jurisdiction chapters · shelf company available time to establish a new company minimum cost...

Offshore Financial Services Guide 2005-06 35

Jurisdiction Chapters

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nguillaPopulation: 11,000Currency: Eastern Caribbean dollar, EC$2.70 = US$1 (mid-2005, fixed rate)Language: EnglishTime zone: GMT minus 4Centre’s expertise: Tax haven with modern multipurpose financial and business services

Data supplied by Financial Services Commission, Anguilla

International business companyCommon Law with local modificationsYesIncorporation may be done online in minutesUS$250 for government registry & average US$500 for agentApprox. US$450-$500, including agentNil: Anguilla is a pure tax havenNoneNo foreign exchange controls and the US dollar circulates freelyNames may be registered in any language, including Chinese;banks and financials need licences

AnyUS$1US$50,000

1NoA company secretary is not required but is normally appointed

1NoneNoNoAnywhere

NoYesYes, must be maintained in Anguilla at the address of a licensedmanagement company or law firm1,3007,000

YesNoNoNo

Type of entityType of lawShelf company availableTime to establish a new companyMinimum costAnnual feesTaxationDouble taxation agreementsForex restrictionsLanguage & name restrictions on companies

Permitted currenciesMinimum paid upUsual authorised capital

Minimum numberLocal requiredCompany secretary & qualifications

Minimum numberDisclosure requirementsPublicly accessible recordsObligations for annual meetingsLocation of AGM

Requirements to file annual returnChange in domicile permittedNeed for registered office

Number of companies set up in last yearTotal number of companies on register

Requirement to prepareAudit requirementsAccount filing obligationsPublicly accessible accounts

General requirements

Share capital

Directors and personnel

Shareholders and AGM

Other

Accounts

ANGUILLA

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ANGUILLAJohn D.K. Lawrence, Director

Financial Services Commission, Anguilla

ANGUILLA, a British Overseas Territory, with a local population of 11,000 is a zero tax haven. It is arelatively recent international financial services jurisdiction, with main pieces of legislation either new orbrought up to date since 1995, and completely revised in 2000 and available on one CD-Rom or in paperin a set of ten books.The main laws are:

• Companies Act• International Business Companies Act• Limited Liability Company Act• Limited Partnership Act• Company Management Act• Trust Act• Fraudulent Dispositions Act• Offshore Banks and Trust Companies Act• Confidential Relationships Act• Mutual Funds Act• Insurance Act• Protected Cell Companies Act• Financial Services Commission ActAnguilla’s Commercial Online Registration Network or ACORN came into existence in 1998 with the

Companies Registry Act, allowing electronic filing of documents and signatures in electronic form. To-day 95 percent of all documents, including new registrations, are filed electronically by locally licensedservice providers and their approved overseas agents, who are given direct access to ACORN.

In 2000, the international accounting firm, KPMG, in a review of financial regulation in the CaribbeanBritish Overseas Territories and Bermuda commended ACORN as a good example of well regulatedonline registration. Since 2002 ACORN has been able to incorporate electronically companies with Chi-nese characters. Other languages available are French, Spanish and Russian (Cyrillic). An English equiva-lent is provided and recorded on the certificate of incorporation along with the foreign name. A review isdone to ensure there is no duplication of the name either in English or in a foreign language, thus provid-ing enhanced regulatory oversight. Full details of ACORN are to be found on Anguilla’s financial ser-vices website, www.anguillafsc.com

Anti-money laundering legislationKPMG’s review urged that Anguilla needed to enact effective anti-money laundering legislation, so

in 2000 five pieces of legislation were passed, namely the Proceeds of Criminal Conduct Act; the MoneyLaundering Reporting Authority Act; Anti-Money Laundering Regulations; Guidance Notes on the Pre-vention of Money Laundering; and the Criminal Justice (International Co-operation) (Anguilla) Act.

The Anti-Money Laundering Regulations demand that financial services and other providers mustset up identification procedures, including dealing with business introduced by an intermediary, mustkeep records for a minimum of six years and appoint a money laundering reporting officer to check andreport suspicious transactions. Anguilla recognises the need for stricter measures against money laun-dering especially in the fight against the financing of terrorism. In 2002 Anguilla passed The Anti-terror-ism (Financial and Other Measures)(Overseas Territories) Order. In the last 12 months the governmenthas reviewed its anti-money laundering laws to comply with the revised 40 FATF recommendations andthe eight special recommendations on terrorist financing. Anguilla is an active member of the Caribbeanbranch of FATF and is a member of Egmont Group.

KPMG also suggested a number of minor improvements to licensing and corporate legislation totighten supervisory measures and improve shareholder protection, most of which have been introduced.

Financial Services CommissionKPMG also recommended that Anguilla’s regulatory body should become an operationally indepen-

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nguilla

John D.K. Lawrence is the Director of Anguilla Financial Services Commission.Contacts: tel + 1 264 497 5881, fax + 1 264 497 5872; email [email protected]; website www.fsc.org.aiAddress Financial Services Commission, PO Box 1575, The Valley, Anguilla, British West Indies.

dent body, free from government control and with its own funding. A new Financial Services Commis-sion Act was passed in November 2003 and the new Financial Services Commission began operations on2 February 2004.

The commission’s role, which is a licensing and regulatory one, includes ensuring the development ofhigh professional standards throughout the industry. The commission is empowered to obtain regula-tory information and in certain circumstances to provide assistance to foreign regulatory authorities. Italso requires licensees to appoint compliance officers and can conduct compliance inspections and takeenforcement action against licensees.

New insurance legislationAnguilla’s insurance legislation dating from 1968 provided only for domestic insurance. Recognising

that this is deficient in meeting modern standards for licensing and regulating the insurance industry, anew Insurance Act was enacted in 2004 to bring regulations up to IAIS standards and allow new licencesfor both domestic and foreign (captive) insurance business. Class A insurer’s licences will permit a localor an external insurer to do insurance business generally in or from within Anguilla. Class B licences willbe issued to foreign insurers doing foreign business, particularly a wide range of captive insurances.

The licensing regime will be strict with demands for detailed information and business plans, thetype of policies to be issued, intermediaries to be used, the proposed client base, administrative structureand controls, reinsurance arrangements, proposed capital and three-year financial projections. Detailedpersonal questionnaires are required for all beneficial shareholders and directors, unless the applicant isa publicly- traded company. Foreign companies undertaking domestic insurance in Anguilla will need toregister as a foreign company under Anguilla’s Companies Act.

Mutual fundsAnguilla’s Mutual Funds Act 2004 provides for the recognition of private funds, defined as having a

maximum number of investors of 99 and professional funds, defined as having a minimum individualinvestment of US$100,000, the registration of public funds (where there is a requirement to issue aprospectus) and the licensing of managers and administrators carrying on business in and from withinAnguilla. Approved mutual fund administrators may be given qualified status allowing them to fast-track private and professional funds.

Protected cell companies (PCC) legislationThe PCC Act, enacted in September 2004 and in force from the following month, allows for companies

engaged in insurance business to be registered and companies engaged in other businesses to be regis-tered with the approval of the regulatory body. The establishment of a protected cell account does notcreate a legal person distinct from the protected cell company. A feature of a protected cell company isthat any asset, which is linked to a particular protected cell account shall be held as a separate fund,which is not part of the general assets of the protected cell company, and is held exclusively for thebenefit of the account owner of the protected cell account and to any counterparty to a transaction linkedto that protected cell account. Assets in such an account shall only be available to meet liabilities to theowners and creditors of that protected cell account. The act provides that any asset which attaches to aparticular account shall not be available or used to meet liabilities to, and shall for all purposes be pro-tected from, the general shareholders and from the creditors of the company who are not creditors withclaims linked to the particular protected cell account identified in the governing instrument.

Legislation for 2005 and 2006Anguilla intends to issue new laws for the establishment of private foundations similar to those al-

lowed in jurisdictions like Liechtenstein. Other laws to provide for a netting option to enhance Anguilla’sclaim to be an ideal jurisdiction for the domicile of hedge and mutual funds is of a high priority. A privatesector review is being done of Anguilla’s Trusts Act to ensure that it meets modern commercial demands.

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rubaPopulation: 87,000Currency: Aruba florin, fixed at US$1 = Afl 1.75Language: Dutch is official language; Papiamento is local language;

English and Spanish widely spokenTime zone: GMT plus 4Centre’s expertise: New fiscal regime; large aircraft registry

ARUBA

NV/AVVCivil law modelled on Dutch systemYes, AVVAbout 2 dayscosts of the civil notary public (both entities); cost of the annualchamber of commerce fee (both entities); cost of the director andestablishment license (NV)AVV: Afl. 500,-- per annum35% corporate tax; 10% dividend tax;but effective rate is 2.4 to 3% for foreign-owned companiesNoneNoneName must be approved and be in Roman characters;articles of association in Dutch

AnyAfl1,000 or equivalent for NV; one share AVVAfl50,000 (min) for NV; Afl 10,000 (min) for AVV

1NoNo

1Yes, to the authoritiesNoYesAnywhere, as established in company statutes

YesYesYesNV: about 400; AVV: 209n.a.

Data supplied by Aruba Financial Centre

YesYesYes No

Type of entityType of lawShelf company availableTime to establish a new companyMinimum cost

Annual feesTaxation

Double taxation agreementsForex restrictionsLanguage & name restrictions on companies




Requirements to file annual returnChange in domicile permittedNeed for registered officeNumber of companies set up in last yearTotal number of companies on register



Share capital



Other

Accounts

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ARUBAEllen Kuster, Acting High Commissioner

Aruba Financial Centre

ARUBA is a small territory of 75 square miles and 96,000 people that geographically is an island 19 milesoff the coast of Venezuela but politically is part of the Kingdom of the Netherlands and an associatedterritory of the European Union. The capital, and seat of government and judiciary is Oranjestad.

Aruba has a parliamentary democracy. The head of state is the sovereign of the Netherlands repre-sented by a governor appointed for a six year term upon the recommendation of the council of ministers.The council of ministers is itself responsible to parliament, consisting of a single house elected every fouryears on the basis of a party system.The official language is Dutch, as is the legal system, but English andSpanish are widely spoken.

Income second only to BermudaThe economy is open and per capita income is one of the highest in the region at about US$22,000.

Only Bermuda is above Aruba. Unemployment is low and indeed there are labour shortages. But becauseof a shortage of natural resources, the economy is heavily dependent on tourism and on the financialcentre. In addition, there is an important oil refinery, the initial closure of which in 1985 led to develop-ment of the tourism industry. The refinery is mainly for trans-shipment. Tourism is mainly from the USand alone accounts for 42 percent of gross domestic product, according to the IMF.

Offshore centreAruba’s offshore sector began in the Second World War as a haven for Dutch companies fleeing from

the Nazi occupation of the Netherlands, when Aruba was part of the Netherlands Antilles. (It was sepa-rated in the mid-1980s) The centre continued to develop after the war, using the geographical advantageand the links between the Netherlands and Latin America. Aruba is thus well served in terms of world-class service providers in lawyers, accountants, company management, banks and financial providers.

Dutch is still important because the law is civil law based on the Netherlands and because documentsmust be in the Dutch language.

Two corporate vehicles, NV and AVVThere are two corporate vehicles, the NV or naamloze vennootschap a limited liability company, and

the AVV or Aruba vrijgestelde vennootschap or Aruba exempt company. An NV is incorporated by twoor more incorporators, who can also be legal entities. The AVV is incorporated by one of more incorporators,which can also be legal entities. The articles of incorporation usually contain a very broad purpose clause.

The articles of incorporation of both NV and AVV must be drawn up in the Dutch language andcontain the bylaws of the company. It must contain the name, registered business address, the object, theduration, the authorized capital, the par value of the stock, the number of shares each of the founders hassubscribed and the amount to be paid up on each of the shares at the time of incorporation plus thenames of the initial managing directors of the company.

The name must be checked and approved by the local authorities. It must be in Roman characters, andmust start or end with the words naamloze vennootschap or Aruba vrijgestelde vennooschap or theirabbreviations. The NV has an authorized capital of 50,000 Aruba florins, though different types of regu-lated NVs like insurance companies, banks and other financial concerns, have their own requirements asto authorized capital. Twenty percent of the authorized capital must be issued and paid up. In the case ofthe AVV, its authorized capital is 10,000 Aruba florins, of which at least one florin must be paid up. Ittakes between two to five working days to incorporate, and both types of companies are incorporated bycivil law notary public deed and inscribed in the company registry held by the chamber of commerce.

Aircraft registryBesides its financial centre, Aruba has also developed an important aircraft registry, able to register

more than 30 types of aircraft from large commercial aircraft to helicopters and executive jets belongingto a variety of owners from commercial operators to leasing companies and private owners. Aruba is a

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rubacategory 1 country as rated by the US Federal Aviation Authority and the International Civil AviationOrganization. It follows Joint Aviation Authority standards, but is familiar with US regulations. It takesfrom five to seven working days to register an aircraft, and often an Aruba exempt corporation is used asthe owner to take advantage of tax benefits.

New Fiscal Regime ArubaIn 1999, a commission was set up and decided on the introduction of a new framework with the

intention of making Aruba fully compliant with OECD standards of transparency and exchange of infor-mation as an international financial centre. These intentions were expressed through the New FiscalRegime, which came into force from July 2003, though the repercussions and full implications are stillbeing worked out.

The new regime effectively abolished the offshore centre as such and introduced a dividend with-holding tax and an imputation payment system. From July 2003, no more offshore NVs have been created,and commitments have been made to the OECD that the other offshore vehicle, the AVV, will be broughtinto the new regime from the end of 2005.

The financial penalties of the switch are substantial. Under the Profit Tax Ordinance all corporationsestablished in Aruba will be subject to a 35 percent tax rate. A Dividend Tax and Imputation PaymentOrdinance also introduced a 10 percent withholding tax on dividend distributions to shareholders. Forthe moment, offshore companies incorporated before mid-2003 have been grandfathered in, and so payeffective tax rates that are much lower. But this arrangement will only last until the fiscal year beginningin July 2007.

The hope of the Aruba authorities is that with the new arrangements, the government income will riseand they may attract new kinds of businesses. Besides aircraft registration, they have their eye on hotelexploitation, music and film industry, leasing and insurance and a wider range of financial services.

Ellen Kuster is acting High Commissioner of Aruba Financial Centre.Contacts: tel + 297 583 4644, fax + 297 583 4665; email [email protected] Schotlandstraat #49, Oranjestad, Aruba, Dutch Caribbean.

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uide 2005-06The Baham

asPopulation: 302,000Currency: Bahamas dollar at par with US$Language: EnglishTime zone: GMT minus 5Centre’s expertise: Well-established flexible centre with strong banking sector; IBC can be

holding or investment company

Data supplied by The Winterbotham Trust Company Limited

IBC, Bahamas Ordinary Company, Exempt Limited Partnership,Segregated Accounts CompanyCommon LawYes24 hours for IBCApprox. US$1,000-1,500 including agent chargesUS$350NilNoneNone for IBCsMust not be confusing with other names or include “royal” or“bank” or “finance” or “insurance” or similar; must contain“limited” or equivalent

Any, but US$ is standardUS$1US$50,000

1 (for IBC)NoYes, no qualifications specified

1 (for IBC)NoNoYesAnywhere

Yes (IBC — to confirm that 60% ownership in hands ofnon-Bahamians)YesYes, with registered agentn.a.n.a.

No — subject to directors’ resolutionNoNoNo

Type of entity

Type of lawShelf company availableTime to establish a new companyMinimum costAnnual feesTaxationDouble taxation agreementsForex restrictionsLanguage & name restrictions on companies




Requirements to file annual return

Change in domicile permittedNeed for registered officeNumber of companies set up in last yearTotal number of companies on register



Share capital



Other

Accounts

THE BAHAMAS

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THE BAHAMASGeoffrey Hooper, Chairman

The Winterbotham Trust Company Ltd

THE BAHAMAS has the distinction of being the forefather of all international financial centres in theCaribbean, having provided international banking and trust services since the early 1930s when it wasstill a British colony. Today, independent since 1973, the Bahamas has more than 4,000 professionalsskilled in every aspect of financial services and offering a sound and vibrant financial centre based onCommon Law jurisprudence and legislative innovation designed to maintain a modern and dynamicfinancial services industry. International business draws confidence from the predictability of the Baha-mas’ legal system, fundamentally similar to jurisprudence in the United Kingdom and the US. It is a legalsystem that is proven, functional and reliable.

A stable democratic country, the Bahamas benefits from the traditions of its past and the intelligentintroduction of new legislation to keep pace with developments in financial markets. Since the year 2000,the Bahamas has made changes, some profound, to its regulatory environment and application of bestpractices in financial regulation. These changes have not only strengthened the quality of the jurisdictionand the participants in its market, but have also served to demonstrate again the solid values of success-ful experience and perseverance in competing with major financial markets worldwide. As a result thebanking system has grown to a significant size, and it offers the facilities and the products of any majorfinancial market. More than 350 banks and trust companies are licensed to operate in the Bahamas, mostof which have a physical presence. Institutions from OECD nations number more than 120, with a com-bined asset base exceeding US$200 billion. In addition, 35 of the top 100 global banks, originating from 24countries, operate in the Bahamas.

Direct income tax no incentive to investmentThe Bahamas has preserved its crucial tax neutrality advantage in the new financial architecture,

making it an even more attractive place to do business. Tax is an inevitable source of funding for goodgovernment and the Bahamas is no exception in recognising this. Consumer based taxation, import du-ties and other indirect taxes such as customs duties, property tax and stamp duties raise revenue for thegovernment. Given the size of its economy, with gross domestic product of US$4.8 billion or per capitaincome of US$15,000, the Bahamas has long recognized that direct income tax is not a productive incen-tive to investment and to its development. Thus income is free from tax and there are no withholding orother taxes on the remittance of dividends. The Bahamas has no income, inheritance, capital gains orcorporate tax.

Investment policy is liberal, and the government encourages and promotes an investor friendlyenvironment. The Bahamas Investment Authority (BIA) is a one-stop shop designed to cut red tape andfacilitate coordination among relevant government agencies. Exchange controls are non-existent withregard to international business, and there are no restrictions on international capital flows.

Multi-party commitment to financial centreThe Bahamas, strictly the Commonwealth of The Bahamas, is a chain of islands, 30 of which are

inhabited, strategically located in the Caribbean Sea between the Florida coast of the US and Cuba. Thetotal area is just 13,940 square kilometres, and the population is slightly more than 300,000. A Britishcolony from the 18th century until independence in 1973, the Bahamas is a multi-party democracy, withall the major parties committed to the financial centre. The governor general, representing the Britishsovereign, is head of state, but the executive authority lies with a prime minister and cabinet responsibleto parliament. Parliament consists of an appointed senate of 16 members and an assembly of 40 memberselected by adult suffrage for five year terms.

The economy is dominated by tourism, which accounts for 60 percent of GDP, but the financial centreis also a strong earner and provides about 15 percent of GDP.

Regulation on a par with world’s bestModern company legislation embraces all recent innovations and provides for a competitive product.

Among the most important laws are those dealing with: international business companies (2000 and

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as2004), exempt limited partnerships (1995 and 1999), and segregated accounts companies (2004). In addition,the Bank and Trust Companies Regulation Act (2000 and 2004) and the Insurance Act (2001) and ExternalInsurance Act (1983) permit the licensing of banks and insurance companies to qualifying internationalinvestors. The Bahamas recently introduced a Foundations Act (2004) so as to complement its long stand-ing strength in trust services (Trustee Act 1998 and 2004, and Purpose Trust 2004) with the foundation. Asound legal framework for e-commerce was introduced in 2003, and the securities industry was furtherstrengthened with the introduction of new investment fund legislation the same year.

Since the end of 2000, the Bahamas has continued to strengthen its regulatory environment for betterregulation of banks, trust companies, fund administrators and other financial service providers. Todaythe regulation in the Bahamas is on par with all the top financial centres around the world, whether inLondon or New York or Switzerland or Singapore.

Confidentiality is keystoneNotwithstanding such legislative changes and innovation, the Bahamas has retained confidentiality

as a keystone in the financial affairs and activities of customers of Bahamian banks and trust companies.Confidentiality is written into the Bank and Trust Companies Regulation Act 2000 and information canonly be divulged by an operator on receipt of the order of the Bahamas supreme court, and then only tothat court. Clearly, the courts are responsive to requests for assistance in relation to criminal activity. Theregulators have access to the files of licencees, but only for the purposes of sound regulation. Insolvencyis dealt with by the courts in the same way it would be in any jurisdiction of sound repute. All the majorauditing and local accountancy firms are active in the process of liquidation, either compulsorily underthe supervision of the court, or voluntarily in accordance with appropriate resolutions from the board ofdirectors.

In the Bahamas, directors must exercise their responsibilities in a prudent manner in line with thatexpected of an intelligent professional and experienced business person. Nominee directors do not existin law. Although in the industry this phrase is often heard, a director, once appointed, has all the respon-sibilities of a director in law and does not exercise his or her function for anyone else.

Tangible value added for internationally mobile entrepreneursThe Bahamas is the largest banking centre in the Caribbean, not by the total number of banks or

deposits, but with respect to the number of banks with an operational physical presence. Banks in theBahamas maintain full service offices properly staffed in the Bahamas, unlike other jurisdictions wherebanks are present in name only and actually are operated elsewhere. Private banking has been a strongfeature of the Bahamas since the 1930s, and has been enhanced by the introduction of new legislationover the last decade in trust, in foundations, in company law and regulation. Add to this the jurisdiction’stax neutrality and there is no doubt that the Bahamas can add tangible value to internationally mobileentrepreneurs and their businesses. Estate planning has long formed the foundation of the Bahamas'trust industry, and family offices have found the jurisdiction to be an advantageous location.

BISX (Bahamas International Stock Exchange) is operational domestically and internationally, althoughthe latter section still has much work to do to develop its customer base. BISX offers listing opportunitiesto any qualifying company or security issued by a qualifying entity from any jurisdiction as well as toBahamian companies. Current listings include several Bahamian investment funds offered to the interna-tional investor community.

One illustration of how the Bahamas is keeping right up with the 21st century hi-tech times is thatBahaminan companies (SPVs) are ideal vehicles from which to structure the ownership andcommercialisation of intellectual property, for example in the ownership and licensing of software andkey consumer brands. Bahamian SPVs are also used in commercial and executive aircraft leasing, shipfinancing and chartering, as well as for the purpose of undertaking specific international transactions.The Bahamas IBC is a flexible and adaptable corporate entity, ideal for international business and hasbeen much utilised by major corporations from around the world in the structuring of their business andinternational money flows.

Online incorporation availableSetting-up a company in the Bahamas could not be easier. The key is the choice of services' provider

whose job is to secure the company's incorporation, registered office facilities and domiciliary services,

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asand then to provide administrative, accounting and other services. In the case of approved and licensedfinancial and corporate service providers, including licensed banks and trust companies, incorporationcan also be handled on line. Essentially, incorporation is possible on the same day the client requests anIBC, although the memorandum and articles of association and with the formal certificate of incorpora-tion will take a few days to come back from the registry. Other company forms or other entities mayrequire up to 48 hours before filing can be realized, but otherwise the time frame is similar to that of anIBC. There is no minimum capital requirement for a company in the Bahamas. In practice, when a com-pany is set up its memorandum stipulates an amount of authorised capital, and the subscribers (theremust be two) issue two shares of US$1 each, or the equivalent in any other currency. Subsequently, thedirectors can resolve to issue additional shares and to pay up additional capital. It is possible to use otherassets for the purposes of capitalization in addition to cash. Such other assets may include inter alia:shares of other companies, securities, capital goods, etc.

Taking into consideration the time for incorporation plus the delivery of the documents from theregistry, and the time required to prepare other documentation to start the actual operations of thecompany, such as opening of bank accounts, then it probably takes up to two weeks from incorporationto the company being up and running and actually doing business. Depending on the actual circumstances,it may be longer.

Although there is no obligation in law for an IBC to prepare accounts, it is the responsibility of thedirectors of the company to ensure that the financial position of the company is ascertainable at all times.It is therefore highly recommended that proper accounts are kept and that an IBC produce financialstatements demonstrating its assets and liabilities at least once per year. Financial statements should beapproved by the board of directors and be presented to the annual general meeting of the company at theend of the financial year. The accounts are not disclosed to any authority and are not held at the registrar’soffice and therefore are not available to the general public. Similarly, the shareholding of the company isnot of public record

Thorough update of financial services legislationSince the end of 2000, the Bahamas has updated and renewed much of its regulatory and financial

services legislation. In addition, it has created new products, accompanied by appropriate new laws toregulate these new activities, which include purpose trusts, segregated accounts companies andfoundations. The introduction of a private trust companies bill is in the final stages of preparation. AllBahamas laws can be found on www.bfsb-bahamas.com/legislation.lasso

The Bahamas economy is thriving and huge investments in tourism are providing an impulse to allsectors of the economy. The third stage of the Atlantis Hotel development is taking place on ParadiseIsland, and on New Providence the government has recently entered into an agreement to develop CableBeach. These two projects alone will involve investments of close to US$2 billion. Other important touristprojects are also progressing in the Family or outer islands of the Bahamas.

The Bahamas, the better choice for international namesThe Bahamas is a well regarded sound jurisdiction with a buoyant economy and a successful financial

services sector. With fibre optic cable linking the islands to the US and thus to international networks,voice and data communications in the Bahamas are at the industry standard anywhere.

At the forefront of international tourism and with the largest cruise ship registry in the world, theBahamas is projecting itself on a global basis to investors. From Hutchison Whampoa’s container trans-shipment port (an investment in excess of US$500 million) on Gran Bahama Island to Sol Kurtzner’sbillion dollar Atlantis Hotel project on Paradise Island, the Bahamas attracts successful entrepreneursfrom all over the world. From The Winterbotham Trust Company, a home-grown Bahamian financialboutique, to the likes of UBS, JP Morgan Chase and HSBC, the Bahamas has proven its capacity to attractsound commercial and personal banking business.

The Bahamas is a complete international centre. While banking and trusts have been the cornerstonesof the country’s financial services industry, the Bahamas has emerged as a complete international centrethrough growth and development in other areas. Mutual funds are developing rapidly and enjoy speedyregistration procedures, low establishment costs, and minimal corporate or trust formation expenses.The Securities Commission of the Bahamas provides proactive market support and a sound regulatoryframework for the operation of mutual funds in the Bahamas.

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asThe establishment of the Bahamas International Securities Exchange (BISX) in 2000 now enables the

Bahamas to compete more effectively with other international money centres and creates a new marketfor capital. The insurance sector offers many opportunities for development and, in comparison to com-petitor jurisdictions in the region, is underdeveloped in the international insurance sector and thereforeoffers investors both space and resources to develop international insurance activities from the Bahamas.

Professionalism in archipelago paradiseProfessionalism, tax neutrality, geographical location, fibre optic communications, proven staying

power, democratic government and an archipelago paradise of 700 islands for the optimum quality ofliving and second home accommodation — all these factors make the Bahamas the better choice. As aresult, the Bahamas is legal domicile of, for example, major brand names in the consumer drinks andfood industries, to some of the world’s most sophisticated software creators and to many commercialaircraft on lease to international airlines. It is also the world's third largest commercial ship registry bytonnage, as well as the world’s largest cruise ship registry. The pleasant living conditions of the Bahamashave also made it attractive as home to sports and entertainment stars, as well as internationally mobilebusinessmen involved in activities ranging from international real estate to industrial manufacturing.Individuals, corporations and investment funds choose Bahamian companies and trusts and other enti-ties through which to undertake their investments around the world.

Geoffrey Hooper is the Chairman of The Winterbotham Trust Company Limited.Contacts: tel + 1 242 356 5454, fax + 1 242 356 9432; email [email protected] www.winterbotham.com; Address Marlborough & Queen Streets, P.O. Box N-3026, Nassau, The Bahamas.

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uide 2005-06Barbados

Population: 270,000Currency: Barbados dollar; US$1 = 2 Barbados dollars (mid-2005)Language: EnglishTime zone: GMT minus 4 in summer; GMT minus 5 in winterCentre’s expertise: Low tax rates plus double taxation agreements

BARBADOS

Data supplied by Barbados Investment & Development Corporation

No Yes No Yes NoYes Yes Yes Yes YesYes Yes Yes Yes Yes13 297 4 64 12426 4932 54 301 143

Yes Yes Yes Yes YesFile annually if gross File annually if assets/ n. a.

assets/ revenues >revenues > US$500,000US$500,000

Yes Yes quarterly Yes Nofinancialreturn

No No No No No

1 1 1 1 1——————— only in special circumstances ——————

No No No No NoYes Yes Yes Yes Yes

—————— may be held outside of Barbados —————

1 1 1 1 1Yes No Yes No n. a.Yes Yes Yes Yes Yes

———————————— Any ————————————US$125,000 n. a. US$2,000,000 n. a. n. a.n. a. n. a. n. a. n. a. n. a.

Exempt Insurance IBC Int’l Banks Int’l SRLs Int’l Trusts———————— English Common Law —————————

No No No No No6 weeks 10 days 3 months 10 days 1 dayUS$12,050 US$4,250 US$43,400 US$4,250 US$5,000US$28,000 US$2,300 US$15,800 US$3,100 US$5,000Exempt 2.5%-1% 2.5%-1% 2.5%-1% *See noteYes Yes Yes Yes YesNone None None None None

—————————— English only ———————————

*For income remitted to Barbados, 20% on first Bds$24,200, and 37.5% on the excess in income year 2005.*From income year 2006 the top marginal rate will be reduced to 35%






Requirement to prepareAudit requirements

Account filing obligations

Publicly accessible accounts


Share capital



Other

Accounts

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BARBADOSThe Editors

Offshore Financial Services Guide

BARBADOS is the most easterly of the Caribbean islands, an island of 166 square miles (430 squarekilometres), located 1,200 miles southeast of Miami, about four and a half hours by air from New Yorkand eight hours from London. Although it achieved independence only at the end of November 1966, thecountry has one of the oldest Westminster-style parliaments in the western hemisphere, one that hasbeen in existence for almost 360 years. Ninety percent of the population of 270,000 is of African descent,and more than 80 percent of the people live in urban areas. The education system is excellent with aliteracy rate of almost 100 percent and this helps to provide a highly trained workforce for both profes-sional and skilled workers. English is the official language, which helps to make Barbados a good place todo business.

Government and legal systemBarbados is a parliamentary democracy with two houses of parliament, a senate and a house of

assembly. The head of state is the governor general representing the British monarch. Executive author-ity is vested in the prime minister and cabinet who are responsible to parliament. All political parties are"middle of the road" and support the free enterprise system and the rule of law. The legal system ofBarbados is based on English Common Law, but modified by statute to meet local requirements. Mem-bers of the judiciary, in performing their judicial acts, are completely independent of the executive. Thelowest tier of the court system is the magistrates' court but appeals can go to the supreme court, whichincludes a court of appeal and a high court. Heads of government of the Caribbean Community signedan agreement in 2001 for a Caribbean Court of Justice to supercede the Judicial Committee of the PrivyCouncil in London as the supreme judicial body of the Caribbean countries.

Market based economyBarbados has a market based economy which has seen great diversification since independence, with

a major shift from agriculture to the provision of services. Tourism is now the most important singlecontributor to the economy, benefiting from the country's historical and cultural legacy, its varied enter-tainments as well as its natural physical beauty and island location. In 2003, Barbados was visited by 1.1million tourists, of whom about half arrived by cruise ships. Besides tourism, business, financial andgeneral services, agriculture and manufacturing are all important contributors to the economy. Majorphysical exports include sugar, rum, chemicals and electronic components.

Strong currency proves attractiveThe Barbados dollar has been fixed to the US currency since 1975 at a rate of two Barbados dollars to

one US dollar, and the strength and the stability of this link has proved attractive to business. The coun-try has exchange control regulations but these are being relaxed over time. International business andfinancial services entities, including exempt insurance companies, international banks and internationaltrusts are exempt from the exchange control regulations.

Offshore centre on the right side of global financial policeBarbados has travelled a different route from some other financial centres. It boasts low tax rates,

double taxation agreements and exchange of information treaties as its preferred way to attract business.Other selling points are the good telecommunications infrastructure, the well-trained English speakingworkforce, the stable currency tied to the US dollar and decades of political stability. Whereas otherjurisdictions may have reacted late to demands from the Financial Action Task Force that they close theirdoors to the possibility of money laundering, Barbados has welcomed the scrutiny of such internationalorganisations. The rule of law and the golden rule of "know your customer" are strictly observed. Thepolicy paid off economically as well in terms of being on the right side of the global financial police.

Offshore financial sector activities are the second major foreign exchange earner after tourism. Inter-national business and financial services employ about 3,000 Barbadians and by some unofficial estimatescontribute 7.5 percent of the country’s gross domestic product.

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Separate ministry to promote IBCsThe government has established a separate ministry to facilitate the development of the international

business sector. Some of the incentives include a reduced tax rate of between 2.5 percent and 1 percent,exemption from withholding tax on dividends, interest, royalties or other income paid to non-residents,as well as freedom from exchange controls. Credit can also be taken for taxes paid in a foreign country,provided that tax paid in Barbados is not less than 1 percent of the profits in any income year. Doubletaxation treaties exist with the US, Canada, the UK, Switzerland, Sweden, Norway, Finland, Malta andChina. On top of this, 35 percent of the remuneration of qualified foreign employees working in IBCs,international banks, international societies with restricted liability, qualifying insurance companies andexempt insurance companies can be paid free of Barbadian income tax and in any foreign currency.

IBCs must be incorporated or registered in Barbados and be financially capable of carrying out all thebusiness and complying with all conditions. An IBC solely owned by an offshore trust under the manage-ment of a licensed Barbados international bank is exempt from tax if its activities are restricted to buying,holding or managing securities.

Exempt insurance expandingBarbados is committed to the expansion of the island's exempt (captive) insurance industry and has

provided a good legal and regulatory environment to encourage the development of Barbados as a lead-ing domicile for exempt insurance companies. Indeed, the costs of setting up and maintaining a "captive"in Barbados are usually lower than in other major domiciles. Exempt insurance companies are free fromall income, capital gains or other direct taxes on profits or gains of the company or its holding or manage-ment company. They are also exempt from withholding tax on dividends, interest or other returns pay-able to shareholders and security holders and are free from foreign exchange controls.

A 1998 law also allows companies doing international business to register under domestic legislationas qualifying insurance companies which can benefit from low tax rates, generally 2.8 percent after de-ducting allowances. Qualifying concerns can be owned by Barbadian residents and can insure a certainamount of local risk.

International banks get tax breaksBarbados is developing the island as a leading offshore banking domicile. A strengthened Interna-

tional Financial Services Act was introduced in 2002 to govern the framework for banking. Tax and othertreatment is favourable and similar to that for IBCs. Banks are licensed by the Central Bank of Barbadosand must also gain approval of the ministry of finance before incorporation. The licence fee is US$12,500annually. Only one director need be a citizen or resident of Barbados.

Societies with restricted liability provide favourable nicheA 1995 law allowing societies with restricted liability was designed to give Barbados a new favourable

niche. Such a society has the flexibility to be treated as a corporation, a partnership or a disregardedentity for US tax purposes, and it can be formed either as exempt or non-exempt. Exempt SRLs are usedmainly for international transactions and prohibited from acquiring or holding land leased for businesspurposes.

Anthony Sobers is Chief Executive Officer of Barbados Investment & Development Corporation.Contacts: tel + 1 246 427 5350, fax + 1 246 426 7802; email [email protected]; website www.bidc.comAddress Pelican House, Princess Alice Highway, Bridgetown, Barbados.Jannette Babb is Business Development Advisor, BIDC.Contacts: tel + 44 207 580 6077, fax + 44 207 436 0433; email [email protected]; website www.bidc.comAddress 1 Great Russell Street, London WC1B 3ND, United Kingdom.

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Population: 280,000 (July 2005 est)Currency: Belize dollar at US$1=BZ$2 (mid-2005)Language: EnglishTime zone: GMT minus 6Centre’s expertise: Flexible, competive charges, and with superior trust laws for asset

management

Data supplied by Belize Corporate Service (Hong Kong) Limited

IBCCommon LawYes2 daysGovernment fees of US$100 for capital of up to US$50,000,US$1,000 for US$50,001+. Agents’ fees vary; all-in packages c. US$735Annual renewal fees the same as aboveNilNoneNone for offshore activities.Anything that suggests royal, imperial or government patronage oralready taken is banned; names can be in any language andChinese incorporations with Chinese documentation are popular

Any, but US$ normalUS$1US$50,000

1NoNo

1NoNoNoAnywhere

NoYesYes, must be in Belize at the address of a licensed managementcompany6,230 in six months to June 200547,000

YesNoNoNo


Annual feesTaxationDouble taxation agreementsForex restrictionsLanguage & name restrictions on companies




Requirements to file annual returnChange in domicile permittedNeed for registered office

Number of companies set up in last yearTotal number of companies on register


BELIZE


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BELIZELourdes Haywood-Bogaerts, Managing Director

Belize Corporate Services (Hong Kong) Limited

BELIZE, which was British Honduras until it gained independence in 1981, is a scenically beautiful inde-pendent country located on the Caribbean seaboard of Central America. It has a land area of about 23,000square kilometers and is bounded by Mexico to the north and Guatemala to the west and south. Theadministrative capital of Belize is Belmopan, but the major commercial city is Belize City, which is situ-ated on the eastern coast close to the international airport.

The total population of the country is 250,000, of whom about 70,000 live in Belize City. The popul-ation is ethnically diverse and includes descendants of the original Mayan inhabitants, as well as peopleof Caribbean, Caucasian, Chinese and Indian descent. Some of the immense and moving monumentsthat the Maya built with their extraordinary vision of the gods still remain, surrounded by lush pristineforests and wildlife and flora.

Beneficial inheritance of British ruleBelize has a long history of peace, stability and democracy. The territory was ruled by the British from

1798 and became a formal Crown Colony in 1862. It gained independence in 1961, and some of the benefi-cial attributes of British rule still remain. These include the widespread use of English — and Belize is theonly English-speaking country in Central America —, the legal system based on English Common Law,and the traditions of democracy. Belize is a member of the United Nations, the Commonwealth and theNon-Aligned Movement. The head of government is the prime minister, who leads a cabinet that isapproved by the 28-member senate. There are two main political parties, and both are committed to theeconomic development of the economy, with a major role being played by foreign investment.

21st century financial centre in unspoilt environmentBelize enjoys the advantages of an unspoilt environment with cays and the largest barrier reef in the

hemisphere, which make it a popular destination for eco-tourists. Its clear unpolluted waters are excel-lent for swimming, diving and aqua-sports. Its forests reserves and Mayan archeological remains areattractive to lovers of history. Another tourist attraction is the world’s only jaguar reserve. More than 40percent of the country’s natural environment is protected by the government and other ecology-mindedorganisations. Agriculture is the most important economic activity apart from tourism and investmentservices. Major exports include sugar, bananas, citrus products, coffee, rum, fishery products, garmentsand timber and wood production. Although the country has done its best to preserve the best of itsnatural environment, this does not mean that it has allowed the 21st century to leave it behind. On thecontrary, modernization and technology are consonant with present day international standards. Theinternational airport is well served with good daily services to all places in the world. Telecommunica-tions are excellent, with Internet, international courier, and digital communications underpinning therise in importance of international financial services.

International financial services offer quality regimeBelize benefits from being on the American continent but with a British inheritance. English is the

official and commonly spoken language. The Common Law plus the development of local commercialand contract laws based on the English legal system underpin the legal framework. The stable environ-ment has given stability to the Belize dollar, which has remained tied at a rate of two Belize dollars to oneUS dollar for many years. Belize has no foreign exchange controls.

International business company (IBC) legislation was introduced in the 1990s and gradually extended.From the start Belize aimed to offer a quality financial regime and has won top international ratingsjudged by a variety of criteria including banking secrecy, the legal system, the tax regime and the excel-lence of communications. The principal IBC law was updated in the year 2000 after the setting up of anInternational Financial Services Commission, with representation from the public and private sectors.

Besides the IBC law, Belize now has a raft of international financial legislation for trusts (see below),mutual funds, international insurance, including protected cell companies, offshore banking, ship regis-tration and computer wagering.

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The International Financial Services Commission is specifically charged with not only promoting Belizeas an international centre, but also protecting and enhancing its reputation. It also is responsible forsupervision and regulation of financial services, providing and keeping information, formulating poli-cies and advising the government. It relies largely on self-regulation.

Two types of offshore banking licenceOffshore banking began in the mid-1990s with three measures: the Banks and Financial Institutions

Act, the Offshore Banking Act and the Money Laundering (Prevention) Act. Belize was determined toensure a good international reputation free from money laundering or criminal activities. There are twotypes of offshore banking licence available, one unrestricted and the other restricted and not permitting abank to seek deposits from local residents.

IBC law allows flexibility and freedomThe Belize IBC laws allow maximum flexibility and freedom for companies to conduct a variety of

business internationally. Registration is swift and efficient, and the computerized registry is capable ofincorporating a company within one hour. Belize trusts (see below) often use an IBC to serve as the asset-holding device for the trust, thus adding an extra layer of insulation.

Belize laws allow for a variety of business ownership, including private companies, limited liabilitypartnership, limited life companies, joint ventures and cooperatives, partnership, sole proprietor, publicinvestment companies, but most are in the form of IBC or trust forms.

Shipping registry has 350 vesselsThe Registration of Merchant Ships Act of 1989, amended in 1996, set up the International Merchant

Marine Registry of Belize. By 2004 the register had grown to include about 350 vessels of 1,000 grossregistered tons or more. The marine register keeps a network of surveyors, which makes it easy for shipowners to obtain the technical certification necessary for compliance with the laws.

Internet gamblingBelize is one of the few countries that has enacted legislation to allow online wagering. The Belize

Computer Wagering Licensing Board strictly vets all applications for licences to provide computerwagering.

Belize trusts : Powerful Asset Protection with a Solid ReputationRishi Alain Mungal

Ever since the Belize Trust Act was passed in 1992, Belize trust instruments remain among the mostpopular choice for offshore investment. The fact that the act has never been challenged in any courtor criticized by any international regulatory body adds to its effectiveness as a financial planningtool either on its own, or used together with a Belize IBC.

A Belize trust is formed when a settlor (the offshore investor) wishes irrevocably to transfer as-sets to the ownership of a trustee (normally a licensed trust corporation) and to hold, manage anddistribute these assets to the benefit of specified individuals/entities (beneficiaries) under the ex-press and implied terms of the trust deed. Usually the trustee acts under the guidance of a particularperson or entity named by the settlor (the protector).

Trusts are a tested creation of English Common Law and have been used for centuries for estateplanning, particularly to minimize probate and inheritance taxes upon a settler’s death. Belize trustshave a 120-year maximum duration and are therefore not subject to the law of perpetuities (whichstates that trusts should normally exist for the lifetime of a settlor plus 21 years). The Belize statutoryframework for trusts specifically provides that:

Lourdes Haywood-Bogaerts is the Managing Director of Belize Corporate Services (Hong Kong) Limited.Contacts: tel + 852 2521 0788, fax + 852 2521 0611; email [email protected]; website www.belizeco.com.hkAddress Rm. 304, 3/F., Printing House, 6 Duddell Street, Central, Hong Kong.

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Where a trust is created under the law of Belize, the court shall not vary it or set it aside or recognisethe validity of any claim against the trust property pursuant to the law of another jurisdiction or theorder of a court of another jurisdiction in respect to:

A) The personal and proprietary consequences of marriage or the termination of marriage;B) Succession rights (whether testate or intestate) including the fixed shares of spouses or

relatives;C) The claims of creditors in insolvency.

This provision holds despite other Belize laws and the act also provides that the above protectionsubsists and is effective notwithstanding domestic provisions of the Law of Property Act (whichnormally makes voluntary transfer of property to avoid creditors voidable), the Bankruptcy Act (whichnormally makes settlements generally voidable if the settlor becomes bankrupt up to ten years afterthe settlement was made) and the provisions of the Reciprocal Enforcement of Judgments Act (therebynullifying any effect of a foreign judgment on a Belize trust or any of its assets).

One important aspect about the Belize trust is that this protection becomes effective immediatelyupon the full execution of the trust by settlor and trustee.

Belize trusts are capable of owning just about any type of property and this is what makes themparticularly useful in the arena of asset protection. Trusts are normally used together with interna-tional business companies (IBCs). To summarize IBC have the following characteristics:

• All profits of an IBC are tax exempt;• There are no inheritance, succession or gift taxes;• No stamp duties are paid in respect to transfers and foreign exchange control regulations;• Data on owners and directors is not publicly available and will remain confidential;• There is no annual tax return requirement;• There is no minimum paid-up capital requirement;• Annual meetings can be held in any country at any time;• The incorporation process is simple and speedy;• There are limited filing requirements.An IBC has all the functions of a standard company (e.g. IBCs can own securities and physical

assets and loans can be made or money borrowed in the corporation’s name, etc.), once it conductsbusiness outside of its country of incorporation.

When a Belize IBC is owned by a Belize trust it effectively becomes an ironclad entity in terms oflitigation, essentially immune from frivolous lawsuits while at the same time enjoying the benefitsof tax exemption. Trustees are not bound to interfere in the day-to-day management of these vehiclesso there are no additional requirements of constant interaction and reporting by directors of the IBCto the trustee. Additionally, expertly drafted trust deeds can allow for the trustee’s delegation ofmanagement functions, either upon his own discretion or through instructions by the protector.

Belize remains a jurisdiction prized for its legitimacy and prides itself on having never beenblacklisted as an offshore territory by any past or existing international financial service regulatorybody. Upon the prior consultation of clients with their own legal and tax advisors in their country ofcitizenship or residence, Belizean attorneys and specialists in tax and estate planning can offer cli-ents a wide range of possibilities and benefits, which exist in terms of trust and IBC creation.

Rishi Alain Mungal is an Attorney-at-Law, practices in Belize and is Legal Counsel to Morgan & Morgan TrustCorporation (Belize) Limited, one of the leading providers of offshore and international financial services in Belizeand member of the worldwide Morgan & Morgan Group.Contacts: tel + 501 227 6688, fax + 501 227 6689; email [email protected]; website www.morimor.com

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udaPopulation: 65,000Currency: Bermuda dollar at par with the US dollarLanguage: EnglishTime zone: GMT minus 3Centre’s expertise: Established centre that has become global insurance leader

Data supplied by Conyers Dill & Pearman

Usually exempted companyBermuda law (based on English Common Law)No2-3 daysBD$5,500Annual government fees range from BD$1,780 - BD$27,825NilNoneNoneCannot contain “chamber of commerce”, “municipal”, “chartered”,“cooperative”, “building society”. No language restrictions.

AnyCapital can be issued nil paidMinimum US$12,000

2NoUsually local secretary

1Need to know ultimate beneficial owners and conduct due diligenceIncorporation, notice of registered office, register of charges, anyprospectus filed with registry, directors and officers register,register of membersYesAnywhere

YesYesYes1,388 (1,061 were exempted companies)13,000

AnnuallyRequired unless unanimously waived by members and directorsNoneNone




Minimum numberDisclosure requirementsPublicly accessible records

Obligations for annual meetingsLocation of AGM




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BERMUDAThe Editors

Offshore Financial Services Guide

BERMUDA is an archipelago of eight major and 130 smaller islands located in the Atlantic Ocean about1,000 kilometres from the US, which is the nearest land. It is not in the Caribbean, which lies 1,500 kilometresto the south. Altogether the land area is only 53.3 square kilometers, making it about one third the size ofWashington DC. The population is about 65,400. In spite of its small size, Bermuda has become an impor-tant financial centre, especially for insurance and re-insurance and for trust business, sometimes called“the risk capital of the world”.

The islands were first settled in 1609 by shipwrecked English colonists heading for Virginia. Bermudahas remained in British hands ever since and today is a British overseas territory with internal self-government. A referendum on independence was soundly defeated in 1995.

Politically stable systemQueen Elizabeth II is head of state of Bermuda and exercises her powers through a governor, who is

resident in the territory and appointed by the UK. The UK is responsible for defence, external affairs,internal security and the administration of the police force. Other matters are handled by a governmentheaded by a premier chosen by the 36-member national assembly elected for five-year terms by popularvote. Bermuda has an 11-member senate appointed by the governor, the premier and the opposition. Thearrangement gives for a politically stable system. The official language is English. The currency is thelocal dollar traded at par with the US unit. Both currencies can be used in Bermuda.

The legal system is based on English Common Law, the doctrines of equity and Bermuda’s statutelaw dating from 1612. The local court system starts with magistrate courts and goes to the court of appealand supreme court. The final appellate court is the judicial committee of the Privy Council in London.

One of the highest incomes in the worldBermuda enjoys one of the highest per capita incomes in the world, estimated at US$55,000 by the

International Monetary Fund in the year 2000, or about US$35,000 when reduced by purchasing powerparity estimates, which would make Bermuda the fourth richest place in the world in per capita terms.The two pillars of the economy are financial services and tourism, where the sunny climate tempered bysea breezes and the famous pink beaches attract about 400,000 visitors a year, mainly from the US. Finan-cial services are actually the biggest contributor to gross domestic product, accounting for 60 percent ofthe US$2.3 billion total. Bermuda has some light manufacturing industries and small-scale agriculturalproduction primarily for local consumption.

There is no income tax, capital gains tax or value added or sales taxes. Government revenues derivesubstantially from annual fees on businesses and from a payroll tax. Local businesses must be controlledby Bermudians, but offshore operations take place through exempt or permit companies.

The economy has been so successful that prosperity is imposing strains on the system, with localalarms being raised that Bermuda faces problems of “Hong Kong style” dimensions. The populationdensity is 1,200 people per square kilometre. The median house price has reached US$1.3 million. Wateruse has risen so rapidly that it is posing strains on a territory that has no fresh water supplies apart fromrainwater. Waste management and air pollution are also problems.

Object lesson in high standardsBermuda has an international reputation as a world-class centre for business that has been won over

the years and offers an object lesson in setting high standards, putting in place the best laws and infra-structure and then improving them in the light of experience. There is a strong spirit of cooperationbetween business and the government about the importance of high-quality laws. The financial centre infact dates back to the 1930s, but began to grow significantly in the 1960s and 1970s, initially concentratingon the UK and other countries in the sterling area. When Bermuda moved to the dollar in 1970, it beganto shift focus from the UK to the US and to develop the offshore captive insurance industry.

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IMF confirms the high quality supervisionIn mid-2000, Bermuda signed a letter of commitment to the OECD agreeing to conform with interna-

tional standards of transparency and financial supervision. In consequence, it was never on the FinancialAction Task Force’s black list of uncooperative jurisdictions. In 2003, the IMF carried out an in-depth on-site inspection of Bermuda’s financial services legislation, including its anti-money laundering controls.The IMF confirmed the high quality of Bermuda’s international business and its commitment to ensuringthat activity in the territory is subject to the highest standards of regulation. The IMF made some recom-mendations for improvements, notably that the Bermuda Monetary Authority (BMA) should fully realiseits supervisory powers over the insurance industry, oversight of which it had just assumed, and thesehave been quickly followed.

In 2002, with the transfer of insurance supervision to the BMA, that body became the single regulatorfor financial services as part of the process of strengthening the entire supervisory framework. The terri-tory has updated its legislation since 1998 to enhance banking supervision and bring investment firmsand collective investment schemes under regulation. The BMA has increased its personnel, improvedtraining and strengthened supervision all round, as well as updating the anti-money laundering legislation.Bermuda had “know your customer” policies in place long before 9/11 and the passing of the US PatriotAct. The IMF also noted that, “Corporations in Bermuda are subject to a high degree of oversight onentry,” with the BMA vetting all applications, checking the personal details and conducting backgroundchecks. If a company proposes to conduct restricted activities the BMA makes a recommendation to theministry of finance, which makes a further review of the application.

The government and the monetary authority are discussing a recommendation of the IMF that theauthority should become completely independent of the ministry of finance. The priority for the last fewyears has been updating and enhancing Bermuda’s financial services legislation including a new Invest-ment Business Act 2003 (implemented in 2004), the Insurance Amendment Act 2004 plus extensiveguidance, the Criminal Code Amendment Act 2004, making insider dealing and price manipulationoffences, and the Anti-Terrorism (Financial and Other Measures) Act 2004.

Physical presence of world-renowned firmsThe telecommunications infrastructure and high technology backbone provide maximum bandwidth,

with full redundancy, allowing the territory to accommodate rapidly growing ambitions for global elec-tronic commerce and communication services. The quality of professional firms and staff in financialcompanies and associated businesses, such as accounting, actuarial, custodial and legal services, is of thehighest international quality, easily up to the best standards seen in Europe. One of the differences be-tween Bermuda and smaller offshore centres is that the world-renowned firms are active and physicallypresent, with more than a brass-plate operation.

Financial institutions and markets flourishBermuda has only four licensed banks, partly because foreign banks were not allowed to operate until

2003, when HSBC was given permission to take over the Bank of Bermuda. The decision to excludeforeign banks went against the grain of most other offshore financial centres, but was successful in that itled to the creation of strong local banks with overseas branches, a success that has eluded other offshoreisland centres (Hong Kong and Singapore are cases apart). Bermuda’s banks, the IMF assessmentconfirmed, are highly liquid and concentrate on international and fee income, with local dollar assetsmaking less than 15 percent of the total. Banks have developed modern e-commerce business paymentservices.

The net asset value of collective investment funds licensed in Bermuda rose by 37 percent in 2004,reaching US$158 billion.

Bermudan trusts used to be the preserve of the banks until the area was opened up in 1991. Todaythere are more than 30 licensed trust companies, some of which operate as exempt companies. Privatetrusts, which do not have to be licensed, have also flourished. In general, Bermuda’s policy is to keep asustainable balance between the interests of the settlor and the creditor, rather than going for all outprotection, so it is cautious about asset protection trusts.

Offshore hedge fund trading over the Internet is a recent innovation, and several Bermuda websitesoffer this, two with Bermuda Stock Exchange links. The aim is to make hedge funds less of an alternativeinvestments market and more like mutual funds with a strong secondary market. HedgeTrust Exchange

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a(HTX) provides liquidity for buyers and sellers of hedge funds that are closed or have restrictive sub-scription or redemption periods. Funds do not have to be listed on the stock exchange for an HTX cross-ing to take place, but managers must consent to the transfer.

Bermuda stock exchange (BSX) becomes global crossing pointThe Bermuda Stock Exchange was established in 1971 and intended primarily as a domestic equities

market. However, with the growth in the role of international financial business, so the exchange grewtoo. It was restructured in 1992 into a demutualised for-profit entity owned by three Bermuda bankinginstitutions. In 2001, fully electronic clearing, settlement and depository services were installed. Todaythe BSX has become the world’s largest offshore fully electronic securities market offering a full range oflisting and trading opportunities for international and domestic issuers of debt, equity, depository receipts,insurance securitization and derivative warrants.

BSX takes great pride in its innovative and flexible approach in expanding from what was originallya niche market. It points to its Mezzanine Market as “a unique pre-IPO market listing for start-up highgrowth-potential companies.” The special feature of this mezzanine market is that, unlike say the AIM inthe UK or the European Neur Market, it allows a company to list on a recognised stock exchange withouthaving to commit to a full IPO. BSX permits this by restricting investment on the mezzanine market to“qualified investors”, meaning institutional or sophisticated investors, so BSX can rely more on full dis-closure than prescriptive regulations for investor protection.

The BSX has an active domestic market, but it also has a large after-hours crossing market for largeinstitutional bock trades using its customized Bermuda Electronic Securities Trading – or BEST, as BSXcalls it – a fully automated system based on a central limit order book that allows trading members totrade both equity and fixed income securities on a real time first-come, first served basis. Once the tradehas been executed the information is disseminated electronically to information providers like Reutersand Bloomberg for worldwide distribution.

The exchange believes that its “light but effective” regulatory environment gives it an edge, especiallyin producing new and innovative products directed at “institutional only” securities. BSX is bound nei-ther by the European Union Listings Directive nor by US Securities and Exchange Commission (SEC)regulations, but pledges “to meet the highest regulatory and operational standards”. Recognition of thiscame in August 2005 when the UK Financial Services Authority granted the BSX the status of a Desig-nated Investment Exchange with effect from September 2005. This means that the UK authority has de-cided that the BSX provides appropriate protection for consumers. It is in effect a seal of approval for UKauthorised firms to treat transactions on the BSX in the same way as those on a recognised investmentexchange. It will lower risk requirement costs and also allow UK firms to sell BSX listed investments toUS-based customers. BSX had already gained similar recognition from Australia’s tax authority as anapproved exchange and is a designated offshore securities market by the US SEC. It is a full member ofthe World Federation of Stock Exchanges, and an affiliate member of IOSCO (the International Organisationof Securities Commissions).

The proof of the pudding is in the achievements. In 2004, 3.3 billion shares were traded on the BSXInternational Crossing Market with a value of US$119 billion. Market capitalization was US$120 billion,of which just US$1.85 billion represented the domestic market.

World leader in the captive insurance marketInsurance, and especially the captive market, is where Bermuda has made a strong reputation. The

insurance industry includes more than 1,400 insurance and reinsurance companies, with active compa-nies having US$172 billion in assets and writing almost US$50 billion in annual gross premiums. Ber-muda is attracting an increasing number of reinsurance and large commercial direct insurers offeringalternative risk transfer products. It is the world’s largest captive insurance centre with 940 activecompanies, which is more than double the number registered in the next largest jurisdiction, the CaymanIslands. The initial attraction that Bermuda offered may have been its low tax rates, but the IMF notedthat the island had moved well beyond that and had developed world-ranking expertise.

“The concentration of insurance skills and specialisation and flexibility and timeliness of incorpora-tion now appear to be of dominant importance in attracting both firms and their customers,” wrote theIMF in its report published in 2005. “In particular, the concentration of insurance skills (especially actuar-ies and specialised underwriters) has created economies of scale for risk managers and others seeking

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udacorporate insurance. They can rapidly and conveniently obtain information and prices from a range ofcompanies present in a small area.”

Bermuda has developed several of its own special corporate structures and risk-managementarrangements. As the name implies, alternative risk transfer is an option to traditional insurance throughvehicles and products, which tend to target the specialised needs of corporations. These alternative ve-hicles include captives. A captive insurance company is a separate legal entity, which provides insurancefor a non-insurer parent company’s and other corporate group member’s risks. More than 90 percent ofcaptives worldwide are single-owner or pure – underwriting only parent company property and liabilityrisks or acting as a reinsurer for the parent company’s customers, travel, creditor and warranty insurance.Since some jurisdictions only permit risks such as workers’ compensation to be underwritten by a li-censed insurer, a captive may also provide reinsurance for parent risks ceded to it by a commercial insur-ance company (called the fronting company), which is licensed in the state in which the insurer is located,

Association captives allow related insured, members of an industry for example, or a trade association,to operate a captive. They often underwrite liability risks. One of the fastest growing categories is insur-ance against medical malpractice.

Protected cell captives, sometimes called rent-a-captives, enable several insured to share captivefacilities, with the business segregated into cells. Each participating company pays a fee and providescollateral to protect the captive from underwriting losses.

Captives help to lower insurance costsWhen insurance is used to cover the risk of highly predictable events, captives allow the parent com-

pany to obtain insurance at less cost. Lower risk companies can also lower their insurance costs by differ-entiating themselves from a riskier market. In general, captives help to provide a greater degree of flex-ibility and control over risk management by allowing programmes to be designed in response to specificcoverage, premium and retention requirements. These programmes can be designed to offer individualoperating units of a company the coverage and deductibles they require while the overall design andcontrol of the insurance programme is maintained at corporate level.Key requirements for non-life insurers under the 1978 Insurance Act and its various amendments, are:

• A company must be registered under the act before being allowed to do business in Bermuda;• Every insurer must appoint and maintain a principal representative in Bermuda, a corporation or

individual resident in the territory and able to represent the company;• Every insurer must appoint an auditor to report on the company’s annual financial statements and

make a statutory financial return to the BMA (which is not available for public review);• Companies must meet minimum capital and solvency requirements as required under the terms of

their licences;• Insurers must maintain liquid assets equal to at least 75 percent of their liabilities;• A company whose gross premiums for professional liability insurance constitute more than 30 per-

cent of gross premiums written is required to appoint a loss reserve specialist who must annuallycertify the adequacy of loss reserves;

• Companies that discount their loss reserves must provide details of the methodology and rationalefor discounting and an annual actuarial opinion on the discounted reserves if the captive has notmet its general business solvency on an undiscounted basis.

How to set up a Bermuda SPVKevin Butler, Partner

Conyers Dill & Pearman

SPVs or special purpose vehicles are usually formed in Bermuda as "exempted" companies (exemptfrom local ownership requirement). Exempted companies may be resident in Bermuda, but they areprohibited from doing business in Bermuda except with other exempted companies or with the per-mission of the minister of finance. An exempted company can be incorporated as a company limitedby shares or limited by guarantee, a limited duration company (called a limited liability company inother jurisdictions) or as an unlimited liability company.

An SPV is no longer required to obtain consent in relation to its objects. An SPV intending oncarrying on a “restrictive business activity” (for example, operating a financial institution) will re-

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quire the consent of the Ministry of Finance. The prior approval of the Bermuda Monetary Authorityis required for all issuances and transfers of shares of an SPV. SPVs for securitisation transactionsare usually owned by a Bermuda trustee pursuant to a charitable or purpose trust to facilitate thetreatment of the SPV as a bankruptcy-remote entity. All information submitted with the applicationto the Bermuda Monetary Authority (with the exception of the memorandum of association) is re-quired by statute to be treated as confidential and is not a matter of public record.

On obtaining the necessary consents, the memorandum of association is lodged with the Regis-trar of Companies who then issues a certificate of incorporation. Incorporation usually takes three tofive business days to complete.An SPV is a separate legal entity which has the capacity to enter into any business transaction pro-vided such transaction falls within the scope of the objects of the SPV as stated in its memorandumof association. For SPVs (other than unlimited liability companies) neither its shareholders nor thedirectors are responsible personally to third parties for any liability of the SPV. Individuals may,however, still be responsible for their own acts, such that, for example, an SPV cannot be used toshield a person from fraud that they commit.

Registered officeAn SPV must maintain a registered office in Bermuda with the Registrar of Companies. Its regis-

ter of members and register of directors and officers must be available for inspection by the public. Apost office box cannot be used as a registered office.

Appointment of directors and officersThe minimum number of directors of an SPV is two. Each SPV formed as a private (where the

shares are not listed on an appointed stock exchange) exempted company must satisfy certain Ber-muda residency requirements, and have either two Bermuda resident directors, or a Bermuda resi-dent secretary and a Bermuda resident director, or a Bermuda resident secretary and a Bermuda resi-dent representative, each of whom must be an individual. In the case of a typical off-balance sheetSPV owned by a purpose trust, directors and officers may be provided by the Bermuda service pro-vider who provides the trustee for the purpose trust.

ShareholdersAn SPV must have at least one shareholder. A shareholder may, however, hold the shares as

nominee for another person. There are no requirements as to the residency other than the percentageof shares Bermudians can hold in an exempted company.

Share capitalBermuda law requires that an SPV (unless it is a mutual fund, where the minimum is US$1) have

a minimum share capital of US$12,000 (or in the case of an insurance company, US$120,000) or anequivalent amount in another currency. For an insurance company that is fully funded for a transac-tion such as a catastrophe bond issue, a direction may be sought from the Registrar of Companies toallow the SPV insurance company to spend up to US$108,000 of the US$120,000. Neither bearershares nor shares of no par value are permitted, though redeemable shares may be issued.

Shareholders' meetingsAn SPV must hold an annual general meeting once every calendar year. The statutory general

meeting held in the year of incorporation is deemed to be the annual general meeting for that year.

Auditors and accountsThe shareholders of an SPV must appoint auditors unless there is unanimous agreement by share-

holders and directors, either in writing or at a general meeting, that there shall be no auditor.Proper records of account must be maintained and, if kept outside Bermuda, quarterly financial re-ports must be prepared for the directors. The directors are required to lay before a general meetingfinancial statements prepared under generally accepted accounting principles of an approved juris-diction with an auditor's report thereon and copies must be made available to members of the SPV.Certain listed companies may instead send summarised financial statement. The members may, byunanimous consent, waive the presentation of audited financial statements.

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Exchange controlsSPVs are designated non-resident for Bermuda exchange control purposes and may conduct their

business in any currency other than Bermuda dollars. The non-resident designation allows them tooperate free of exchange control regulations and to make payments of dividends, to distribute capital,to open and maintain foreign bank accounts and to purchase securities etc., without reference to theBermuda Monetary Authority. However, issues and transfers of the shares of an SPV must be ap-proved by the BMA.

Public recordsThe following documents are of public record:

• the memorandum of association of the SPV and any amendments thereto;• the certificate of incorporation;• the notice stating the registered address of the SPV;• the register of charges of the SPV;• any prospectuses filed with the Registrar of Companies;• the register of shareholders and that of directors and officers (upon a payment of nominal fee)

must be available for inspection at the registered office;

TaxThere is no Bermuda income or profits tax, withholding tax, capital gains tax, capital transfer tax,

estate duty or inheritance tax payable by an SPV or its shareholders, other than shareholders ordi-narily resident in Bermuda. An SPV may apply for and is likely to receive from the minister of fi-nance an assurance that, in the event of any such tax legislation being passed in Bermuda, it will toapply to the SPV until March 2016, except as it applies to persons ordinarily resident in Bermuda andholding such shares, debentures or other obligations of the company or any land leased or let to theSPV.

Stock ExchangeThe listing rules of the Bermuda Stock Exchange seek to provide full disclosure without undue

regulation. To be eligible for listing a proposed equity issuer generally must be a collective invest-ment vehicle (mutual fund, unit trust or limited partnership) or have a primary listing on an ap-proved stock exchange or restrict its securities to “qualified investors”, defined as individuals with aminimum investment of US$100,000 or a net worth of at least US$1m.

Kevin Butler is a Partner with Conyers Dill & Pearman and heads the firm’s securitisation practice in theCayman Islands. Before moving to the Caymans, he spent seven years in the Bermuda office of ConyersDill & Pearman. Contacts: tel + 1 345 945 3901, fax + 1 345 945 3902; email [email protected] www.cdp.bm; Address 4/F., Century Yard, Cricket Square, Hutchins Drive, P.O.Box 2681GT GrandCayman, Cayman Islands.

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British Virgin Islands

Population: approx 25,000Currency: US dollarLanguage: EnglishTime zone: GMT minus 4Centre’s expertise: Well regulated, plenty of expertise,

popular with corporates

International business companies andcompanies limited by shares are most common entitiesCommon LawYes1 - 3 working daysFrom $850$350-$1,100 plus registered agent feesNil except for payroll tax for companies doing business in the BVINoneNoneNone apart to avoid confusion with existing names;non-Roman script may be used

AnyUS one cent for IBCs with US$ denominated capital;not applicable for new BCA companies50,000 shares (IBCs, $50,000; BCA companies do not have authorisedcapital, only authorised shares)

1NoNone, although a BVI registered agent and registered officeis required

1NoneNoNoAnywhere

NoYesYes, and registered agent in BVI50,000+650,000+

Some regulated entities onlySome regulated entities onlySome regulated entities onlySome regulated entities only

Data supplied by Harney Westwood & Riegels

Type of entity

Type of lawShelf company availableTime to establish a new companyMinimum costAnnual feesTaxationDouble taxation agreementsForex restrictionsLanguage & name restrictions on companies

Permitted currenciesMinimum paid up

Usual authorised capital





BRITISH VIRGIN ISLANDS


Share capital



Other

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BRITISH VIRGIN ISLANDSTim Clipstone and Tara Frater, Associates

Harney Westwood & Riegels

THE BRITISH VIRGIN ISLANDS (BVI) is a group of about 40 islands about 25 minutes' flying time eastof Puerto Rico. The capital, Road Town, located on Tortola, is the financial centre of the BVI and also theseat of government and courts. As a British Overseas Territory, the BVI has a long history of politicalstability with a large measure of self-government. There is a ministerial system of government headed bythe chief minister, with an executive council chaired by the governor, and a legislative council.

There are no exchange controls and the legal tender is the US dollar. The BVI is one of the world’smost popular offshore jurisdictions for international companies, and is a growing force in the offshorehedge fund, trust administration and captive insurance markets.

Legal and regulatory frameworkThe BVI is a Common Law jurisdiction, with increasing development of its own case law. Minor civil

or criminal claims are heard in the magistrates’ courts, but more serious cases are decided in the highcourt. Appeals go to the BVI’s court of appeal and ultimately to the Judicial Committee of the PrivyCouncil in London.

Since 2001, the BVI’s financial services industry has been regulated by the Financial Services Commis-sion (FSC), an autonomous regulatory authority responsible for the regulation, supervision and inspec-tion of all financial services business carried on in and from within the BVI, including insurance, banking,trustee business, company management and mutual funds business as well as the registration of compa-nies and limited partnerships.

Companies and trusts established under BVI law but carrying on their business outside the BVI with-out any BVI employees pay no income tax or payroll tax in the BVI. There are no capital gains taxes,capital transfer taxes, estate duties, or inheritance duties under the laws of the BVI.

Core laws and regulationsThe International Business Companies Act 1984 (IBC Act)

The IBC has long been synonymous with the BVI’s offshore financial services industry and is at theheart of the territory’s strong presence in the offshore market. The IBC Act is based on English corporatelaw principles, but itself rationalises them. The IBC Act has been updated by a new Companies Actpassed in 2004. Key features of an IBC include: a company is not taxed on business conducted outside theBVI; there is no requirement to have shareholders or directors based in the BVI or to hold meetings in theBVI; it is possible to have a sole corporate or individual director and one shareholder; BVI-based regis-tered agents provide registered office address and record-keeping facilities; shares may be issued in cer-tificated or uncertificated form and either as registered or bearer shares; only the memorandum andarticles of association of the company and details of the registered agent are required to be filed with apublic body. IBCs are used extensively in major financial transactions, helping provide users and finan-cial institutions with a high degree of comfort.

In 2003 and 2004 the BVI government enacted legislation for the immobilisation of bearer shares byrequiring all bearer shares to be held by either an authorised or registered custodian and requiring thecustodian to be informed of the beneficial owner of the bearer shares and any other persons having aninterest in those shares. These provisions will be compulsory for all companies by 2010.The BVI Business Companies Act 2004 (BCA)

The BVI introduced new company legislation in 2004. It provides that all companies incorporated inthe BVI after 2005 must do so under the BCA, and by the end of 2006 all companies incorporated underthe IBC Act must be re-registered under the BCA.

The BCA allows a wide choice of corporate entity. Seven different types of company can now beincorporated, including companies limited by shares, companies limited by guarantee and unlimitedcompanies. The BCA also allows the use of segregated portfolios for both insurance and regulated mu-tual fund companies, and puts on a statutory footing the concept of special/restricted purpose vehicles,the primary use of which is expected to be in structured finance and securitisation transactions.

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Other innovative features include:• there is no need to have an objects clause (except for restricted purpose vehicles), meaning that a

standard company cannot act ultra vires of its objects;• a BCA company has (subject to the other provisions of the BCA and the company’s memorandum

and articles of association), irrespective of corporate benefit, full capacity to carry on any businessor activity, do any act or enter into any transaction, and for those purposes it has full rights, powersand privileges;

• the concept of authorised share capital has been replaced by simply having authorised numbers ofshares, which means that there are no capital maintenance rules: instead the BCA simply requires(subject to the company’s memorandum and articles of association) that a company satisfies asolvency test to make distributions to members to acquire its own shares;

• directors’ duties and responsibilities have been put on a statutory footing; and• there are simplified directors’ conflict of interest provisions.

The Insolvency Act 2003The Insolvency Act 2003 provides a robust method for dealing with insolvent companies. Liquidation

procedures allow the liquidator to realise the assets of the company and declare a dividend for creditorsand, if any surplus remains, return that to shareholders. The liquidation system is one-track with twopoints of entry – either the passing of a requisite resolution by a company’s members or by the companyor a creditor applying to the court to appoint a liquidator. The FSC, the attorney general, an administra-tor of the company and the supervisor of a creditors’ voluntary arrangement may also apply to the courtfor a liquidator to be appointed. The three grounds for the appointment of a liquidator are: the companyis shown to be insolvent; it is shown to be just and equitable to appoint a liquidator; or it is in the publicinterest to appoint a liquidator.

The liquidator is able to disclaim onerous property and can apply to have voidable transactions, suchas unfair preferences, undervalue transactions and voidable able floating charges set aside by the court,but the liquidation does not affect the rights of secured creditors (except where the security is vulnerableas a voidable able transaction) since there is no stay on a secured creditor’s right to possession or enforce-ment of its security, and it does not need any court order to enforce such rights.

Other financial services product legislationThe Mutual Funds Act 1996 (MFA)

The BVI has proved popular for incorporation and licensing of offshore hedge funds, with about 2,000hedge funds currently active, roughly a quarter of all offshore hedge funds.

The MFA provides for four categories of fund: private funds, being mutual funds with no more than50 investors or marketed privately; professional funds, being mutual funds with average initial subscrip-tion of $100,000 that are restricted to professional investors; restricted public funds, being UCITS equiva-lent funds; and public funds, being mutual funds which are not a private, professional or restricted pub-lic funds.

The MFA defines a mutual fund as a company, partnership or unit trust formed for the purposes ofcollective investment which issues interests that entitle the holder to receive on demand or within aspecified period an amount computed by reference to the net assets of the investment vehicle.The Virgin Islands Special Trusts Act 2003 (VISTA)

The types of trusts which can be created in the BVI include VISTA trusts, non-charitable purposetrusts (for which there is no perpetuity period), as well as the more common discretionary and fixedtrusts. The BVI also has robust provisions protecting BVI trusts from forced heirship claims.

VISTA enables the creation of special new trusts, known as VISTA trusts, which circumvent the diffi-culties caused by the “prudent man of business rule”. This rule traditionally made a trust an unattractivevehicle to hold assets which settlors intend trustees to retain and required trustees to monitor and inter-vene in the affairs of underlying companies.

VISTA trusts enable a shareholder to establish a trust over shares in a company that disengage thetrustee from management responsibility and permits the trustee to hold the shares in the company for aslong as it thinks fit. VISTA will not apply to BVI trusts generally, only where there is a provision in thetrust instrument directing it to apply.The Banks and Trust Companies Act 1990

All companies wishing to carry on trust business or banking business in or from within the BVI mustbe approved and licensed by the FSC. There are two categories of trust licence: a general trust licence,

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sallowing the holder to do trust business without restrictions; and a restricted trust licence, which limitsthe trust activity to named trusts. There are also three categories of banking licence, a general bankinglicence and two classes of restricted banking licence.The Insurance Act 1994

This act sets strict conditions that all agents, brokers, insurance companies, managers and residentloss adjusters must be licensed or authorised, and actuaries and auditors must be approved. In addition,insurers must have minimum fully paid up capital of US$100,000 for general business, US$200,000 forlong-term business and US$300,000 for both. It sets minimum margins of solvency in accordance withaccepted standards based on 20 percent of net retained premium income up to US$5 million, plus 10percent of the net retained income in excess of US$5 million. Long-term business is subject to a minimumsolvency margin of US$250,000.

Insurers must have a principal office in the BVI with a resident authorised insurance manager andmust appoint an independent auditor and submit annual independently audited accounts. Life insurersmust appoint an actuary.

Other key lawsThe Proceeds of Criminal Conduct Act 1997

This act is the core anti-money laundering legislation of the BVI and works on an all-crimes basis. Itis supplemented by the Anti-Money Laundering Code of Practice 1999 with provisions requiring verifi-cation of identity processes to be in place in every financial services firm, similar in nature to the US“know your customer” requirements (KYC).

ConfidentialityThere is no statutory duty of confidentiality under the laws of the BVI. However a duty of confidence

is imposed at Common Law and may also be imposed by contract. A breach, or threatened breach, ofconfidence (Common Law or contractual) is actionable in the high court, which may grant an injunctionor award damages for any actual breach. Some statutes require the provision of otherwise confidentialinformation to third parties, normally related to discovery in criminal and civil litigation and governmental,regulatory and tax investigations.

Directors’ duties and liabilitiesBoth the IBC Act and the BCA explicitly provide that a director must act honestly and in good faith

and must exercise the care, diligence and skill that a reasonable director would. However, in a radicaldeparture from Common Law, the BCA allows directors to take into account the interests of a company’sholding company or other shareholder, if expressly authorised by the memorandum or articles of asso-ciation of the company. The BCA also provides that if a director has a conflict of interest with the company,the director must notify the company or be liable to a fine of US$10,000. Any undisclosed conflict mightcause a transaction to be voidable.

More than 650,000 corporate entities registeredThe popularity of the IBC Act and the BCA offering flexibility, ease of use, well understood corporate

jurisprudence and competitive cost structure has led to 650,000 corporate vehicles being registered in theBVI, a number growing by 50,000 a year. Under the new BCA, the company number can be used as aname in the form "BVI Company Number [1234567] Limited" and, in that form, the company can alsohave an additional name in foreign characters, including Chinese, Japanese or other non-Roman charac-ters which should enhance its appeal to the international markets.

BVI companies have been used as part of complex financial transactions, including as vehicles forleveraged buyouts, off-balance sheet structures and, most recently, in listings on the Alternative Invest-ment Market (AIM) in the UK.

Hedge fundsBenefits to establishing a fund in the BVI include a 48-hour turn-around of applications for recogni-

tion by the BVI's Financial Services Commission; the ability to amend the memorandum and articles ofassociation without a vote of the members in most circumstances; lower start-up and ongoing fees andcosts; and no requirement for a local auditor sign off on the fund's accounts.

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Tim Clipstone and Tara Frater are associates of Harney Westwood & Riegels.Contacts: tel +1 284 494 2233, fax +1 284 494 3547; email [email protected]; website www.harneys.comAddress Craigmuir Chambers, PO Box 71, Road Town, Tortola, British Virgin Islands.

TrustsBesides the more common uses in estate planning for individuals, trusts and in particular VISTA

trusts have been established for use in holding structures for captive insurance companies keen to takeadvantage of the cell structures underlying such a company. In addition, VISTA-provisioned non-chari-table purpose trusts have been used in complex asset transactions and structured finance dealings withthird parties.

Captive insurance companiesThe BVI’s reputation in the captive insurance market is growing steadily. The ability to form segre-

gated portfolio companies in particular provides the BVI with the legislative framework to compete inthis market place.

Setting up in the BVICompanies are formed by filing a memorandum of association and articles of association with the

Registrar of Corporate Affairs. The articles, similar to by-laws in the United States, must be filed simul-taneously with the memorandum, equivalent to a certificate of incorporation in the US. The BCA allowsa great deal of flexibility in the share structure.

Each company must have a registered agent and registered office in the BVI and the agent must beprovided with KYC information to comply with BVI’s anti-money laundering requirements. Uponincorporation, the registered agent must appoint the first directors within 30 days. The company mustkeep copy registers of directors and members at the registered office. There is no requirement to prepareaudited accounts, except for some regulated companies.

The costs of setting up will depend on the number of authorised shares, but range from US$350 toUS$1,100. In addition, registered agents will charge a fee for incorporating a company and an annual fee,as well as charging for assisting in any changes to the company’s structure.

The future: an innovative leaderThe BVI has shown its determination to maintain its leading role in the establishment of offshore

companies by its strengthened and expanded corporate and insolvency regimes. In addition, the changesto its bearer share provisions, tax regime and corporate vehicles have met with favour among the supra-governmental bodies responsible for policing the world’s financial markets. The BVI agreed with EUmember states to assist with the implementation of the EU Savings Directive, but all funds under theMutual Funds Act 1996, other than restricted public funds, are out of the scope of the EU directive underBVI law.

Thanks to these improvements, the BVI can look forward to continuing its prime role as a jurisdictionoffering innovative measures to meet the legitimate needs of an international clientele, not only in settingup offshore corporate structures but also in the offshore hedge fund, trust administration and captiveinsurance markets.

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ayman Islands

Population: 43,103 (January 2005)Currency: Cayman Islands dollar fixed to the US dollar at CI$1 = US$1.20Language: EnglishTime zone: GMT minus 6Centre’s expertise: Well regulated, plenty of expertise, popular with corporates

CAYMAN ISLANDS

Resident, non-resident & exempted companiesEnglish Common Law with local legislationYes3-4 days; one-day express service availableCI$150 upwards depending on capital and residency status;CI$850 for foreign companyCI$150 upwards; an exempted company with share capital more thanCI$2m would pay CI$2,400NilNoneNoneNames like "royal", "imperial", "bank", "insurance","building society" are restricted

AnyUS$1US$50,000

1NoNo

1Yes, except for exempted companiesNo, except for basic incorporation details, including address ofregistered officeYesAnywhere

YesFlexibleYes, and registered agent in BVI8,922 (December 2004)79,133 (December 2004)

YesNo, unless company is licensed and regulated by Cayman IslandsMonetary AuthorityNo, unless company is licensed and regulated by Cayman IslandsMonetary AuthorityNo

Data supplied by Cayman Island Government Portfolio of Finance & Economics


Annual fees

TaxationDouble taxation agreementsForex restrictionsLanguage & name restrictions on companies



Minimum numberDisclosure requirementsPublicly accessible records

Obligations for annual meetingsLocation of AGM


Requirement to prepareAudit requirements

Account filing obligations

Publicly accessible of accounts


Share capital



Other

Accounts

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s THE CAYMAN ISLANDSKenneth Jefferson, Financial Secretary

Cayman Islands Government

THE CAYMAN ISLANDS is a United Kingdom Overseas Territory located in the northwest of the Car-ibbean Sea. A stable political environment, high literacy rate, low unemployment and low inflation havehelped create a high standard of living and have facilitated the development of modern infrastructure,including high quality telecommunications and transportation systems, education and healthcareprogrammes.

Since the 1960s, the Cayman Islands has successfully invested its historic capital – English CommonLaw and tax neutrality (both dating back to the time of the first settlement in the 1700s) – in the develop-ment of its thriving financial services sector. More than 40 years later, the Cayman Islands is recognisedas a sophisticated, experienced and diverse financial centre. Over the past 15 years in particular, theCayman Islands has focussed on two main objectives: building world-class specialisation in institutionalbusiness to complement private client offerings and developing strong international cooperation arrange-ments with the US and other countries. Today, the Cayman Islands financial services industry encom-passes banking, mutual funds, captive insurance, vessel registration, companies and partnerships, trusts,structured finance and the Cayman Islands Stock Exchange.

At the forefrontThe Cayman Islands’ approach to the development of the financial services sector recognises that an

appropriate regulatory and legal environment is not an impediment to, but rather a key driver of, com-mercial success. The Cayman Islands has progressively reinforced its regulatory and international coop-eration regime to do its share with international partners in the global fight against financial crime.

As such, there are significant resources devoted to international cooperation within the industryregulator, the Cayman Islands Monetary Authority (CIMA) and law enforcement agencies such as theRoyal Cayman Islands Police financial crime unit, the Financial Reporting Authority, the judiciary andthe attorney general’s chambers. In the area of cooperation in tax matters, The Tax Information AuthorityLaw, 2005 provides the statutory framework for dealing with requests made under any internationalagreements entered into by the Cayman Islands for sharing information on tax matters.

The Cayman Islands has also been diligent in ensuring an appropriate regulatory framework. Thisincludes adherence to international anti-money laundering standards and the relevant global regulatorystandards set out by the Basel Committee on Banking Supervision, the International Organisation ofSecurities Commissions (IOSCO) and the International Association of Insurance Supervisors (IAIS).

A 2005 report released by the International Monetary Fund (IMF) assessing supervision and regula-tion in the Cayman Islands’ banking, insurance and securities industries, as well as its anti-money laun-dering regime, recognised the jurisdiction’s comprehensive regulatory and compliance frameworks.

“An extensive program of legislative, rule and guideline development has introduced an increasinglyeffective system of regulation, both formalising earlier practices and introducing enhanced procedures,”noted IMF assessors. The report further stated that “the supervisory system benefits from a well-devel-oped banking infrastructure with an internationally experienced and qualified workforce as well as ex-perienced lawyers, accountants and auditors,” adding that, “the overall compliance culture within Cay-man is very strong, including the compliance culture related to AML [anti money-laundering] obliga-tions…”

BankingCurrently, there are more than 300 banks licensed under the Banks & Trust Companies Law (2003

Revision), including 43 of the world’s largest 50 banks. The majority of these banks are branches or sub-sidiaries of established international financial institutions conducting business in international markets.

Cayman offers a full range of banking products for local and international clients. Other servicesreadily available include letters of credit, foreign exchange, guarantees, safe custody, commercial loans,and mortgages. The banking sector is one of the largest employers on the islands, and this status ensuresan experienced work force well able to respond to clients’ requirements.

By law and by long-standing practice, banks adhere to “know your client” rules, and the Cayman

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Islands maintains a robust anti-money laundering regime. Regulatory oversight of the banking industryis conducted within the Basel Core Principles, and the Banks and Trust Companies Law covers bothdomestic and international banking business. The supporting infrastructure in the Cayman Islands ismodern and sophisticated. Real-time online access to the world’s major financial markets meets the needsof clients who demand cross-border services equal to those in New York or London.

FundsThe Cayman Islands enacted its Mutual Funds Law in 1993, and subsequently funds have become a

key sector: there are more than 5,000 registered funds and Cayman maintains a leading global position inthe hedge fund market. Cayman offers asset managers and fund promoters with ideal market access,developed infrastructure, professional services and a secure regulatory environment.

One of the key advantages of doing international business in Cayman is the depth of expertise in alldisciplines relating to global finance, delivered by world-class law, accounting/audit and fund adminis-tration firms. The aim is to ensure that client requirements are translated into structures that derive maxi-mum advantage in the jurisdictions of investors and of investments.

Factors contributing to this include the flexibility afforded by the broad range of structures availableto operate funds and the clarity of the Mutual Funds Law. The legislative framework allows for sophisti-cated investment techniques, which may include leveraging portfolios to a substantial extent, makingloans of securities on an unlimited basis and investing without restriction in any currency or instrument,among other features.

The Cayman Islands Stock Exchange (CSX)With the establishment of the CSX in 1997, the funds industry was further enhanced by access to a

first-class listing facility for funds in the jurisdiction of domicile. The CSX has continued to grow, withmore than 850 issues approved for listing, a large proportion of which are investment funds. Due to acombination of progressive listing rules, professional expertise and quality of service in terms of consis-tency and turn-around times, the CSX has posted sustained growth since inception.

In addition to funds, the CSX also lists derivative warrants, depository receipts, eurobonds, preferredshares and international equity. The CSX provides a secondary listing facility and an offshore tradingvenue in the North American time zone for companies listed and traded on another recognised exchange.

Publication of all listed issuers’ price and other information on the CSX’s dedicated Bloomberg facilities,and on the Internet – www.csx.com.ky – ensures transparency for the investor and guarantees visibility forthe issuer at all times.

The CSX is a Recognised Stock Exchange under the UK Income and Corporation Taxes Act 1988. As aresult, interest earned on securities listed on the CSX can now be paid without deduction of UK tax. TheCSX is an affiliate member of IOSCO and the Intermarket Surveillance Group, a group of self-regulatoryorganisations committed to international cooperation for regulatory purposes. Among its members areall US Exchanges as well as a number of European, Canadian, Asian and Australian Exchanges. In 1999,the CSX was the first offshore stock exchange to become a registered organisation with the London StockExchange.

Captive insuranceMany of the attributes that naturally lend themselves to the development of Cayman’s banking and

mutual funds industries have also contributed to the growth and success of the captive insurance industry.Industry practitioners offer competitive professional services and are intimately familiar with trends af-fecting global businesses. Cayman is firmly established as the domicile of choice for companies seekinga formal self-insurance programme that provides actuarial risk coverage and maximum profit retention.There are more than 600 captive insurance companies licensed in Cayman under the Insurance Law (2003Revision). The predominant portion of these continues to be healthcare-related captives. However, Cay-man has in recent years become the choice of companies across all commercial and industrial sectors.

A popular product offering is the Segregated Portfolio Company (SPC) structure, which caters tosmall-to-medium-sized insurance companies looking to establish a captive, but who are unable to meetthe specified capital requirements individually. Under an SPC, there is a legal segregation of the assetsand liabilities of individual portfolios – or cells – from each other and from the general assets of the taxtreatment for the insured parties.

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s Companies and partnershipsCayman’s Registry of Companies, a registry within the General Registry, has enjoyed steady growth,

with current registrations at more than 80,000 companies. Registration is governed by the CompaniesLaw (2004 Revision). The Registry also registers limited partnerships and exempted trusts. Among themany advantages of registering a company, limited partnership or exempted trust in Cayman are: taxneutrality (there are no direct taxes of any kind in the Cayman Islands), well-established legal regime,reasonable reporting requirements, flexible corporate structures and an expedited registration process(under the express service offered, new companies can be registered within 24 hours, provided that all ofthe required documentation is properly filed).

The registry’s On-line Registry Information Service (CORIS) allows authorised users to have remoteaccess to information on those companies they administer and associated transaction capability, deci-sively reducing the processing time for both registering new companies and servicing existing ones. Themost secure and convenient way to incorporate a company in the Cayman Islands is to engage one of themany highly qualified professional firms licensed for this purpose. Provision of company services is aregulated activity under the Companies Management Law. In addition to incorporation services, thesefirms provide such services as registered offices, directors, nominee shareholders and other officers, andcompany management services.

The range of purposes for which a Cayman company can be used include investment, sales processing,trading, shipping operations, stock dealing, real estate holding, the ownership and licensing of patents,international financing, general holding companies, structured financing, and aircraft financing. Com-panies can be formed with one shareholder and with no minimum capitalisation requirements (exceptfor exempted limited duration companies).

Client privacy is protected by the fact that the Registrar of Companies can only release the name andtype of company, its date of registration, the address of the registered office and the company’s status.Disclosing any other information is prohibited, except where assistance to law enforcement agencies isrequired. A company may be registered as one of four basic types: 1. Resident Company – Company carrying on business primarily in the Cayman Islands. 2. Non-Resident Company – Company carrying on business in the Cayman Islands only as needed to

further a foreign business (virtually identical to an exempted company, except for the need to reportannually to the Registrar.

3. Exempted Companies – Companies carrying on their activities primarily outside of the Cayman Islands.Within the exempted type, the following are also offered:a. Transfers by Continuation – a Company with limited liability and share capital can become a Cay- man Islands exempted company, provided it is incorporated in a foreign jurisdiction whose laws permit or do not prohibit the relocation of the company.b. Exempted Limited Duration Company – Company that can be treated as a partnership but whose duration must not exceed 30 years.c. Segregated Portfolio Company – allows segregation of assets and liabilities between segregated portfolios (cells) established within an “umbrella” company.

4. Foreign Company – A company incorporated outside of the Cayman Islands which carries on busi-ness locally.

TrustsThe attraction of the trust concept is straightforward: the trust is the most flexible financial instrument

for making estate planning arrangements, short- or long-term, free from the restrictions of the legislationof the domicile of the settler. Whatever individuals’ wishes may be for the future ownership, management,and enjoyment of their property, they can almost certainly be achieved by using a trust. The trust is alsoincreasingly used in commercial structures, such as mutual funds and structured debt.

The attraction of Cayman as a jurisdiction in which to establish a trust is also clear. In recent years, asthe popularity of the trust concept has grown worldwide, so have the cadres of experts in trust formationand administration in the Cayman Islands. Consequently, that expertise and more importantly, the leg-islation that has grown out of it, have attracted more trust business to the Cayman Islands.

The increasing complexity of the investment world and the difficulty in preserving wealth have madethe trust particularly important as a means by which individuals can provide financial security for theirfamilies after death, even though they themselves may not be knowledgeable in investment matters.

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The Special Trusts (Alternative Regime) Law (STAR) substantially extended Cayman’s trust planningframework. STAR allows for trusts for any purpose (charitable trusts, person trusts, and purpose trusts)as well as mixed trusts, provided they are lawful and not contrary to public policy.

Structured financeCayman’s experienced, top-class law firms specialise in capital markets and structured finance trans-

actions for a global client base of institutional clients, and are a leading global provider of such services.The typical structured financed transaction involves a debt issue made by a Cayman Islands corporation,trust, or partnership and known as a special purpose vehicle (SPV), which will then acquire the underly-ing assets from the promoting financial institution.

This allows the financial characteristics of those underlying assets to be converted into readily trans-ferable marketable debt instruments issued by the SPV, which may comprise notes or bonds and whichmay be rated and listed. Acceptance of such issues was established beyond doubt in the marketplacewhen debt issues by Cayman Islands SPVs first obtained Triple-A ratings from the rating agencies. TheEnglish courts have also reviewed the Cayman debt-issuing vehicle and concluded the structure with-stands scrutiny.

Financing arrangements undertaken by SPVs encompass everything from the simple capital marketseuro-paper issues, re-packagings, aircraft and ship financing, to more complex securitised transactionsinvolving acquisition by the SPV of real property mortgages, credit card or other receivables, financeleases or indeed interests in mutual funds. In short, any financial or other asset that provides an incomestream may be acquired by an SPV.

Cayman Islands law has facilitated the treatment of the SPV as a bankruptcy-remote entity specifi-cally by the use of the charitable purpose trust, which is well-recognised in the financial markets inLondon, New York, and Tokyo, or the purpose trust which is formed under Cayman’s STAR legislation.

In the past, Cayman SPVs listed their securities on one or more foreign exchanges. That changed withthe introduction of the CSX. The listing rules for the CSX were the first on any exchange to be specificallytailored to facilitate the listing of securities of mutual funds and SPVs.

Looking towards the futureThe Cayman Islands will continue to earn its reputation as the jurisdiction of choice for discerning

private and institutional clients by providing unrivaled expertise in the design and delivery of secure,compliant and client-focused financial services. The collective focus is clear: continue to ensure the propercommercial, regulatory and legislative infrastructure in which the industry can operate, compete on theinternational stage and be successful, while balancing the needs of today’s global regulatory requirements.

Far from depending on an “anything goes” environment, Cayman’s commercial strengths have infact followed the business certainty engendered by informed and clearly articulated laws that incorpo-rate proper governance, including appropriate transparency, with commercial acumen and flexibility.

Cayman Islands Government Portfolio of Finance & Economics (Ted Bravakis is Public Relations Director)Contacts: tel + 1 345 244-2266; email [email protected] 4/F., Government Administration Building, Elgin Avenue, George Town, Grand Cayman, Cayman Islands.

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ook IslandsPopulation: Approx 18,000Currency: New Zealand dollar; US$1 = NZ$1.42 (mid-2005)Language: English and MaoriTime zone: GMT minus 10Centre’s expertise Timely location on the western edge of the international date line

COOK ISLANDS

International companyCommon Law plus International Companies Act 1981-82Yes24 hoursUS$1,625 includes government fee, registered office, residentsecretary and nominee shareholder (currently under review)US$1,625 (as above)NilNoneNoneNames must be approved by Registrar

Any currency or number of currenciesNoneUS$1,000

1NoneResident secretary and resident office required

No shareholder requiredNone apart from insurance companies and international banksNoNoAnywhere

NoOnly for banks and insurance companiesOnly for banks and insurance companiesNo

YesYesYesn. a.n. a.

Data supplied by Zetland Trust (Cook Islands) Limited


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Puai T. Wichman, ManagerZetland Trust (Cook Islands) Limited

THE COOK ISLANDS comprises a group of 15 islands in the South Pacific Ocean approximately southwest of Tahiti and due south of Hawaii. Local time is 10 hours behind GMT, with 9am in Hong Kongbeing 3pm the previous day in the Cook Islands. Its geographic location gives the Cook Islands a strate-gic advantage in dealing with both the Asian and US markets.

The legal system is based on British Common Law and closely reflects that of New Zealand and otherCommon Law jurisdictions. The court of final appeal is the Privy Council in London.

The Cook Islands was previously administered by New Zealand. In 1965 the Cook Islands became aself- governing nation in free association with New Zealand. There is a written constitution andWestminster style of government, with parliament being elected every four years by universal suffrage.

Offshore jurisdictionThe Cook Islands offshore jurisdiction was created by parliament in the early 1980s. The legislation

establishes the offshore regime as separate and distinct from the domestic jurisdiction of the Cook Islands.This enables entities within the offshore regime to carry out their business activities with maximum free-dom and flexibility.

In February 2005, the Cook Islands were removed from the Financial Action Task Force list of non-cooperative countries. After five years on the black list, the jurisdiction has emerged stronger andrejuvenated, determined to regain lost ground. As part of the delisting process, the Cook Islands Govern-ment enacted a suite of legislation designed to combat money laundering.The laws included:•Mutual Assistance in Criminal Matters Act 2003

This key part of the anti-money laundering legislation of the Cook Islands is aimed at setting up alegal framework regulating and facilitating international assistance in criminal matters when a request ismade by a foreign country.•Crimes Amendment Act 2003

This amendment to the 1961 act gives effect to the Palermo Convention regarding organised andother crimes. Many of the offences set out in this legislation have not occurred in the Cook Islands, buttheir enactment is the result of the obligations of the Cook Islands to the international community.•Criminal Procedure Amendment Act 2003

This legislation was introduced to update the laws of the Cook Islands to international standards toassist in the prevention and detection of organised crime.•Extradition Act 2003

This legislation codifies the law on extradition and is part of the suite of legislation required under theHoniara Declaration and the anti-money laundering legislative framework.•Financial Supervisory Commission Act 2003

This legislation abolished the previous regulatory body for the Cook Islands offshore financial ser-vices sector and replaced it with the Financial Supervisory Commission, which has broader powers andregulates domestic banks in addition to trustee companies and international banks.•International Companies Amendment Act 2003

This legislation amends the international Companies Act 1981-82 by restricting the use of bearer sharesand debentures, and requiring a register to keep records of the owners of such instruments.•Proceeds of Crime Act 2003

This forms part of the anti-money laundering legislation aimed at providing effective monitoring andprosecution of persons who have committed serious offences, including that of money laundering. Thepurpose is to deprive persons who have committed serious offences of the proceeds, property and ben-efits derived from the commission of such offences. It enables law enforcement authorities to trace suchproceeds, property or benefits.•Banking Act 2003

Changes to the banking laws were designed to meet current standards on disclosure, international co-operation and bank supervision. The new act removed shell banks, namely those with no physical presence,from the Cook Islands, or those not affiliated to any financial services group that is subject to effective

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ook Islandsconsolidated supervision. Section 4 provides for three types of licences, namely domestic banking licence,international banking licence and restricted international banking licence. A domestic banking licencepermits domestic banking with residents of, or visitors to, the Cook Islands, in any currency. This provi-sion applies to the three local banks which until now had been licensed under the Banking Act 1969,which was repealed. An international banking licence enables business with persons who are not resi-dents of the Cook Islands or with international companies, partnerships and trusts incorporated or regis-tered under the Cook Islands offshore regime. A restricted international banking licence is a new cat-egory available to foreign banks licensed in their home jurisdiction, which wish to carry on bankingbusiness through the Cook Islands. Such licensees can only operate in the Cook Islands through a trusteecompany licensed under the Trustee Companies Act.•Financial Transactions Reporting Act 2004

This facilitates the prevention, detection, investigation and prosecution of money laundering andother serious offences and the enforcement of the Proceeds of Crimes Act 2003. The legislation estab-lishes the Financial Intelligence Unit as well as requiring financial institutions to undertake due diligenceand other measures to combat money laundering. A financial institution includes banks, insurancecompanies, trustee companies and law firms.

Entities established within the offshore jurisdiction are exempt from any form of taxation in the CookIslands including stamp duty, capital gains tax, capital duty and withholding tax. There is no exchangecontrol.

Strict confidentialityStrong confidentiality provisions apply in the offshore regime, requiring government officials as well

as trustee company and bank employees to observe strict secrecy. These provisions are backed by penalsanctions. The statutory records of the Registrar of International and Foreign Companies and of theRegistrar of International Trusts are not open for general search, subject to the provisions of the FinancialTransactions Reporting Act 2004 and the Proceeds of Crimes Act 2003.

Offshore vehiclesInternational companies incorporated in the Cook Islands are allowed a great deal of flexibility in

their corporate structure with provisions to ensure ease of administration and maximum benefit in globalcommercial transactions. Incorporation can generally be completed within 24 hours.

In 1989, by an amendment to the International Trusts Act 1984, the Cook Islands introduced the AssetProtection Trust. This piece of legislation was at the time considered cutting edge and has since beenadopted by many offshore centres. The Cook Islands also has specific legislation allowing internationalbanking and insurance business to be conducted in a tax free environment, backed by strong privacyprovisions.

There is a strong drive by both government and trustee companies in the Cook Islands to developnew products to meet the modern complexities of the offshore world.

CurrencyThe New Zealand dollar is the local currency, but generally offshore transactions are in US dollars.

Shares of an international company incorporated in the Cook Islands may be designated in any currencyor number of currencies.

The Cook Islands enjoys a highly developed infrastructure for business. There is a healthy and edu-cated English-speaking labour force. The country has sophisticated telecommunication links with therest of the world and convenient air services to New Zealand and the US. The absence of foreign ex-change controls means there is complete freedom to repatriate capital and profits. The Cook Islandsboasts the highest GDP per capita amongst the South Pacific small island nations. The business andofficial language is English, with Cook Islands Maori as a second official language.

Puai T.Wichman is the Manager of Zetland Trust (Cook Islands) Limited.Contacts: tel + 682 22 522, fax + 682 22 525; email [email protected]; website www.zetland.bizAddress CITC House, P.O. Box 92, Avarua, Rarotonga, Cook Islands.

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yprusPopulation: 802,500Currency: Cyprus Pound; CY£1=US$2.19 (mid-2005)Language: Greek and Turkish are the official languages but English is widely

spoken particularly in the corporate field.Time zone: GMT plus 2 hoursCentre's expertise Financial centre, double tax treaties, tax incentives, lowest tax in EU

Data supplied by Christodoulos G.Vassiliades & Company

Private limited/Public limitedCommon LawYes5 days with acceleration fee, subject to name approvalDepends on the share capital of the companyNo license fees are payable to the government other than theannual return filing fee of CY£710%YesNo exchange control restrictionsLatin or Greek alphabet. Must be approved by Registrar.Words banned include any similar to an existing company or implylegal activity or royal or government patronage or financialactivities

AnyCY£100 (usual issued capital CY£1,000)CY£5000

1No but advisable for tax purposesRequired, but no specific qualifications required

1None if nominees are to be usedYesYesAnywhere

YesYesYesYes

YesNoYes11,586163,227 as of mid-2005

Type of entityType of lawShelf company availableTime to establish a new companyMinimum costAnnual fees

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CYPRUSChristodoulos G. Vassiliades, Managing Partner - Advocate

Christodoulos G.Vassiliades & Company

CYPRUS is the third largest island in the Mediterranean Sea after Sicily and Sardinia with a total area of9,251 square kilometres or 3,572 square miles. The island benefits from a strategic location in the north-east of the Mediterranean, and is effectively the ideal crossroads linking Europe, Africa and Asia and inclose proximity to the three continents and their trade routes. The capital, Nicosia, the island’s adminis-trative and main business center, is situated in the central plain near the middle of the island.

Due to mild winters and long, dry summers (with an average of 300 sunny days per year) Cyprusenjoys one of the most pleasant and healthy climates in the Mediterranean. The population was slightlymore than 800,000 at the end of 2002. About 80 percent of the people are Christian Greek Cypriots, withanother 11 percent being Turkish Cypriots and the remaining 9 percent are foreign workers.

Cyprus became an independent state in 1960, after 82 years of British rule and is politically stable. Ithas a system of government based on democracy, and human rights, political pluralism and privateproperty are safeguarded. Cyprus joined the European Union in May 2004 and is also a member of theUnited Nations and the Commonwealth.

Multi-party democracy with English legal traditionsUnder the Constitution of 1960, the head of state is the President who is elected by universal suffrage

in a secret ballot. Cyprus has a multiparty system of democracy based on proportional representation.The president is head of a council of ministers that carries on the government and prepares legislation.

The House of Representatives is the legislature whose members are elected to office every five yearsby a system of proportional representation with candidates from the various existing political parties andsocial groups. The Cyprus legal system has developed from its English counterpart and has retained thesame principles, including those relating to banking, commercial and company law and procedures. Moststatutes and regulations relevant to business practices are in the English language. A system of adminis-trative law according to continental principles under the constitution provides for the judicial review ofpublic administrative decisions. The judiciary, which is independent from the other bodies of government,is modeled on the British system consisting of the Supreme Court of the Republic, the assize courts,district courts, military court, industrial dispute court, rent control courts and family courts.

Open private enterprise economyCyprus is similar to most European countries in that it has an open economy dominated by private

enterprise. Government intervention is largely limited to safeguarding the system and providing guidance.By European standards, the economic growth rate has been high, averaging 5.1 percent over the 1961-2003 period, along with full employment conditions and internal and external macroeconomic stability.A high proportion of GNP is based on tourism. In July 2003, the Capital Movement Law was enacted andcame into force on 1 May 2004, the date of Cyprus’s accession to the EU. It repealed the Exchange ControlLaw thus abolishing all exchange control restrictions.

The official monetary unit is the Cyprus pound, divided into 100 cents. Cyprus joined the EuropeanUnion in May 2004 and is represented by one commissioner and six members of the European Parliment.It then linked its currency to the euro in the European Exchange Rate Mechanism with the aim of switch-ing to the euro currency by 2007.

Vigilance against money launderingAs from October 2004, Cyprus approved the complete freedom of direct investments from non-resi-

dents in Cyprus. Consequently, non-residents who wish to establish a company in Cyprus, or acquireshares in existing Cyprus companies, or otherwise to invest in or from Cyprus, no longer require ap-proval by the Central Bank of Cyprus. The same applies for direct and portfolio investments by naturalor legal persons from EU member states. At the same time, the government has long made vigilanceagainst money laundering activities a key policy. The policy was formally put into effect by the Preven-tion and Suppression of Money Laundering Activities Laws 1996. According to this, banks and otherpersons engaged in financial business are required to implement vigilant control systems for detection of

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yprussuch activities. The central bank has issued a series of guidance notes to banks concerning strict customeridentification procedures, record keeping, recognition and reporting of suspicious transactions, the ap-pointment and duties of money laundering compliance officers and education and training of bankemployees.

Lowest tax rate in EUAs there is no longer a distinction between local companies and international business corporations

(IBCs), the profits of all Cypriot companies will be taxed at the rate of 10 percent. Existing IBCs that hadincome from their activities at 31 December 2001 can choose to be taxed with the rate of 4.25 percent untilthe end of the fiscal year 2005. This regime makes Cyprus the country with the lowest corporation tax inthe European Union. Dividend income from abroad and from Cyprus is wholly exempt from corpora-tion tax. Profits earned from permanent establishment abroad are also fully exempt from corporation tax.As is common in most jurisdictions, companies that are involved in financial services to the public, espe-cially banking, insurance and trust business, must get special permission from the authorities.

Three working days for company name approvalThe types of corporate entities include companies limited by shares, a branch of an overseas company

and general or limited partnerships. Usually it takes three working days to get name approval for acustom-made company with payment of an acceleration fee of CY£7. Since the central bank does nothave to approve applications, these are made directly to the department of the Registrar of Companies.

The minimum number of directors is one, who may be natural persons or corporate, be of any nation-ality and need not be resident in Cyprus. However for tax residency purposes they or (their majority)have to be Cypriots. The minimum number of shareholders is one. A registered office is required and itmust be maintained in Cyprus. The procedure to incorporate a company involves submission of thememorandum and articles of association to the Registrar of Companies, together with an affidavit beforea court and the registration fee. The powers and objects of a Cyprus company are contained within thememorandum of association and have to be specific. Disclosure of beneficial owners to the regulatoryauthorities is not required. It is possible to obtain absolute secrecy of the identity of shareholders, eitherthrough trust fiduciary agreements or through nominees or through other companies. Business entitiesare required to prepare and submit to the department of finance and the department of inland revenueannual financial statements audited by auditors practicing on the island.

Harmonisation with EU lawsAs an EU member state, Cyprus must adhere to the Acquis Communautaire, so the country has intro-

duced or modified economic and social laws to harmonise them with EU legislation. New laws adoptedin 2002 also considerably modified the country’s fiscal regulations, including removing the distinctionbetween resident regimes (onshore) and those of non-residents (off-shore) as from 2006. Cyprus laws andpractices are now harmonised with the EU laws and directives, the Code of Conduct and the Organisationfor Economic Cooperation and Development's recommendations.

Promising outlookWith its strategic location, great accessibility, excellent infrastructure combined with the numerous

government incentives. Cyprus is an ideal financial and business hub. Investments of European originhave to comply only with certain restrictions such as respect for the environment and safety standards.With EU accession, dividends paid to Cyprus from other EU countries have no tax withheld in thosecountries. Besides the low corporate tax rates, the numerous double tax treaties that Cyprus has con-cluded with other countries-including with all eastern European countries-offer tremendous possibilitiesfor international tax planning through Cyprus in view of the fact that any tax paid in a country withwhich Cyprus has a treaty is deducted from the Cyprus tax payable on the same income and Cyprus doesnot impose any withholding tax and dividends, interest and royalties paid by business companies.

Christodoulos G. Vassiliades is the Managing Partner - Advocate of Christodoulos G.Vassiliades & Co.Contacts: tel + 357 22556677, fax + 357 22556688; email [email protected]; website www.vasslaw.comAddress P.O. Box 24444, 1703 Nicosia, Cyprus.

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