Chinese Outbound Investment Guide 2018: Offshore jurisdictions
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Chinese Outbound Investment Guide 2018: Offshore jurisdictions

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Kristy Calvert and Fleur O’Driscoll, Harneys


SECTION 1: General outlook

1.1 Please summarise the broad trends and patterns in Chinese investment into your jurisdiction, citing any recent specific examples.

We have seen an increased amount of investment activity under China's Belt and Road Initiative (BRI) framework during the last 12 months. Although this central policy was implemented earlier, momentum has increased over the past 12 months as Chinese currency restrictions were put in place, with the BRI now constituting the most legitimate avenue for China's outbound investments.

The investments come from both the public and private sector, with state-owned enterprises (SOEs) driving the larger deals into a wide range of jurisdictions in diverse industries.

These developments show that Chinese economies are not only driven by internal domestic activities but are increasingly branching out to the international market and thus gaining a foothold on the global stage.

1.2 How would you summarise your jurisdiction's attitude towards Chinese investment?

Statistics have shown that over 75% of China's outbound investments go through Hong Kong, the Cayman Islands, the British Virgin Islands (BVI) and Bermuda. Although the final jurisdictions may be very different, offshore financial centres remain popular among the Chinese investors as holding vehicles for their global investments.

Harneys advises on the laws of the three most popular jurisdictions for China's outbound investments after Hong Kong – namely the Cayman Islands, the BVI and Bermuda – and operates from 12 offices globally including Hong Kong, Shanghai and Singapore. The laws of these jurisdictions have continuously progressed to cater for the needs of the international players.

For example, the Cayman Islands recently introduced the Foundation Companies Law which has proved to be popular with Chinese investors and we have seen a lot of activity in this area since its implementation date. The Foundation Companies Law allows a foundation company to be established for any lawful purpose, whether commercial, charitable/philanthropic or private purposes, or any combination of them. Key features of foundation companies that distinguish them from other types of offshore corporate vehicles include the fact that the company does not have to have members following incorporation, amendments to its memorandum and articles of association can only be made if expressly stated, and it is not allowed to pay dividends to its members. It is anticipated that foundation companies will have a wide range of uses, for example as special purpose vehicles in finance transactions, as charities, protectors or enforcers (in relation to other trusts or fiduciary structures), as mechanisms within private trust company structures, as succession planning vehicles, or for any purpose for which a trust is currently used.

On the other hand, classic corporate and fund structures in the Cayman Islands are continuously attractive and popular among Chinese investors. In particular, fund managers are actively setting up US dollar funds in the Cayman Islands including both regulated open-ended fund structures as well as close-ended fund structures.

BVI corporate structures are always popular for both corporate and finance transactions; in particular, the BVI has a comprehensive statutory security registration regime. It also benefits from a diverse offering of fund products including a number of new innovations in the BVI catering for start-up managers (such as the incubator funds). The BVI incubator fund is available to emerging managers, which gives them a two-year incubation or "validity" period (with an extension of up to 12 months available with permission from the Commission) to establish a track record and test its viability.

In addition, the BVI's approved manager regime has proved to be popular in Asia in allowing fund managers to establish a licenced fund manager entity through an efficient application process, with key requirements as follows:

  • To be a BVI company or limited partnership;

  • To have at least two directors, one of whom must be an individual; and

  • To be subject to the caps of (i) aggregate assets under management of $400 million for open ended funds and (ii) aggregate capital commitments of $1 billion for closed ended funds.

In general, China continues to demonstrate significant deal flows, ranging from Chinese fund managers going out to setting up offshore funds, to IPOs and large global M&A transactions. Cayman and BVI structures continue to have a central role in these deal flows, having already become embedded in these leading Chinese enterprises for the structuring of their outbound investments over the past few decades, and Chinese investors remain very responsive to the innovative products that are being introduced in these offshore jurisdictions.

1.3 What is your outlook for Chinese investment into your jurisdiction over the next 12 months?

We foresee that offshore jurisdictions such as the Cayman Islands, the BVI and Bermuda will continue to be popular holding vehicles for Chinese outbound investments. With continuing innovation in these jurisdictions as mentioned above, we believe it will continue to grow over the coming 12 months resulting in more products being used by Chinese investors in these jurisdictions.

SECTION 2: Investment approval

2.1 Explain the approval process and timings for foreign investment approval.

One of the reasons for Chinese investors to incorporate outbound investment vehicles in these offshore jurisdictions is the swift incorporation process, which has a well-established system in terms of certainty as well as adequate KYC processes. Subject to satisfying relevant Know Your Customer (KYC) requirements, companies can be incorporated quickly by licensed registered agents within two to three days, with accelerated services also available.

Other regulations relating to trusts and investment funds are also well-known internationally. These offshore jurisdictions not only provide mature and comprehensive legal systems but are also able to accommodate the commercial needs of investors from all over the world. In addition to extensive experience in dealing with investors from all over the world, these jurisdictions also offer premium service providers such as international offshore law firms and fiduciary service providers who are capable of providing swift and first-rate services to cater for the needs of large and complex international transactions.

2.2 Briefly explain the investment restrictions for any specially regulated/restricted sectors, including whether the government is entitled to any special rights in those sectors.


2.3 Which authority oversees competition clearance?


2.4 Briefly explain the merger clearance process.

Other than a few very specific industries (predominantly investment funds, banking and insurance but also including some other specifically regulated industries), offshore companies do not need regulatory approval to conduct their affairs. These offshore jurisdictions aim to provide "light but effective" regulation to minimise unnecessary regulatory burdens, which also shortens the timeline required to set up investment structures and complete transactions. For example, there are no special approvals for mergers and acquisitions and such transactions can be completed in a fast and efficient manner in these jurisdictions.

In addition, investors do not need to consider any foreign investment regulatory issues such as competition clearance or foreign exchange control in offshore jurisdictions. There is also no stamp duty or other capital gains tax applicable on transactions effected through these jurisdictions.

2.5 Are there approval requirements when a foreign investor increases or exits its investments?

Offshore jurisdictions normally do not impose any approval requirements when a foreign investor increases or exits its investments, with very limited exceptions only in specific industries such as banking and insurance.

SECTION 3: Investment techniques

3.1 What are the most common legal entities and vehicles used for Chinese investment into your jurisdiction?

Offshore holding companies are commonly used by Chinese industrial investors in outbound investments. Offshore funds typically use corporate structures for open-ended funds, while private equity funds tend to use exempted limited partnership structures due to their inherent flexibility compared with corporate structures. Trusts have become increasingly popular among Chinese high-net-worth individuals for managing their private wealth and succession planning.

3.2 What are the key requirements for the establishment and operation of these vehicles which are relevant to Chinese investment?

There are no particular requirements for the establishment and operation of vehicles in offshore jurisdictions which apply to Chinese outbound investments. Compared with onshore jurisdictions, offshore jurisdictions impose no requirements on residence of shareholders or directors, and only minimal requirements in terms of capitalisation and registered address.

SECTION 4: Dispute resolution

4.1 Does your jurisdiction have a bilateral investment protection treaty with China or other jurisdictions commonly used for investing into the country?

As the Cayman Islands and British Virgin Islands are overseas territories, they are not capable of entering into bilateral investment treaties with other countries directly. The United Kingdom, however, has caused certain bilateral investment treaties to be extended to overseas territories such as the Cayman Islands and Bermuda. The Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) has been extended to the BVI and the Cayman Islands by the UK pursuant to the Arbitration (International Investment Disputes) Act 1966 (Application to Colonies etc.) Order 1967. The Convention Establishing the Multilateral Investment Guarantee Agency has also been extended to the Cayman Islands, but not the BVI (see the Multilateral Investment Guarantee Agency (Overseas Territories) Order 1998). Cyprus entered into a bilateral investment treaty with China in 2001.

4.2 How efficient are local courts' enforcement and dispute resolution proceedings, and are there any procedural idiosyncrasies foreign investors must be aware of?

Dispute resolution proceedings in Cayman and the BVI are equivalent to those in the English Commercial Court with speedy judgments and specialist, highly regarded commercial judges hearing cases in the Caribbean. Both the BVI and Cayman courts have dedicated courts to resolve high value and complex commercial disputes in a timely fashion (the Financial Services Division in the Cayman Islands and the Commercial Division in the BVI). As a leading offshore financial centre, the BVI has modern statutes dealing with company law, insolvency, banking law, trust law, insurance and other related matters.

Procedural idiosyncrasy in Cayman

In the Cayman Islands, investors seeking to enforce their rights must be aware of a few key points. There is no stand-alone minority shareholder oppression remedy in the Cayman Islands. However, shareholders may still petition the Cayman Courts to wind up a company on just and equitable grounds (a J&E Petition) and thereby seek alternative relief in the form of a share buy-out order or directions regarding the company's future management. However, in order to present a J&E Petition, the petitioner must be a registered shareholder for at least six months prior to the filing of the J&E Petition (section 94(3) of the Companies Law (2016 Revision) (the Companies Law). In addition, if the company's articles of association contain a provision expressly preventing a shareholder from presenting a J&E Petition against the company, the Court will be obliged to dismiss the petition (section 95(2) of the Companies Law).

Procedural idiosyncrasy in the BVI

In the BVI, it is open to minority shareholders to bring proceedings derivatively on behalf of the BVI company for breaches of fiduciary duty/fraud committed by the company's directors. However, leave must be sought from the BVI Court before the proceedings are commenced (section 184C of the Business Companies Act, 2004 (the BCA)). The BCA also contains a valuable summary, procedure to allow a company to seek declaratory relief regarding the interpretation of the BCA or the company's articles with or without notice to third parties (section 246 of the BCA). This procedure has been described as "innovative and useful" (see Olive Group Capital Limited v Mayhew BVIHC (COM) 115/2015 (January 21 2016) and may be used to clarify shareholder and directors' rights and obligations.

4.3 Do local courts respect foreign judgments and are international arbitration awards enforceable?

The Foreign Judgments Reciprocal Enforcement Law (1996 Revision) provides a statutory scheme for the registration of foreign judgments on application to the Cayman Court. On registration under the law, the judgment is deemed to have the same force and effect as if originally made by the Cayman Court. The Law is potentially an extremely useful piece of legislation; however, it only extends to those jurisdictions where the Governor in Council is satisfied that Cayman Islands judgments will be reciprocally recognised. To date, the Law has only been extended to certain Australian states and territories, making the Law of limited utility. The Law is, however, currently under review and revisions are expected that will substantially extend the number of countries that may register judgments in the Cayman Islands.

Judgments from other countries may be enforced under common law rules. Traditionally, this was limited to judgments for a liquidated sum only but the Cayman Courts have been willing to enforce in personam non-monetary judgments in certain circumstances (Bandone v Sol Properties [2008] CILR 301).

Similarly, foreign judgments are enforced in the BVI either by registering them under the Reciprocal Enforcement of Judgments Act (Cap 65) (Reja), or by suing upon the judgment debt at common law. In contrast with the Cayman Islands, only final monetary judgments are capable of being enforced. However, similar to the Cayman Islands position, Reja is limited to judgments issued by certain jurisdictions i.e. those issued by the High Court of England and Wales or Northern Ireland, the Scottish Court of Session or a limited number of countries to which reciprocity has been extended.

There are broadly two methods for enforcing a foreign arbitral award in the Cayman Islands and the BVI. The first method is to go through New York Convention. In the Cayman Islands, the Foreign Arbitral Awards Enforcement Law (1997 Revision) and the Arbitration Law (2012 Revision) address enforcement of a foreign arbitral award. In the BVI, the Arbitration Act 2013 addresses enforcement of a foreign arbitral award. It is also still possible to enforce awards at common law. When suing upon an award at common law the court may either award damages or order the losing party to perform.

4.4 Are local judgments and arbitration awards from your jurisdiction generally enforceable in other jurisdictions?

Generally speaking, the enforceability of a Cayman Island or BVI judgment will be determined by the local law of the jurisdiction in which enforcement is sought. As for arbitration awards from the Cayman Islands and the BVI, these will be recognised and enforced in any foreign state which is a party to the New York Convention. Since most commercially significant countries in the world are now party to the New York Convention, the arbitration awards made in the Cayman Islands or the British Virgin Islands are generally enforceable in most jurisdictions.

SECTION 5: Forex controls and local operations

5.1 What foreign currency or exchange restrictions should foreign investors be aware of?

There are no exchange control restrictions or foreign currency regulations in offshore jurisdictions such as Cayman Islands and BVI. Funds can be freely transferred in and out of the jurisdiction in unlimited amounts.


6.1 Are there tax structures and/or favourable intermediary tax jurisdictions that are particularly useful for foreign direct investment (FDI) into the country?

Cayman and BVI are tax neutral jurisdictions and do not impose corporate tax, income tax, inheritance tax, capital gains tax or any other withholding taxes on interests, royalties and dividends.

6.2 What are the applicable rates of corporate tax and withholding tax on dividends?

See Section 6.1.

6.3 Does the government have any FDI tax incentive schemes in place?

See Section 6.1.

6.4 Are there any reciprocal tax arrangements between your jurisdiction and China? If so, how can they aid investors?

No reciprocal tax arrangements are needed given these jurisdictions do not impose tax.

About the author



Kristy Calvert

Managing partner, Harneys

Shanghai, China

T: +86 21 6126 9852



Kristy Calvert is managing partner of Harneys' Shanghai office. Calvert has more than 15 years' experience working on cross-border transactions including general corporate and commercial law matters, the establishment and maintenance of investment funds and the structuring of complex mergers and acquisitions, joint-ventures, private equity, mining and capital markets transactions in the Asia-Pacific region. She also has wide-ranging and practical knowledge of offshore structures of value to high net worth clients, including offshore trusts and in particular BVI Vista trusts.

Prior to joining Harneys, Calvert was managing director, China, at another leading international offshore law firm. Before that she held senior roles in the Asia Pacific including legal director, Rio Tinto – China/Asia and worked as a senior private practice lawyer at international law firms Weil Gotshal & Manges and Sidley Austin. Calvert is a native speaker and writer of English, Mandarin and Shanghainese.

About the author



Fleur O'Driscoll

Senior associate, Harneys

Hong Kong, China

T: +852 5806 7847



Fleur O'Driscoll is a member of Harneys' litigation and restructuring department in Hong Kong. O'Driscoll has experience in a broad range of commercial disputes, often with a cross-border element, including shareholder disputes, contractual disputes and fraud claims. She specialises in insolvency and restructuring and has worked on a wide range of matters in the Cayman Islands, the British Virgin Islands and Ireland on behalf of liquidators, creditors and other stakeholders.

O'Driscoll has extensive offshore litigation and insolvency experience having worked for a number of years in the litigation and restructuring department of an international offshore law firm practising both Cayman Islands and British Virgin Islands law.