ST VINCENT 2013 - STEP directory
ST VINCENT AND THE GRENADINES
Isaac Legair TEP
Dennings (Barristers & Solicitors), Kingstown, St Vincent and the Grenadines
- St Vincent and the Grenadines is now fully compliant with the OECD requirement for 12 tax information exchange agreements (TIEAs).
- In November 2011, the Parliament of St Vincent and the Grenadines enacted the Financial S ervices Authority Act 2011 and the International Co-operation (Tax Information Exchange) Act 2011. These two major pieces of legislation impact directly on the financial services sector.
A. Financial Services Authority Act 2011
- The Financial Services Authority Act 2011 creates the Financial Services Authority (“FSA”), which should become operational towards the end of 2012. Its remit is to regulate and supervise all entities and businesses (except domestic banks) operating in the financial sector. The new law brings under one regulatory umbrella, both the “offshore” and “domestic” financial services sectors, which hitherto operated separate regulatory regimes. Until now, the domestic insurance sector fell under the responsibility of the Supervisor of Insurance (within the Ministry of Finance), pursuant to the Insurance Act 2003 and non-bank financial institutions (e.g. credit unions and cooperatives) fell under the auspices of the Cooperatives Division of the Ministry of Social Development. The domestic banking sector has always been, and continues to be regulated by the East Caribbean Central Bank, pursuant to the Banking Act 2006.
- The main provisions of the Financial Services Authority Act are:
1. The FSA has the power to suspend and cancel licenses held by regulated entities, and to take any enforcement action it deems necessary;
2. Express compliance provisions are stipulated as well the responsibility of licence holders to ensure compliance with the FSA Act and anti-money laundering legislation;
3. Powers of examination and investigation are provided for. The power of the FSA to obtain freezing orders is explicitly included.
4. The FSA has power to request access to information from any financial entity which fall within its remit, and from auditors or any other person believed to be in possession of the information sought;
5. Administrative penalties as well as the sanction of the criminal law are provided for under the new law.
B. International Co-operation (Tax Information Exchange) Act 2011
- The primary purpose of the International Cooperation (Tax Information Exchange) Act 2011 is to enhance SVG’s tax information exchange regime and to set out the practical mechanisms by which these TIEA’s will be operated.
- The main provisions include:
1. Ensuring that the Competent Authority in SVG, i.e. the Minister of Finance (or his authorised representative) has the necessary power to access information requested pursuant to a TIEA and to exchange that information with the requesting country.
2. Establishing the procedures to be observed in executing requests for information and setting out the instances where such requests may be declined by the CompetentAuthority.
3. Putting in place mechanisms for preserving the confidentiality of information received by the requesting country and by SVG.
4. Criminalizing the failure by any information holder of not providing the requisite information to the Competent Authority, and altering or tampering with the information to be received by the Competent Authority.
5. Ensuring that decisions of the Competent Authority are subject to judicial review, thereby preserving the rights of any person aggrieved by such decisions.
A . History and background
St Vincent and the Grenadines (SVG) consist of a group of islands approximately 100 miles due west of Barbados. The main island is St Vincent, the islets to the south of which consist primarily of Bequia, Canouan, Union Island and Mustique, the home of a large number of high-net-worth individuals.
After being a British (and sometimes French) colony for nearly 500 years, SVG gained its independence from Britain in 1979, as a legacy of which its system of government has always been based on the Westminster/ Whitehall model.
B. Legal system
The legal system of SVG is in many respects similar to that of England and Wales. The local law has its foundations in English legislation, English common law and the rules of equity. The country has, since independence, developed its own body of statutory laws, particularly in the areas of international financial services.
The primary court of first instance is the High Court of Justice, from which appeal is made to the Eastern Caribbean Court of Appeal. Both these courts derive their jurisdiction from
the Eastern Caribbean Supreme Court Act. The court of final appeal is Her Majesty’s Judicial
Committee of the Privy Council, based in London.
2 . SOURCES OF LAW
A . Trust creation and administration
The trust law of SVG is based on a combination of English trust law (in common law and equity) and (in the case of offshore trusts) the International Trusts Act 1996 (ITA). This Act forms the statutory basis for the creation of international/offshore trusts in the jurisdiction. Domestic trusts are governed by the Trustees Act (Cap 383), which to a large extent follows the 1925 English legislation.
The authority to act as registered trustee, financial fiduciary or private trustee of an offshore trust is granted under the Registered Agents and Trustee Licensing Act 1996. Trustees of international trusts are required to be licensed and subject to regulation by the
International Financial Services Authority.
B. Property, estate and probate
The Administration of Estates Act (Cap 377), the Probates (Resealing) Act (Cap 381) and
the Trustees Act (Cap 383) are the major pieces of legislation governing matters pertaining to probate and administration. All these laws are fundamentally similar to the English statutes from which they are derived.
Matters concerning wills are governed by the Wills Act (Cap 384), which is substantially derived from the Wills Act 1837 as it prevails in England and Wales.
3 . TRUSTS
A . Introduction
The ITA provides for the creation of most forms of international trusts, including spendthrift trusts (also referred to in the law as ‘protective trusts’), charitable purpose trusts, non- charitable purpose trusts, reserved powers trusts and all forms of discretionary trusts.
The ITA dispenses with the rules against perpetuity and accumulations. Instead, international trusts may exist for a maximum duration of 120 years, though purpose trusts and charitable trusts may continue in existence without time limit.
The Statute of Elizabeth has no relevance to international trusts or to dispositions or transfers to or by international trusts formed under the ITA. The application of that statute has been explicitly excluded by section 50 of the ITA. Similarly, the impact of forced heirship rules existing in any foreign country has been excluded, and no international trust or any aspect thereof (including the disposition of property) shall be declared void, voidable or defective in any manner for any reason related to a lack of capacity (purported or otherwise) on the part of the settlor.
Section 16 makes provision for an international trust to have a protector, who may be the settlor himself, a trustee or a beneficiary. Unless otherwise excluded in the trust deed, the protector owes fiduciary duties to the beneficiaries or to the purpose for which the trust is created. Explicit powers are given to the protector. These include the power to appoint and remove trustees, the power to change the proper law of the trust, the right to receive notice
in advance of specified actions of the trustees, and the right to receive information and accounts pertaining to the trust.
The effect of foreign law is excluded by section 33 and the capacity of a settlor to create a trust may not be called into question by such foreign law. Further, no disposition of property under the trust may be varied, declared void or voidable or otherwise set aside by reason of the application of such foreign law.
By section 39, notwithstanding the provisions of any treaty, convention, statute, rule of law or equity to the contrary, no proceedings for the enforcement or recognition of a judgment or order obtained outside SVG will be entertained by the court if the judgment or order is based wholly or partly on the application or interpretation of law that is inconsistent with the ITA, or relates to a matter governed by the laws of SVG.
B. Most frequently used trusts
Reserved powers/settlor controlled trusts are provided for under section 9, which states that an international trust will not be declared invalid or affected in any way if the settlor:
- retains, possesses or acquires a power to revoke the trust
- retains, possesses or acquires a power to amend the trust
- retains, possesses or acquires any benefit, interest or property from the trust
- retains, possesses or acquires the power to remove or appoint a trustee, protector or advisor
- retains, possesses or acquires the power to direct a trustee or protector on any matter
- retains, possesses or acquires any specific power to appoint the capital or income from the trust to persons other than himself
- is a beneficiary of the trust solely or together with others, or
- purports to direct the activities of a trustee through a letter of wishes or similar statement or document made or delivered to that trustee in connection with and at the time of creation of an international trust.
Section 36 of the International Business Companies (Amendment and Consolidation) Act 2007 (IBCA) provides that where voting shares of an SVG international business company are settled into a unit trust, the proper law of which is the law of SVG, or into a trust established under the ITA, the trustees of such trust shall have an overriding duty to hold the shares but no duty to enquire into or take any active part in the management of the company unless otherwise provided in the trust deed or the company’s constitution.
C. Creation of a trust
All international trusts must be created by an instrument in writing that satisfies the formal requirements of a deed or settlement under the proper law of the trust. There is no provision in the ITA for creation by a declaration of trust, and all trust deeds must be evidenced by writing signed by both the settlor and the trustees. Under section 4(2), a trust is regarded as having been created at the time when the property is first received by or vested in the trustee to be held by him in accordance with the terms of the trust. At least one of the trustees (the registered trustee) must be licensed in SVG. Registration of trusts is not mandatory. Nonetheless, it is prudent to register since the ITA gives trusts that are registered special protection from attack, provided that the settlor was not insolvent at the time the trust was created, nor became insolvent by reason of its creation, and the trust was not created with intent to defeat his creditors. Registration also creates a rebuttable presumption that the trust, its income, and its beneficiaries are entitled to exemption from all SVG taxes and duties.
D. Trust administration
- The registered trustee of an international trust created under the ITA must keep as confidential information in SVG, the following:
- a copy of the instrument creating the trust and copies of any other instrument amending or supplementing it;
- a register in which the following information is set out:
- the name of the settlor
- if a purpose or charitable trust, a summary of the purposes of the trust and the name of the protector of the trust, and
- such documents as are necessary to show the true financial position of the trust, which must be current as of one month following the close of each fiscal quarter.
- The instrument, register and documents referred to above are not to be available to the public, but the registered trustee must allow only the protector (or a person authorised in writing by the protector) to inspect the instrument, register and the documents described in the register.
E. Confidentiality and disclosure
Except in the case of a trust advisor appointed under the trust deed (or by the trustees or the protector), no person (including the trustee and protector) may disclose to any other person not legally entitled to it, any of the following information or documents respecting an international trust:
- the name of the settlor or any beneficiary
- the trustees’ deliberations as to the manner in which a power or discretion was exercised or a duty conferred by the terms of the trust or by-law was performed
- the reason for the exercise of the power or discretion or the performance of the duty or any evidence upon which such reason might have been based
- any information relating to or forming part of the accounts of an international trust, or
- any other matter or thing respecting an international trust.
The registered trustee must, at the written request of a beneficiary named in the trust, disclose any document or information relating to or forming part of the trust accounts. This entitlement does not, however, extend to letters of wishes or like expressions of the settlor’s intent.
F. Rights of creditors
Any claimant wishing to challenge or proceed against an international trust or sue the trustees for breach of trust must do so within two years from the date of creation of the trust or from the date the cause of action arose. Before commencing his claim, the claimant must pay a cash sum of USD25,000 into court as security for costs.
Provided that the settlor was not insolvent at the time the trust was created, did not become insolvent by virtue of its creation, and did not establish the trust with intent to defraud creditors, the trust will not be declared void or voidable in the event of the settlor’s bankruptcy or insolvency.
4. OTHER FORMS/ENTITIES
A . International business companies
The IBCA deals with all matters pertaining to the incorporation, management and
dissolution of international business companies. It represents the first major overhaul of the law governing international business companies in SVG since the international business company was first introduced into the jurisdiction in 1996.
The IBCA explicitly provides for the incorporation of:
- companies limited by shares
- companies limited by guarantee (‘mutual’ companies)
- companies limited by guarantee and having a share capital (‘hybrid’ companies)
- unlimited companies, which may (or may not) issue shares
- segregated cell companies, and
- limited duration companies.
The IBCA provides good opportunities for tax mitigation where a company that resides within a Caribbean Single Market country conducts business in another country that is a signatory to the CARICOM Tax Treaty. This Treaty 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. It further 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.
The IBCA gives companies an irrevocable option either (a) to remain totally exempt from taxes as at present, or (b) to pay corporate income tax at the rate of 1 per cent on annual profits. Those companies that choose to pay the 1 per cent tax must file annual tax returns and comply with the requisite provisions of SVG income tax legislation.
Other features of SVG IBC’s include the following.
- Companies may be formed with just one shareholder, who may be a natural person or a juridical entity.
- There is no requirement for a company secretary.
- Bearer shares are permitted but records must be maintained by the company’s registered agent of each bearer share certificate in issue. The registered agent must maintain custody of bearer share certificates on behalf of the beneficial owner. The beneficial owner may, however, request a certificate of immobilisation as proof that the registered agent holds the shares in custody on his behalf.
- The authorised share capital of a company may be denominated in any recognised currency.
- Shares may be issued fully paid, partially paid, or nil paid.
There is no minimum or maximum capital requirement for an SVG IBC. The annual renewal fee payable for each company is fixed and bears no relation to the authorised capital or the number of shares the company may issue.
ii. Director requirements
Companies may be formed with just one director who may be a natural person or a juridical entity.
The directors may reside anywhere in the world and their meetings may, similarly, be held wherever they decide. There is no SVG IBC residency or nationality requirement for shareholders or directors.
B. Limited liability companies (LLCS)
- The Limited Liability Companies Act 2008 (LLC Act) governs the formation, management and continued existence of LLCs.
- Like IBCs, an LLC may undertake or carry on any lawful business not prohibited by the laws of SVG, except that it may not: (a) make its goods or services available to persons fiscally resident in SVG; (b) carry on any regulated business for which a licence is required from the local regulator, without first obtaining such licence; and (c) own an interest in SVG real property (other than a lease for use as an office) unless its members and managers first obtain any Alien Land Holding Licence required to be obtained.
- An LLC (like an IBC) is exempt from all forms of direct taxation in SVG.
- The LLC Act makes provision for the formation of Series LLC. Each Series may have a separate purpose and the members thereof may have separate and different rights, powers, privileges and duties. The assets and liabilities of each Series are separately insulated from those of each and every other Series.
- The entry of a charging order is the only remedy available to a judgment creditor who levies against an LLC.
5 . TAXATION
The income, profit or gain realised or received by a trust or any beneficiary of a trust shall not (whether directly or indirectly) be subject to income tax in SVG, so long as:
- the trust is created neither by or on behalf of, nor for the benefit of, a person who is fiscally resident in SVG
- all the trust income (other than interest from regular bank accounts or portfolio investments of securities held by the trust in SVG) either accrues or is derived outside SVG or, in the case of income received by a trust, would not, if it had been received directly by the beneficiary of the trust, be liable to tax under the Income Tax Act, and
- the terms of the trust expressly:
- prohibit the trust from owning (directly or indirectly) SVG real property, and
- exclude persons fiscally resident in SVG as beneficiaries or objects of a power of appointment exercisable by the trustee or settlor.
No estate, inheritance, succession, gift, excise or capital appreciation tax, rate, duty, levy or other charge is payable by fiscally non-resident beneficiaries of the trust with respect to any income or assets of a trust registered under the Trustees Act.
Unless an election is made to pay SVG income tax at 1 per cent (and file annual tax returns), all SVG IBC’s and LLCs are exempted from all forms of direct taxation in the jurisdiction. Under present regulations there is no personal income tax, estate tax, corporate income tax, capital gains tax or withholding tax based upon assets or income originating outside SVG, or in connection with matters of company administration that may occur in SVG.
C. Tax information exchange agreements (TIEAS)
SVG is fully compliant with the OECD request to enter into at least 12 such agreements. To date, some 20 TIEAs have been effected. Some of the countries with which agreements have been signed to date are: United Kingdom, Australia, Austria, Belgium, France, Finland, Netherlands, Ireland, New Zealand, Germany, Norway, Denmark, Iceland, and Liechtenstein, to name a few. The International Co-operation (Tax Information Exchange) Act 2011 has been passed so as to give effect to the practical implementation of these agreements.
6 . OTHER RELEVANT MATTERS
Anti-money laundering legislation
The Proceeds of Crime and Money Laundering (Prevention) Act 2001criminalises the laundering of the proceeds of serious crime. It creates an obligation to report suspicious transactions to the Financial Intelligence Unit (FIU) and imposes a record-keeping and recording requirement for a wide range of financial institutions and businesses. The regulations to that Act set out in detail the record-keeping and reporting obligations of regulated institutions.
The Financial Intelligence Unit Act 2001 governs the operations of the FIU, which is primarily responsible for the processing of suspicious activity reports and for informing financial institutions of their obligations under the Proceeds of Crime Act.
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