Business in paradise
29 November 1999
10 June 2013
12 April 2013
29 July 2013
AIFMD update — Bermuda, BVI, Cayman Islands and Mauritius: approval of third country co-operation arrangements with ESMA
6 June 2013
29 April 2013
Matt Barnard finds that the Atlantic-Caribbean islands offer companies more than just sun, sand, sea and tax breaks.
The seven islands that comprise the offshore jurisdictions in the Atlantic-Caribbean are part of a world-wide community.
The most well-known of the islands include Bermuda and the Cayman Islands, and they share their special low tax or zero tax status with such European jurisdictions as Luxembourg, Jersey and the Isle of Man, and others around the world including Hong Kong.
Europeans view the island jurisdictions off the coast of the Americas very differently from those in Europe and other parts of the world.
The usual images of the Caribbean islands range from Robert Louis Stevenson's Treasure Island to Hollywood blockbusters with their dodgy deals, speedboats and multimillionaires. But many lawyers working on the islands feel it is an outdated image which is far removed from their work and their lifestyles.
Alan Turner, a Scottish lawyer who moved to the Cayman Islands in 1987 and is now a partner at local firm WS Walker & Company says: "To be frank with you, the perception of Cayman in Europe and the UK is negative. The perception of Cayman in North America is quite positive. The reason is simply that North Americans visit this place. They come here on vacation and on business. Their view of Cayman is probably quite similar to the view that someone in London has of Jersey. This island has got a real economy, we do real types of legal work."
It is an opinion shared by lawyers on some of the other islands, such as Bermuda, the oldest offshore jurisdiction in the region. John Collis, head of the corporate department at Bermudan-based Conyers Dill & Pearman, says: "I suspect 30 years ago it [business on the island] was driven by tax. Nothing complicated or fancy, and it was avoidance rather than evasion. Now there is very little that is tax driven, you would characterise the business more as bureaucracy avoidance."
While companies still take into account the island's zero tax rate as a factor in planning for tax efficiency, most onshore tax jurisdictions, such as the UK and US, have sophisticated tax rules that make it difficult to avoid paying tax simply by registering a company outside the jurisdictions.
Collis says: "The transactions we are dealing with are almost always international. You never get an Englishman doing business in England through Bermuda. You might get an Englishman and an American doing a joint venture in South America through Bermuda, because they want to be able to negotiate the deal between them in a completely free environment where they only have to worry about the contract. Then they'll go home and pay their own taxes in their own way."
This means that most of Collis' work does not involve setting up lots of companies simply as a means of channelling money and avoiding or evading tax.
As a corporate lawyer he deals with large, multimillion pound transactions from around the world which take advantage of the island's lack of red tape.
But the firm also deals with home-grown business in fields such as insurance and reinsurance which have developed into significant industries due to the low tax environment with good infrastructure, and the fact that it is a type of business that can be done easily from a remote location.
Likewise, WS Walker does not simply form companies or open bank accounts, although it does do some trust work for wealthy individuals.
The firm has a strong litigation practice, which deals with disputes between trustees and beneficiaries, insolvencies and liquidations. It also services the local real estate market and carries out general corporate work, often for mutual and hedge funds.
Most of the firm's work comes from other professional organisations.
Turner explains: "Our main clients are law firms or accountancy firms from other countries. It tends to be that we are instructed by the lead counsel in a transaction. For example, Barclays Capital in London will instruct Linklaters who will then instruct a Cayman firm. Other clients are local institutions like Price Waterhouse or Ernst & Young who would refer things like insolvency work."
But while the more mature jurisdictions such as Bermuda and the Cayman Islands tend to deal with large corporate clients whose activities are open and transparent, other islands get more work from clients who value anonymity. This is due in part to the local rules on confidentiality.
The Cayman Islands has confidentiality legislation which allows the courts to direct anyone to disclose confidential information if someone is accused of being involved in a dishonest activity, including information held by a Cayman bank.
Cayman also has a mutual assistance treaty which allows US authorities to make a request for information concerning bank accounts that will be passed on without the customer knowing. Turner says: "The bottom line is that nobody who is wanting to hide assets would be wise to open up an account in Cayman."
Cayman and Bermuda are still under the ultimate jurisdiction of the UK. Other islands take the view that for some businesses confidentiality is an important requirement.
One such island is St Vincent and The Grenadines which has very strong confidentiality laws. Isaac Legair, a partner at local firm Dennings, says: "Because St Vincents is independent of Britain we don't take orders from Whitehall.
"I think the advantage we have over a lot of other jurisdictions is our confidentiality laws. We would trump any other jurisdiction on that, because it is probably tighter than any other place in the world."
St Vincent is a relatively undeveloped offshore jurisdiction which has recently updated its legislation to give it the stability and legal certainty which makes it attractive as an offshore location.
The St Vincent and The Grenadines Offshore Finance Authority was established in 1996 and was introduced along with the Registered Agent and Trustees Licensing Act, which was aimed at improving the control of professionals involved in representing offshore entities.
Legaine sees a bright future for St Vincent as an offshore centre as a result of the legislation. He says: "The volume of work is increasing and these jurisdictions are not going to go away. All that is going to happen is that some jurisdictions are going to become more competitive than others, and at the moment this seems to be the growth jurisdiction."
Almost all of the offshore jurisdictions have a legal system very closely based on the UK legal system. Therefore the majority of offshore lawyers are trained in the UK.
Some, like Turner, are British citizens who decide to go out to one of the islands, while others are born on the islands, go to the UK or Canada to do their legal training then return.
Considering the cold, damp winters experienced in the UK, many can sympathise with these lawyer's desire to return.
"We certainly get a fair number of unsolicited resumes," says Guy Eldridge, who works for Conyers Dill & Pearman's British Virgin Islands' (BVI) office. He was born in the neighbouring island of Bermuda, studied in Canada and then qualified in England before returning to Bermuda and being posted to BVI.
Eldridge is attracted by the opportunities in the offshore jurisdictions, particularly in BVI. He says: "I find there is a lot more opportunity here. Bermuda has sort of grown up and become an adult place - it's quite crowded and regulated.
"Here I still leave my house unlocked, but the islands have their drawbacks. They are not cultural centres by any stretch of the imagination. In Bermuda you've got good shopping and golf, neither of which you have here, which bothers my wife more than me."
Collis was also born in Bermuda. He also trained in the UK and joined Linklaters before deciding to return to the islands in 1984.
Collis says: "As a junior lawyer thinking where to go and set down roots, I saw that the nature of the transactions that were being done in offshore jurisdictions were faster moving and quite good quality work. They were also usually big-dollar transactions because they had to be big to be worthwhile. So I decided to give it a go."
The work he does in Bermuda is similar to the corporate work he would have done with Linklaters, though the working pattern is somewhat different.
Collis says: "It's a little bit more higher volume, lower input per transaction work, so the work regime is slightly different.
"We don't encourage people to work 16 or 18 hours a day, we try to encourage the 11 or 12 hour day. We have to keep a reasonable balance because in the offshore world we expect attorneys to work on a far greater number of matters per day."
Because the legal system on the island is almost identical to the UK's, British lawyers also get to go out there occasionally for work.
In terms of litigation, lawyers in Bermuda have a similar system to that in the US, where attorneys in the litigation department do both the preparation for the case and appear in court. But for a large or complex case which requires senior barristers, they bring over a barrister in whatever area of expertise is required.
Though it is many people's fantasy to work in such an environment, in reality it does not suit everyone. Perhaps this is the reason why so many lawyers working on the islands are home-grown.
For those paradise islanders who do decide to return to their roots after stints in London, it can be a great place to be a lawyer. As Eldridge says: "There's a great deal of opportunity, especially for Bermudans. There's no real unemployment so you can go a long way, and it's a lovely place to live."
The main offshore Atlantic-Caribbean jurisdictions
The Bahamas is one of the biggest offshore jurisdictions in terms of both the number of residents, approximately 284,000, and the number of offshore business, known as International Business Companies, numbering over 40,000. It offers strict confidentiality. No financial statements or annual reports are required, nor are the names of the directors, officers and shareholders registered. It has no corporate or income tax.
Bermuda is the oldest offshore jurisdiction in the region, with a population of only 58,000. But it has one of the highest number of lawyers, approximately 190, as well as several hundred accountants. It has no income or corporate tax. Its own Bermuda Stock Exchange, which is capitalised at over US$47bn (£28bn), is able to trade for the 12 hours that the Hong Kong Exchange is shut.
British Virgin Islands is one of the newer arrivals on the offshore scene, with a population of only 16,000. Since the International Business Companies Act was passed in the mid-eighties, the islands have accrued 180,000 companies attracted by the zero corporation tax for non-resident companies. Resident companies have a maximum corporate tax of 15 per cent, while income tax for residents and non-residents alike is a maximum of 20 per cent.
The Cayman Islands is probably the most well-known of the region's offshore jurisdictions and one of the longest established. The jurisdiction has a population of 33,000 with no income or corporate tax. It aims to be a one-stop jurisdiction with all financial sectors - including trusts, mutual funds, banks, insurance and stock exchange operations - under one roof and licensed and regulated together.
The Netherlands Antilles was originally an offshore haven during the second world war used to protect assets from the Nazis. It now has a population of approximately 200,000. It is connected with Holland, and is in fact an autonomous state within the Dutch Kingdom, with a civil law system. There are around 34,000 companies registered on the island. More than 21,200 of these companies are offshore and pay a rate of around 3 per cent.
St Kitts & Nevis is one of the smallest and least developed of the offshore jurisdictions, with a population of around 10,000. It has no income tax or corporate tax for non-resident companies, though resident companies are taxed at 35 per cent. It currently has no mutual funds and investment company legislation in place.
Turks & Caicos Islands is a small offshore jurisdiction with a population of 14,000. The jurisdiction is attempting to benefit from the increased competition with a programme of expansion. It has no income or corporate tax, and aims at "regulation without red tape".