|BVI Sees New Boom in Foreign Direct Investment|
The British Virgin Islands got more foreign direct investment last year than the major emerging economies of India and Brazil combined. The Caribbean archipelago, a tax haven otherwise dependent on tourism, has jumped up the league table of top investment destinations in the past five years. It welcomed US$92 billion of foreign cash last year. That was the fourth-biggest haul of investment globally. The world’s biggest economy, the US, attracted US$159 billion. The world’s second-biggest economy, China, got US$127 billion, while major oil and metals producer Russia took in just US$2 billion more than the British Virgin Islands.
Brazil and India were further down the ranking, with US$63 billion and US$28 billion respectively.
For most countries, foreign direct investment mainly consists of companies spending on crossborder corporate acquisitions and new overseas projects. However, for the British Virgin Islands, most of the money is transferred quickly in and out of the country or cash moved through the treasury accounts of large firms.
In the British Virgin Islands there are some financial companies that perform the role of treasuries of the TNCs, as a kind of profit unit or profit center. The TNCs’ revenues basically flow from their foreign affiliates in countries with higher tax rates to there. The islands’ annual inflow of foreign investment was up 40 percent from a year ago and continues a trend that took off after the economic crisis struck and governments began cracking down on tax avoidance. The British Virgin Islands’ boom in investment would be unlikely to continue at the same pace because regulators were determined to stop such flows. In the medium or longer term we see that the role in this respect may reduce. Governments are looking into the situation and trying to tighten up their regulatory framework both at the national and international level. The main casualty of such regulation was likely to be big companies’ treasury flows.
The opinions expressed do not constitute investment advice and specialist advice should be sought about your specific circumstances.
Published on our website on February 19, 2014