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.[4] 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.[5] The economy of the Territory is based upon the "twin pillars" of financial services, which generates approximately 60% of government revenues,[6] 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 2009–2010] 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$79 million (approximately 7.6% of GDP).[7] By 2012 public debt had quadrupled from pre-crisis levels to approximately US$113 million (approximately 10.3% of GDP).[8] Nearly 84% of that public debt was attributable to a new public hospital built in Road Town between 2003 and 2014.[9]The Economist argued that deteriorating economic conditions in the British Virgin Islands were caused "not [by] sagging revenues but public-sector profligacy".[10] By 2014 public debt had been reduced to US$ 845 million and the annual deficit reduced to US$25 million (including budgeted capital expenditure).[11]
By 2016, the Government had returned to a primary budget surplus,[12] but public debt had increased to approximately US$141 million[13] 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,[14] 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$90 million), and Government accrued over US$13 million in due but unpaid invoices.[15]
Business environment
In 2015, British Virgin Islands has been assessed as the 34th in terms of global financial centres.[16] 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[17] and its banking system is described as 'opaque'.[18]
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 a deleterious effect on the economy and on Government revenues.[19]
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 yachtchartering 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.[7] However, by November 2013 tourist numbers had begun to recover.[20]
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. As of 2019, it costs $450 to form a company with fewer than 50,000 shares and another $450 a year to maintain registration.[22]
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.[23] 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.[24] 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.[25] 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[23] (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.[23]
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 taxationrelief treaty with the United States.[26] Within the space of a few years, hundreds of such companies had been incorporated.[27]
This eventually came to the attention of the United States government, who unilaterally revoked the Treaty in 1981.[28]
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.[29] Despite its tiny economic impact, agriculture has its own dedicated Government minister (unlike financial services).
↑ 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".
†Physiographically, these continental islands are not part of the volcanic Windward Islands arc, although sometimes grouped with them culturally and politically.
#Bermuda is an isolated North Atlanticoceanic island, physiographically not part of the Lucayan Archipelago, Antilles, Caribbean Sea nor North American continental nor South American continental islands. It is grouped with the Northern American region, but occasionally also with the Caribbean region culturally.
The British Virgin Islands (BVI), officially the Virgin Islands, are a British Overseas Territory in the Caribbean, to the east of Puerto Rico and the US Virgin Islands and north-west of Anguilla. The islands are geographically part of the Virgin Islands archipelago and are located in the Leeward Islands of the Lesser Antilles and part of the West Indies.
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His Majesty's Government of the Virgin Islands is the democratically elected government of the British Overseas Territory of the British Virgin Islands. It is regulated by the Constitution of the British Virgin Islands.
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".
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The British Virgin Islands company law is the law that governs businesses registered in the British Virgin Islands. It is primarily codified through the BVI Business Companies Act, 2004, and to a lesser extent by the Insolvency Act, 2003 and by the Securities and Investment Business Act, 2010. The British Virgin Islands has approximately 30 registered companies per head of population, which is likely 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. This might explain why company law forms a much more prominent part of the law of the British Virgin Islands when compared to countries of similar size.
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Peebles Hospital is the main public hospital in the British Virgin Islands. The hospital is located in the capital, Road Town, on the island of Tortola. It was founded in 1922 by Major H.W. Peebles, and was originally known as the Cottage Hospital.
The National Health Insurance scheme is a form of national health insurance established by the Government of the British Virgin Islands through the Ministry of Health, with a goal to provide access to and financial coverage for health care services to British Virgin Islands residents. A National Health Insurance scheme was first considered in 2006, but it took over a decade to come to fruition. It eventually came into effect on 1 January 2016.
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