Dec 2024
For family offices, high-net-worth individuals (HNWI) and ultra-high-net-worth individuals (UHNWI) considering the purchase of luxury assets (in particular yachts, artworks and aircraft) there are multiple factors to consider, not least deciding on the optimum structure to purchase and hold such luxury assets.
When purchasing a luxury asset, one of the first considerations should be the structure through which such luxury asset will be purchased and subsequently held. One of the most popular choices is to hold the luxury asset through a British Virgin Islands (BVI) Special Purpose Vehicle (SPV).
What are SPVs and Why Use Them?
SPVs are a corporate structure (typically a BVI business company) commonly set up for the exclusive purpose of purchasing and holding a luxury asset, and they tend to (depending on the exact SPV structure used) provide for a combination of some or all of the following benefits:
- Financing Flexibility and Limitation of Risk: An SPV can potentially be structured “off balance sheet” and be used to secure financing for a new luxury asset at the level of the SPV without increasing the debt/security for the broader corporate group or HNWI/UHNWI directly (subject to any guarantees given).
- Transfer/Sale: Should there be a desire in the future to sell or transfer the luxury asset, this can be done with minimal fuss as the SPV could be sold as a self-contained entity. This may also have additional benefits as permits and registrations (in the case of yachts and aircraft) may not need to be transferred and will remain in the name of the transferring SPV.
- Limited Liability: Most SPVs will benefit from “limited liability recourse” meaning that in the majority of cases, an existing group company or the HNWI/UHNWI will be insulated from the financial risk in the event of default or other issues relating to the luxury asset (subject to any guarantees given).
The BVI as a Leading Jurisdiction of Choice for a Luxury Asset SPV
The BVI is one of the most popular jurisdictions of choice for incorporation of an SPV to hold luxury assets. The BVI is one of the world’s leading offshore financial centres and offers the following key benefits:
- Reputation: The BVI is one of the most recognisable and well-established offshore financial centres, which provides a significant advantage when dealing with key counterparties (such as financiers, banks and insurers) when compared to lesser-known offshore financial centres which may claim to offer similar benefits.
- Confidentiality: The details of any shareholders/members of a BVI SPV are, unless elected otherwise, currently not available to the general public.
- Tax Neutrality: The BVI is tax neutral meaning that there is no income tax, corporation tax or capital gains tax levied in the BVI. In addition, other than in very specific circumstances, the BVI does not impose any stamp duty on the transfer of shares of an SPV should it be sold as a self-contained entity holding the luxury asset.
- British Overseas Territory: Ultimate executive authority in the BVI is vested in the monarch of the UK, and is exercised on his behalf by the Governor of the British Virgin Islands.
- Legal System: The BVI has a recognised and well-developed common law legal system with ultimate appeal to the Privy Council in London.
- Legislation: The BVI has a very flexible and user-friendly companies legislation when compared to some onshore/other offshore jurisdictions.
- Banking: The BVI is not subject to any exchange controls and uses the US Dollar as its primary currency.
- Costs: Compared to most other well-established offshore financial centres, there are low costs of forming and then maintaining an SPV within the BVI.
Structure of BVI SPVs
The primary legislative act governing companies in the BVI is the BVI Business Companies Act, 2004 (as amended) (BCA) which makes provision for several different types of BVI companies. However, when it comes to a BVI SPV established to hold luxury assets, the common choice is a BVI business company limited by shares (BVI BC) which has the following key features:
- A BVI BC has separate legal personality, meaning that in the majority of cases, the liability of a shareholder/member is limited to the amount (if any) unpaid on such shares. Such amount is in most cases, either nil or only nominal.
- The day-to-day running of the BVI BC can be entrusted to the directors of the company (who generally do not need to be physically based in the BVI).
- The SPV will have a registered agent and registered office based in the BVI which can handle certain day-to-day administrative aspects of maintaining the BVI BC on a client’s behalf, reducing administrative burdens*.
- The BVI BC is a popular form of SPV widely recognised globally.
- The BVI BC is not subject to any statutory financial assistance restrictions.
Conclusion
Purchasers of yachts, artworks, aircraft and other luxury assets face important decisions regarding the structuring of such acquisitions. With multiple options available including various forms of SPVs in differing corporate domiciles, purchasers should seek out a jurisdiction that offers the best mix of quality, flexibility, administrative convenience, cost/ tax efficiencies and international acceptance. The BVI has and continues to lead the way as the jurisdiction of choice for sophisticated family offices and HNWI/UHNWI looking to establish acquisition and holding SPVs for their luxury assets, offering a flexible, tax-efficient and secure place to do business.
Conyers has a wealth of experience in this space, having acted on some of the most prominent acquisitions, financings and disposals of luxury assets via BVI SPVs. Conyers advises on BVI law through offices in the BVI and the key financial centres of London, Hong Kong and Singapore.
1This article is not intended to be a substitute for legal advice or a legal opinion. It deals in broad terms only and is intended to merely provide a brief overview and give general information.