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JAMAICA, AN OFFSHORE BANKING OPTION?

 

“An exploration of how the Jamaican Individuals and Businesses could benefit from using Offshore Financial Centres to Structure their Affairs generally, their Tax Liability and their Succession Planning”

By Mrs. Thalicia Blair-Foreman

PUBLISHED IN THE JAMAICA BUSINESS JOURNAL-VOLUME 3 NO. 2 www.jamaicabusinessjournal.com

On Monday, September 17, 2007 in Tax-News.com (London), Amanda Banks in her article Jamaica Looks to Join Caribbean Offshore Club stated that Jamaica's newly sworn-in Prime Minister, Bruce Golding, has ambitious plans for turning around years of economic stagnation and under-investment, with proposals to develop an offshore financial centre, and new tax and regulatory policies to attract the "right kind" of foreign investment.  The Labour Party's election manifesto pledged to: "Establish Kingston as a choice location for offshore financial services to exploit the benefits currently being enjoyed by countries such as the Cayman Islands and Bermuda. This financial centre will be located in downtown Kingston as a fulcrum for the much needed redevelopment of that part of the city. There are other islands in the Caribbean that have done very well in their offshore activities," Golding told the UK's Financial Times in an interview. "We believe that it is an area that Jamaica can secure benefits from."

With such utterances, offshore financial centers and offshore law became ‘buzz words’ and there were a lot of public discussions as to how offshore law could benefit the Jamaican economy.  In order for an offshore financial centre to become an established phenomenon in Jamaica, significant changes would have to be made to our companies, trust and anti-money laundering legislation.  However to date, there has not been much change in the legal infrastructure and outlook to facilitate Jamaica becoming a player in the offshore industry.  

The purpose of this article is therefore to explore the ways in which the Jamaican business community could benefit from offshore financial centres, even though such a centre is not yet part of the legal landscape and jurisprudence of Jamaica. 

It is critical at this stage that we look into exactly what an offshore financial centre is, before proceeding further. An Offshore Financial Centre (or OFC), is usually a small, low-tax jurisdiction, specialising in providing corporate and commercial services to non-residents in the form of offshore companies and offshore funds.  Therefore a significant feature of offshore jurisdictions, involves companies being incorporated in those countries but not physically operating in the jurisdiction of incorporation.

THE BENEFITS OF JAMAICAN CORPORATIONS AND INDIVIDUALS UTILILIZING OFFSHORE FINANCIAL CENTERS TO ARRRANGE THEIR BUSINESS AFFAIRS.

1.    LOW TAX OR NO TAX

One of the most significant and obvious benefits of offshore banking or incorporating a company in an offshore jurisdiction is the tax concessions involved.  Where one elects to incorporate in the British Virgin Islands (BVI), for example, a BVI Business Company (BVIBC) is established and this BVIBC is exempted from all provisions of the BVI Income Tax Ordinance and the Stamp Act and as such it is not subject to any income, capital gains, dividend withholding, estate, or gift taxes in the BVI.  Save and except for duties payable in connection with the transfer of land situated in the BVI or transactions in respect of shares, debt obligations or other securities of BVIBCs which own land situated in the BVI.

With the advent of the Caricom Single Market and Economy (CSME), Caricom nationals are now open to a wide range of structures for use in tax planning. There are many offshore financial centres within Caricom, Barbados, St. Lucia, Nevis and Belize being among them.   For example, the St. Lucia International Business Company (IBC) legislation is especially attractive for Caricom nationals wishing to establish companies - including holding companies - in St. Lucia.  St. Lucia IBCs will be able to take advantage of the Caricom Tax Treaty by virtue of which they will pay tax at 1.0 per cent in the jurisdiction of incorporation.  The treaty exempts dividends payable by a company resident in one member state from taxation not only in the country in which the income arises, but also in the country in which the shareholder is resident.  This treaty further provides that income arising in one member state by a resident of another shall be taxed only in the source country, and taxed only once. Please note that at Blair Foreman & Co, we assist Jamaican professionals in the entertainment, design, consultancy, sports and other industries who earn substantial fee income outside of Jamaica in taking advantage of the tax advantages of the St. Lucia regime.

 

2.    CONFIDENTIALITY

Professor Rosemarie Belle Antoine in Confidentiality in Offshore Financial Law, 2002: Oxford University Press, states that an important innovation in offshore financial centres is the extent to which financial confidentiality and privacy are protected under the offshore regimes.  They have gone beyond the common law notion of financial confidentiality as enshrined in the case of Tournier v. National Provincial Bank [1924] 1 KB 461 and created strict statute based duties towards confidentiality. 

 This practice of confidentiality in offshore financial centres, became a sore point with the learned and very vocal Contractor General of Jamaica, Mr. Greg Christie.  It was reported in the Gleaner article dated February 1, 2009 that Mr. Christie was concerned that public officials may be using the veil of offshore companies to break the law by accepting government contracts without declaring their interest. Under law, public officials are required to declare their interests in companies with which government is doing business

"The OCG has observed that there is a growing trend of onshore and offshore incorporated private companies that are receiving Government of Jamaica contracts, but whose shareholders and/or beneficial shareholders are substantially unknown," Christie said in his report. In the case of SportsMax, which is incorporated in Jamaica, Christie found that it has two shareholders, Oliver McIntosh and International Media Corporation (IMC). However, the shareholders of IMC are unknown to the contractor general, as it is incorporated in St Lucia.

The contractor general stated that he only has jurisdiction in Jamaica and thus has no basis in law to further investigate the identify of  the persons benefiting from government contracts.

It must be pointed out that even if the Contractor General’s jurisdiction extended beyond Jamaica, he would not readily find out who are the shareholders and directors of the company.  This is so because generally, in offshore jurisdictions where confidentiality is of utmost importance, the details of the company beneficial owners, directors and shareholders are not part of public record. The Register of Members, The Register of Directors and all Minutes and Resolutions by the Company are kept only at the offices of the Registered Agent in complete confidentiality. In the BVI, the only documents held on public record are the Memorandum and Articles of Association and Articles of Incorporation, but these normally do not contain any indication as to the actual shareholders, directors or the beneficial owners of the company.  Statutory filing of mortgages and charges with the Registrar of Corporate Affairs governs priority but is optional.    

ASSET PROTECTION

Offshore companies can be used as a shield against harassment or vengeful lawsuits. Having your assets in an offshore company almost always makes its principal a more difficult target for a lawsuit and this is especially true if the shares in the offshore company have been placed in a trust.

     WEALTH OR SUCCESSION PLANNING

For many individuals, one of the most important considerations they face is how   best to plan for the future and the succession of their family members to the ownership of their assets. A primary vehicle in succession planning in offshore jurisdictions is the use of trusts. A simple definition of a trust is Property that is held by one party, the trustee, for the benefit of another, the beneficiary. The one who supplied the property or consideration for the trust is the settler.

 

The BVI Share Trust, pursuant to the Virgin Islands Special Trusts Act (VISTA) is an innovate tool catering for the succession to shares in a BVI Company. According to Michael Gagie in,   Putting your Trust in the BVI, published in the Hong Kong Lawyer in 2008, The BVI Share Trust provides a structure for the Settlor to do the following:-

 

(i) retain effective control of their BVI company;

(ii) continue to enjoy the economic benefits of the company’s business;

(iii) provides for orderly succession to the ownership of the company and

(iv) leave the company being managed by those best suited to do so rather than necessarily to those who will own it.

 

The Harneys Wealth planning Guide (www.harneys.com) points out that for one to understand the true benefits of the BVI Share Trust is to do a comparative approach.  It is therefore practicable to compare the Share Trust with an individual who holds shares personally until death. 

 

In the event of the death of a shareholder of a BVI company, the deceased heirs or personal representatives will be required to make an application to the BVI Court to be recognized as the owner of the shares and as such the grant will be a public document that will contain details of the deceased’s BVI Company shares. An application to the BVI Court will be costly and will likely involve delays.  Where the succession or devolution to the shares is concerned, the “forced heirship” rules will apply, that is, rules in the deceased’s home jurisdiction where the entitlement to the deceased’s assets is predetermined. 

 

On the other hand, “forced heirship” rules are not recognized in the BVI where assets are held in trust governed by BVI Law and therefore the Share Trust is able to provide for succession to shares that would not be possible if the deceased simply relied on a will or died without making a will.  The Share Trust also has the distinct advantage of maintaining confidentiality in respect of details of shares being held as the Trust Deed is not a matter for public record.  With the Share Trust, the delay is virtually eliminated as succession to the shares occur automatically on death and there is no need to apply to the BVI Court as the trustee is already the legal owner of the shares and will simply transfer them to the named beneficiary.  After this the trust will come to an end.

 

ADVANTAGES OF SHARE TRUST

  1. The Share Trust incorporates a standardized approach in its structures and documentation and therefore can be created in a short space of time.

  2. It is not costly to establish and maintain.  This may be due to the fact documentation and structures are so standardized.

  3. Avoidance of the need to prove probate (in relation to the shares) in the BVI courts on the death of the settlor – automatic succession to shares in the event of the death or incapacity of the settler;

  4. Automatic succession to the office of director in the event of the death or earlier incapacity of the settlor – this is particularly useful for a situation where a BVI company is actually carrying on a business (as opposed to acting merely as a holding vehicle) as it provides for continuity of m a n a g e m e n t a n d , in circumstances where the settler has continued to be the sole director of the BVI company during their lifetime, the ability to have a director in place immediately upon their death, thereby minimising any possible business interruption;

  5. Retention of control of the operation of the BVI company during the settlor’s lifetime or while the settlor is still able to conduct the affairs of the company by retaining his post as Director  as well as maintaining  his shareholder voting rights and income rights during the settlor’s lifetime;

  6. It is freely reversible at any time during the lifetime of the settlor -the settlor can take back legal ownership of some or all of the shares from the Trustee.