48.2 million in 2024.

However, these statistics include travel as well as tourism, and so non-tourist related travel (i.e. travel relating to domestic consumption and other industries and services) are included and inflate the figures.

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 an estimated 51.4% of Government revenues.

According to official statistics 447,801 BVI companies were 'active' (i.e. incorporated and not yet struck-off, liquidated or dissolved) as at 30 June 2012.[20] There are no recent official statistics on total numbers of incorporations (including struck, liquidated and dissolved companies) but these are estimated at approximately 950,000. Many of these companies were originally formed under the International Business Companies Act, 1984, but have now been consolidated into the BVI Business Companies Act, 2004. 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 45% of the offshore companies in the world were formed in the British Virgin Islands.[21] 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.

In addition to basic company incorporations, the British Virgin Islands also forms limited partnerships and trusts (including signature "VISTA" trusts) but these have not proved to be as popular as companies.

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.[22] Almost all of these sums are directly attributable to investment through the Territory's offshore finance industry.

The British Virgin Islands also promotes a number of regulated financial services products. The most important of these is the formation and regulation of offshore investment funds. The Territory is also the second largest domicile for formation of offshore investment funds (behind the Cayman Islands) with 2,422 licensed open-ended funds as at 30 June 2012[20] (there is no official statistics for closed-ended funds which are not regulated in the British Virgin Islands).

The British Virgin Islands also operates as a domicile for captive insurance services, but a prolonged period of overzealous Government regulation combined with the Government's increasing pressure to hire only locals ("belongers") in the insurance industry decimated the industry. Official reports from the Financial Services Commission reflect as of 30 June 2012 only 161 captives remain registered in the jurisdiction.[20]

History of financial services

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.[23] Within the space of a few years, hundreds of such companies had been incorporated.[24]

This eventually came to the attention of the United States government, who unilaterally revoked the Treaty in 1981.[25]

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.

Agriculture

Livestock raising is the most important agricultural activity; poor soils limit the islands' ability to meet domestic food requirements. Fewer than 0.6% are estimated to work in agriculture.[26] Despite its tiny economic impact, agriculture has its own dedicated Government minister (unlike financial services).

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.[27]

Footnotes

  1. ^ a b c d e f g h i j k l m n "2017 Budget estimates" (PDF). Government of the Virgin Islands. Retrieved 22 January 2018.
  2. ^ CIA - The World Factbook - Virgin Islands
  3. ^ CIA Factbook - GDP by country
  4. ^ "New Company Incorporations Down But Premier Remains Optimistic". 14 March 2010. Retrieved 15 March 2010.
  5. ^ a b "2013 Budget Address" (PDF). BVI Government.
  6. ^ "National debt grows by $73M over last decade; public sector too big – Financial Secretary". BVI News. 24 January 2013.
  7. ^ "New hospital responsible for nearly 84% of national debt". Caribbean Medical News. 26 April 2013.
  8. ^ "Treasure islands in trouble". The Economist. 25 May 2013.
  9. ^ "2014 Budget Estimates" (PDF). Government of the Virgin Islands. Retrieved 21 November 2014.
  10. ^ "Update: Gov't Presents Whopping $330M Budget; Largest In History". BVI Platinum. 8 February 2016.
  11. ^ "Some Will Have You Believe We Have No Money - Premier Smith". BVI Platinum. 9 February 2016.
  12. ^ "Pier Project Balloons To $82.9M". BVI Platinum. 25 January 2016.
  13. ^ "National debt is $141M, unpaid invoices $13M". BVI News. 5 January 2016.
  14. ^ "The Global Financial Centres Index" (PDF). Qatar Financial Centre. 31 March 2015.
  15. ^ Fox, Ben (9 May 2009). "Islands resent crackdown of the tax havens by G-20". Associated Press. Archived from the original on 15 May 2009. Retrieved 2 April 2016.
  16. ^ McKenzie, Nick; Baker, Richard (18 November 2013). "Leighton Holdings linked to 'corrupt' fees for Iraq pipeline contracts". The Australian. Retrieved 2 April 2016.(subscription required)
  17. ^ "Economy 'bust'? Layoffs continue following Hurricane Irma". Virgin Islands News Online. 4 October 2017.
  18. ^ "2014 Budget Address" (PDF). Government of the Virgin Islands. Retrieved 8 June 2015.
  19. ^ "Travel & Tourism Economic impact 2014 - British Virgin Islands" (PDF). World Travel and Tourism Council. Retrieved 8 June 2014.
  20. ^ a b c "Q2 2012 BVIFSC Statistical Bulletin".
  21. ^ Review of Financial Regulation in the Crown Dependencies (Cmnd Paper 4855 of 2000). HMSO. Part III, paragraph 1.3. ISBN 0 10 148554 9. Retrieved 19 September 2014.
  22. ^ FT.com / Lex - The Russians are coming
  23. ^ "The IBC Act – the building of a nation" (PDF). Harneys. Retrieved 19 September 2014.
  24. ^ British Virgin Islands Commercial Law. Sweet & Maxwell. 2011. p. 5. ISBN 978-962-661-462-4.
  25. ^ The British Virgin Islands was not alone in this regard; this was part of a policy of mass-repeal by the United States of double tax relief treaties with "microstates".
  26. ^ The Times. "British Virgin Islands - workforce". Retrieved 19 March 2012."CIA Factbook: the British Virgin Islands". Retrieved 10 December 2012.
  27. ^ Legal Tender (Adoption of United States Currency) Act, 1959

See also

1972 Birthday Honours

The 1972 Queen's Birthday Honours were appointments to orders and decorations of the Commonwealth realms to reward and highlight citizens' good works, on the occasion of the official birthday of Queen Elizabeth II. They were announced in supplements to the London Gazette of 23 May 1972 for the United Kingdom, Australia, New Zealand, Mauritius, Fiji, and Barbados. At this time honours for Australians were awarded both in the United Kingdom honours on the advice of the premiers of Australian states, and also in a separate Australia honours list.The recipients of honours are displayed here as they were styled before their new honour, and arranged by honour, with classes (Knight, Knight Grand Cross, etc.) and then divisions (Military, Civil, etc.) as appropriate.

Arbitration in the British Virgin Islands

Arbitration in the British Virgin Islands is regulated principally by the Arbitration Act, 2013 which came into force on 1 October 2014. Prior to that date, arbitration was regulated by the Arbitration Cap, 1976 (Cap 6).

The Arbitration Act is based heavily on the UNCITRAL Model Law on International Commercial Arbitration, but modified slightly for application under British Virgin Islands law. Where the parties have agreed in writing that disputes between them are to be resolved by arbitration, the courts must stay any court proceedings in favour of arbitration unless the court determines that the agreement is void.The Arbitration Act provides for the creation of a new statutory body called the BVI International Arbitration Centre. However, the organs of that body have not yet been appointed. Draft subsidiary legislation, the BVI IAC Rules, have been circulated for private sector comment, but not yet brought into force. Accordingly, at present all arbitration in the British Virgin Islands is conducted as ad hoc arbitrations.

Arthur William Hodge

Arthur William Hodge (1763–1811) was a plantation farmer, member of the Executive Council and Legislative Assembly, and slave owner in the British Virgin Islands, who was hanged on 8 May 1811, for the murder of one of his slaves.

He was the first West Indian slave owner to be executed for the murder of a slave considered his property, and perhaps the only British West Indian slave owner, or British subject, to be executed for murdering his slave. He was not however the first white person to have been lawfully executed for the killing of a slave, as some historians have claimed.He was born in the British Virgin Islands, studied at Oriel College, Oxford and served in the British Army. Ann Hoggins (1779—1808), one of his three wifes, was a sister-in-law of the Marquess of Exeter. He was described as a man of great accomplishments and elegant manners. After his father's death, he returned in 1803 to the British Virgin Islands to assume control of the family's plantation Belle Vue in Tortola.In 1811, Hodge was indicted for the murder of a single male slave, part of his estate, named Prosper. Restrictions on similar fact evidence were relatively casual in colonial courts, and much of the evidence seems to have focused upon acts of cruelty by Hodge towards slaves other than Prosper.

Trial reports suggest that Hodge was a sadistic and disturbed man. During the trial, evidence was presented that Hodge caused the deaths of other slaves in his estate, including: Tom Boiler, Cuffy, Else, Jupiter, Margaret, and Simon Boiler. Three male slaves: Jupiter, Tom Boiler and his brother Simon Boiler, were whipped to death. Cook Margaret and washerwoman Else died after boiling water was poured down their throats.

Also slaves named Welcome, Gift and Violet were flogged to death.Evidence was presented that Hodge was cruel to child slaves, including his own offspring: Bella, a small mulatto girl of about 8 years of age, who was his offspring by his slave, Peggy, was flogged and beaten and kicked by him personally; and that he had the heads of several mulatto children, possibly also sired by him, held under water until they lost consciousness, then had them revived, and had the process repeated.

Sampson, a boy of 10 years of age, was dipped is boiling liquor, until all his skin peeled off. Hodge previously had over 100 healthy negro slaves on his plantation, but when his wife Ann died in 1808, there were no longer enough slaves to dig a grave for her according to witness Daniel Ross. One witness testified that, in three years at least sixty negroes had been buried, and only one had died a natural death.

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 the British Virgin Islands financial services including insurance, banking, trustee business, company management, mutual funds business, the registration of companies, limited partnerships and intellectual property.It was established in 2001 pursuant to the Financial Services Commission Act, 2001. The Commission now oversees all regulatory responsibilities previously handled by the government through its Financial Services Department; protecting the independence of financial services regulation and fulfilling international commitments to the prevention of international white collar crime while safeguarding the privacy and confidentiality of legitimate business transactions.The Commission also has new responsibilities including promoting public understanding of the financial system and its products, policing the perimeter of regulated activity, reducing financial crime and preventing market abuse.

British Virgin Islands bankruptcy law

British Virgin Islands bankruptcy law is principally codified in the Insolvency Act, 2003, and to a lesser degree in the Insolvency Rules, 2005. Most of the emphasis of bankruptcy law in the British Virgin Islands relates to corporate insolvency rather than personal bankruptcy. As an offshore financial centre, the British Virgin Islands has many times more resident companies than citizens, and accordingly the courts spend more time dealing with corporate insolvency and reorganisation.

The Insolvency Act largely eschews the rescue culture and emphasises the protection of creditors' rights (and in particular secured creditors' rights) over other stakeholders in a bankruptcy and the rehabilitation and protection of businesses as a going concern. This reflects the large number of structured finance vehicles incorporated in the jurisdiction which employ leveraged finance, but do not otherwise trade or have any employees.

The bankruptcy of individuals is usually referred to as "personal bankruptcy" in the British Virgin Islands, whereas the bankruptcy of corporations is referred to as "corporate insolvency". The legislation largely deals with both separately, although there are some common provisions.

British Virgin Islands company law

British Virgin Islands company law is primarily codified in the BVI Business Companies Act, 2004, and to a lesser extent by the Insolvency Act, 2003 and the Securities and Investment Business Act, 2010. The British Virgin Islands has approximately 30 registered companies per head of population, which is probably the highest ratio of any country in the world. Annual company registration fees provide a significant part of Government revenue in the British Virgin Islands, which accounts for the comparative lack of other taxation. Accordingly, company law forms a much more prominent part of the law of the British Virgin Islands than might otherwise be expected.

History of the British Virgin Islands

The History of the British Virgin Islands is usually, for convenience, broken up into five separate periods:

Pre-Columbian Amerindian settlement, up to an uncertain date

Nascent European settlement, from approximately 1612 until 1672

British control, from 1672 until 1834

Emancipation, from 1834 until 1950

The modern state, from 1950 to present dayThese time periods are used for convenience only. There appears to be an uncertain period of time from when the last Arawak left what would later be called the British Virgin Islands until the first Europeans started to settle there in the early 17th century, when records of any settlement are unclear. Each of the above periods is marked by a dramatic change from the preceding time period, providing a way to define the history.

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 (IBCs) within the Territory. The Act played in a huge role in the economic and financial development of the Territory in the 1990s. It has been called "the most important piece of legislation in BVI history since the emancipation".The original Act was copied widely by other offshore financial centres.

Law of the British Virgin Islands

The law of the British Virgin Islands is a combination of common law and statute, and is based heavily upon English law.

Law in the British Virgin Islands tends to be a combination of the very old and the very new. As a leading offshore financial centre, the territory has extremely modern statutes dealing with company law, insolvency, banking law, trust law, insurance and other related matters. However, in a number of areas of law, such as family law, the laws of the British Virgin Islands are based upon very old English laws, and can cause some difficulty in modern times. Other areas of law, such as international law, are essentially regulated externally through the Foreign and Commonwealth Office in London by Order in Council. A large body of the laws of the British Virgin Islands consists of the common law, which continually updates itself through judicial precedent in the territory and in other common law countries.

The British Virgin Islands is a dependent territory of the United Kingdom. Although the local legislature and courts are independent from the United Kingdom, the British government deals with most international relations on behalf of the territory, although authority has been delegated to the territory to negotiate on its own behalf in certain areas (see below under Constitutional law). The British Virgin Islands does not have a separate vote at the United Nations.

List of British Virgin Islands-related topics

The following is an outline of topics related to the British Overseas Territory of the Virgin Islands.

Outline of the British Virgin Islands

The following outline is provided as an overview of and topical guide to the British Virgin Islands:

British Virgin Islands (BVI) – British overseas territory located in the eastern portion of the Virgin Islands Archipelago in the Caribbean Sea. The Virgin Islands are part of the Leeward Islands of the Lesser Antilles. The United States Virgin Islands comprises the western portion of the archipelago. Technically the name of the Territory is simply the "Virgin Islands", but in practice since 1917 they have been almost universally referred to as the "British Virgin Islands" to distinguish the islands from the American Territory. To add to the regional confusion, the Puerto Rican islands of Culebra, Vieques and surrounding islands began referring to themselves as the "Spanish Virgin Islands" as part of a tourism drive in the early 2000s.

The British Virgin Islands consist of the main islands of Tortola, Virgin Gorda, Anegada and Jost Van Dyke, along with over fifty other smaller islands and cays. Approximately fifteen of the islands are inhabited. The largest island, Tortola, is approximately 20 km (approx. 12 mi) long and 5 km (approx. 3 mi) wide. The islands have a total population of about 22,000, of whom approximately 18,000 live on Tortola. Road Town, the capital, is situated on Tortola.

Revenue stamps of the British Virgin Islands

The British Virgin Islands has issued revenue stamps since 1988. The first issue consisted of two values of $25 and $100, which represented the fee for wedding licences. In 1996, a set of three values – of $10, $40 and $50 – was issued with a design showing a bird. The first issue had no imprint date, but the $40 is also known with imprint dates of 1997, 1999 and 2003. A $100 recently was added to the series, and a $500 in 2011.The United States Virgin Islands also issue their own revenues.

Taxation in the British Virgin Islands

Taxation in the British Virgin Islands is relatively simple by comparative standards; photocopies of all of the tax laws of the British Virgin Islands would together amount to about 200 pages of paper. Taxation in the British Virgin Islands is mostly notable for what is not subject to taxation. The British Virgin Islands has:

no capital gains tax,

no gift tax,

no sales tax or value added tax,

no profit tax,

no inheritance tax or estate duty, and

no corporation tax.There is technically still income tax assessed in the British Virgin Islands for companies and individuals, but the rate of taxation has been set at zero. However, individuals are subject to a payroll deduction made of up to 8% for employees with 12% paid by employers, in relation to all salaries over US$10,000 per annum.

The absence of most major forms of taxation in the Territory has led to the country being included on most recognised lists of tax havens, although the jurisdiction prefers to style itself as a modern offshore financial centre.

There are a number of forms of taxation and revenue collection in the British Virgin Islands, but the majority of the Government's revenues are obtained directly from annual licence fees for offshore companies incorporated in the jurisdiction.

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