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The Jurisdictions: St.

Vincent and the Grenadines

St.Vincent and the Grenadines:


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

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