Dubbed a tax haven, the BVI has over 850,000 registered businesses, much more than its population of 28 thousand. This tax free country, where it takes a day to register a business for a $350 fee, has the largest number of offshore companies set up by Mossack Fonseca, nearly 114,000, according to the Panama Papers.

These offshore companies collectively invest huge amounts of money all over the world, including billions of dollars in Vietnam.

MPI statistics show that by the end of 2015, there were 623 FDI projects from the BVI in Vietnam, totaling $19.3 billion, securing BVI a spot beside South Korea, Japan, Singapore and Taiwan as top five foreign direct investors.

Select large projects of BVI companies in Vietnam. Source: MPI

One of the recipients of offshore funds is Dragon Capital, the oldest foreign investment fund in Vietnam, which manages $1.25 billion. As of May 10, the firm’s biggest investments were channeled into Vinamilk (VND3.56 trillion ~ $160 million), ACB Bank (VND1.14 trillion), FPT Group (VND888 billion), Ho Chi Minh City Securities Corporation - HSC (VND1.13 trillion), Hoa Phat Group (VND969 billion) and Masan Group (VND1.88 trillion). The fund also holds shares in HSC, REE, PNJ, Hoa Sen Group and Dam Phu My.

Other notable financial organizations known to have received funding from offshore firms in the BVI include Vietnam Asset Management, Indochina Capital Adviser, PXP Vietnam Asset Management Ltd, Vietnam Holding Asset Management Ltd and Clear Water Capital Partner Singapore PTE.

The Foreign Investment Agency said that some U.S. FDI in Vietnam comes from branches of U.S. companies in the BVI, including Intel, Chevron, Procter & Gamble and ConocoPhillips.

A legal expert told VnExpress that the BVI allows shareholders of companies registered there to transfer profits from abroad without any declarations to tax authorities. The expert said Vietnam should strictly oversee the legal and financial obligations of companies originating from the BVI. With a loose financial mechanism, many companies may be taking advantage of the system to avoid tax and conduct transfer pricing and money laundering.

For example, a company based in the BVI invests in a beverage factory in Vietnam. The factory has just found a big client wishing to buy millions of cases. Instead of selling them directly to the client and paying due taxes to Vietnam, the factory may sell the cases to its branch in the BVI. The branch can then sell the cases directly to the actual client. The profit from the last transaction will then remain in the BVI, resulting in a loss in tax revenue for Vietnam.

The expert also said there’ve been many shelf companies established in the BVI that pretend to be well-known global firms. In Vietnam, there’ve been cases of BVI companies disappearing after accepting product shipments.

The British Virgin Islands is a British overseas territory with GDP of over $1 billion, mainly from finance and tourism. Income per capita in 2013 amounted to over $42,000. Many big banks can be found here, including HSBC, Barrington Bank and First Bank Virgin Islands.

Vietnam's government has signed agreements to avoid double taxation with many countries such as Singapore, the U.S. and France. Taxes not liable for double taxation include income tax and income from abroad. However, even this cannot compete with the attractiveness of tax havens.

Other tax havens with FDI in Vietnam as of 2015 included the Cayman Islands ($6.3 billion), Luxembourg ($1.9 billion), Bermuda ($232 million), Panama ($51 million), the Bahamas ($108 million), New Zealand ($96 million), Macao ($57 million) and the Isle of Man ($35 million).