Offshore Structures & Onshore Tax and Residency Laws By Louise Mitchell Joseph, Carribean Trust Company, St. Vincent
t.Vincent and the Grenadines
(SVG) offers not only smart offshore asset protection vehicles but also favourable onshore tax and residency laws that make it an ideal place to re-domicile in preparation for retirement.
PART A: OFFSHORE STRUCTURES
First I will discuss the offshore regime where I will review the following: (1) the private trust with special asset protection against creditors and foreign judgments A popular asset planning structure is the St.Vincent and the Grenadines international trust, which is a trust registered under the International Trust Act 1996 where neither the settlor nor the beneficiary is a resident. It offers strong statutory protection against creditors as it provides strict statutory limitations on creditors. Creditors who fail to take action against the trust within one year of the establishment of the trust are statute barred from doing so at a later date. In addition to this statutory limitation on creditors, the International Trust Act prohibits the enforcement of any judgment against an international trust that is obtained in a jurisdiction other than St.Vincent and the Grenadines. Further, the Act specifically allows the settlor to retain substantive control or have reserve powers over the trust, through the use of a letter of wishes and other mechanisms. The settlor is allowed to be a beneficiary or the sole beneficiary.The settlor cannot of course be a trustee, but he/she can be a Protector. A trust settled under the International Trust Act can, in accordance with section 36 of the IBC Act, hold the shares of an IBC. When such shares are settled into a unit trust, the trustees are statutorily exempt from any duty to take an active part or inquire into the management of the company. OI 182 January 2008
(2) the Class B and branch
international bank licences The International Banks Act 2004 provides for the licensing of Class A (unrestricted), Class B (restricted) banks, and branches of international banks. Here I shall discuss in particular the Class B bank and the branch licensing requirements because they are particularly favourable. In fact, it appears that the authorities in making the licensing requirements of Class B banks and branches of an internationally established bank considerably less onerous than that of Class A banks, are facilitating the establishment of such comparably lower risk entities to the jurisdiction. Banking enthusiasts should take note of this, as obtaining banking licenses of any kind anywhere has become a particularly difficult task at best (and for good reason). However, just what are the restrictions on the Class B licence? Are they such that having a Class B licence would be desirable? In my opinion, yes, as the Act allows for enough flexibility in the definition of a Class B licence. A Class B licence allows you to carry on international banking business by offering services only to persons specifically named and described in an undertaking accompanying the bank application. Further, the International Banks Act states that one cannot do business with persons, except those described in the undertaking, without the prior written approval of the Authority. The open question is how specific does one have to be in the undertaking. The answer is as specific as needs be to satisfy the Regulators, as there are no published guidelines. In the absence of guidelines, there is considerable room for a liberal interpretation of this provision. In my opinion the following would comply with the requirements of the undertaking: the clients of ABC Financial Inc.; the investors in ABC Mutual Fund Unit Trust;
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St. Vincent
the policy holders of ABC Insurance
Group. What is even more important is that this initial undertaking may change and expand, provided that the prior written consent of the Regulators is obtained. The advantages of the Class B licence over the Class A include lower capitalisation costs. The Class B bank is required to maintain a fully paid up capital of USD500,000 (compared with USD1 million for Class A banks), and a statutory deposit of USD100,000 (compared with USD500,000 for Class A banks). Also, Class B banks will be regarded by the Authority to be lower risk because they cannot do business with the general public, therefore it is easier to get licensed. Even easier than licensing a Class B bank is licensing a branch of an internationally established bank. Branches would be required to submit evidence to the Regulators that they are subject to consolidated supervision by their home country and undertake to submit audited financial statements of their parent bank. The branches would then be exempt from the capital requirements ordinarily imposed. They would not have to have a separate capital fund, nor would they be required to have in the jurisdiction a statutory deposit. As such the start up costs of a branch would be minimal compared to those of Class B and Class A banks. There are no guidelines issued as to who would qualify as an internationally established bank. It is clear that the jurisdiction may be wishing to attract branches of top names like HSBC. However, the absence of guidelines suggests that the jurisdiction may consider banks other than the top 100 within this category.
PART B: ONSHORE TAX AND
RESIDENCY LAWS I will now discuss the onshore tax and residency laws that make SVG the ideal place to re-domicile and retire or semiretire. (1) absence of tax on capital gains, inheritance and dividends, special tax status of Mustique home owners If one is intending to abandon ones domicile in the UK or another high tax state and retire and re-domicile in a warmer climate, St.Vincent and the Grenadines has the type of regime you will be looking for. Most persons who change their domicile in their twilight years would typically invest in a substantial amount of property and a luxury residential home. It is of critical interest for you to know that should you one day decide to sell your St. Vincent property, there will be no capital gains tax on the sale. If you wish to repatriate the proceeds of that sale, there are no restrictions on the movement of funds out of the jurisdiction (save for the
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usual source of funds declaration to your
bankers). There are no exchange controls. If you are to die in St.Vincent and the Grenadines, there is no inheritance or wealth tax. There is, however, a very high rate of income tax on personal income of up to 40% and a similar amount on company profits. So if you are intending to still be receiving income either in St.Vincent or in the rest of the world and become a St. Vincent resident, you will be subject to tax on your worldwide income. As such you would be advised to structure your income in such a way that you do not receive income but only receive dividends from companies, as dividends are tax free. Alternatively, you may set up an IBC, which is tax free, and structure your income to flow into that company. Another means of obtaining exemption from tax on your worldwide income is to qualify under the special tax regimes that govern three of the islands of the Grenadines, namely Mustique, Canouan or Quatre Isle. The luxury resorts on the islands of Mustique, Canouan and the new development on Quatre Isle, enjoy the protection of free standing statutes that set out special fiscal incentives for investors. An investor in land and a residential building on the islands of Mustique, Canouan and Quatre Isle are entitled to receive permanent residence in the State of St.Vincent and the Grenadines, subject to the pre-requisite that they receive an aliens land holding licence. The worldwide income and capital gains of such residents are exempt from income tax payments in St.Vincent and the Grenadines. (2) favourable residency and citizenship laws In order to perfect your abandonment of your high tax domicile, ideally you would require permanent residence and ultimately citizenship in St.Vincent and the Grenadines. In order to do this, you must follow a three staged process. First as a foreigner, you must obtain what is known as an aliens land holding licence. There is a basic due diligence check that is done on the purchaser of land, which includes producing police records and certificates of good health, and the application attracts significant government fees. There is a sliding scale of fees of 10% for the first EC$100,000 value of the land, thereafter 6% on value between EC$100,000 and EC$1 million and thereafter 4% on land to the value exceeding EC$3 million. In addition, there is a stamp duty on the conveyance of land. The buyer pays 5% of the value of the land and the seller pays 5% of the value of the land. Transfers among immediate family members (including grandparents), do not attract stamp duty.
Once you have the licence to own
land, you will then be entitled to apply for permanent residence in order to enjoy your property. The Government Cabinet approves residency applications. There are no published guidelines as to the criteria for qualifying for residency. However, you must disclose your net worth as well as submit medical and police certificates. In practice, if you have obtained an aliens land holding licence, it is unlikely that you would be denied residency. Once you are approved as a permanent resident, you have met one of the grounds necessary for applying for citizenship. One can apply for citizenship immediately upon becoming a permanent resident. If these three steps are followed by a competent attorney and the applicant is a fit and proper person, one can go from becoming an alien to a citizen in less than two years. From the time that one is a permanent resident, and of course as a citizen, one would enjoy the benefits of no CGT, no inheritance tax and no taxation on dividends. These tax benefits would allow one to enjoy the benefits of ones lifes work and assets in ones retirement or semi-retirement. If one is a skilled offshore professional, it is important to note that the government has a policy of encouraging such persons to reside in St. Vincent and the Grenadines as they are seeking transfer of knowledge in the financial services sector. As such, your residency application (and initial work permits) will be favourably regarded. (3) absence of tax treaty network St.Vincent and the Grenadines has signed only one double tax treaty, that is the Caricom Tax Treaty. Other than this treaty, it has no treaty network. The absence of a treaty network means that there is no automatic formal mechanism for the sharing of tax information with other tax authorities. The sovereignty of St.Vincent and the Grenadines also means that it is not subject to EU Directives. Caricom nationals however, can benefit from the favourable financial products offered in St.Vincent and the Grenadines relying on the Caricom Treaty. For example, a Jamaican human resources company can register as a St.Vincent and the Grenadines international business company and opt to pay a 1% tax. The Treaty would require the Jamaican tax authorities to allow the company to be taxed in only one state, and that state could be St.Vincent, where a nominal tax of 1% is paid. Rising to the challenge in St. Vincent and the Grenadines June 2000, Issue 107