IFCWorld 2016

ESSENTIAL ANNUAL INTELLIGENCE AND INSIGHT FROM THE WORLD'S LEADING INTERNATIONAL CENTRES

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Welcome to IFC World 2016. We are very proud to publish this first edition of our yearbook of the offshore world which looks at the place that international financial centres occupy in relation to one another, the ways in which they relate to, and are coping with, the latest important trends and the prospects that they have for survival and prosperity, both singly and together.

In this comprehensive annual, we draw on the expertise of some of the foremost authorities on the offshore world and also on our suite of publications: WealthBriefing, WealthBriefingAsia, Family Wealth Report, Compliance Matters and Offshore Red. The earlier sections of this edition contain insights from the leaders in the field, while the latter part contains a directory of the world of international financial centres. We hope that you will find the result informative and of lasting value.

Stephen Harris Chief Executive Officer ClearView Financial Media PUBLISHED BY:

ClearView Financial Media Ltd Heathman’s House 19 Heathman’s Road London, SW6 4TJ United Kingdom

Tel: +44(0) 207 148 0188 www.clearviewpublishing.com

© 2016 ClearView Financial Media Ltd publishers of WealthBriefing, WealthBriefingAsia, Family Wealth Report, Compliance Matters and Offshore Red. All rights reserved. No part of this publication may be reproduced in any form or by any means, electronic, photocopy, information retrieval system, or otherwise, without written permission from the publishers. CONTENTS

INTERNATIONAL VIEW 7

VIEWS FROM THE JURISDICTIONS Bahamas 25 Barbados 29 Cyprus 31 Dubai 35 39 Guernsey 45 Isle of Man 51 Jersey 55 Malta 59 Portugal 69 Seychelles 73 Singapore 75 United Kingdom 77 Vanuatu 79

JURISDICTIONS IN PROFILE 83

INTERNATIONAL VIEW: KEYNOTE ARTICLES THE CHANGING WORLD OF OFFSHORE CENTRES

* by Philip Marcovici

The world is quickly moving towards transparency, wealth-owners who maintain companies, trusts corporate service-providers and others, distracted particularly in the area of taxation. The common and other structures and relationships there? by easy revenues in the present, also failed to take reporting standards and automatic information the lead. exchange, the US Foreign Account Tax Compliance It seems evident that not all offshore centres will Act, corporate reporting under the Organisation for survive, and this is probably a good thing. Others, “The need for a level playing-field” was one of sev- Economic Co-operation and Development’s base however, will not only survive but thrive. What will eral mantras: “we will change when others change erosion and profit shifting project (BEPS), benefi- it take for an offshore centre to do well under the as well – the US has limited liability companies cial ownership registers and much more are quickly new world order? And what is a mid-shore financial and little information exchange – let them change falling into place. The road towards transparen- centre? first.” As it is now clear, there is no level playing cy is far from a smooth one but the direction is field, and never will be. This was always obvious clear and the future of many offshore centres is in THE FAILINGS OF OFFSHORE CENTRES AND and anyone who thought otherwise was simply serious jeopardy. OF THE WEALTH MANAGEMENT INDUSTRY misguided. Offshore centres had a chance to lead the world towards tax transparency and other Some might say that it is not very constructive to forms of transparency – to develop strategies and apportion blame for the problems that offshore fi- base them on knowledge and training, and to focus nancial centres are facing but there is nonetheless on negotiating arrangements with other countries The file drawers of blame to apportion, if only because one has to iden- proactively, giving the onshore countries more than tify the mistakes that have led us to this point if they were asking for at a time when those offshore advisors will be wide those mistakes are not to continue. People who gov- centres still had some collateral with which to ern offshore centres have to stop making decisions negotiate. Today, they have none. open to the scrutiny according to what the financial industry says. A suc- cessful government listens to the of tax authorities industry and its views and takes these views into account when forming its strategy, but it is simply wrong for it to allow well-established and perhaps Not all offshore declining special interests, with their focus on What do we mean by ‘transparency’? In broad term profits, to dictate strategy. Again and again, centres will survive, terms, the word describes a world in which it is over and over, offshore centres have allowed the not enough for multinational businesses to pay financial services industry to determine their fate. and this is probably advisors to analyse tax laws and decide what those businesses ought to disclose to various tax Years of abuse of secrecy and other privacy a good thing authorities. Instead, reforms that are underway regimes by the offshore corporate services industry, at the moment are designed to place far more in- , trust companies and others have now led to formation in the hands of governments than they a regime change, and one that is being dictated by need for the narrow purpose of enforcing their tax the onshore governments whose tax and legal sys- OFFSHORE VS MID-SHORE – CAN THE laws. These reforms, and the ones to come after tems have been shown to have been compromised OFFSHORE WORLD SURVIVE? them, will afford governments a very clear view of on an industrial scale. Had the offshore world taken structures and strategies that they can only, at the charge of the global problem of undeclared money ‘Mid-shore’ financial centres are those whose tax moment, uncover through complex investigations. and of the other regulatory failings of the industry, laws make them attractive as places in which to In the near future, the file drawers of advisors will we would be in a very different situation. Instead, establish corporate structures, trusts, and other ve- be wide open to the scrutiny of tax authorities and the leaders of those offshore centres not only lis- hicles while also offering the advantages of being other government agencies. They will receive the tened to legacy players and the other venerable in onshore locations. An effective mid-shore juris- information automatically. special interests, but allowed them to fashion their diction has infrastructure and human resources in a strategies for the future – and in most cases, these broad range of areas and benefits from having Will all existing offshore centres survive? Is there have proven to be ineffective. embraced information exchange and effective tax room for new offshore centres to establish them- treaties that reduce or eliminate withholding taxes. selves in the market or to diversify and offer new On their own, or together with other financial Mid-shore jurisdictions are part of our world, not products and services that have brought past suc- centres, or as part of a wealth management indus- outside of it, and offer their users bi-lateral and cess to their competitors? Or is being an offshore try-wide initiative, offshore centres had, over the multi-lateral investment protection agreements centre a dying business, with onshore centres and, last years, many opportunities to lead the world and more. perhaps, jurisdictions that are evolving into useful in tackling problems that should have been obvi- ‘mid-shore’ centres becoming more relevant in the ous to them. How can privacy be maintained as a Places like Singapore and Hong Kong are good ex- new, transparent world that is taking shape? human right while ensuring that the people who amples of mid-shore centres. They have a top-rate use offshore centres are not misusing them to infrastructure that can support the kind of struc- An article in the Guardian in December 2015 was break the laws of their home countries (or of other tures that suit a transparent world. Their tax rates entitled The Fall of Jersey: How a Tax Haven Goes countries) through tax evasion and in other ways? are reasonable and in some cases do not apply Bust – are we going to see more articles like these Instead of leading the world on these issues, off- at all (such as the tax-free treatment of non-lo- as the budgets of offshore jurisdictions come un- shore financial centres took the line of least re- cally-sourced income in those two jurisdictions). der pressure? If a well-run and reputable finan- sistance – they left it to others to take the lead They have a wide network of tax and investment cial centre like Jersey is suffering, what of more on strategy, doing nothing to change their clearly protection agreements and more. Luxembourg has marginal players, and of the risks that the failure unsustainable business practices. The users of off- long been strategic in developing products and of an offshore centre bring to the businesses and shore financial centres – trust companies, banks, services for specific elements of the investment

IFC WORLD 2016 8 industry, all through good collaboration between its Offshore centres have much to learn here. One Compliance people can help offshore centres ne- government and the private sector. clear lesson is to give up entirely on resistance to gotiate with the onshore world and strike effective change and cease to issue cries for a return to the bi-lateral and multi-lateral agreements that help The onshore countries with which offshore busi- opaque world that once existed. Transparency is them attract and retain business. Co-operative, vol- nesses interact are focusing more and more on here to stay and offshore centres that fight for a untary tax disclosure facilities and much more can whether offshore structures ‘have substance’ – in return to yesterday will end up with nothing but attract rather than repel business. Centres that fo- other words, whether they conduct real operations beaches and coconuts (and, for offshore centres cus on particular markets will earn more than cen- in the jurisdictions to which they allocate income that do not have the right climate, not even those). tres that try to be ‘one-stop shops’ for everyone. under transfer pricing arrangements. A focus on the future means a focus on compli- ance with global tax and reporting rules and help Every offshore centre requires effective marketing As a result, ‘substance’ is becoming more vital for clients who live in an increasingly complex to make itself appealing to potential clients. It has as time goes on and offshore structures are hav- world. There is much that an offshore centre can to use marketing to make clients more aware of ing to conduct real activity to support transfer do strategically to help on this front, not least in global developments and show them how they can pricing. This means that the locations of choice the way it complies with tax reporting and other use it to satisfy their needs. Education (in the form for the future will be places where human re- regimes and approaches bi-lateral and multi-lateral of awareness-raising) should be part of marketing, sources and other infrastructural resources are negotiations. It is late in the day for small IFCs to so training departments have to step into the mar- readily available. Parts of the offshore world ‘get strategic’ , but it is not too late for them to keting process, educating intermediaries and oth- have already learnt this lesson fully and the change their attitudes and to stop listening to the ers who are able to attract business, and training pressure on others to do so can only increase dinosaurs who claim that transparency is not really local and expatriate staff to understand the future substantially over time. going to happen. It is already here. and how best to communicate with existing and prospective clients. With ‘insubstantial’ locations of choice on the de- cline, the future belongs to locations where human THE DIFFERENCE BETWEEN SUCCESS AND resources are readily available to meet needs. Have FAILURE the offshore centres invested in the education nec- One clear lesson is essary to achieve this or have they simply allowed Today’s offshore centres can no longer afford to expatriates to exploit their lax regulatory regimes? to give up entirely on concentrate mainly on the tax-related needs of Have the governments of those offshore centres let their prospective customers. Offshore centres their populations down badly by not investing in resistance to change ought to be legislating to support well-thought- education in financial services, and leaving training out products and services that are tailored to their to firms that care more about teaching people how target markets in a realistic way; in other words, to sell rather than how to think? they ought to be thinking and acting strategically. THE INTERACTION BETWEEN STRATEGY, Onshore centres are increasingly making them- TRAINING, MARKETING AND COMPLIANCE selves attractive as ‘mid-shore’ options. The UK, with its low corporate tax rates, and America, with It is amazing how few players in the wealth man- its many state regimes that permit the ‘tax-and- agement industry actually understand the impor- ‘Substance’ is reporting-free’ establishment of limited liability tant links between strategy, training, marketing companies and trusts, are but two examples. and compliance. becoming more vital

Offshore centres used to offer simplicity and low Banks, trust companies, corporate service-providers as time goes on costs as their main attractions. If, however, it is now and offshore financial centres all too often keep virtually impossible to open a for a these functions separate. The marketing teams run company in an offshore centre, the simplicity fast off to host events for clients and, in the case of off- goes away. If ‘substance’ is now required for firms shore financial centres, appear at wealth manage- Investment protection agreements are just one that wish to benefit from setting up structures off- ment industry seminars giving away stuffed animals example of how a can think stra- shore, is it not easier to locate this ‘substance’ in a and coffee mugs that bear the logos of the coun- tegically as it tries to ascertain the motivations of mid-shore centre with good infrastructure than in tries they want to promote. Directors responsible customers who are setting up companies and other an offshore centre with little to provide in terms of for strategy sit around a table and talk about being vehicles. For example, if someone invests in China personnel or other things? Will it not look better to compliant and how to avoid being on blacklists de- from outside by making use of a company listed in an onshore tax authority if one runs the structure veloped by the onshore world. The trainers zero in on the British Virgin Islands, what happens if the Chi- out of the US rather than if one runs it from an what people are not allowed to do, or concentrate nese Government expropriates that customer’s as- island known for its status as a tax haven and its on teaching people how to sell without looking at sets? There is no investment protection agreement sunny beaches? how sales are affected by regulatory requirements, between China and the BVI to assure him that he including those that pertain to cross-border mar- will receive compensation and have access to good GETTING IT RIGHT – WHY COMPLIANCE IS keting. Meanwhile, the compliance people do their dispute resolution procedures. The investor who PART OF CUSTOMER SERVICE thing, with everyone else trying to avoid them be- uses the British Virgin Islands pays no tax there, cause they say no to every question, to keep every- but has not benefited from the protection that he It is important for anyone involved in financial ser- one safe. This is a self-defeating approach. would have received had he used Singapore, for ex- vices today to realise that compliance is a key part ample, to set up his holding company. This arrange- of client service. Clients are struggling with pages For an offshore centre, or for a bank, trust compa- ment would still have been tax-free, as Singapore and pages of small print from their service-pro- ny, corporate service-provider or other player in the does not tax a company’s non-Singapore-source viders and with complex questionnaires relating wealth management industry, the key is to under- income if it is not remitted to Singapore, but now to FATCA, the international common reporting stand the need to link these areas up together. An- there would have been an investment protection standards of CRS, investment suitability rules, ben- yone who wants to develop a strategy in this day agreement that applied. eficial ownership disclosures and otherwise. Any and age has to involve himself closely with people service-provider who delegates responsibility for who understand compliance and the ways in which Well-advised users of financial centres, as we dealing with this to the compliance department the world is changing. These people must be ful- have already said, pay far more attention to ‘sub- is misguided – compliance is a client service, and ly aware that compliance is a key component of stance’ when choosing jurisdictions nowadays. A clients need help to guide them. the needs of the future users of an offshore centre. jurisdiction can add to the ‘substance’ that it offers

INTERNATIONAL VIEW THE CHANGING WORLD OF OFFSHORE CENTRES 9 investors if it has done its homework and realized of obtaining much from other countries. They have the future is to understand what is happening, and that effective bi-lateral and multi-lateral treaties played their poker hands badly. to anticipate what will come next. and agreements are part of a financial centre’s attraction. Investment protection agreements WHO WILL BE THE WINNERS? (providing for compensation in the event of expro- priations, among others) and comprehensive tax The issue of wealth and income inequality is on the Offshore structures treaties (providing reduced withholding rates and agenda of virtually every government and policy protection from taxation in the absence of a per- maker in the world. People are electing populist are having to manent establishment) that go well beyond an ex- governments to deal with it and even the most change of information are of immense importance. conventional of leaders are recognising the need conduct real activity to address the issue. For this reason, if no other, ‘transparency’ is here to stay. Thomas Pikkety, the to support transfer author of Capitalism in the Twenty-First Century, was awarded the Financial Times Business Book of pricing A managed exit from the Year Award despite the normally conservative newspaper having criticised some of his findings financial services because of various errors that it had uncovered in Pikkety’s numbers. Pikkety is one of many econo- In some cases, a managed exit from financial ser- will be a smart move mists who believe that inequality is increasing, not vices will be a smart move for an offshore centre, decreasing, and that governments ought to take but few will be brave enough to do this. Instead, as for some offshore action. Many are heeding his message. offshore business collapses, so too will the offshore service-providers, leaving behind a legacy of fraud, centres How many conferences in the offshore world spend ruined careers and lost reputations. time lamenting the move from secrecy to trans- parency? How many hours are wasted on reveries For other offshore centres, a policy of concentrat- about the past rather than on plans for the future? ing on excellent conduct, on understanding the fu- Interestingly, many of the offshore centres that Firms might still earn pretty good short-term reve- ture needs of their clients and on building compli- are likely to fail are in their current predicament nues in offshore centres that have been successful in ance with financial regulations into their strategies because they refused to bargain away portions the past, but this often lulls the people in charge of and the way they perform their services will bring of their secrecy when they still had something such centres into thinking that all is well. Are their success. This is a knowledge-related business and with which to bargain. They could have thought revenues coming from service-providers who are knowledge is the bedrock on which investments strategically and signed agreements with other simply trying to pass compliance costs on to clients, ought to be made. There will be winners, but only a countries that would have broadened the appeal through hourly or other charges, and who charge for handful, and there will be many losers. of their products and services to legitimate inves- the liquidation of existing structures? Are interna- tors around the globe while offering in return to tional firms leaving the offshore centres for the mid- cease to protect account information from foreign shore and onshore worlds while island governments * Philip Marcovici sits on the editorial board of law-enforcers, tax authorities and courts. Now that delude themselves into thinking that nothing is WealthBriefing and provides business and automatic exchange of information (AEOI) and amiss because local firms are ‘consolidating’ by buy- related consulting services. He can be more in the way of transparency is becoming the ing up the businesses that those international firms reached on +852 2866 2525 or at international norm, these centres have little hope are abandoning? One first step towards victory in [email protected]

IFC WORLD 2016 10 THE OFFSHORE WORLD IN TURMOIL – A

* by Chris Hamblin, editor of IFC World

have sprung up over the last two years (the United US Department of Justice, kow-towing to the ex- Kingdom signed the first one with the US Govern- traterritorial might of the world’s only superpow- ment in 2012) have no actual basis in American law. er. The bank admitted to having helped American taxpayers hide accounts from the IRS, paid the DoJ FATCA takes tax co-operation – albeit not particu- a penalty of $780 million and agreed to look for larly reciprocal – to a new level. As the US Senate more tax-dodgers on its books. This opened the Committee on Finance put it: “If the laws were floodgates of official US hostility to the offshore amended to require all American citizens to report world, leading to FATCA and to the unilateral US all of their bank account balances and financial as- “Programme for Non-Prosecution Agreements or sets to the IRS every year, America would erupt! Non-Target Letters for Swiss Banks.” Such a law would be an unconstitutional invasion of citizen’s privacy because there is no justifiable This ‘programme’ has generated headlines every government interest in the detailed financial asset month in the past year since March, when BSI be- levels of American citizens absent probable cause came the first bank to settle with the US authorities of tax evasion.” Even so, all American taxpayers by paying a $211 million penalty. Switzerland is the If only the Swiss banks and authorities had been (living anywhere in the world) with offshore ac- capital of offshore (in essence, bank- more helpful towards the US Internal Revenue counts that have contained more than $10,000 at ing that takes place at a bank outside the account Service in the last decade, so the argument goes, any point in 2014 have still been obliged to submit holder’s country of residence, usually in a low-tax the offshore world would not have had the US ‘Fbar’ forms which contain details of the contents. jurisdiction) and about one-third of the world’s pri- Foreign Accounts Tax Compliance Act 2010 (FAT- There are stiff penalties for failing to do so that can vate wealth is based there. Swiss banks have tradi- CA) to contend with, and if it had not had that, add up to half of an offshore account balance, or tionally been owned by partnerships or sole owners it would not have had the Common Reporting sometimes even more. with unlimited liability, allowing them to tell their Standard. As it is, Switzerland has had to become clients that they have a personal stake in catering a beacon of tax-transparency whether it likes it ‘Model 1’ agreements oblige the firms of signatory to their interests properly and making the right in- or not. In May of last year it found itself signing countries to send their details to their national tax vestments without overstretching resources. With an agreement with the European Union to meet authorities, which then pass them overseas to the the threat of American prosecutions hanging over the Organisation for Economic Co-operation and IRS after having a good look themselves; ‘model 2’ their heads, however, some of them have incorpo- Development’s global standard for the automatic agreements oblige the firms in signatory jurisdic- rated themselves over the last five years. Pictet and exchange of financial account information (AEOI, tions to send reports to the IRS directly. The most Lombard Odier, for example, have abandoned their of which the CRS is a part). It has recently signed compliant ‘model 1’ helper that the IRS has in seek- unlimited liability models to find greater security a similar agreement with the Channel Islands. The ing out American tax-dodgers in the offshore world and an extra source of funding as stock-listed banks. EU, for its part, has legislated in favour of CRS on appears to be the Israeli Government. In theory, behalf of its countries by amending its ‘Directive on the US authorities are supposed to send the details Administrative Co-operation.’ The most important of foreign citizens’ accounts on American soil off jurisdiction that is standing aloof from CRS, in one to their counterparts overseas, but reports of this Offshore IFCs are of life’s ironies, is the very country that started the have yet come to our attention. process, the United States of America. usually far better A NEW LIFE IN THE OLD WORLD regulated than their As it is, findings from a recent survey by Satis As- The most important set Management in the summer showed that more onshore than twice as many US expatriates, many of them jurisdiction that is with accounts in the offshore world, are trying to counterparts renounce their citizenship since FATCA became law. standing aloof from From 2010 to 2012 inclusively, an average of 1,416 people have renounced citizenship each year. For CRS is America the preceding seven years, from 2003 to 2009 in- Having dragooned the Swiss Government into pass- clusively, the average number was just 581 a year. ing a ‘model order’ to allow banks to co-operate The tally for the third quarter of 2015 was 1,426, by using Article 271 of the Swiss Criminal Code, the the highest number ever. Many commentators DoJ imperiously commanded Swiss banks to ‘cate- FATCA – TAKING TAX CO-OPERATION TO A believe these official US Government figures to gorise’ themselves. Banks in category 1 – already NEW LEVEL be gross underestimates as there is a mountain of under investigation by the DoJ in 2013 – were not anecdotal evidence of Americans who live overseas allowed to participate. Banks in category 2 – those Despite many alarms about FATCA being declared attempting to put their increasingly scary govern- that had ‘reason to believe’ that they had commit- unconstitutional in America, its progress has been ment in the rear-view mirror. ted offences – were given a short time to declare unstoppable and now many jurisdictions are com- their status. Banks in category 3 - those that be- plying with it. Part of the argument against its con- ANOTHER DAY, ANOTHER NPA lieved that they had not engaged in activities that stitutionality in its present form is that it was orig- could have broken American law, also had to make inally passed to force foreign financial institutions FATCA is not the only American phenomenon to their declarations quickly. Banks in category 4 were – especially the offshore ones and especially the plague Swiss banks in this new, ever-changing envi- banks that had a ‘local client base’ and therefore, Swiss ones – to have a reporting relationship with ronment of global surveillance. It was in 2009 that presumably, no offshore business. In excess of 75 the IRS; the ‘inter-governmental agreements’ that UBS signed a non-prosecution agreement with the banks have now made their peace with America,

INTERNATIONAL VIEW THE OFFSHORE WORLD IN TURMOIL – A PANORAMA 11 drawing criticism from Swiss commentators who long-awaited ‘de-offshorisation rules’ and, according BEPS aims, among other things, to remove oppor- believe that they have betrayed those employees to Vedomosti, the Russian language business daily, tunities for ‘double non-taxation’, whereby a part of theirs who helped Americans escape taxation by the top Swiss banks have been closing their doors of the income that a multinational company earns giving the DoJ their names. to any long-standing Russian clients they may have is not subject to tax anywhere in the world (or is, who do not sign reports to the effect that they are but at an unacceptably low rate). The BEPS plan BSI, for its part, according to the DoJ, helped thousands obeying those rules (or that the rules do not apply also aims to stop corporations from using shell of US clients use sham entities and bogus financial in- to them) and that there are no outstanding claims companies for the purposes of stockpiling profits surance products as nominee beneficial owners of the from the Russian Federal Tax Service. Bank manag- offshore or unduly claiming tax treaty protection in undeclared accounts. It accepted and suggested the ers have been calling up Russian clients and warn- an attempt to neutralise all schemes that artificial- use of IRS forms that falsely stated under penalties of ing them to send their reports in, on pain of having ly shift profits offshore. Some offshore commenta- perjury that the sham entities beneficially owned the their accounts closed. Some smaller Swiss banks tors have noted that this might not end in disaster assets in the accounts. It provided offshore debit cards are thinking of following suit. In Switzerland, tax of- for the offshore world as a physical presence in an to repatriate funds from the undeclared accounts and fences committed abroad now qualify as predicate offshore centre with a zero-tax regime (or close to facilitated withdrawals from those accounts back to offences to money laundering as long as the require- it) is one of the solutions to the problem. the US through nominee unAmerican accounts. It ments of ‘dual criminality’ are met. also sidestepped America’s anti-money-laundering laws by ‘structuring’ transfers of funds to go below the AMERICA’S BENEFIT, AMERICA’S LOSS $10,000 transaction reporting threshold. The highest The offshore world is volume of assets under management on behalf of The cumulative effect of US pressure on Switzer- both declared and undeclared US customers that BSI land and other jurisdictions is, at least according quick-witted, fleet of had after 2008 was $2.78 billion; the fine was about to Bloomberg, causing a massive flow of from 7½% of that. the offshore world to the United States, just as foot and nimble heavy British pressure on the BANKING SECRECY DOWN BUT NOT OUT to introduce stringent money-laundering controls in the early ‘noughties caused them to lose some of This is not to say that Swiss banking secrecy is their offshore business to the City of London. COUNTRY-BY-COUNTRY REPORTING dead. The law of 1934 that began the whole story is still on the statute book. If an account-holder has Investors have long known that Nevada, Wyoming One of the BEPS reforms is country-by-country no tax or other issues, and has declared it to rele- and, of course, Delaware, proffer opaque corporate reporting, i.e. a rule to make multinationals break vant authorities, then it remains a severe criminal and/or trust structures whose beneficial owner- down their reported results for each country – a offence for his or her banker to divulge that infor- ship is not disclosable. They now also know that ‘transparency’ measure to make it harder for them mation. Swiss bankers therefore are not exempt because the United States refuses to sign up to the to lump revenues from different parts of the same from the strictures of this law. Another point worth CRS, its tax reporting standards are probably going region together. Transnational companies, in other considering is that so-called ‘whistleblowers’ can- to be lower than the 100-odd countries that have words, are to break down their results (on profits, not blithely assume that an indiscriminate leakage signed. The US is, in effect, a prime ‘secrecy juris- revenues, taxes, borrowings, etc) for each country of client account data is going to win them any diction,’ as its own government likes to call many and avoid general regional statements. The idea is favours from the Swiss courts. offshore centres. Indeed, Bloomberg reports the that tax administrations should obtain a complete managing director at a major bank promising the understanding of the way multinational enterpris- global elite that they can stash their money away es structure their operations, while also stopping in his country and hide it from their tax authorities. commercially sensitive information from being re- The offshore world Its report says that London lawyers and Swiss trust leased or falling into the wrong hands – this last companies are moving vast sums from the Baha- being a major worry for the conglomerates. allows benighted mas, the British Virgin Islands, the Cayman Islands and even Switzerland to the US. How are preparations for the onset of BEPS coming countries to benefit on? According to a recent survey by Thomson Reu- Ironically, as we have already noted, this is hap- ters of 180 corporate executives and tax and trans- from the Rule of Law pening just as record numbers of Americans are re- fer pricing directors in 35 countries and more than nouncing their US citizenship, overwhelmingly for 20 industries, one-quarter of them believe that tax purposes as US federal taxes are high and the their companies will fail to meet the first dead- US (with only Eritrea for company) has a policy of line proposed by the OECD. European companies Some Swiss public figures wish to retain secrecy, taxing its citizens wherever they are in the world. (including those from Luxembourg, Liechtenstein, even to the point of enshrining it in the Swiss con- Switzerland, the UK’s Crown Dependencies, Cyprus stitution. A group that handed in signatures earli- BASE EROSION AND PROFITS SHIFTING and Malta) are more intensely focused on BEPS er this year to do precisely that reportedly said in planning than their peers around the world. Almost November that the Swiss government’s change of Many wonder why the onshore world still tolerates half of European respondents said that they spent plan did not affect their wish to organise a public many offshore practices and allows its citizens to between 2 and 15 hours per week on BEPS activity, vote on the issue. The committee is made up of use offshore financial facilities. The main answer is compared with a quarter for the Americas and the members of the conservative right Swiss People’s that huge corporations find offshore structures vital ‘Asia Pacific’ region. Party, the centre-right Radical Party and Christian as well, especially for tax purposes. To counteract Democratic Party, the Association of Small and some of the abuses that they commit offshore, the The most immediate BEPS-related concern for half Medium-Sized Enterprises and the Homeowners’ finance ministers of the ‘Group of 20’ (actually only of all respondents to the survey at multinational Association. These organisations want a court to 19) industrialised countries asked the Organisation corporations was transfer pricing, most notably doc- decide whether private banking data should be re- for Economic Co-operation and Development in ument-related and country-by-country reporting leased to the tax authorities in cases when there is 2013 to recommend changes to the way in which requirements. Globally, 74% of respondents said a strong suspicion of tax evasion. tax works all over the world. It began to assemble a that they would complete their country-by-country 15-point action plan called Base Erosion and Profits analysis by the first due date, 31 December 2017. When a person kicks a door down, others can run Shifting or BEPS, which it handed to the G20 leaders Many multinational companies, like rabbits trapped through it after him. This is what appears to be in November for approval. The whole raft of propos- in the headlights, seem to be delaying their prepa- happening with the portal that US litigation (or the als has, by all accounts, been designed not to require rations. They are going to have to report their entire threat of it) has unbolted. Russia recently enacted its the Americans to pass any new laws. global tax positions, effective rates, employees and

IFC WORLD 2016 12 revenues – information they do not disclose even as In reality, many British overseas IFCs have been deed as an alternative to the offshore banking sys- public companies today. The data collection process maintaining registers of beneficial owners of both tem. A letter to the London Financial Times in June for this is going to be onerous. companies and trusts for years and making data of that year entitled “Bitcoin as the new offshore available from them to the tax authorities of oth- banking” had this to say: “the Bitcoin system can BENEFICIAL OWNERSHIP REGISTERS – A er countries upon request. In doing so they have facilitate an increasingly large, and anonymous, RATIONAL TREND? been complying with the terms of TIEAs, which give portion of global trade with little if any interaction contracting parties free rein to ask for such infor- with the regulated system. Indeed, it may increas- Then there is the thorny issue of beneficial own- mation. The Cayman Islands, according to the head ingly come to serve the same function that off- ership registers. The UK is taking the lead in this of the local stock exchange, have TIEAs with more shore banking has previously served and is now un- sphere and its efforts have caused considerable European states than the UK does, with a world- suited to serve because of growing transparency.” trouble for its financially active overseas territories. wide total of 35.

The UK has a history of imposing onerous re- This, however, is a rational observation. Some com- quirements on its colonies (and therefore putting mentators believe that since the advent of the The virtual them at a competitive disadvantage with the City OECD’s CRS policy, many onshore politicians have of London) before it imposes them on itself. This developed an emotional attachment to the idea revolution has yet was the case in the first decade of this century of ever-widening disclosure for the sake of it. Only with ‘retrospection,’ the policy that dictated that time will tell if they are right. to take the world banks and other financial firms should check the backgrounds and identities of their customers ful- A VICTORY OF SORTS by storm ly, even when these relationships went back to the days of Oliver Cromwell. The financial centres of all In the meantime, the UK’s overseas dependencies British colonies were obliged to go through this on- seem to have won a rare victory for the offshore erous exercise more than a year before 2002 when world. Grant Shapps, the UK’s minister for inte Looking at why people go offshore in the first place, Britain imposed the policy on its own banks, and national development, visited the Caymans in some have long commented that Bitcoin provides then only on the top six of them initially. September. He said that he thought that his gov- them with financial privacy, protection from as- ernment’s objectives could be achieved with the set-theft (although opinions are divided about Caymans’ existing laws, i.e without legislation for Bitcoin security), protection from litigation (for a new register, intoning the now-famous phrase, divorce or otherwise) on the theory that what liti- Many British overseas “there’s more than one way to skin a cat.” gants cannot find they cannot confiscate, a curren- cy free from inflation by tax-hungry state author- IFCs have been This apparent climb-down was the result of stout ities (although the volatility of the cyber-currency defiance of British policy by the combined minis- since 2013 has been hair-raising and therefore a maintaining registers ters of the UK’s overseas territories, notably at a source of even greater instability than debasement meeting in late 2014 where they reportedly re- at this stage in its evolution) and global access to of beneficial owners fused to countenance public registers until the G20 funds as anyone with a laptop and Internet access countries had implemented the policy first. Around can deal in it anywhere in the world. for years the same time, Bob Richards, Bermuda’s deputy premier and minister of finance, said that “we will Some of these points are misapprehensions. Every adopt public beneficial ownership when the UK, US transaction in the blockchain, the online ledger and Canada do.” where deals take place, is visible to all who wish This is what the UK appeared to be about to do in to see it. Everything is recorded widely and is there 2014 with registries of beneficial owners for all cor- These acts of rebellion were unprecedented and in full public view. Bitcoin addresses do not betray porations (with trusts left out initially, until there aimed ultimately at the United States, which has a their owners’ identities but they can be linked to was a minor public outcry). The G8 had decided on long history of protecting the opacity of beneficial IP addresses that identify computers and a com- this policy at Loch Erne in the summer of 2013 and corporate ownership in the structures of Delaware. petent investigator can follow the life of a bitcoin the UK, overdoing or ‘gold-plating’ its adherence to No change is expected in US policy on this point, more accurately than he can follow the life of a international initiatives as usual, decided that these whatever the US Government signs, as meeting af- banknote. The blockchain records ‘blocks’ of trans- should be made public and open to all. It then set ter meeting of the Financial Action Task Force (the actions, adding a new one every so often. Once a about applying pressure on its dependencies to do world’s anti-money-laundering standard-setter) transaction is on it, it can never come off. In No- the same. Some critics of its policy in the offshore has proven. Provoked by the policy of the UK to- vember 2014 Alex Biryukov of the University of world surmised at the time that the UK would wards its territories, then, the offshore world has Luxembourg published a paper on the de-anony- threaten them with inclusion on some blacklist or made something of a stand. misation of clients, demonstrating that shared other if they did not obey. funds that had been laundered were easy to trace. As if in agreement, Pascal Saint-Amans of the It seems likely that money-laundering in virtual Indeed, some of them did end up on a blacklist OECD said this to an audience last year: “The... will not be the problem that people first of tax havens that the European Union (of which challenge is about US Delaware. It is the elephant thought. the UK is a member) compiled in a rather chaotic outside the room... and inside the room! [There manner and issued last summer. The list was (and should not be] a single LLP when you don’t know Two years ago, countries around the world did not is) based on national blacklists which different gov- who the owner is and what’s in the company.” really know what to do with virtual currencies. In ernments have compiled in different ways – some 2103 Germany recognised Bitcoin as a legal unit of purely by noting the absence of a tax information VIRTUAL CURRENCIES AND THE OFFSHORE currency – a breakthrough. Thailand banned virtual exchange agreement or TIEA, some by national- that year, but its government licenses bit- ly-set tax thresholds that differ from each other, coin-related businesses, so the ban seems far from some by a combination of factors. Some of the EU It was in 2013 when virtual currencies, and espe- watertight. In Vietnam, the authorities still allow it countries had outstanding TIEA obligations of their cially Bitcoin (the first of them, which may yet turn for personal use, but not for use by institu- own when they issued their lists. The EU said that it out to be the best) came to the world’s attention. tions. Bitcoin experienced one of its many crashes was including all jurisdictions that were on at least Since then, regulators and even parliamentarians after China’s banned bitcoin deposits ten national lists or more, but some were on fewer have been weighing up their usefulness, hailing at banks in December 2013. Today, more jurisdic- and found themsevles included all the same. them as the ultimate offshore currencies and in- tions have reached decisions in varying detail but

INTERNATIONAL VIEW THE OFFSHORE WORLD IN TURMOIL – A PANORAMA 13 the picture is still mixed. The European Union treats and their money are moving from Cyprus to Latvia. US Government’s. Meanwhile, the OECD, of which bitcoins as a means of payment but does not apply Some observers are worried that Latvia will over- the US is the most prominent member, has spent traditional to them, nor has it reach itself and become “the next Cyprus.” the entire 21st century so far clamping down on passed any law that comments on their status. It is “harmful tax competition” between one sovereign advising (but not commanding) EU banks to avoid Abu Dhabi is another hopeful entrant into the off- country and another. Most of the onshore great dealing in virtual currencies until EU regulations shore world. Things are still at an early stage there, powers of the world are doing exactly the same appear and is expected to draft up rules for digital but its regime plans one day to compete with things as the offshore world, while attempting to currency exchanges and wallet providers by June. Dubai – a lofty ambition. Its dedicated financial make life difficult for small IFCs. ‘free zone,’ the Abu Dhabi Global Market, became In the offshore world, including states that belong the newest IFC in the Middle East when it opened CAUSES FOR OPTIMISM to the EU, the picture is mixed. The Central Bank for business in October last year. Its rulers want of Ireland does not regulate bitcoins. The Luxem- the ADGM to become a centre for - There are some advantages that the offshore bourg financial regulator counts virtual currencies ing, asset management and wealth management world will always have over the rest of the world, as money, and the Government has issued its first in general. This is a more modest vision than the and these will probably ensure its survival. One bitlicence. Malta has no regulations for virtual government’s initial one, which envisaged a wide invaluable advantage lies in the fact that (by and currencies either way. sweep of banking services not restricted to pri- large) they provide the onshore world with cheap vate banking and including Islamic banking, plus access to the Rule of Law and ‘due process.’ Cor- Outside the EU, the onshore-offshore jurisdiction insurance and reinsurance, securities and foreign porate structures set up in offshore jurisdictions of New Zealand is silent on their use. Some bit- exchange brokering and trading, commodities tend to work well, despite the occasional scandal. coin businesses in Switzerland have been required trading, and perhaps back-office operations for This is a luxury that a good half of all countries do to obtain banking licenses and all must obey the peripheral businesses on the model of the Isle of not have; it is not always easy to persuade a canny national money-laundering laws. The Monetary Man, which started out as an offshore centre by investor in Argentina, Venezuela or China that he Authority of Singapore stated in 2013 that it has providing a venue for the back offices of the Big should set up a corporate structure in his homeland nothing to say on the subject of businesses receiv- Four (then the Big Five) accountancy firms and the and trust the local courts to resolve any disputes ing bitcoins in exchange for their goods and servic- ‘magic circle’ law firms. (perhaps over ownership) that might arise. In Rus- es, although it announced in March 2014 that it sia in the 1990s, it was possible for sharp operators would regulate virtual currency intermediaries to to steal whole companies by forging documents tackle money-laundering risks, treating them in the that referred to shareholders’ meetings and judi- same way as money-changers or transmitters. Kyr- Alberta is Canada’s cial rulings that had never happened, while bribing gyzstan has banned the use of virtual currencies. In people to pose as witnesses and raiding offices to Hong Kong their status seems unclear; the Hong internal tax haven; intimidate people. It is small wonder that wealthy Kong Monetary Authority does not regulate them. Russians’ money and many Russian businesses the US has more found a welcome domicile in Cyprus, an Eastern The virtual currency revolution, for all these indica- Orthodox island with a legal system based on tions of official interest, has yet to take the world than one English common law whose courts follow English by storm. Bitcoin is still the most traded of the cur- case-law quite closely and whose statutes that rencies by far, but it had a market capitalisation in pertain to business matters are all basically British mid-February of only $6 billion or so. Litecoin was, in origin. The offshore world allows many business at that time, fourth in rank with about $140 million THE USE OF THE OFFSHORE WORLD transactions all over the world to benefit from the and Maxcoin was 91st with less than $400,000. The Rule of Law. total of all 674 currencies was $7 billion. If there Nearly all commentators, however, are expecting were to be another great financial meltdown, with the offshore world to contract under the accu- Because of pressure of varying kinds of pressure national fiat currencies tumbling as governments mulated burden of national tax haven blacklists, from the OECD, the FATF (the OECD’s ‘little broth- print money to pay off their , thereby caus- onerous information-sharing OECD initiatives, er’) and the great powers, offshore IFCs are usually ing inflation, the values of some of these curren- EU clampdowns on ‘state aid’ and the like. Many far better regulated than their onshore counter- cies might sky-rocket. Perhaps with this in mind, or expect tax havens to become a thing of the past, parts – another advantage that many now use as perhaps with other objectives in mind, IBM, 30 of although onshore jurisdictions have internal tax a selling-point. Jersey and Guernsey, according to the world’s largest banks and HM Government of havens of their own. one commentator who used to work for MONEY- the United Kingdom are all investing in blockchain VAL (the FATF-style regional body for Europe), are technology. The UK is even claiming that it is do- Alberta is Canada’s internal tax haven; the United the most compliant of all. ing so to help reduce financial fraud, error and the States has more than one. In the words of Bartlett cost of paper-intensive processes – a recognition Cleland of the US Institute for Policy Innovation: FLEETNESS OF FOOT by at least one great power that the technology “Tax policy is one of the ways in which the states is controllable. Meanwhile, the International Mone- compete to enhance the welfare of their residents. Lastly, the offshore world is quick-witted and fleet tary Fund is praising it as a route towards faster and Ideally, states would compete simply based on of foot in the face of new threats and opportu- cheaper financial services. overall low tax rates, rather than the legislature nities. Statutes that take years of gestation in a carving out special areas for favored treatment. large country take 18 months in onshore-offshore NEW OFFSHORE CENTRES But in practice that has never been the case. For states such as Ireland and fewer months than that example, states commonly use tax , which in smaller jurisdictions. In a tiny jurisdiction such New international financial centres, against all the mitigate the harm of high tax rates, to compete as Gibraltar, it takes a couple of days to see the odds, are still being born. Latvia is being hailed as against each other. They also use tax breaks to lure regulator if one has a viable business proposition; the new tax haven of Euroland, having adjusted its capital investment...” in Luxembourg it takes perhaps two months; in the tax laws to attract investment and having thrust United Kingdom it normally takes far longer and itself into the limelight as an offshore banking cen- Many believe that this makes US tax policy to- it is more or less impossible even to see an un- tre. Some call it “the poor man’s Luxembourg.” Its wards lower-tax jurisdictions outside its borders dersecretary. The offshore world’s ability to move government made the its currency in 2014 somewhat hypocritical. The economy of Texas, quickly and intelligently, with the right kind of against the wishes of its population and has passed which has no income tax and is therefore attract- skill-set in situ, is probably its greatest asset. In the preferential tax laws for holding companies. Lat- ing talent, may as a result be growing faster than words of Fiona de Poidevin, the head of the Chan- via’s low company formation and maintenance that of California, whose highest marginal income nel Islands Stock Exchange, “it’s all about being costs are another selling-point. Russian oligarchs tax rate is 13.30%, but this is no concern of the nimble.”

IFC WORLD 2016 14 WHAT THE WEALTH INDUSTRY NEEDS NEXT

* by Ray Soudah, the founding chairman and CEO of MilleniumAssociates AG

The Wealth Management industry (inter alia its more volatility in the markets is the continuous is declining in its profitability, costs are rising de- service providers) is in crisis mode. It needs to stop withdrawal of the larger service-providers from spite the cost purges that have been taking (and being a mere custodian of third-party financial as- market-making and services are to take) place, and it is likely to decline in prof- sets and reinvent itself as a true provider of val- in favour of the more theoretically stable wealth itability in the years ahead unless it makes drastic ue. Local, regional and global providers of “wealth management business. In reality, the withdraw- changes with the client at the centre. Clients gen- management services” (private independent asset al of market-making services has indirectly in- erally pay fees, no matter what the outcome; this managers, private banks, national banks and the creased volatility and earnings power in the very is a good model for the service providers in one like) seem desperate to increase their own assets parts of the market that these investment-bank- sense but is ultimately short-sighted because it is under management and outsource their technolo- ing retrenchments were intended to protect in the not balanced and, in the end, induces the client to gy and operating costs so as to improve their own first place. This is a zero sum game, where every view it with distaste and search for alternatives. It efficiency ratios and profitability, but in the mean- participant’s gain is balanced by another’s losses. is almost analogous to the legal profession earn- time their clients seem generally and helplessly re- ing fees in lost cases. The biggest challenges are signed and destined to face the uncertainties and What future, then, for the wealth industry? Should really the dissatisfaction of the underlying clients immense risks of the financial markets, despite en- we expect more of the same, i.e. more growth whose wealth is hardly being preserved, let alone trusting their hard-earned money to their service by volume acquisition and cost-cutting, leaving expanded adequately. Many clients are finding that providers with the original (but now, as has been clients’ wealth preservation at the mercy of the it is much more rewarding and justifiable to invest proven, undeliverable) hope of shielding it against volatile markets while wealth managers become their resources in real industrial or service industry the daily onslaught of risks from all angles. mere operating custodians rather than managers businesses rather than financial assets. To do the of wealth? Or is there a better model with a prima- former is to watch one’s wealth decline while one ry focus on improving the survival rate of the pa- pays for the privilege. tient (i.e. preserving the wealth of the client) - the official raison d’etre of the industry in the first These challenges are hard to quantify by traditional Service improve- place? Service providers the world over promise management techniques as they occur over time the latter every day (with dozens of pages of dis- and in small increments, but they are profound in ments and client claimers to shield those service providers from law their inevitability and certain theoretically. Conse- suits). quently, another challenge is the short-sightedness wealth protection of the leadership at private banks and other places HISTORY IS NO GUIDE TO THE FUTURE in recognising the problem and acting upon it. As ought to be the they find this problem baffling and see no quick The majority of service providers, especially the way out of it, they are tempted to go down the wealth industry’s private banks, are desperate for greater profitability road of ‘short termism’ - another unfortunate (i.e. growth in their assets under management) at dead end. If it were publicly known how many pa- central purpose any cost; this is shown in their search for acqui- tients suffered in a hospital, that hospital would be sitions, their desire to outsource even more costs, obliged to improve its performance and systems their exit from unprofitable divisions or regions or shut down. There is little public exposure of the etc. Now that the industry is regulated like most satisfaction level of clients at wealth firms, but an- This crisis is obvious from the publicly stated desire others (with compliance, tax reporting and the ecdotal evidence and trends in asset accumulation of most firms to grow by acquisition, or cut costs, like) the focus is on profit preservation and growth suggest that the very core of the business is riven or even exit the market totally. Firms are saying this for the service providers, irrespective of the conse- with problems. in every market, including established markets like quences to their client franchise of miserable re- Switzerland and the ostensibly growing markets of turns and declining prosperity. This is a flawed and Asia. This desire on the part of the industry for vol- short-sighted approach as it puts the service pro- ume-based growth, or retrenchment to home mar- viders’ profitability first rather than a genuine con- Clients have even kets, is a consequence of declining revenues and cern for the underlying clients who are essentially margins due to the preponderance of cash hold- financing the service providers in the first place. been deserting the ings, zero or negative rates and a lack of alternative fee-earning products and services. People seem to Even the firms that have grown through acquisition firms that have be paying most attention to attempts to improve have found that clients have been deserting them or preserve the profitability of service providers and in turn this has spurred a drive towards even grown through rather than the search for service improvements further acquisitions to offset the losses in revenue and client wealth protection that is supposed to from those client defections. This viscous circle acquisition be the wealth industry’s central purpose. This is cannot carry on forever, as it omits the core client analogous to hospitals trying to perform more op- in its objectives. The client must be put first if the erations per day more cheaply rather than trying service providers are to retain loyalty and survive in to prevent illnesses and improve patients’ chances the longer term. But how? The biggest challenge therefore is to recognise of survival. the need to be ‘client-centric’ as a fundamental THE ROAD AHEAD objective and then work towards this goal rather The industry has an efficiency ratio of between than remaining ‘firm-centric,’ as is the case today. 75% and 95%, which leaves little leeway for de- The industry faces many obstacles, not least the Service-provider firms that realise this will win in clining revenues because of predictably volatile perceptions of its own shareholders that it is an the longer term and their shareholders must sup- margins and the paralytic, frozen behaviour of the extremely profitable, safe industry with low capital port such an approach. The only option is to pursue underlying clients. Ironically, one of the causes of needs. Nothing could be further from the truth. It longer-term strategies.

INTERNATIONAL VIEW WHAT THE WEALTH INDUSTRY NEEDS NEXT 15 IFC World Book Ad.pdf 1 05/04/2016 12:33

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MilleniumAssociates AG is a member of the Swiss Private Equity & Corporate Finance Association (SECA) - MilleniumAssociates (UK) Limited is authorised and regulated in the UK by the Financial Conduct Authority POSSIBLE SOLUTIONS AND STRATEGIES One option would be to experiment with a totally Imagine a low-cost platform that allows the client new business model that presents itself as a cheap to perform what he wants, any time of the day or Like the low-cost airline industry and certain seg- but safe service provider. Superior or inferior fund night, anywhere on the globe. This brokerage model ments of the financial industry (payments etc.), performances have rarely been linked to higher fees can be extremely profitable if well managed. de-novo enterprises can shed the past and start again. - many times the opposite. One could consider a parallel organisation being set up to attract new and The options we have mentioned here have one old funds under management with the scientifically thing in common. Let the client be the centre of hedged purposes of protecting wealth and charging operations not the service provider. The industry believes nominal margins for this, as well as for growth. The clients would see their wealth protected (which The industry is in crisis. Clients are desperate to that its high salaries is possible with the low hedging costs available in preserve their wealth and create more of it. The most markets) and then reward their providers industry must reinvent itself with new, efficient and bonuses are with a reasonable but not excessive fee for positive models that place the client first in reality and not growth. The courage needed for such an approach just in words. Clients are intelligent and want re- justified; there is no must be derived from a passion for the client and sults from a fairly priced model. Solutions exist for the longer-term survival of the client that in turn will the courageous and daring; the rest will struggle evidence of this at all ensure survival for his service provider. along with the vagaries of the market and prob- ably die a slow death. Wealth will always have to Other possibilities include giving full discretion to be managed. If it cannot be managed well by the the clients and becoming a true custodian of as- service providers or their successors, the clients will One of the biggest problems of the wealth industry sets and exit wealth management and advisory. find alternative ways and cut out the middleman. is its belief that the high salaries and bonuses paid This sort of ‘brokerage’ approach will shield the to the wealth management personnel is justified providers from high costs and their providers from Long live the new wealth management industry. and necessary to preserve and grow and retain the criticism for lacklustre performance. It would give Long live client power! wealth of the clients in their firms. There is no ev- clients access to all instruments and asset classes idence of this at all. In fact, the industry is spoilt with full responsibility for the outcome. The cur- for reward at the expense of its clients and ‘client rent approach of hybrid risk management between * Ray Soudah can be reached at performance’ is not linked to continuing costs, es- the client and the provider is not only unclear but [email protected]. pecially personnel costs. The industry is conflicted confused and expensive and has not shielded the MilleniumAssociates AG is a Swiss and international by nature and design. providers from criticism in any case. M&A and corporate finance organisation.

INTERNATIONAL VIEW WHAT THE WEALTH INDUSTRY NEEDS NEXT 17

THE IMC INTRODUCES PROFESSIONALISM TO THE INVESTOR IMMIGRATION BUSINESS

* by Bruno L’ecuyer, chief executive officer of the Investment Migration Council

The Investment Migration Council, based in Geneva, papers, research, thought leadership and commen- WHY SUCH MIGRATION IS PREVALENT is the worldwide association for investor immigration tary on relevant industrial issues. This committee is and citizenship-by-investment, bringing together the made of various highly regarded professionals work- By contrast with what Francis Fukuyama predicted, leaders in the field and giving the industry a voice. It ing in either academia or professional firms. These history has not ended with the fall of the Berlin Wall. has already been more than a year since the IMC include: the Migration Policy Institute, UBS, KPMG, The world is a safer place now, it is true, but it is not was formed with the intention of bringing about of Canada, the University of Zurich, a safer and better place for everyone. One of the key much-needed change in the industry. The goals we Fragomen LLP, the University of Berne, the World factors that boosts investment migration is (poten- set out back in the summer of 2014 have (for the Economic Forum, Thomson Reuters and many more. tial) instability at home. most part) been achieved, including the launch of the industry’s first Code of Ethics and Professional ETHICS AND CONDUCT There are also differences between what different Conduct, the opening of our four Regional Repre- nationalities offer in terms of prestige, rights and sentative Offices (London, Dubai, Hong Kong, and The council has now completed its ‘Code of Ethics protection from various things as well as the duties New York) and the careful selection of the IMC Advi- and Professional Conduct’ for its members to follow. they require their holders to perform. As long as one sory Committee – a real ‘who’s who’ of the industry. The Council sets professional practice standards for passport offers visa-free access to twenty countries Our membership has spread to over 20 different members on a global level through this code, creat- and another to two hundred, the interest in invest- countries and territories, and we expect to welcome ing a culture of professional excellence and ethical ment migration will be strong. Large-scale conflicts many new members in the year ahead. The secretar- practice. This code applies to its members, who are such as the rise of the Islamic State and the crisis in iat’s agenda for 2016 is now clear, and all eyes are practitioners with proven expertise and experience the East of Ukraine clearly play an important part on the Investment Migration Forum which will take in investor immigration, a good reputation and clean too. place in Geneva on 6–8 June. professional and personal records. There is a great deal of political controversy around THE MAIN PURPOSES OF THE COUNCIL A PANORAMA OF PROGRAMMES migration generally. How does the Council aim to influence public debate? The short answer is that The IMC was set up in Geneva as a non-profit in- The IMC is currently working with experts in immi- its goal is to demonstrate with all clarity that in- dustry association. It is the worldwide association of gration to compile a thorough analysis of all the dif- vestment migration (when organised at a top- investment migration professionals and a self-reg- ferent programmes available to investors, but this is notch level) is overwhelmingly beneficial for both ulatory body. The purpose of the council is simple a ‘work in progress’ and we do not yet have enough sides, i.e. both the individuals and the governments and straightforward. It has been created by industry data for a good overall picture. There are around 70 concerned. leaders and various governments who have, in the such programmes being offered by different countries last few years, made repeated calls for the industry right now and the number is growing, as more and The quality of the people in question and their obvi- to introduce concrete structures to elevate public more countries become aware of the economic ben- ous ability to make important contributions clearly trust, and introduce transparent and reliable reg- efits that such programmes bring to their economies. distinguish investment migration from other kinds ulatory standards. The IMC has set out its mission of migration, which often happens because of intol- which is the result of a global consultation with the MAIN TRENDS AMONG AFFLUENT erance, violence and harship. Investment migration world’s leading professionals in this field. Its aims INDIVIDUALS problems are entirely different from the ones we consist of the following. normally associate with other types of migration. • Setting the global standards in relation to The steep rise in demand for migration advice and/ residence and citizenship-by-investment and or investment migration programmes has become To mention but a few, states might not be benefiting informing public policy in this field. obvious to all the participants in the market. It is enough from the programmes they already have in • Promoting competence, continued professional now clearer than ever that investment migration place - for instance by allowing for an early with- development and high ethical standards among programmes generate a lot of interest. Simply us- drawal of investments, which can lead to the acquisi- its members. ing the term ‘migration’ and applying it to the group tion of permanent residence. This can have negative • Improving public understanding and the of individuals we are dealing with would probably implications, as the citizens of the state might ask: transparency of investor immigration and not be correct, however; they do not really ‘migrate’ ‘what is our benefit’? Another often-cited problem citizenship programmes. from point A to point B. What we are dealing with is is at the level of implementation: the laws should • Contributing to the scholarship of investment a rising interest in empowerment and rights, which be transparent, clear and strict in a way that leaves migration. extremely wealthy individuals benefit from through no room for abuse. A well-designed investment mi- • Being the trusted partner and the leading platform the establishment of connections with different gration or citizenship-by-investment programme is for professionals, academia and governments. jurisdictions around the world through investment crucial and the IMC standards will help all the firms residence and citizenship-by-investment. Crucially, in this industry, as well as the customers, to benefit THE COUNCIL’S RESEARCH ROLE different programmes run by different countries do in the best possible way from their investments. not exclude one another, when applied to a given The IMC has created a specialist Advisory Commit- individual. Different programmes come with differ- * Bruno L’ecuyer can be reached on +41 22 533 tee whose role it is to support it with advice, working ent strong points and can thus be used side by side. 1333 or at [email protected]

INTERNATIONAL VIEW THE IMC INTRODUCES PROFESSIONALISM TO THE INVESTOR IMMIGRATION BUSINESS 19 THE OFFSHORE WORLD AT ITS BEST: A CLASSIC TALE OF BORROWED STRUCTURES

* by Chris Hamblin, editor of IFC World

The Cayman Islands are following in the footsteps against the needs of the business he serves. The The same is undoubtedly true of the Dutch West of Delaware, the Marshall Islands, Antigua and An- Caymans, Delaware and the Isle of Man, for in- Indies as well, although they play no part in the guilla by making limited liability companies (LLCs) stance, are all “creditor-friendly jurisdictions,” i.e. world of LLCs. Legal commentators in the Cayman available. places with good credit ratings to whose entities Islands, incidentally, expect that when their courts banks are generally comfortable lending. Many in- judge cases involving LLCs, they will take a look Since 1993, the small US state of Delaware has al- ternational investors, alternatively, place a premi- at the decisions of the Delaware Chancery Court, lowed investors, parties to joint ventures and others um on stability. One reason why Delaware became although they are definitely not obliged to do so. to form so-called ‘limited liability companies’ which so popular was its Chancery Court, an assembly differ from ordinary ones in that the rules that dic- dedicated to hearing business disputes that was tate their structures and the duties of their mem- (and is) staffed by some very able and respected bers are set out in contracts known as ‘operating judges. Not only does the system deal with its agreements’ that allow the drafters a much wider case-load well; it gives parties access to case law One reason why latitude than do other corporate vehicles. Other that has been built up over centuries. offshore jurisdictions have recently copied the idea Delaware became but Cayman is the first major one to do so, with its PIGGY-BACKING IN THE OFFSHORE WORLD issuance of the much-anticipated Limited Liability so popular was its Companies Bill in the Official Gazette at the end of This is not too dissimilar to the situation in the last year. It is expected to become law shortly. Cayman Islands, though the volume of cases being Chancery Court heard is far more modest. The Privy Council in Eng- land is the final court of appeal to legal proceedings that originate in those islands, which represents an- other selling point. The judges that sit on the Privy STRUCTURE, NOT SECRECY Exempted companies Council also sit on the Supreme Court of England. Many international parties over the centuries have IFC World interviewed Ramesh Maharaj, a partner will be able to chosen to apply English law to contracts, secure in at the global law firm of Walkers, asking him wheth- the knowledge that any dispute that should arise er the new Cayman structure would be opaque, convert themselves will ultimately be determined by impartial experts. shielding its beneficial ownership from prying eyes One reason why international parties regularly use in the manner for which the state of Delaware is into LLCs entities in the British overseas territories of the famed. His reply was unequivocal: “We’re not inter- Caribbean is that although they are offshore, their ested in secrecy, although we are in confidentiality! courts have access to this onshore expertise. It’s just the structure that’s similar to the Delaware corporations. The internationally accepted compli- The limited liability company is popular onshore, This is a common phenomenon in the offshore ance demands that Cayman imposes will apply to but only a few offshore jurisdictions offer it to cus- world: the convenience inherent in being a this new entity. The new limited liability company tomers. These are Anguilla, Belize, the Cook Islands, semi-autonomous possession of a major Western may benefit a range of parties – both corporations the Marshall Islands, Nevis, Panama, Costa Rica, the power. Such a status allows the jurisdiction to be and individuals – for example, it’s suitable for inter- Isle of Man and, soon, the Cayman Islands. By all free in almost every way that counts while being national parties wishing to effect a joint venture. accounts, these jurisdictions have based the law able to use some onshore infrastructure. As Aki It’s essentially a hybrid between a corporate and behind these structures largely on the Delaware Corsoni-Husain, a partner at the law firm of Har- a partnership. It ought to reduce costs in terms of limited liability statute, so there is little substantive ney’s who works in the British Virgin Islands, the maintenance and share capital. divergence between Delaware’s LLCs and theirs. Caymans and Cyprus, put it when talking to IFC The main difference seems to be that a series lim- World: “One thing that counts as a feather in the “Some jurisdictions such as New Zealand have ited liability company is not always an option (for cap of the United Kingdom’s overseas jurisdictions moved away from the ‘par value share capital’ example, not in the Caymans). A series LLC, or SLLC is that places like the BVI and Cayman Islands can model and the UK has in the past given consider- as it is sometimes called, can contain many man- piggy-back off the infrastructure of the mother ation to doing so. The Cayman Islands, like many agers, members and/or business lines and indeed country. They routinely borrow the UK’s set pro- other common-law jurisdictions, have a history of many groups or ‘series’ of these things, all pursuing cedures. For example, if a product provider wants limited liability for corporations of course – the at- different objectives and all benefiting from the lim- to deal with a sanctioned entity, it applies to the traction with the new limited liability company is ited liability umbrella of the overarching structure governor. He then refers the matter to the Foreign its flexibility.” but with their different liabilities safe from each and Commonwealth Office in London, which has other’s creditors, at least in theory. the organisation to deal with it. Any decision then BORROWINGS FROM DELAWARE – THE DETAILS has to be made at Brussels level (assuming that it When a corporate financier, tax planner or wealth is an EU thing, as in the case of the anti-Russian Melissa Lim, also a partner at Walkers, was on the planner asks himself which offshore jurisdiction sanctions) or perhaps New York level (this is where drafting committee alongside other luminaries he would like to choose to form a limited liability it tends to go if it is a United Nations sanction) and from various offshore law firms in the Caymans. company, he therefore has at first sight little vari- the FCO acts as a go-between for that. This can She told IFC World that the impetus for the new ety to choose from. His decision boils down to the be a highly bureaucratic process and the UK has a legislation came from strong demand over the past features of the relevant jurisdiction when weighed first-rate bureaucracy to help it along.” decade, mainly from American clients who wanted

IFC WORLD 2016 20 to conduct international business. The long delay 3. Registration of the LLC will be effected by the 9. An LLC must maintain a register of its members, was a testament to the complexity of the task of submission of a registration statement to the Reg- a register of its managers and a register of mort- transposing the legislation. She said that the Cay- istrar of Limited Liability Companies in the Cayman gages and charges. mans had evolved other structures to cope with Islands. The LLC agreement need not be sent off to the demand for Delaware-type structures in the the registrar. 10. Exempted companies will be able to convert run-up to the LLC: “Before this, we created an ex- themselves into LLCs. These companies, very com- empted limited partnership vehicle based on the 4. Members are free to agree among themselves mon in the Cayman Islands, are so called because Delaware Limited Partnership Law, and the take-up about the internal workings of the LLC in the LLC they are exempted from certain provisions of the for that was very quick, but unlike the LLC, such ex- agreement. In doing so they can agree on mech- Companies Law. In other words, they are exempted empted limited partnership is not a separate legal anisms such as capital accounting and capital from usual requirements such as the need to hold entity; it acts entirely through its general partner. commitments, allocations of profits and losses, an annual general meeting, their share registers are Cayman also introduced a statutory merger regime allocations of distributions, voting rights (including not publicly available and reporting requirements similar to the Delaware statutory merger regime negative consents) and classes of interests. are minimal. Perhaps 95% of companies incorpo- five years ago. In the recent Integra case consid- rated in the Cayman Islands are exempted, because ering appraisal rights under the Cayman statutory 5. The management of the LLC shall either vest in they do international offshore business and are merger regime, the Cayman courts have said that its members acting by a majority in number or, if not permitted to carry on business in the Cayman they will begin to look at Delaware case law, so the LLC agreement wills it, by one or more manag- Islands. Melissa Lim recalled: “I don’t think I have they won’t be starting from scratch. This will be an ers. The LLC agreement may provide for classes of ever formed any company except an exempted enormous help.” managers having such rights, powers and duties for company.” the relevant class as specified therein.

6. Subject to the provisions of the LLC agreement, a manager of an LLC shall not owe any duty (fi- The Cayman courts duciary or otherwise) to the LLC or any member British colonies can or any other person except a duty to act in good have said that they faith, and such duty of good faith may be expanded piggy-back off the or restricted by the express provisions of the LLC will begin to look at agreement. infrastructure of the

Delaware case law 7. A person who serves on any board or committee mother country of an LLC shall, subject to the LLC agreement, not owe any duty to the LLC nor to any member and may, if expressly permitted by the LLC agreement, KEY FEATURES OF AN LLC act in a manner which he believes to be in the best 11. An LLC may merge or consolidate with exempt- interests of a particular member or members (even ed companies or any foreign entity with separate The main features of a Cayman Islands LLC, once it though it may not be in the best interests of all legal personality. becomes enshrined in law, are as follows. members or the LLC). This is very different from British law, as Melissa Lim explained: “If you are a 12. Transfers by way of ‘continuation’ into the Cay- 1. It will be a body corporate with separate legal director of a company, you have fiduciary duties man Islands and transfer by way of continuation personality, having at least one member. A member to the company and you have to act in its best out of the Cayman Islands are also permitted for is a person who has an interest in the LLC. He can interests. On a committee of an LLC, you can LLCs. ‘Continuation,’ by which a company leaves sign up to the LLC agreement (the Cayman version have your duties set out in the LLC agreement. It’s a jurisdiction and travels to another, depends not of the operating agreement) without having to possible for a manager (as opposed to a director, on treaties between the jurisdictions but simply provide capital upfront. Melissa Lim thought that which LLCs do not have) not to act in the best in- on whether the laws of each jurisdiction allow an this was likely to be useful in a private equity fund terests of the LLC provided that the manager acts arrival and/or a departure. Melissa explained: “You or other structure where capital commitments in good faith and in accordance with the duties set can transfer out if the law allows you to. When were used: “The LLC can make a capital call on the out in the LLC agreement. This is helpful for joint you transfer out, the registrar strikes you off. In the member later. There’s no need to pay for interests ventures. It appoints managers to the board new jurisdiction, he registers you. You can’t have an up-front in order to become a member.” who will act in the best interests of the different entity domiciled in two jurisdictions at the same members. time. When I arrange it, I usually time it so that 2. The liability of a member to make contribu- both things happen on the same day.” tions to the LLC will be limited to such amounts 8. An LLC must not make a distribution or release as agreed in the LLC agreement. Melissa Lim ex- a member from any obligation to the LLC to the plained: “It is possible for a member to agree to extent that the LLC is insolvent at such time. A * Ramesh Maharaj is available on make a capital commitment of $1 million. His li- member who receives a distribution or is purport- +1 345 914 4222 and at ability is then limited to $1 million and the LLC edly released and who had actual knowledge that [email protected]. cannot call on more than $1 million from him. It the LLC was insolvent at the time of the distribu- Melissa Lim is on +1 345 814 4512 and at is the same with a limited partner of an exempted tion or purported release, shall be liable for the [email protected]. limited partnership – the general partner cannot amount of the distribution or for performance of Aki Corsoni-Husain is available at call on more.” the obligation purportedly released. [email protected]

INTERNATIONAL VIEW THE OFFSHORE WORLD AT ITS BEST: A CLASSIC TALE OF BORROWED STRUCTURES 21

VIEWS FROM THE JURISDICTIONS

BAHAMAS THE BAHAMAS CHOOSE THE PATH OF INNOVATION AND COMPLIANCE

* by Tanya McCartney, the CEO and executive director of the Bahamas Financial Services Board

The Bahamas, like other international financial FATCA compliance mechanism for the islands. The The advantages of the BEE lies in its ability to re- centres, operate in a world of constant change. Government takes its policy of always consulting move unnecessary layers of ownership at the top These changes are caused by international initia- the private sector very seriously when formulating level of wealth structures, to concentrate control in tives; more and more competition; the consolida- its growth and development plans for the financial the right people who have the assurance of limited tion of various financial sectors into fewer hands; services industry. liability and, more generally, to improve the way changes in the demographic profiles of clients; the the structure is governed, especially when it comes requirements of emerging markets; market stagna- The Bahamas are expected to comply with the to avoiding the risk that family conflict might tion and, of course the financial crisis that erupted OECD’s Standard on the Automatic Exchange of In- damage a family’s fortunes. only a few short years ago. formation by 2018. The Government is determined to ensure that it is ‘appropriate’ in each case for the THE SMART IDEA BEHIND BAHAMAS SMART requesting country to receive the information it is FUNDS asking for. Before allowing any company to hand The BEE takes an such information over, it wants to ensure that the Agility is also clearly evident in the Bahamas’ requesting country can safeguard its confidentiali- evolving investment funds sector, which is begin- innovative approach ty, safety and proper use. ning to attract the attention of internationally active fund managers and has added a new dimen- to current wealth This is entirely consistent with the OECD’s own sion to the jurisdiction’s wealth management and guidance and its drive to review countries and advisory capacity. The Bahamas have witnessed a management needs their data-protection and ‘proper use’ regimes by recent upward trend in investment fund registra- mid-2016. The international body’s efforts in this tions; this is indicative of the successful niche fund area are reassuring because they show that the business that the jurisdiction is building, largely on world’s decision-makers still believe in some kind the back of the investment fund vehicle known as It has been a period in which some IFCs might say of prohibition against the improper use of financial the SMART (Specific Mandate Alternative Regula- that “survival of the fittest” is the end game. For information. In many cases these regimes uphold tory Test) fund. Families, family offices and relat- For the Bahamas, however, the end game has never the fundamental right of security of person. ed investors have been using Smart Fund Models been one of survival but rather one of adaptation (SFMs) as cost-effective investment fund vehicles. to change, balancing a commitment to meeting its PRODUCT INNOVATION IN MOTION: THE BEE Institutional investors, meanwhile, have been using international obligations with a constant desire to templates such as the SMART 7. tread the path of innovation, reach new markets In the Bahamian financial services sector, private and serve existing ones better. wealth management continues to stand centre The SMART fund concept was conceived in the true stage. The islands boast a diverse suite of prod- spirit of risk-based regulation, dictating that the A BALANCED APPROACH TO INTERNATIONAL ucts, with banking and trust services at the core. people who set up a fund ought to be able to tailor INITIATIVES The jurisdiction is not content to rest on its laurels its structure to suit their business objectives. This is in these areas; it has built on its strength in this justified by the cap on the number of investors that The Bahamas take a balanced approach when crucial area by introducing products such as the may invest in many of the templates. As a result, responding to and complying with international Bahamas Executive Entity (BEE), which provides a the relevant regulation accommodates agreement standards. We are always cognizant of our sover- nimble and innovative approach to the dynamics by the investors to ignore the usual obligation to eignty as well as our duty as a responsible member of current wealth management needs. produce audited financials in favour of semi-annu- of the international community. We are a demo- al performance reports. cratic country, a full member of the United Nations The BEE solves complex governance issues in fi- and one of the only independent financial cen- duciary and wealth management structures, par- Smart Funds were introduced by the Bahamas tres in the region that is consistently ranked as a ticularly with respect to share ownership in Private more than 10 years ago but, like their name im- financial centre of importance. Trust Companies and the identification of people plies, they continue to be wise to market require- or entities willing to play their parts in the gov- ments and have evolved over the years in response In 2013, as a result of this balanced approach, the ernance of any number of wealth structures. In ad- to market changes. A concept created through an Bahamas achieved a ‘largely compliant’ rating in dition to its flexible , the BEE has industry think tank, the vehicle provides indus- the Phase 2 Peer Review process of the Global Fo- other distinguishing features. try participants with the means to offer clients rum – proof that the jurisdiction is discharging its regulated funds which nevertheless cater to spe- Tax Information Exchange Agreement (TIEA obliga- • It may hold shares, securities or other ownership cific solutions, domiciled in a premier interna- tions. The Phase 2 review noted that the competent interests in a legal person whose business is to tional financial centre. The specific requirements authority in the Bahamas is well-organised, with carry out executive functions. for SMART Fund models are designed by means adequate internal processes in place for handling of regulator-approved templates, each of which Exchange of Information (EOI) requests. Surround- • Executive functions may be performed only in creates a new SMART fund model. Any institu- ing jurisdictions have also praised the Bahamas as relation to entities, trusts or other arrangements tion or person with a business case can submit a an important and reliable EOI partner. that are domiciled in or regulated by the laws of template for approval. the Bahamas or a jurisdiction specified in the The Bahamas have implemented FATCA through a first schedule of the Financial Transactions The number and type of SMART funds remain an Model 1 inter-governmental agreement with the Reporting Act. open opportunity, effectively creating a mecha- United States. Its firms began to submit reports to nism for promoters to approach the regulator for the US Internal Revenue Service in September. The • The Executive Entities Act itself contains approval of a specific business case and for that Ministry of Finance, which is responsible for FATCA anti-forced-heirship provisions that are similar fund, if approved, to be allocated a risk based li- compliance, has worked closely with the finan- to the ones in the Bahamas Trustee and censing and supervisory regime tailored for its use. cial services industry to come up with an effective Foundations Acts. This template then is able to be utilized by other

BAHAMAS THE BAHAMAS CHOOSES THE PATH OF INNOVATION AND COMPLIANCE 25 funds, fitting the parameters and requirements of tween co-owners within an unincorporated entity. scale created within such structures and the reg- the template. The condominium is not a legal entity separate ulatory regime in the Bahamas is a clear response and apart from co-owners and the administrator to the demand for cost effective means of entering The latest model, formally Smart Fund Model 007 is empowered to act on behalf of and represent it into captive or self-insurance for small to medi- (SFM007), but popularly dubbed the Super Qualified in all matters. um sized enterprises while satisfying international Investor Fund, may be offered on a private place- standards. ment basis to up to 50 ‘super qualified’ investors It was this commitment to building products that who must make a minimum initial investment of benefit from cultural and legal familiarity that saw Since 2011, after the enactment of the External USD500,000. The new model allows a greater num- the Bahamas introduce foundations law in 2004 and Insurance Act 2009 and the External Insurance Reg- ber of investors achieving greater economies of scale the ICON builds upon this. The Bahamas Investment ulations 2010, which govern the establishment, than any other template, and simplifies the qualify- Condominium (ICON) provides an alternative legal licensing and business operations of captive insur- ing criteria by providing for a minimum investment structure for investment funds that, inherently, is ance companies, the Bahamas have experienced rather than qualifying on a net worth basis. familiar to those in Brazil and indeed those in coun- growth in the number of captive cells and stand- tries which have similar civil law constructs. alone captives.

A CAPTIVATING LOCATION A PRO-BUSINESS ENVIRONMENT The Bahamas have Captive insurance is another area of recent expan- The innovative approach embodied in the BEE and witnessed a recent sion. The Bahamas is not a newcomer to captives. SMART Fund concepts are not only strong assets However, captives took a back seat during a peri- for The Bahamas in competing for new business, it upward trend in od in which the Bahamas focused on developing is also reflective of the country’s overall pro-busi- wealth management, trust and estate planning. ness environment that welcomes foreign direct investment fund This is certainly not the case now as the opportu- investment into the economy. There is recognition nity for captives to play a role in wealth manage- that growth and development are contingent on registrations ment is undeniable. creating economic opportunities for Bahamians whilst capitalizing on inherent and strategical- Given today’s unpredictable insurance market, ly-developed advantages to attract high net worth historically low interest rates and increased regu- individuals and their families, boutique firms, inde- A NEW ICON FOR FUNDS lations, it is not surprising that captives are coming pendent trust companies and fund administrators into their own as an attractive risk financing op- to it shores. The Bahamas have taken the lessons learned from tion. Fortunately, starting and operating a captive the niche marketing success of the SMART Funds has never been more straightforward, particularly The existing financial services sector, characterised product and applied the same innovative approach in the Bahamas. by a robust toolkit of sophisticated product offer- in creating and introducing the ICON - the Invest- ings, a respected regulatory regime evidenced by ment Condominium - to meet the specific needs Segregated cell legislation is a prime example of a commitment to international best practice with of Brazilian investment managers and advisors, as the Bahamas applying their focus on wealth man- respect to due diligence requirements, anti-money well as Latin American managers more broadly. agement to the captive market. The Bahamas’ laundering legislation and the implementation of cell legislation provides robust statutory protec- mechanisms to facilitate transparency and co-op- Under Brazil’s civil code the condominium was the tion to ensure that the assets and liabilities of eration – all form the backbone of an inviting and formalization of the concept of joint ownership each account are truly separate and distinct. Cell business friendly international IFC that welcomes and administration of property (in all forms) be- captives benefit from the natural economies of international business owners and executives.

BAHAMAS THE BAHAMAS CHOOSES THE PATH OF INNOVATION AND COMPLIANCE 27 Barbados is a nation with one of the oldest democracies in the Western Hemisphere BARBADOS WORK, REST AND PLAY IN BARBADOS

* by Ken Campbell, Invest Barbados

Barbados is one of the leading international busi- in areas such as international insurance, wealth It also passed the International Corporate and Trust ness and financial centres in the Western Hem- management, financial services, international mar- Services Providers Act which governs the conduct of isphere. The small island-country has earned a keting, information communication technology and service providers with respect to international best well-deserved reputation as a vibrant hub for the niche manufacturing. Consequently, Barbados con- practice standards. Currently, legislation for the conduct of international business of substance and, tinues to pursue new treaties with countries that creation of incorporated cell companies is under in 2013, its international business and financial ser- fully recognise the value of the symbiotic benefits of consideration. A strategy has also been developed vices sector accounted for approximately 10% of such arrangements and negotiations are at various for targeting new markets, particularly in Latin the country’s GDP. stages with several countries in this regard. America and Africa.

For decades, Barbados, a low-tax jurisdiction, has Barbados has and continues to protect its reputa- been a domicile of choice for investors, particularly tion as a preferred international financial centre; from North America and the United Kingdom. In one that is keen to attract businesses of substance. fact, for several years, Barbados has been a major The double-tax international business partner with Canada, mov- The jurisdiction continues to place transparency ing from 3rd in 2013/2014 to become the and best practice at the forefront of its interna- treaty network second largest destination for Canadian foreign tional business strategy. Barbados has signed a direct investment abroad, only after the USA. Ca- Foreign Account Tax Compliance Act Model 1A in- takes in 36 nadian foreign direct investment in Barbados stood tergovernmental agreement with the USA and has at C$64½ billion and C$71.2 billion at the end of formally promised to sign the OECD’s Multilateral countries 2013 and 2014, respectively. Convention on Mutual Administrative Assistance in Tax Matters. In fact, transparency has always been a watchword for Barbados. Testament to this is the country’s ranking as the least corrupt in Latin Moreover, with a literacy rate of 98%, Barbados More than 4,000 America and the Caribbean in 2014 and the 17th has a highly educated and trainable workforce. least corrupt country in the world according to This has resulted in the availability of a cadre of registered interna- Transparency International’s Corruption Percep- skilled professionals, well qualified to support the tions Index. international business and financial services sector tional business and the high level of value-added services that the In addition, Barbados places priority on developing jurisdiction provides. entities are operating ‘right-sized’ regulation to support both new and existing product offerings and markets. In a con- Apart from the fact that Barbados is a vibrant IFC, on the island tinuous effort to maintain its pristine reputation, one cannot ignore its outstanding natural beauty, the jurisdiction passed the Money Laundering and its appealing climate and its excellent quality of Financing of Terrorism (Prevention and Control) Act life. The country offers something for everyone – 2011. The Financial Services Commission, also es- from sporting and social activities to fine dining The jurisdiction’s expanding double-tax treaty net- tablished in 2011, is responsible for regulating the and carnivals; from music festivals to heritage tours work, which currently takes in 36 countries, has country’s non-banking financial services sector and much more besides. This is reflected in Barba- convinced many investors to conduct business with while the Central Bank oversees the banks. dos’ ranking in the 2014 United Nations Human it. Such a network guarantees both investors and Development Index as 6th in Latin America and the signatory countries certain benefits and rights not Barbados continues to refresh and diversify its prod- Caribbean, 8th in the Americas and 59th worldwide available under tax information exchange agree- uct offering to include, among other opportunities, in terms of quality of life. ments (TIEAs). The 36 treaties have accounted, in a regime for high-net-worth individuals. More re- part, for the more than 4,000 registered internation- cently, it enacted legislation to allow the creation of Why not let Barbados work for you? It is truly the al business entities that are operating on the island private trust companies and foundations. ideal place to live, work and play.

BARBADOS WORK, REST AND PLAY IN BARBADOS 29 The sky is the limit EU Citizenship through a real estate investment in Cyprus.

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We look forward to Citizen Lane LLC getting to know you. Zentrum Staldenbach 15 8808 Pfäffi kon SZ Switzerland +41 55 511 54 00 [email protected] www.citizenlane.ch CYPRUS ASSET PROTECTION THROUGH A CYPRIOT INTERNATIONAL TRUST

* by Adriaan Struijk, MSc, TEP, Chairman Freemont Group

Cyprus has a modern trust regime that offers con- owes to a creditor. Moreover, the obligation would forcers – for instance, the name of the settlor and fidentiality while still complying with internation- have to be known to the settlor at the time of the beneficiaries may not be disclosed. Pursuant to an al money-laundering standards. It protects assets transfer of assets. The onus of proof of such intent amendment of the CIT Law as well as the Law on comprehensively and allows individuals to take ad- on the part of the settlor lies with the creditors. The the provision of Administrative Services in 2013, vantage of the favorable tax regime in Cyprus. Peo- law states specifically that neither the reservation trustees are regulated with the exception of Pri- ple who want to retain some level of control have of certain powers by the settlor, nor his retention of vate Trust Companies (PTCs). The three supervising many opportunities to arrange this in a Cypriot In- a beneficial interest in the trust, can be construed authorities are the Cyprus Securities and Exchange ternational Trust or CIT. In a world that is becoming as badges of an intent to defraud. Any claim of a Commission (CySec; for Administrative Services Pro- ever-more litigious, where assets can be frozen by creditor on this basis in respect of the assets that viders), the Cyprus Bar Association (for Advocates) competitors and frozen by and ultimately forfeited to have been transferred to a trust must be made with- and the Institute of Certified Public Accountants of governments on the basis of unsubstantiated allega- in a period of two years from the date on which the Cyprus (for Accountants and Auditors). tions, where governments have deliberately blurred transfer or disposal of assets was made to the trust. the distinction between tax avoidance and tax eva- Trustees must collect and have at all times available sion, where ever-more aggressive tax authorities Cyprus does have forced heirship provisions in its Wills for disclosure to the relevant authority the following retroactively move goalposts, and where pre-nuptial and Succession Law which are applicable to domiciled information, where applicable: agreements in many countries only have limited ef- persons unless these are from the United Kingdom or fect, it is only prudent to protect one’s assets. In the most Commonwealth countries. However, if one has • the identities of all trustees; CIT, Cyprus offers one of the best asset protection set up a CIT before becoming resident, one can then • the identity of the settlor; vehicles available. circumvent these provisions by transferring assets to • the identities of all beneficiaries or information a trust. The CIT law states that the laws in force in on the class of beneficiaries; Trust legislation in Cyprus contains two main stat- Cyprus or in any other jurisdiction in respect of any • the identity of the protector (if applicable); utes: the Trustee Law 1955, based on the Eng- inheritance or succession should not affect the trans- • the identity of the fund manager, accountant, or lish Trustee Act 1925, and the International Trusts fer or disposition or validity of any international trust tax official (if applicable); and Law 1992. Whenever these statutes do not make in any manner. Also a trust or disposition to a trust • the activities of the trust. an express provision for a particular matter, Eng- will not be invalidated by the law of any jurisdiction lish common law and equity can be relied on. In by reason of a personal relationship to a settlor or any Moreover, certain limited information ought to be 2012 the International Trusts Law was amend- beneficiary. So any claims arising out of a divorce case provided to the supervising authorities for the pur- ed to add asset protection features and make the will not be entertained. pose of maintaining a trust registry. The trust regis- trust regime available to residents as well as non- tries maintained by each of the supervising authori- residents. The requirements for creating a trust in Cy- Finally, to drive home the point that Cyprus takes ties contain the following information on CITs. prus that falls under the CIT regime are that in the asset protection very seriously, the new section 12C year prior to its creation neither the settlor nor the states that compliance with the CIT is a matter of • Name of the trust. beneficiaries are residents of Cyprus. Subsequent to public order. This would suggest that should there be • Name and full address of every trustee at all its creation, though, the settlor and beneficiaries can any ‘conflict of law’ issues, such as those arising out material times. become residents of Cyprus. Also, at all times at least of forced heirship or divorce claims, that the trust • Date of creation of the trust. one of the trustees should be a tax resident of Cyprus. law will prevail. • Date of any change in the law governing the trust to or from Cypriot law. A CIT is taxable only on local source income in Aside from the asset-protection elements of the • Date of termination of the trust. case all the beneficiaries are non-residents and law, here are some other noteworthy features of the on worldwide income in case the beneficiaries are amended law. The trust registers are not available for inspection by resident (income to be attributed proportional- the public. The roles of protector and that of enforc- ly in case the beneficiaries are both resident and • Perpetual trusts are allowed. er are excluded from the scope of the ASP Law on non resident). The trust will be tax-transparent and • Trust property can be situated anywhere, the grounds that these are people whom the settlor taxed according to the tax that would be payable including Cyprus. appoints to oversee things in a personal capacity. by the beneficiaries if they had received the in- • Purpose trusts, including charitable trusts, are come directly. In July 2015, resident but non-dom- allowed. The requirement that beneficiaries of PTCs are not regulated but still trusts administered iciled individuals in Cyprus ceased to be subject a trust must be ascertainable is waived when the by PTCs are responsible for maintaining and report- to the Special Contribution of Defence, which is a trust is established for a specific purpose. ing certain information to CySec. There are restric- tax levied on dividends, interest and rental income. • Reserved powers, i.e. a specified list of powers tions on the type of trust arrangement for which a Capital gains are not taxed in Cyprus, with the that a settlor or protector may exercise (subject PTC can act as a trustee. Specifically, a director of a exception of gains on real estate located there. to the trust instrument), are provided for in the PTC must be: law. An exercise of some or all of these powers BADGES OF INTENT TO DEFRAUD will not in any way affect the validity of the trust, • a person who is the settlor of the trust; or nor delay its execution. A trustee who complies • a person who is the beneficiary of the trust or The International Trusts Law, as amended, provides with the exercise of these retained powers can not the spouse of a beneficiary; or one of the strongest asset protection features avail- be held to be acting in breach of trust. • a family member of the beneficiary or his spouse able. No claim may be made in respect of the as- • Exclusive jurisdiction applies. Unless the trust up to the forth degree of relation. sets that have been transferred to an international instrument states otherwise, the trust will be trust unless and to the extent that it is proven to the subject to the exclusive jurisdiction of the The PTC would need to have at least a secretary who satisfaction of the court that the international trust Cypriot courts. is resident in Cyprus with responsibility for collecting was made with the intent to defraud the creditors of information pertaining to the trust and making it the settlor at the time of the transfer of his assets to Subject to the terms of the instrument creating an available for disclosure to CySec. The PTC would be the trust. “Intent to defraud” means the intention of international trust, the law imposes specific confi- responsible for notifying CySec of the information to a settlor to dishonestly avoid any obligation that he dentiality provisions on trustees, protectors and en- be maintained in the trust register.

CYPRUS ASSET PROTECTION THROUGH A CYPRIOT INTERNATIONAL TRUST 31 Ierotheou, Kamperis & Co. LLC

Ierotheou, Kamperis & Co. LLC is a medium sized law OPENING GATES* rm established in Nicosia, Cyprus providing high TO CYPRUS AND THE WORLD quality, cost-e ective services to national and interna- tional clients. e rm’s Immigration Team o ers citizenship and residence services to foreign clients ever since 2006.

Our Corporate and Commercial lawyers, o er exper- tise that includes tax planning, shipping, trusts and corporate issues, while our highly skilled Litigation team represents clients before the Courts.

Advocates - Legal Consultants Address: Andrea Patsalidi 1, 3rd Floor, Oce 301, 2362 Agios Dometios, Nicosia, Cyprus Tel: 00357-22 878187 Fax: 00357-22 878378 E-mail: [email protected] Website: www.ikglobal.net

*Famagusta Gate was the main entry point of the old Venetian walls in Nicosia, the capital of Cyprus. MEMBER OF INVESTMENT MIGRATION COUNCIL CYPRUS CITIZENSHIP BY INVESTMENT – THE QUICKEST ROUTE INTO EUROPE

* by Michail Kamperis, a partner at Ierotheou, Kamperis & Co LLC in Nicosia

This jurisdiction is a member of both the European infrastructure projects). The mere purchase of A decision of the Council of Ministers, dated 19 Union and the Commonwealth and offers a safe, land is excluded. March 2014, also provides for the granting of low-tax portal into the EU. Cyprus, moreover, is a Cypriot citizenship to the investor’s spouse, mi- preferred jurisdiction for investors/entrepreneurs • Purchase or creation of, or participation in, nor children (under the age of 18) and financially seeking citizenship by investment. Cypriot businesses or companies. The applicant dependent adult children (18 years old or above). must have made an investment of at least €5 Neither the spouse nor the children are obliged to The Scheme for Naturalization by Exception of In- million in the purchase, creation or participation meet any financial criteria. The decision specifies vestors in Cyprus falls under section 111A(2) Civil in businesses or companies that are based in that the adult children of an investor are consid- Registry Laws 2002-15, which provides that the and operating in the republic. These businesses ered to be financially dependent up to the age of jurisdiction’s Council of Ministers may, under any or companies should have a tangible presence in 28, if they are students registered for an undergrad- conditions it determines appropriate, allow the Cyprus and employ at least five Cypriot citizens. uate or master’s degree. A child is also considered naturalisation of foreign entrepreneurs. The new • Deposits in Cypriot banks. The applicant must financially dependent if he has severe physical or scheme of criteria and conditions for the natural- have personal fixed-term deposits or deposits mental disability and is therefore unable to work. isation by exception of non-Cypriot entrepreneurs of privately-owned companies or trusts (in investing in Cyprus was approved by the Council of which he/she is the beneficiary owner) in local No statutory or regulatory amendments to the Ministers on 19 March 2014, revising a decision of Cypriot banks or subsidiaries of foreign banks Citizenship by Investment Scheme have been an- 24 May 2013. operating in the Republic of Cyprus of at least nounced for the near future. There is a possibility, €5 million. however, that the purchase of state bonds of the Republic of Cyprus will be removed from the list of • A combination of the aforementioned criteria. eligible criteria. Strict and The applicant is required to have a combination of two or more criteria stated in the five bullet- exhaustive ‘due points above, amounting to at least €5 million. HNWIs around diligence’ checks • Persons whose deposits with the Popular Bank Public Company Ltd have been impaired due to the world are always take place measures implemented after 15 March 2013. The applicant’s deposits with the Popular Bank increasingly Public Company Ltd have been impaired due to the measures implemented after 15 March interested in The scheme is regulated by the Ministry of Interior, 2013, to a total of at least €3 million. with the Ministry of Finance responsible for check- acquiring dual ing that each applicant fulfills the financial criteria • Major Collective Investments. The Council of for citizenship investment. Once applications have Ministers has the right to reduce to €2½ million citizenship and been processed and reviewed, the final decision the amount required to fulfill the first four rests with the Council of Ministers. criteria, as long as investors demonstrably residency participate in a special collective investment EIGHT STEPS TO HEAVEN scheme and as long as the total value of the investment is at least €12½ million. When a foreign investor/entrepreneur fulfills one of The Cyprus Citizenship by Investment Scheme has the following eight criteria, he can use the scheme This last criterion is the most popular and cost-ef- been a great success, accounting for more than to acquire Cypriot citizenship. fective option, enabling the investor to acquire a €2 billion in investments by November 2015, ac- Cypriot passport on the basis of the purchase of cording to the Minister of the Interior. Immigration • Investment in government bonds. The applicant real estate in Cyprus with a value of €2½ million, practitioners and real-estate developers in Cyprus must have purchased from the primary market plus value-added tax or VAT (if applicable). In that have promoted and used the scheme widely. Al- state bonds of the Republic of Cyprus of at least case, the investor is not obliged to buy a further though some concerns have been raised about this, €5 million. privately-owned residence of €500,000. the Government has repeatedly stated that strict and exhaustive ‘due diligence’ checks always take • Investment in financial assets of Cypriot In all the other cases listed in the criteria above, place before it awards citizenship to successful ap- companies or Cypriot organizations. The the applicant must additionally hold a permanent, plicants, with subsequent periodic inspections to applicant must have purchased financial assets privately-owned residence in the Republic of Cy- ensure that conditions continue to be met. In the of Cypriot companies or Cypriot organizations prus, the purchase price of which must be at least case of a breach in conditions, Cypriot citizenship (bonds/securities/ registered and €500,000 plus VAT. The applicant should have is revoked. issued in the Republic of Cyprus) of at least €5 concluded the necessary investments during the million. three years preceding the date of the application WHY CYPRUS? and must retain those investments for a period of • Investment in real estate, land development and at least three years after the date of his naturaliza- Cyprus enjoys three main advantages over other infrastructure projects. The applicant must have tion. The above-mentioned amounts must be prov- jurisdictions that offer ‘citizenship by investment’ made an investment of at least €5 million for en to have been transferred to Cyprus from abroad. schemes. the purchase or construction of buildings, or The applicant must have a clean criminal record for the construction of other land development and his/her name must not be included on the list • Firstly, speed. In contrast with other projects (residential or commercial developments, of persons whose property is ordered to be frozen citizenship-by-investment jurisdictions, under developments in the tourism sector or other within the boundaries of the European Union. the Cyprus scheme an applicant acquires a

CYPRUS CYPRUS CITIZENSHIP BY INVESTMENT – THE QUICKEST ROUTE INTO EUROPE 33 Cypriot passport within three months, as from 31 December 2016. Furthermore, the introduction operating there. There are currently more than 30 the date of submission of his application. of a non-domicile tax residency regime, exempting subsidiaries and branches of EU and non-EU banks non-domiciled individuals from tax on dividends, operating in Cyprus, licensed and supervised by the • Secondly, unlike other citizenship-by-investment interest and rent, attracts high net-worth individ- Central Bank of Cyprus. programmes, the Cypriot scheme does not uals who may be interested in combining a Cypriot involve any donation of funds on the part of passport with Cyprus tax residency. The above-mentioned corporate and personal the applicant, only an investment that can be tax measures are only part of the comprehensive liquidated after three years, with the exception CONSTANCY IS THE BEST POLICY business-friendly tax regime that has produced a of a permanent, privately-owned residence in thriving international business sector in Cyprus. The the Republic of Cyprus, which the successful The major challenge for the future of the Cyprus Cit- incorporation and management of Cyprus-based applicant must keep up at all times. izenship by Investment Scheme is, strangely enough, companies, as well as the creation of Cyprus In- to preserve the way the scheme works without any ternational Trusts, remain at the forefront of in- • Thirdly, the applicant acquires a European amendments. The simple reason for this ‘standstill’ ternational business sector services. In 2012, the Union passport without a residence prerequisite proposal is that the scheme has in the past been re- provision of fiduciary and administration services attached, meaning that he is not obliged to peatedly amended by the government. While these to entities was regulated under the aegis of the reside in Cyprus before he submits an application amendments were instrumental in crafting the long-awaited Law Regulating Companies Providing for citizenship. scheme’s current successful form, successive chang- Administrative Services and Related Matters. Ben- es may have deterred investors. eficial tax measures and a business-friendly envi- The successful applicant obtains exactly the same ronment have attracted a significant number of type of Cyprus passport as a native citizen. Vi- Cyprus now offers a straightforward and cost-ef- undertakings for the collective investment in trans- sa-free travel is widely available to Cypriot citizens. fective citizenship-by-investment scheme that ferable securities or UCITS, alternative investment Cyprus ranks 14th on the Henley & Partners Visa produces excellent results and appeals to high- funds and foreign exchange companies to Cyprus. Restrictions Index 2015, with 157 countries around net-worth individuals aiming to invest in Cyprus The Cyprus Securities Exchange Commission regu- the world that do not require visas for Cypriot citizens. and acquire EU nationality. The challenge for the lates these entities which are mainly Russian- and Cyprus government is to run the scheme as it is, Ukrainian-owned, although various other national- while continuing to apply the scheme’s financial ities are also represented. and ‘due diligence’ criteria strictly in an effort to The scheme ensure that Cypriot/EU passports do not fall into the wrong hands. accounted for more Offshore banking Cyprus has operated as a reputable, low-tax finan- than €2 billion in cial services center since the early 2000s, shedding is still attractive in its reputation as an offshore tax haven. The speedy investments by recovery of the Cypriot economy after the bank Cyprus bailouts in March 2013 has astonished Europe- November 2015 an and international organizations. A fiscal policy report published in August 2015 revealed growth of 1% for two consecutive quarters of 2015, ex- The Cyprus Immigration Permit Scheme is anoth- ceeding original projections of 0.4%. According to er government initiative for which our firm, which As regards tax issues related to the investment, it government figures, the economy is expected to has offered citizenship and residence services to is important to stress that as a reputable financial continue this positive trend through to end-2015, foreign clients since 2006, is particularly active in centre for the past 40 years, Cyprus is a tax-friendly to the relief of both the public and the business performing services. Here the Government has set country with a low-tax burden on foreign and lo- community. up a ‘fast track’ procedure, allowing entrepreneurs cal investors. As noted above, Cyprus imposes no and/or investors to acquire immigration permits inheritance tax, while the rates of corporate tax The financial services sector, including the shipping as long as they have, among other things, a secure (12½% on net profits) and personal income tax sector, accounts for approximately 7% of Cypriot annual income of at least €30,000 and have pur- (imposed on earnings above €19,500) are among GDP. The combination of a positive macroeconom- chased a residence with a total market value of at the lowest in the EU. ic environment and foreign investment ensured least €300,000 (VAT not included). that Cypriot banks successfully passed EU and JOINING THE NON-DOM MARKET European Banking Authority (EBA) stress tests in High-net-worth individuals around the world are the autumn of 2014. This was because the Cypriot increasingly interested in acquiring dual citizenship In July 2015 the Government introduced a series of Government had stuck to the terms of the mem- and residency in order to allay safety, environmen- measures aimed at making the Cypriot tax system orandum of understanding that it signed with the tal, educational and tax concerns. Our specialised even more attractive to prospective investors and Troika in 2013, also passing measures in the fields immigration team is supported by our corporate Citizens by Investment. Fees for the transfer of real of fiscal policy and tax, guaranteeing that deposits and commercial lawyers and administration staff, estate were halved for transactions completed be- in Cypriot banks will not be nationalised. offering expertise that includes tax-planning, ship- fore 31 December 2016, while no capital gains tax ping, trusts and corporate issues, while our litiga- is imposed on the future sale of immovable prop- Offshore banking is still attractive in Cyprus, given tion team offers clients experienced representation erty in Cyprus acquired between 16 July 2015 and the considerable number of foreign business people before the courts.

IFC WORLD 2016 34 DUBAI THE BEST PLACE IN THE WORLD TO DO BUSINESS

* by Adriaan Struijk, MSc, TEP, Chairman Freemont Group

The United Arab Emirates, and Dubai in particular, 2014 and spending on subsidies has fallen by the above list the federal government does not is one of the best places in the world to do busi- more than 90% on the 2014 figure, the have taxing powers. If any legislation is desired on ness. Dubai has followed a long-term pro-business Government having abolished most fuel and a federal level in areas which are not specifically policy under the banner of “what is good for the electricity subsidies and having slowed down delineated as being with the remit of the power of businessman is good for Dubai”. The government spending on projects that it considered to be the federal government, such as taxation, then the sees business and entrepreneurship as essential to non-essential. The predicted budget for 2016 is consent of each emirate’s government is required. the emirate’s success. Long before oil was discov- the same as 2015 but with no budget deficit. ered in the UAE, Dubai had established itself as a A new commercial companies law (Federal Law No. regional trading port. For more than a 100 years • Federal government debt as a percentage of (2) of 2015 on Commercial Companies) came into the things that it offered remained remarkably GDP was only 16% in 2014 (the last year for effect July 1st 2015. It modernizes the previous unchanged: free trade, largely free competition, no which figures are available). commercial companies law. Some of the most sig- capital controls, fixed fees for doing business, and nificant provisions: –except for low import duties – no taxes. Foreign • Dubai’s government debt and debt guaranteed businessmen and guest workers have always been by it as a percentage of GDP is around 32% of • LLC’s can have one shareholder (previous welcome and subject to few restrictions. its GDP. If the debt obligations of government minimum was two). related entities (GRE’s) are included the debt to • Pure holding companies can now be established Dubai has always been a place that attracts GDP ratio is 132%. The emirate of Dubai booked (previously all companies needed to be licensed doers, not paper-shufflers. While most of the world budget surpluses since the last financial crisis for a specific line of business). is piling new administrative burdens on business- too and for 2016 has forecasted an operating es, in Dubai the operating environment for busi- budget surplus of 7%. • Investment funds shall have their own legal nesses has been remarkably stable. Basic policies personality, legal form and financial position. have never really changed much over time. Dubai LEGAL DEVELOPMENTS provides a shining example to the world of what • A companies registrar which will maintain a a country can achieve if its lets businesses create, The UAE has a federal system of government with companies and trade names register will be compete and thrive and lets entrepreneurs and 7 emirates. The constitution enumerates only spe- introduced as per specific regulations by the employees keep every single they earn. cific powers for the federal government, all other minister of economy. Documents will be powers are retained by the individual emirates. available by concerned parties for inspection. The federal government has delineated legislative powers in areas such as foreign affairs, security and • Companies shall apply IFRS accounting defence, nationality and immigration issues, educa- standards, when preparing interim or annual Dubai has always tion, public health, currency, postal, telephone and accounts and determining distributable profits. other communications services, air traffic control been a place that and licensing of aircraft, labour relations, banking, • Accounting records must be kept for 5 years. delimitation of territorial waters and extradition attracts doers, not of criminals. And, perhaps surprisingly to those from • Annual audits are now required. other federal states, the federal government actually paper-shufflers exercises its powers within the authority assigned to • Shareholders may pledge their shares as security. it by the constitution. The authority given to the fed- eral government derives it legitimacy from the ruling • Provisions covering mergers. families in the individual emirates and these remain Some pundits have predicted that the current fiscal protective of their autonomy. • Non-pre-emptive issuance of shares to strategic model for the UAE is not sustainable as a result partners (partners whose contribution to the of the collapse of oil prices from about $110 per company provides technical, operational or barrel in the middle of 2014 to $40 a barrel at the marketing support for the benefit of the end of 2015. International organisations such as company) is permitted, subject to certain the International Monetary Fund, the World Bank The emirate has conditions, including a 75% shareholder and the OECD, never hesitate to volunteer advice resolution. about how to run an economy and government experienced budget while constantly putting pressure on the There has been increasing talk recently about the UAE to ‘normalize’ its tax system. However, the surpluses ever since possible implementation of VAT in the UAE. Most UAE’s governmental finances compare favourably other GCC governments are coping with severe with those of others. the last financial government deficits, and since the aim is to intro- duce VAT simultaneously throughout the GCC, this • The UAE’s federal government, which accounts crisis might trigger its implementation in the UAE. All 7 for only 14% of total government spending emirates would have to consent to this since the in the country, has run a budget surplus every authority to levy taxes has not been delegated by single year except in 2008 and 2015. 2008 saw the emirates to the federal government. The intro- a severe financial downturn, while 2015, despite duction of VAT, with a probable rate from 3-5%, the collapse in oil prices, only saw a budget This decentralised system of government has would mean a fundamental change to the business deficit fo about 2% of GDP. served the UAE well. It assures a healthy amount landscape in the UAE, undermining exactly one of of competition between the emirates and keeps the tenets of the UAE economy which attract busi- • The federal government was quick to curb a check on runaway government spending and ness here: the lack of administrative burden. It will spending. Public spending is down by 12% on counterproductive legislation. As is apparent from deter the doers, but the paper shufflers love it.

DUBAI THE BEST PLACE IN THE WORLD TO DO BUSINESS 35 Freemont Group is a comprehensive network we can help you find a UAE resident provider of corporate services in industry-qualified company director, CFO, or various jurisdictions. Since 2006 we business developer. have had our headquarters in Dubai. ✓ As company secretary we can arrange and attend board meetings, take minutes, ensure The UAE, and Dubai in particular, is corporate compliance and file statutory returns. one of the best places in the world to ✓ Business support services: arranging of do business. Dubai in particular has visas, translation, legalisation, liaising with followed a long-term pro-business government departments, obtaining permits policy under the banner “what is and licences. good for the businessman is good for ✓ Trade facilitation services. These services Dubai”. If you are - or intend to be - an are aimed at facilitating import into the UAE internationally operating entrepreneur, and export from the UAE. We can provide an owner of a SME, you are our consultancy on import and export requirements, typical client. It is our passion to help assist in obtaining the required licenses and you gain the benefits of operating approvals, obtain chamber of commerce out of this uniquely pro-business certificates, select clearing agents, find environment with no direct taxes and warehouse space, and arrange transportation. VAT. Our comprehensive range of Our goal is help you reduce the complexity and services is aimed at facilitating entry cost of the trade transaction process and ensure to the UAE market and setting up that all these activities take place in an efficient, business here. We offer a one-stop transparent and predictable manner. shop for business owners new to the ✓ Advisory on most feasible market-entry modes. UAE – you will be free to focus on your ✓ Selection of sales agents/ distributors. Considering supplying the UAE business objectives. As a Freemont ✓ Cross border structuring: helping decide market or setting up a base in the Group client you will get access to which corporate functions to locate where. UAE, but not sure how? our extensive network of local ✓ Accounting services: reporting, preparation for connections and opportunities to help audit, business valuation, and international tax Headquartered in Dubai since you succeed. coordination services. 2006, we offer a one-stop shop for ✓ We provide office solutions and help you find business owners and SME’s new to Our range of services covers office space, provide a meeting room, arrange the UAE – from establishing most the following: company telephone number, and scan and feasible entry mode to execution. ✓ Company formation: deciding forward your mail. whether to set up outside or inside ✓ We can register your trademark, patent, As a Freemont Group client you the freezones, helping you select the copyright or design mark in the UAE, and set up most appropriate freezone, obtaining structures to hold, manage and license your IP. will get access to our extensive the required licenses, and taking care ✓ Our legal advisors can draft agreements to network of local connections and of formation procedures. We are also protect your investment through licensing-, opportunities to help you succeed. a registered agent for Ras al Khaimah franchising-, JV-, distribution-, agency-, offshore companies which are ideal shareholders’-, and option agreements. Freemont Group as holding vehicles for freezone or ✓ Business start-up: business idea generation, HDS Business Centre 3204, local companies or to hold passive concept testing and validation, market research, and Jumeirah Lakes Towers, investments. We can also arrange feasibility studies, business development advisory. Dubai, UAE for a local sponsor or service agent, We gladly meet you in our which is required for companies Email: [email protected] incorporated outside the freezones. office in Jumeirah Lakes Tel: +971-44457900 ✓ Company management: within our Towers for a free consultation.

www.freemontgroup.com A long-awaited insolvency law is in its final draft. applicable regulations. They provide much more To give a few examples of recent developments It is expected to contain provisions for corporate flexibility in how the company will be constituted. and what 2016 has in store for Dubai: bankruptcy modelled on Chapter 11 proceedings New legal forms have also been introduced: com- in the US allowing companies to renegotiate the panies limited by guarantee, companies limited • New freezone “d3” started operations, aimed terms of their debts with creditors. The insolvency by guarantee and by shares, unlimited companies, to attract artists and designers. In its own words: law was passed by the cabinet in July 2015. It now segregated portfolio companies. The statutory At d3, state of the art offices are home to global needs the ratification of the consultative Federal right of pre-emption has been abolished. Re-domi- brands while studios and ateliers house local National Council and of the Supreme Council, the ciliation in and out is allowed. The new regulations businesses. Creative, customizable spaces are country’s highest legislative body. are similar to those of long-standing financial ser- ideal for up and coming entrepreneurs and are vices centres such as the BVI.ht of pre-emption designed to forge an active design community In October 2015 Abu Dhabi launched its new finan- applies on all share transfers. that is tailored to contemporary business cial freezone, Abu Dhabi Global Markets (ADGM), ” needs. and started accepting its first applications. Like Du- bai International Financial City (DIFC) it is a sepa- • The Mohammed bin Rashid Library is set to rate jurisdiction, with its own registration authority, The introduction of open at the end of 2016. It will hold more than financial regulations and regulator and courts. It 1.5 million volumes, 1 million audio books and will initially focus on private banking and wealth VAT would cause a 2 million e-books, making it the world’s largest and asset management, but has been designed to electronic collection and the biggest library in accommodate the full spectrum of the financial fundamental change the Arab world. services industry. The foundation of the civil and commercial law in ADGM is provided by the Appli- in the business • Dubai Opera is a 2000-seat, multi-format cation of English Law Regulations 2015. Those reg- theatre. Due to open in 2016, Dubai Opera will ulations make English common law (including the landscape accommodate opera, theatre, concerts, ballet, rules and principles of equity) directly applicable in art exhibitions, orchestra, film, and sports ADGM and they adopt specific UK statutes. ADGM events. Courts do not have jurisdiction in criminal matters. Accordingly, relevant references in the English stat- WHAT’S NEXT • Three massive Florida-style theme parks utes to criminal offences have been amended to being built on the border with Abu Dhabi will refer to breaches of the ADGM Courts Regulations Dubai has been growing at a healthy rate of 4.5 to be open for the public in October 2016: or Rules only, punishable by a monetary fine. 5 per cent in real terms and its future growth is ex- Hollywood-themed Motiongate Dubai, pected to be within the same range for the foresee- Legoland Dubai and Bollywood Parks Dubai. In addition to the UK statutes adopted the ADGM able future. Its economy has diversified almost en- The 50 or so cafes, restaurants and shops which shall additionally deploy its own set of rules and tirely away from oil. Its economy has also bounced will make up its 220,000 sq ft Riverland regulations in certain areas such as companies law back, buoyed by its perceived status as a safe ha- dining area at the entrance to the park had and employment law. And, just as statute prevails ven and benefiting from a boom in trade, logistics also been leased. The licensed dining area close over case law in England, so the ADGM regulations and tourism. Dubai has become an international to the park gates, which will not require a ticket will prevail over the common law provisions adopt- logistics and services hub used by companies to for entry, will be based around a 1-kilometre ed therein. move goods or command regional operations. It stretch of manmade river. Part of the venue will has become a hotbed for tech startups recently be designed to look like a medieval French Ras al Khaimah Investment Authority’s (RAKIA) and due to its proximity and large Iranian expatri- village, part will be designed to look like 1950s and Ras al Khaimah Free Trade Zone’s international ate population is set to profit from the resumption America, part like India in the 1930s and business company registries are set to be merged of trade with Iran and investment into Iran. another part like France at the end of the 19th into a new entity: Ras al Khaimah International . century Corporate Centre (RAKICC), owned by RAKIA. The Many companies targeting Iran will prefer to oper- regulations applicable to companies that will be ate out of Dubai or have its regional hub in Dubai, • 850km of bicycle tracks in central business registered there (“Companies Regulations”) have rather than in Iran. Dubai’s economy is becoming district areas and newly developed localities are been published in January 2016. These regula- more diverse by the year, as are the facilities on being laid to provide suitable transit alternatives tions provide a vast improvement over the current offer for residents and visitors. for cycling enthusiasts.

DUBAI THE BEST PLACE IN THE WORLD TO DO BUSINESS 37 Securing your international financial assets for over 30 years

At Fiduciary Group we help our clients protect their existing assets and assist them to manage and grow these assets for the long term. Our range of services includes:

Trusts & Foundations Pension Solutions Fund Services Corporate Services Yacht & Ship Registration Gibraltar Residency

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+350 200 76651 [email protected] Gibraltar London Zurich www.fiduciarygroup.com Fiduciary Management Limited Regulated by the Gibraltar Financial Services Commission GIBRALTAR GIBRALTAR’S PLACE IN THE WORLD OF FINANCE

* by MP, Minister for Financial Services, HM

Gibraltar continues to develop dynamically as an reporting standard of automatic and spontaneous in- stock of products, as can be seen with the creation of innovative EU onshore financial services jurisdiction. formation exchange with 55 countries as part of the a working group to review our tax residency schemes. Its key components are the many firms that are ei- first phase; we were one of the early adopters. We have invested significantly in renewing and ther licensed in Gibraltar or that avail themselves of creating financial services legislation to meet the European Union passporting rights and settle all or Gibraltar is innovative. It needs to be so if it is to demand of local practitioners. This includes laws part of their business on the Rock. continue to enjoy its notable standard of success that relate to Private Trust Companies, Purpose and prosperity. Innovation is a very important com- Trusts, Anti-Forced-Heirship measures, amendments The global financial services industry continues ponent of our makeup. In 2015 we entered an area to the Perpetuity Period, Limited Liability Partner- to evolve, creating both challenges and opportu- of the global insurance market that we had not ships and (to come shortly) Private Foundations. This nities. The sector is a key element of private en- explored previously. We added a new product (in- work continues as we strive to create excellence in terprise and contributes greatly to the economic surance-linked securities or ILSs) to our already suc- all that we do and equip practitioners with the best success we enjoy in Gibraltar. We work tirelessly cessful insurance sector portfolio. Lottoland Group’s possible toolkit. to ensure that we only attract operators of good €100 million lottery-winning risk collateralised re- quality and to provide them with a well-regulated insurance deal was Gibraltar’s first ILS transaction The establishment of the Gibraltar International environment, an excellent and zealously guarded and we expect more to follow as we establish our Bank has been a source of great pride to us. It was reputation and the option of accessing markets at proposition further on the world stage. created in a remarkably short space of time and is speed. now performing banking services for personal and The Government supports and values a close work- corporate customers in our local community. In Compliance with international standards is important ing relationship with the private sector for the pur- late 2014 we welcomed the launch of the Gibraltar to us. Gibraltar has signed the equivalent of 130 tax poses of raising the jurisdiction’s profile and seeking Stock Exchange – another important milestone in information exchange agreements through the dif- out new initiatives. Testament to this is a recent in- the development and maturity of our jurisdiction. ferent mechanisms that we currently have in place – crease in resources for the Gibraltar Finance team in namely the multilateral convention, the EU directive the Finance Centre Department. This allows them to There will be more to come as we work relentlessly and bilateral tax information exchange agreements. be proactive in taking the ‘Gibraltar message’ to both and at a brisk pace to make positive changes and We have also signed up to the United States’ Foreign our traditional markets and those where we perceive create further opportunities. We have already cre- Account Tax Compliance Act and ‘UK FATCA.’ In Oc- opportunities to create something new and exciting. ated an environment in which firms can truly call tober 2014 the Hon Fabian Picardo, our Chief Min- We continue to explore other areas of interest includ- Gibraltar home and grow and develop with a sense ister, signed the Berlin Accord, which is the common ing and to refresh our existing of partnership and belonging.

GIBRALTAR’S PRIVATE TRUST COMPANY LEGISLATION - A FINE ADDITION TO THE JURISDICTION’S TRUST OFFERING

* by Peter Thomson and Isabella Linares, Fiduciary Group, Gibraltar

Last year, Gibraltar passed the Private Trust Com- The appointment of a Private Trust Company as a thereby easing concerns about liability for pany Act 2015, which will no doubt prove an espe- trustee of a trust, or a group of trusts under the individual family members named as trustees; cially attractive proposition for family offices. same family, can lead to numerous benefits – es- and pecially, but not exclusively, for family offices. A • allowing for long-term structural and The new law is a valuable addition to the jurisdic- Private Trust Company is, for example, easily inte- administrative flexibility, as a Private Trust tion’s trust offering, providing greater regulatory grated with other family entities such as an exist- Company can adapt to the changing protection which is sure to attract prospective cli- ing company or philanthropic organisation, with a circumstances and wishes of a family. ents who want to benefit from a higher level of view to: control in the management of a trust, while safe- The Gibraltar Finance Centre has assured everyone guarding it against fiduciary risk. • consolidating several family trusts under one that the registration system will remain voluntary, umbrella to manage assets and protect them so as to avoid unfairly disadvantaging those Private Previously, it was possible for any limited company more efficiently; Trust Companies in respect of which the associat- to act as a trustee as long as it was not engaged in • retaining more family control over a trust’s ed registration and renewal fees may be dispro- licensable activity. The new Act sets out rules within investment and distribution decisions; portionate to the size of the trust. This provision, which the PTC is formally recognised and can oper- • ensuring ‘continuity’ for families by resolving any the Finance Centre has asserted, “fills in a gap in ate. The Society of Trust and Estate Practitioners has trustee successor issues that may arise over the Gibraltar’s offering as an international finance cen- told the Gibraltar Finance Centre that it is ‘delighted lifetime of a trust; tre without prejudicing those who may have felt at the steps Gibraltar is taking’ in this respect. • providing better protection from fiduciary risk, caught by a mandatory system of registration.”

GIBRALTAR GIBRALTAR’S PLACE IN THE WORLD OF FINANCE 39 We’ve grown in line with people’s confidence in us.

Iberis gibraltarica – Gibraltar Candytuft

Gibraltar, posting 10% GDP growth and consistent budget surpluses, is the onshore success story in Europe.

Together with our partner firms across the various disciplines in the Gibraltar Finance Centre, we have as our foundation three main virtues; regulation, reputation and speed to market.

For more information visit the Gibraltar Finance website: gibraltarfinance.gi Within the European Union Single Market The benefits of registering a Private Trust Company It is important to note that the registered adminis- can also avail themselves of our associated law will certainly prove attractive for many but there trator must: firm, Isolas 1892, for any relevant Gibraltarian legal are, however, requirements to be met if an applica- • hold a valid class VII or class VIII licence; services that they might need. tion is to be successful. For example, the company • hold the ‘designated instrument’ that identifies can only provide trustee services to the ‘designated the designated individual; and At Fiduciary Group, our highly qualified team have individual’ and his nuclear family – this includes his • submit a declaration of compliance to the been providing expert financial services and tai- spouse, or his civil partner, his children and other re- registrar every year. lored solutions to an international clientele for over moter issue. 30 years. Whatever your financial needs, Fiduciary In respect of these requirements, Fiduciary Trust Group are here to help. Also, crucially, the PTC must appoint a Gibraltar-reg- Limited, part of the Fiduciary Group of companies, is istered administrator and hold at least one board able to act as the registered administrator for a Pri- meeting each calendar year at the registered office vate Trust Company and can also provide account- You can contact us at [email protected] or with the ‘registered administrator’ in attendance. ing services and prepare financial statements. Cients visit our website at www.fiduciarygroup.com

THE ROCK OF FINANCE

* by Emma Lejeune of Ramparts European Law Firm

Gibraltar is a popular jurisdiction for high-net-worth Although at present Gibraltar does not have any The involvement of the family in this (albeit in individuals who wish to move to a new place, evolve legislation to govern family constitutions specifi- an informal and peripheral manner) is vital to the ‘succession plans’ and/or structure their affairs in a cally, it is common for families to use them. The success of such arrangements but it should hap- reputable European financial centre. family constitution ensures that the family office pen through a family council with regular meetings carries out the family’s objectives in a coherent which the family office arranges. Gibraltar offers personal tax incentives to individ- manner. uals who benefit from a net worth in excess of £2 The council should be able to revisit policies and million sterling and wish to relocate and take up Gibraltar has recently finalised new legislation to make recommendations on matters pertaining to residency in Gibraltar. In addition, Gibraltar levies govern foundations, allowing such vehicles to be the family’s wealth. a corporate tax rate of 10%. There is no capital used for the holding of interests in either a family gains tax, gift tax, wealth tax, inheritance tax or office or general asset-holding structures linked to The council’s primary objective is to encourage value-added tax (VAT) in Gibraltar. Furthermore, that family office. communication between family members and en- tax is not levied on passive income and income ac- sure the growth and preservation of the wealth for crued and derived outside Gibraltar is not taxable A family office normally takes the form of a com- future generations. in Gibraltar (as is further defined in the Income Tax pany through which the family employs qualified Act). All of the above makes Gibraltar an attractive administrators who are responsible for creating WHAT GIBRALTAR HAS TO OFFER jurisdiction in which to structure the holding in an consolidated reports of the family’s wealth (taking international business or otherwise, make use of into account the jurisdictional spread of assets) Gibraltar has a sophisticated infrastructure and the opportunities offered to create an asset-hold- and also for co-ordinating all other administrative many qualified individuals who are available for ing structure through which assets can be held, tasks between the various asset-holding structures employment in such offices. This makes it a good preserved and grown in an efficient manner. or international trading businesses (if any). platform for the setting-up of family offices.

Gibraltar is also part of the European Union (al- It is also able to offer opportunities for families to though outside the EU’s customs union and there- ‘structure’ their wealth and various assets – perhaps fore not part of the VAT regime). European laws such Gibraltar takes full through Gibraltarian vehicles or as part of a mul- as directives and regulations are often transposed ti-jurisdictional structure, all of which can be co-or- into Gibraltar law and Gibraltar is able to take full advantage of all the dinated by the family offices set up in Gibraltar. advantage of all the freedoms afforded by the Eu- ropean Union including ‘passporting’ rights in all the freedoms afforded As mentioned above, Gibraltar offers opportunities nations that belong to that governmental club. for people who wish to enjoy a Mediterranean life- by the EU, including style by relocating to a cosmopolitan jurisdiction FAMILY CONSTITUTIONS with a solid infrastructure and English as its spoken ‘passporting’ rights language. Gibraltar is becoming increasingly trendy in the eyes of high-net-worth families who are looking Young families that move to the Rock are able to for an attractive jurisdiction in which to locate The family office is also able to accommodate benefit from public or private schooling, both of their family offices. It offers families good structur- communal investments and ensure that everything which follow the curriculum set in the UK. ing opportunities and is able to provide them with in its care observes the family constitution and sufficient substance in order to create robust struc- conforms to the family’s values and objectives. The fact that Gibraltar is a peninsula with a border tures through which they can manage and develop When a family establishes such a constitution it with also allows individuals to travel there, their wealth. must consider various crucial things, especially the and possibly have second homes in that country. opportunities that it should give its members to Wealthy families often run their affairs and those opt out of the arrangements. It should also, among Gibraltar has regular flights to London, Manchester of their family businesses badly. They often over- other things, evolve rules for communal invest- and elsewhere in the United Kingdom and is only a look the importance of having a detailed constitu- ment and the education and transition of wealth one-hour drive from Malaga Airport, which offers a tion when setting their family offices up. to succeeding generations. wide variety of international flights.

GIBRALTAR THE ROCK OF FINANCE 41 GIBRALTAR: VISION + STRATEGY + IMPLEMENTATION = RESULTS

* by Paul Astengo, Senior Executive, Gibraltar Finance

Gibraltar is a British Overseas Territory and a viduals must earn more than £120,000 per annum by providing a secure environment in which ‘local self-governing and self-financing parliamentary and have experience that will promote and sustain law’ trusts are free from attack by foreign laws and democracy within the European Union. Gibraltar is activity that is considered of economic value to Gi- foreign courts. physically part of Europe; it is not an island and is braltar and is not generally available there. located at the southernmost tip of Spain, allowing Typically, firewall legislation does two things. First- easy access to Spain, Portugal and beyond. NEW LEGISLATION ly, it sets out rules that limit the circumstances under which any foreign law can affect a local law With a state-of-the art international airport, Gi- Under the Private Trust Company Act 2015, the trust; and secondly, it prevents the enforcement of braltar offers flights to and from a number of des- private trust company’s sole purpose is to act as foreign judgments that undermine these principles. tinations in the United Kingdom every day. It offers trustee to the trust (or group of trusts) belonging The Cayman Islands were the first major financial a vibrant property market with an excellent choice to the group; these trusts may be to help in fam- centre to enact such legislation in 1987. In re- of high-quality housing. Gibraltar provides diverse ily succession, or might be commercial or philan- sponse, other centres have reformed their laws and marina facilities capable of berthing large luxury thropic in their goals. Typically, PTCs seek to use a many have since extended the scope of their fire- yachts. It is a Mediterranean territory and as such private trust company to achieve some or all of the wall legislation beyond that of the Cayman Islands. enjoys excellent weather and lifestyle. following: Jersey has amended its trust law several times in recent years and Guernsey and Cyprus have also EU membership provides passporting rights in • privacy; amended theirs. banking, investment services, insurance, insurance • control and influence; mediation and reinsurance across all EU and Eu- • reductions in costs; and ropean Economic Area (EEA) countries and access • improved protection from fiduciary risk. to a market of in excess of 500 million people. The was forecast to grow to The Private Trust Company Act 2015 will be a great Gibraltar has more £1.8bn by 2015 and the Government has main- addition to Gibraltar’s trust offering – especially, tained a budget surplus throughout the global but by no means exclusively, in the context of fam- than 80 exchange- economic slowdown that has affected much of the ily offices. developed world. GDP continues to grow in excess of-information of 10% per annum. The Purpose Trusts Act 2015 is also important. Or- dinarily, a trust contains identified or identifiable agreements beneficiaries and the duties imposed upon trustees are owed to those beneficiaries. Charitable trusts established for one or more charitable purposes are GDP continues to a long-standing exception to this principle. With regard to non-charitable purposes, however, the In the Act, I believe we have struck the right bal- grow in excess of law has been slow to recognise that trusts have ance between, on the one hand, too little protec- a part to play. A number of finance centres have tion, such that the legislation is unlikely to prove 10% per annum therefore changed the law to permit the creation attractive in the global marketplace and unlikely to and enforcement of trusts, whereby the trustees attract meaningful investment, and on the other hold property on trust to carry out specific purpos- hand so much protection that we would run the es which do not qualify as charitable. This type of risk of appearing to be a haven for shielding assets. Gibraltar’s legal system is based on English com- trust is usually referred to simply as a purpose trust. Gibraltar’s position is, at the same time, unique. We mon law. Its investment firms are well supported are bound by EU regulations in the field of private by professionals and the ‘big four’ audit firms, in- There are a number of purposes for which a pur- international law, and in particular we are bound to ternational banks, lawyers and fund administrators pose trust can be useful, such as to fill the ‘charity recognise and enforce judgments from fellow EU all operate there. gap.’ That is to say, to label purposes that cannot member states, according to Regulation EC442001 strictly be said to be charitable, but which equal- and EC4 2009. HIGH-NET-WORTH TAX RESIDENCE SCHEME ly do not require beneficiaries – for example, a request that a trust fund should be used for the SPV PCC – INSURANCE-LINKED SECURITIES Gibraltar operates a low tax regime including a tax promotion of peaceful relations between nations. residency scheme for individuals with net assets in To maintain control over family assets, as in times Gibraltar has established a new category of pro- excess of £2 million (conditions apply), capping the when there is an aim to benefit the family but also tected cell company specifically tailored for the maximum personal income tax at £29,880. Gibral- to ensure the continuance of a business. A purpose insurance-linked securities sector. The new cate- tar has no value-added tax, no capital gains tax, no trust might make certain that the benefit of the gory of PCC, to be known as an SPV PCC, will be inheritance tax and no wealth taxes. Its currency is business is retained without interference from the regulated under Gibraltar’s Insurance Companies the Gibraltar , which is at par with the pound beneficiaries and the beneficiaries could still re- (Special Purpose Vehicles) Regulations 2009. SPV Sterling. ceive dividends from the business without having PCCs will only be permitted to establish cells that any right to interfere. are 100% collateralised and as a result the solven- HEPSS cy capital requirement for the core capital of the The Trust (Private International Law) Act 2015 was SPV PCC will be £500. This is yet another example The Government introduced HEPSS (High Execu- also passed last year. The trust industry worldwide of how we can innovate and work with the private tive Possessing Specialist Skills) to attract the right is a large, mature and increasingly competitive one. sector and the regulator to drum up new business kind of executives to Gibraltar. This tax residency In this marketplace, many jurisdictions have enact- for our jurisdiction. The launch of SPV PCCs is the status is aimed at individuals with specialist skills ed so-called firewall legislation, designed to attract next step in our ambition to become the premier who come to work and live on the Rock. These indi- substantial investments and deposited trust funds ILS jurisdiction in the European Union.

IFC WORLD 2016 42 FATCA • The OECD and Council of Europe Convention on ber 1997 to conduct self-assessments and ‘mutual Mutual Administrative Assistance in Tax assessments’ of the anti-money laundering meas- HM Government of Gibraltar is pleased to announce Matters, which was extended to Gibraltar with ures in place in Council of Europe member-states that regulations were published on Thursday 12th effect from 1 March 2014. This provides for tax and territories that are not members of the FATF. November 2015, bringing into effect the inter-gov- information exchange between Gibraltar and Moneyval encourages jurisdictions to improve their ernmental agreement (IGA) that it signed with the all countries and territories that have ratified AML measures in keeping with the FATF’s recom- United Kingdom in November 2013, colloquially the it. Consequently, and pursuant to the various mendations and to improve international co-op- known as UK FATCA. The IGA is a reciprocal one and agreements and the Convention, Gibraltar has eration. So far, Gibraltar has not been a member is intended to improve international tax compli- exchange-of-information agreements to the of the Financial Action Task Force but has instead ance as regards the relationships between residents OECD’s standard with more than 80 countries been part of a quasi-FATF regional body that its of both countries and the respective income tax and territories around the world, a small number Government has regarded as unsatisfactory. authorities of the United Kingdom and Gibraltar. of which have still to be ratified. The regulations outline the information that fi- Article 2 of the MONEYVAL Statute required a for- nancial institutions are to gather, along with a mal application by the United Kingdom in its ca- timetable for effective automatic exchange of in- pacity as a Council of Europe member-state with formation in September 2016 and thereafter. These respect to a territory for whose international rela- regulations follow those published earlier this year Moneyval will soon tions it was responsible. in respect of the IGA with the United States; ef- fective automatic exchange of information under subject Gibraltar to AN MOU WITH ISRAEL this latter agreement took place at the end of September 2015. AML evaluation The Gibraltar Financial Services Commission signed a memorandum of understanding with the Israel TRANSPARENCY processes Securities Authority in June 2015. The MoU be- tween the two organisations underlines a shared The following mechanisms for the exchange of infor- commitment by both organisations for mutual as- mation to the Organisation for Economic Co-opera- sistance and sharing of information. The GFSC has tion and Development’s standard apply in Gibraltar: MONEYVAL already signed MoUs with other jurisdictions, and this new MoU with the ISA adds to that network. • Bilateral tax information exchange agreements HM Government of Gibraltar is delighted to an- (TIEAs) with 27 countries, including the USA. nounce that Moneyval, the European Financial Ac- The GFSC has also been pleased to sign MoUs with tion Task Force-style regional body, by which it has both the Securities and Futures Commission of • Directive 2011/16/EU on administrative co- wanted to be evaluated for more than five years, Hong Kong and the Hong Kong Monetary Authori- operation in the field of taxation, which was has now accepted its application and will soon sub- ty regarding consultation, co-operation and the ex- transposed in Gibraltar’s Income Tax Act 2010 ject it to a round of mutual evaluation processes change of information related to the supervision of with effect from 1 January 2013 and which is and procedures. The Committee of Ministers of the entities to which the EU’s Alternative investment effective between Gibraltar and EU member-states. Council of Europe established Moneyval in Septem- Fund Managers Directive applies.

GIBRALTAR GIBRALTAR: VISION + STRATEGY + IMPLEMENTATION = RESULTS 43 If you’re looking for an innovative financial solution there’s one place you should look... here.

Guernsey combines 50 years’ financial heritage with a modern, well regulated infrastructure.

The result is an international financial centre with the pedigree, experience and expertise to meet even the most exacting of needs, be they across banking, investment funds, private wealth or insurance.

Add to this our reputation for innovation and a broad range of service providers, including a full set of support services and you can see why Guernsey offers an ideal location for your business.

Make Guernsey your first port of call.

Telephone: +44 (0) 1481 720071 Email: [email protected]

BANKING • FUNDS • INSURANCE • PRIVATE WEALTH

guernseyfinance.com

general_a4_210x297.indd 1 10/29/2013 11:01:14 AM GUERNSEY GUERNSEY LOOKING STRONG

* by Dominic Wheatley, Chief Executive, Guernsey Finance

Dominic Wheatley, Chief Executive of Guernsey Fi- approved by the European Commission, Parliament This was then followed by ABN AMRO’s announce- nance, believes Guernsey’s financial services indus- and Council in 2016, will reinforce Guernsey’s posi- ment at the end of September that it was to try is in a good place to grow and evolve. tion as a distributor of funds into Europe. move its offshore private banking business into its Guernsey operation. At our industry update event on 1st December I Guernsey has had its own opt-in equivalent AIFMD was very pleased to announce our plans to open a regime fully operational since 1 January 2014 but if A FIT FOR FINTECH representative office in Hong Kong during the first the various organs of the EU take up ESMA’s recom- quarter of 2016. This followed a particularly active mendation, they will allow Guernsey to operate on Guernsey is also jockeying for position to take ad- 2015 for Guernsey’s financial services sector. a level playing field with its European counterparts. vantage of digital opportunities. In July PwC and Guernsey’s Commerce and Employment Depart- The office, to be located at Three Pacific Place in FUND MIGRATION ment published a ‘strategy document’ which, they Admiralty, is Guernsey Finance’s second overseas hoped, would help to shape the future of Guern- outpost in addition to an office in Shanghai which More positive news for the funds sector came in sey’s fintech sector. opened in 2008. It is ideally situated at the heart the last quarter of 2015 with confirmation that of Hong Kong’s financial district and will strength- two funds were re-locating to Guernsey. The paper analysed the fintech sector both on the en our developing relationship with Hong Kong and island and abroad, identifying the main attributes its business community. VinaCapital Vietnam Opportunity Fund moved its and future direction of the market. domicile to Guernsey from the Cayman Islands, while Our representative in China, Wendy Weng, who SafeCharge International Group Limited relocated its Guernsey is so well-connected with the rest of the is based in Shanghai, will use the office as a base fund domicile to Guernsey from the British Virgin Is- world, sitting at the centre of a hub of subsea fibre from which to carry out further promotional ac- lands. Both funds explained their decisions by saying cables linking the UK with the Americas, Europe, tivities throughout the wider South East Asia mar- that Guernsey’s well-established infrastructure for the the Middle East and Africa, that it is bound to ben- ket. The Guernsey Financial Services Commission administration of funds listed on the London Stock efit further from the digital age. Guernsey already (GFSC) will also use it to provide regulatory advice Exchange was a key factor, as was the fact that the possesses the highly secure data connectivity, re- to anyone in the region who might be considering companies could enjoy freer access to potential in- silience and cyber-security that the global finance Guernsey-specific ventures. vestors by being domiciled in Guernsey. sector and e-gaming industries require.

The Hong Kong initiative follows the appointment INSURANCE in the autumn of Zoë Cousens as our first Middle East representative. Zoë, who is based in Dubai, is Guernsey has a During the year 2015 the island’s insurance-linked now helping to promote Guernsey’s financial ser- securities business continued to grow. It attracted vices industry in the Middle East as a contact ‘on well-established infra- new reinsurance capital, once again demonstrat- the ground’ for Guernsey. She is now a vital conduit ing the twin strengths of its financial security as for Middle Eastern firms and clients interested in structure for the ad- an economy and its robust and effective regula- Guernsey and will help to host and arrange meet- tion. ings, seminars or events for Guernsey businesses ministration of funds that visit the region. OUR CONTINUING SUCCESS listed on the London There are positive stories to tell about 2015 that What is clear from this small snapshot of news involve all parts of our financial services industry. Stock Exchange from the recent past is that Guernsey’s finance industry continues to thrive and develop. This is ESMA’S RECOMMENDATION most definitely an exciting and challenging time. Modern finance requires a combination of effective One of the best pieces of news came in July when NEW , a robust anti-money-laundering regime, the European Securities and Markets Authority global standards of transparency, and an industry (ESMA) announced that it wanted the European Guernsey’s banking sector also welcomed a new that provides customers with excellent advice and Union to grant Guernsey a ‘third country’ passport arrival. FNB Channel Islands (FNBCI) officially performs services of high quality, within a stable under the Alternative Investment Fund Managers Di- opened for business in July and is the Guernsey political, financial and legal environment. Our rective (AIFMD). Guernsey is one of only three juris- branch of FirstRand Bank Limited – South Africa’s continuing success is testimony to our ability to dictions to receive such recommendation, which, if largest bank by market capitalisation. deliver consistently on all of these.

GUERNSEY GUERNSEY LOOKING STRONG 45 THE EVOLUTION OF PRIVATE WEALTH STRUCTURING – WHAT GUERNSEY HAS TO OFFER

* By Andrew Walters and Michael Betley of Trust Corporation International

Despite wider macroeconomic difficulties, Guern- Increasingly, high-net-worth families’ globalised a client is dissatisfied with its service providers, the sey continues to attract new and ever-more com- interests create a need for an accessible central management of a PTC can be moved elsewhere plex private wealth and institutional clients. The hub to help co-ordinate, structure and manage without the need for the of existing obvious attractions are well known; the island has their assets. Guernsey’s 40-minute flight time to trustees and the appointment of new ones in re- a stable system of government, an elected parlia- London, coupled with its convenient time zone and spect of each trust it manages. Ownership of such ment, an enviable constitutional position, a neutral English-speaking community, makes it a perfect vehicles can, where necessary, be detached from tax regime and a mature and sophisticated legal location to have a family office. More often than the family through a purpose trust or foundation system. However, it is the flexibility and continu- not, however, the family office will be located else- while retaining some degree of family involvement ing refinement of the island’s laws and regulation, where with specific functions relating to the own- through representative directors. alongside its range of first-class professional -ser ership or management of assets being undertaken vice firms, that sets it apart from its peers in the in jurisdictions like Guernsey and, very often, one of In 2008, the concept of the purpose trust was intro- eyes of professional investors and their advisers. Guernsey’s 155 regulated trust companies will be duced into Guernsey law. It proved popular among chosen to undertake these functions. family and institutional investors alike, adding to Investment in the island’s wealth management the many benefits the island offered. This permits infrastructure is the bedrock of its continuing suc- the creation of a trust to fulfil a specific purpose cess. This investment includes an obvious rolling other than simply benefiting the beneficiaries. In programme of legislative updates, but also rests on A new law has made fact, a purpose trust does not require any benefi- the less visible interconnecting relationships be- ciaries. Examples of possible purposes include the tween government, the regulator and the financial the administration furtherance of a particular cause or the holding services industry. One theme (which is not unique of shares in a particular vehicle. It is unsurprising, to Guernsey) is that the number of private wealth of companies therefore, that purpose trusts have been used for clients being serviced is declining while the value the specific purpose of owning shares in PTCs, of assets being managed is increasing substantially. significantly more thereby effecting a separation of ownership be- Guernsey’s appeal to the market is well suited to tween this-or-that PTC and the family it is formed the more sophisticated multi-jurisdictional sector flexible to benefit. The introduction in 2013 of theFounda - of the private wealth market. This naturally leads to tions (Guernsey) Law added more to the ownership the establishment of specialist hubs such as family and structural options of a PTC. offices and bespoke investment clubs. Guernsey also offers a flexible regime within which In the light of Guernsey’s pioneering introduction Wealth has never been more global or mobile, to establish and operate private trust companies of cellular structures, the protected cell company which is also true of ultra–wealthy individuals. Pri- (PTCs). A Guernsey PTC can be established for the (PCC) has been used in the most innovative ways vate banks used to provide these families with full exclusive use of a single family and can act as trus- in both commercial and family wealth planning wealth management services, but the families have tee to existing and newly-formed trusts, including contexts. The PCC allows for the creation of any changed their attitudes because of costs, perfor- those established under the laws of other jurisdic- number of cells inside a single corporate entity, mance and conflicts. Similarly, the risk appetites of tions. Assuming it is not remunerated for the pro- each cell being statutorily ring-fenced from the private banks have changed and they are, in many vision of trustee services, a PTC is unlikely to be core and other cells. Guernsey PCCs have, among cases, no longer ‘one-stop shops’ and are becoming viewed by the Guernsey regulator as conducting a other things, been used for the purpose of allo- more geographically selective. As a consequence of regulated fiduciary activity and should not require cating assets, by means of separate cells, among these dynamic changes, many families with sub- licensing. A family might like the idea of creating different family strands and have thereby avoided stantial assets are developing home-grown ways of its own corporate trustee (a PTC) because it can liabilities attributable to one contaminating the as- doing things. Guernsey is perfectly suited to meet influence the management of the PTC and the ad- sets of another. Guernsey’s incorporated cell com- the needs of this segment of the private wealth mar- ministration of the underlying asset base. Typically, pany structure provides a further layer of flexibility ket as a result of its ability to evolve and be flexible. institutional trustees will not act as trustees of as- in that individual cells can be detached from the sets other than tradable securities. In other words, a cellular structure to become independent entities. There is no universal definition of the phrase ‘family family will have to make alternative arrangements This provides a convenient means of disposing of office,’ but in essence it is a dedicated team of em- if the asset base includes operating businesses or family assets without the need to ‘de-envelop’ the ployees whose sole employer or ‘client’ is a single other esoteric or highly risky assets. asset itself from its existing corporate home. family. Family offices therefore come in all shapes and sizes and will manage all or part of the personal needs A PTC board can determine its investment policy Since the introduction of the Companies (Guernsey) of the family in question, ranging from treasury and and the assets it is prepared to own and manage; Law in 2008, the States of Guernsey have continued accounting functions to the management of homes, this is why such arrangements continue to be so to consult people in the financial industry to identify aeroplanes, yachts, collections and wider investment attractive. In places (including many civil law coun- ways of refining and enhancing this regime. After a assets and portfolios. This dedicated team will often tries) where practitioners do not easily understand lengthy and detailed industry consultation, the States outsource functions that are either beyond their skill- the concept of a trust, the use of a PTC which may of Guernsey adopted the Companies (Guernsey) Law, set or have to be located or performed in a particular be populated, in whole or in part, by family repre- 2008 (Amendment) Ordinance in July 2015. This came jurisdiction. Subject to the needs of the family, the pri- sentatives allays any fear the family may have of into effect on 3 September 2015 and has made the vate office function will be based either in a location losing control to a foreign, often faceless, institu- administration of companies significantly more flex- convenient to the principal or in a ‘tax-benign’ envi- tion. PTCs have become popular with wealth crea- ible. It has improved a variety of older provisions in ronment, especially if the activities being undertaken tors, who are trying to establish increasingly port- relation to the disclosure of directors’ interests, the might be deemed taxable. able structures for their assets. To the extent that issue of shares in multi-share-class companies, share-

IFC WORLD 2016 46 holder correspondence notice requirements, director over recent years, including the introduction of an is now complete and the States of Guernsey are report requirements and the redemption of partially administration regime and the ‘solvency test pro- analysing the responses. paid shares, among other things. Furthermore, Guern- tections’ of 2008. In 2014 the States of Guernsey sey companies can now take names in non-Roman launched a detailed and wide-ranging consultative Guernsey’s reputation for managing private equity scripts, something that is expected to appeal to exercise about further improvements to the is- structures has spawned the growth of unregulat- clients in the Middle East and Asia. land’s commercial insolvency regime and the al- ed private funds or ‘investor clubs’ established by location of ‘business failure risk’. The consultative wealthy entrepreneurs and corporate investors Similarly, government and industry representatives paper sought opinions from the financial industry unconstrained by the need to raise money public- are working on reforms to the island’s limited part- on a range of options, including the introduction of ly. Growth in this area has also led to new ‘busi- nership law with a view to maintaining its interna- a combined personal and corporate insolvency re- ness-to-business’ opportunities, particularly in tional position as a leading provider of private eq- gime, an ‘official receiver,’ variations to the existing lending and venture capital funding. It is by virtue uity solutions. Precise details of the proposals have preferences regime and the introduction of fixed of these never-ending efforts to innovate and im- yet to be released but an early policy letter indicat- and floating charges. prove that Guernsey retains its appeal in the in- ed that the consultative process would include a stitutional and family office sectors. By consulting consideration of protected cell partnerships, amal- The consultative paper floated the idea that reforms interested parties about which innovations and im- gamations, a migration mechanism and more. should build upon Guernsey’s ‘creditor-friendly’ provements it should back, the States of Guernsey underpinnings in order to make Guernsey vehicles has made both its business structures and regula- Guernsey’s corporate and commercial insolvency more appealing to lenders and other market coun- tory arrangements robust, user-friendly and ‘fit for regime has benefited from various improvements terparties. The first stage of this consultative process purpose.’

GUERNSEY – A CENTRE OF EXCELLENCE FOR ESTABLISHING AND ADMINISTERING FUNDS

* By Matt Sanders, Group Partner at AO Hall

£204,000,000,000 is the sort of number for which It should be added that this is despite the introduc- The result is a competitive marketplace which en- Dr Evil might well be proud to demand as a ransom tion of the Alternative Investment Fund Managers sures that Guernsey is not only attractive to those in an Austin Powers movie. Certainly, by anyone’s Directive in the European Union. The types of fund who wish to establish Guernsey funds, but also to standards, it is an enormous sum of money. It may in which Guernsey specialises, including private those who want to use a Guernsey service pro- well come as some surprise that £204 billion is, equity funds, which have dominated Guernsey’s vider for funds established in other jurisdictions. in fact, the gross asset value of open and closed- closed-ended fund market for a number of years, Although statistics are not kept for closed-ended ended funds established in Guernsey, accord- are often ideally suited for continuing to use the schemes, the latest figures record that Guernsey ing to the latest statistics (published for Q3 of national private placement regimes in the jurisdic- service providers have attracted the custom of 225 2015). Certainly not bad for an island of 65,000 tions that matter in Europe, and without the need non-Guernsey open-ended schemes, for which a people! for full compliance with the directive. Guernsey service provider provides management, administration or custody services. One of the phrases regularly used to describe Furthermore, the European Securities and Markets Guernsey as an island is that it punches well above Authority (ESMA) has confirmed that Guernsey There are many factors that make a jurisdiction its weight – and indeed, when it comes to funds, stands at the head of the queue of jurisdictions a good place in which funds can do business. To that description is a massive understatement. This allowed to access the third-country passport re- name but a few: naturally begs the question; why is Guernsey such gime when this becomes available. When extended, • Guernsey is politically stable; a centre of excellence when it comes to estab- the passporting regime will allow Guernsey funds • Guernsey is tax neutral, with investment funds lishing, managing and administering investment and locally-based managers to market their funds generally being exempt from Guernsey tax; funds? In my view, there are three key reasons. across the EU. While the decision as to the activa- • Guernsey is responsible and co-operative with tion of the third-country passport regime remains foreign regulators and tax authorities, both in The use of Guernsey fund vehicles to access Eu- with the Council of the EU, it is hoped that further Europe and elsewhere; ropean capital, or to invest into European assets, news will be forthcoming in the early part of 2016. • Guernsey’s finance industry is prudently is a common phenomenon and remains viable, regulated by the Guernsey Financial Services notwithstanding the AIFMD. Perhaps not surprisingly given the figures above, Commission, which is respected as being an Guernsey has a large number of fund administra- accessible and flexible regulator, whilst at the A recent KPMG report highlighted that almost tion providers who are ‘best-in-class’, and who are same time ensuring that Guernsey’s reputation 58% of capital invested in Guernsey funds comes very experienced at establishing and successfully as a well-regulated jurisdiction is maintained; from European investors, split between 28% from administering funds. These range from providers • Guernsey has a robust AML framework; and the UK and 30% from Continental Europe. Fur- with a global footprint to those who specialise in • Guernsey has the natural advantages of being ther, it highlighted that approximately 68% of as- Guernsey. In terms of accounting and audit, funds just a 45-minute flight from London and in the sets of Guernsey funds are located in Europe, with have the pick of all of the ‘Big Four’ accounting same time zone, meaning that the connections 22% allocated to the UK. The clear implication firms who have offices in Guernsey, in addition to with and access to London’s vast finance from the report is that Guernsey is an ideal juris- a number of the well-known UK ‘challenger’ firms. industry are extremely strong. diction from which to attract European or global The legal market is equally competitive and di- capital, for investment into assets located in or verse, and the banking and custody side continues All in all, even Dr Evil might be impressed. He isn’t outside Europe. to attract and retain major players. welcome, though!

GUERNSEY A CENTRE OF EXCELLENCE FOR ESTABLISHING AND ADMINISTERING FUNDS 47 GUERNSEY’S FIDUCIARY SECTOR – ALWAYS LOOKING FORWARDS

* by Kerrie Le Tissier, Collas Crill Guernsey

As one of the first places in the world to regulate amongst other things, protects Guernsey trusts, companies and foundations are registered, and a the provision of trust services, Guernsey has always and any disposition of property to them, from limited amount of information in respect of each been well ahead of the game in wealth manage- claims under foreign forced heirship rights (and is available publicly, the identity of their sharehold- ment, recognising the significance and key role the other claims made under foreign law by reason of ers/beneficial owners (in the case of companies) fiduciary sector plays within its finance industry. a personal relationship to the settlor or a benefi- and beneficiaries or purposes (in the case of foun- There are approximately 200 fiduciary licensees in ciary). This was tested in a recent Guernsey case dations) remains confidential. Guernsey, which includes a diverse mix of business- where the provisions were upheld. Another exam- es from the small and very private family offices ple would be holding family businesses in a Guern- The identity of beneficiaries (of trusts and foun- administering a limited number of family trusts, sey foundation (which has no owner and may or dations) and shareholders and beneficial owners foundations and companies for one or two fami- may not have beneficiaries, as well as purposes). (of companies) will be recorded by the regulated lies, to the much larger trust and corporate servic- The Guernsey foundations legislation also contains service provider in Guernsey which manages and es providers with a large international client-base, firewall provisions protecting foundation assets administers the structure, and they will hold in- many of which are owned by banks or, increasingly, from foreign claims which would give the founder formation verifying their identity and source of private equity houses who recognise the value and setting up a foundation reassurance that the busi- wealth. Those service providers are regulated in investment opportunity in such businesses. ness would continue beyond their death without accordance with internationally recognised high any one or more family members being able to standards and, whilst under a legal duty to disclose claim ownership of the business or its assets. such information to law enforcement agencies and tax and regulatory authorities, both locally and in- One of the first The use of Guernsey trust structures for succes- ternationally (for example, pursuant to Guernsey’s sion planning and asset protection is popular with own regulatory laws, FATCA, the Common Report- places in the world clients from all over the world. They are popular ing Standard or the 58 Tax Information Exchange with Middle Eastern clients as they can be set up to Agreements to which Guernsey is party), they are to regulate the provide for succession in compliance with Sharia’h subject to duties of confidentiality. A breach of that principles or, as is often the case in the experience duty has serious regulatory consequences and also provision of trust of our Middle Eastern practice, they can be used to gives those to whom the service provider owe du- ring-fence assets outside the Islamic world so that ties of confidentiality (their clients, those setting services there is more flexibility over a proportion of the up the structures) the right to bring a civil action family wealth (for example to enable equal distri- against them which, in a small island, would have bution of wealth between male and female mem- serious reputational issues for their business. In bers of the family). Clients from the Far East who short, confidential information is in very safe hands The sector’s experience and dynamic nature has have generated wealth outside the Far East and with the Guernsey service providers who manage stood it in good stead as the reasons for setting do not want to bring their wealth home can use a and administer structures here. up a private wealth structure have changed signif- Guernsey trust to preserve the wealth and provide icantly since our finance industry began over 50 for succession. Guernsey trusts are also useful to years ago. Tax-planning is no longer the key driv- non-UK nationals considering a move to the UK er, and with increasing international criticism of at some point in the future. They can be set up as ‘Firewall’ legislation lawful tax avoidance or tax mitigation and those excluded property trusts to hold non-UK assets involved in setting up structures which take advan- which, as well as avoiding those assets becoming protects trusts, and tage of favourable tax treatment, this is good for subject to UK inheritance tax should they move to Guernsey where our fiduciary sector has moved the UK, protect those assets from the forced heir- any disposition of with the times and evolved to offer much more ship rights in the settlor’s country of domicile and than tax neutral structuring options. It is now very enable them to segregate their non-UK assets from property to them, rare that our clients’ reasons for considering Guern- their UK assets so that succession to them can be sey are solely tax-related or indeed, in many cases, governed in different ways. We expect to see an from claims under anything to do with tax. increasing number of such structures being set up towards the end of 2016 in advance of changes to foreign forced ESTATE AND SUCCESSION PLANNING the UK taxation regime affecting non-domiciled residents from April 2017 which is prompting them heirship rights Our clients’ motivations for setting up a private to review their structures. wealth structure in Guernsey usually have at their heart sensible and robust estate and succession CONFIDENTIALITY planning where succession to family wealth, assets FLEXIBLE AND ROBUST LEGISLATION and businesses can be planned before a succes- Confidentiality and discretion are also key reasons sion event (such as a death, marriage or divorce) for setting up a structure in Guernsey where a cli- Another very good reason wealthy families and indi- to give the family’s wealth-creator certainty and ent has legitimate concerns over privacy because, viduals look to Guernsey for setting up their private peace of mind for the future. A simple, but com- for example, they are high profile individuals (such wealth structures is that Guernsey has modern, ro- mon and effective, example of this is putting assets well-known entrepreneurs, politicians or celebri- bust and flexible trusts, foundations and corporate (such as shares, real property or family heirlooms) ties) or the size of their wealth would put the wel- legislation. It is possible to tailor private wealth into a Guernsey trust so that the assets fall outside fare of them and their family at risk if the identity, structures to meet a client’s individual require- the settlor’s personal estate caught by their will or location and nature of their structure were made ments, no matter how specific or unique they might the forced heirship rules in their place of domicile available to the public. Trusts are not registered in be. Even a fairly simple trust structure can be put (because the assets are legally owned by the trus- Guernsey so there is no public record of their sett- to a number of uses, from a discretionary trust giv- tee). Guernsey has robust firewall legislation which, lors or beneficiaries (or even their existence). While ing a trustee the widest discretion over investments

IFC WORLD 2016 48 and distributions, with perhaps the settlor giving the family or charity in accordance with the terms of the practice (which comprises members of our fiduci- trustee a non-binding letter of wishes offering guid- trust or foundation. Provided it is carefully planned ary and corporate teams because of the cross-over ance, to a fixed trust where the proportions in which and appropriate legal and tax advice is obtained, a in what have traditionally been more distinct areas distributions are to be made to beneficiaries are structure like this can be tailored to a family’s needs of practice) have seen a rise in such structures in specified in the trust instrument and investments and expectations and the possibilities are vast. recent years. are dictated by the settlor, with investment powers being reserved to him. LOCATION AND POLITICS

Many high net worth and ultra-high net worth indi- The sector has Other key reasons for setting up a private wealth viduals are setting up more complex structures of- structure in Guernsey include its long history of ten involving a combination of one or more Guern- moved with the political stability and good governance and its in- sey trusts, foundations and companies, which can be dependence in legislative and fiscal matters (it is adapted depending on their needs. The flexible legal times and evolved not part of the United Kingdom or the European framework, the expertise of fiduciary professionals Union). It is English-speaking, shares the same time in Guernsey (trust and foundation service providers, to offer much more zone as London and has good communication links company administrators, lawyers and accountants) to London and other parts of the UK and continen- and the industry’s innovative nature, means a solu- than tax-neutral tal Europe, making travel to and from the island tion can usually be found even for the most complex convenient (Guernsey service providers are used to and bespoke requirements. For example, a family structuring options travelling to London, the Middle East and further that has generated significant wealth from a family afield to meet with clients or prospective clients). business could set up their own private trust compa- ny (PTC) or private trust foundation (PTF) (the latter CONCLUSION gaining in popularity as there are no shares to find INNOVATION an owner for) to act as trustee of several trusts, with With all these reasons for setting up a structure in one or more family members sitting on the board Private wealth structuring is becoming more and Guernsey in mind, it is not surprising that its fidu- or council in order to retain some level of control. more sophisticated with structures such as protect- ciary sector, which has always been innovative and A trust could be set up for member or groups of ed cell companies (PCCs) (which were pioneered forward-thinking, continues to thrive. By adapting members of the family and a separate charitable in Guernsey), limited partnerships and unit trusts to change and continuously evolving and diver- trust or foundation could be set up through which being used and many structures looking more like sifying, it is well-placed to continue to meet the the family further their chosen charitable causes. investment fund structures than traditional private changing needs of the world’s wealthy individuals Below each trust or foundation would sit various wealth structures. Terms such as ‘private family and families. assets (which could be held in a holding company funds’ and ‘investment clubs’ (where the partici- or holding companies) such as that family’s princi- pants may not necessarily be family members but pal residence, cars, artwork and shares in the family rather friends and associates) are frequently used * Kerrie Le Tissier can be reached on business, the income from which would flow up to for these structures which draw on the expertise +44 1481 734818 or at the trust or foundation and then onwards to the and flexibility of the industry. Our private funds [email protected]

GUERNSEY GUERNSEY’S FIDUCIARY SECTOR – ALWAYS LOOKING FORWARDS 49 ISLE OF MAN. • Stable economy – over 30 years of economic growth • Effective relationship between public and private sectors WHERE YOU CAN • Competitive tax regime DISCOVER THE • World-class regulatory environment NEW STANDARD • Advanced telecoms and power infrastructure • World-class professional services IN INTERNATIONAL • Strong, direct links to the City of London BUSINESS CENTRES • Excellent quality of life

Department of Economic Development St George’s Court, Upper Church Street Douglas, Isle of Man IM1 1EX, British Isles Tel: + 44 (0)1624 686400 (General Enquiries)

www.whereyoucan.com ISLE OF MAN ISLE OF MAN GOVERNMENT FOREWORD

* by Laurence Skelly MHK, Minister for the Department of Economic Development

May I welcome you to the Isle of Man supplement The Isle of Man’s Government is working hard to market through representative offices – to set up in this edition of IFC World, which aims to show- help and support business to allow it to thrive. operations in the Isle of Man. case the Isle of Man as a leading International Among the most important aspects of our support Business Centre with an outstanding reputation for are the strong relationships that exist between the It will also extend alternative banking facilities to professionalism and service. Government and the financial industry. businesses in a range of sectors. The intent is to open up more flexible banking opportunities for We have enjoyed more than 30 years of sustained Ministers and senior Government officials are eas- corporations, wealthy individuals and entrepre- economic growth, boosted by the increasingly di- ily accessible and receptive to innovative ideas. As neurial businesses. verse nature of our island’s economy. We are no a consequence, Government help is speedily avail- ‘one trick pony’; instead, we host a range of suc- able in the right circumstances. A new crowdfunding regime will also be launched cessful business sectors in which we are among the in the spring. This will enable businesses to raise best in the world. Entrepreneurs and new businesses are being at- finance while ensuring that appropriate regulation tracted here not simply because of our business en- to protect investors is in place. Companies based in the Isle of Man are succeeding vironment but also because of the excellent quality in the global marketplace because they operate in an of life for residents, characterised by very low crime The Government is introducing a Manx Enterprise entrepreneurial and business-friendly environment. rates, short commuting times, high-quality public Investment Scheme to encourage resident en- services and a strong sense of community. trepreneurs to invest in businesses that will then create local jobs. It will offer income tax relief to 2016 promises to be an exciting year for the Isle of investors in small-to-medium-sized enterprises Man. Our objective is to encourage entrepreneur- resident in the Isle of Man. Government help ship, innovation and enterprise through a range of complementary initiatives aimed at creating the Business infrastructure is always important and the is speedily available right ecosystem for businesses. Isle of Man Government is planning key develop- ments such as a technology park, more regener- in the right It is vital for any jurisdiction that wants to attract ation in the centre of Douglas, the capital, and a new businesses and to help existing businesses ‘masterplan’ for the area around the Isle of Man circumstances grow to provide them with access to capital, and Airport to help satisfy this need. the Isle of Man is embarking on some exciting new initiatives in this regard. We are also working with businesses in a number of sectors to encourage the necessary skilled work- These companies serve blue-chip clients all over Its new £50 million Enterprise Development Scheme ers to move to the Isle of Man to help our eco- the world and do not restrict their activities to is a and equity investment scheme that is des- nomic grow. We are trying to produce home-grown financial and professional services – they also tined to help new and successful businesses to de- talent with various initiatives as well. perform maritime and business aviation services, velop and to create many jobs on the island. conduct e-business and manufacture goods for By facilitating investment in our future and re- the aerospace industry. As well as a successful and An alternative banking regime will come into being sponding dynamically to the needs of business, diversified economy, we offer a proactive and col- in the spring and ought to encourage new banks – we are certain that we are bolstering our position laborative regulatory regime and a simple system in particular new private banks and foreign banks as a technology/science park and an International of taxation. that may wish to establish branches or enter the Business Centre of choice.

THE FINAL PIECE IN THE PRIVATE CLIENT JIGSAW

* by Lesley Johnston, Abacus

The Isle of Man continues to be recognised as an This can be attributed to its proactive government, however, let us say that our private client is a non- international finance centre of excellence and has its meticulous regulatory framework and its innate UK ultra-high-net-worth individual with a family recently won such awards as ‘Best International knowledge that consulting interested parties at all business involved in property development in the Finance Centre’ at the Professional Advisor Interna- times and forming positive relationships with pro- UK, who owns a private jet and is now thinking of tional Fund. It has also won product awards, fend- fessional service providers (such as Abacus) makes purchasing a yacht. ing off strong competitors such as Jersey, Guernsey for a successful business environment in which all and Luxembourg. can flourish and where all of the pieces to the pri- In this case, what does the Isle of Man have to vate client jigsaw are available…well almost! offer? And where does Abacus fit in? Through the deliberate and successful diversifica- tion of its economy over the years, the island is So what is the private client jigsaw and what does A HOME FROM HOME now home to a number of high-performance sec- it look like? It is important to remember that there tors, one of its biggest and most successful being is no ‘typical’ private client; each has his or her own The Isle of Man is a perfect jurisdiction for the estab- financial services. bespoke needs and requirements. For our purposes, lishment and operation of property-holding structures.

ISLE OF MAN GOVERNMENT FOREWORD 51 With the right advice and structuring, it can help inves- The Isle of Man register for yachts remains popular family’ vehicle, where it is not offered to the tors acquire all sorts of properties using many types of because of its high-quality and responsive customer general public but where a privately controlled vehicle efficiently and cost-effectively. service ethic and its low cost scale of charges. It is investment ‘company’ is used for groups of also favourably placed on the much -envied ‘white connected parties. This type of fund does not fall The Isle of Man has a number of advantages for list’ of the Paris Port State Control Memorandum under the special income tax regulations corporate structures, including its favourable tax of Understanding, which reduces a vessel’s poten- applicable to other types of scheme. regime and its quick and a straightforward incor- tial for being targeted for inspection by Port State poration process. Its company law is derived from and Customs officials, thus reducing the increasing The island’s well-established fund sector is sup- English law and it offers time-efficient local regis- threats of yacht seizure by foreign authorities. ported by a range of professional service providers tration for value-added tax (VAT) which is equiva- including investment managers, fund adminis- lent to a UK VAT registration. When anyone purchases a highly valuable asset trators, legal firms, custodians and fiduciaries, al- such as a yacht, it is essential for him to consider lowing it to offer a compelling and cost-effective Likewise, the island is a good jurisdiction in which whether there may be wider implications for finan- domicile for investment funds. to establish a trust and can offer investors ways of cial liability, either at outset or perhaps in the future. managing many and varied assets in many jurisdic- This will vary according to the intended use of the tions. It can help them cope with regulatory and yacht. tax-related problems. In short, it can help families The Isle of Man is a to plan for both their wealth and their businesses. Whether for pleasure or commercial use, a yacht is a significant investment made up of time,- ef perfect jurisdiction Fiduciaries and/or trust service providers hold posi- fort and money, so in an age of endless litigation, tions of trust and must perform to the highest eth- experts recommend that the ownership of such a for the ical standards. The Isle of Man is home to a com- valuable asset that moves from country to coun- prehensive range of highly professional corporate try, exposing itself to differing jurisdictions’ tax and establishment and fiduciary service providers, which makes the other laws, is not owned in an individual’s name independence of a service provider (like Abacus) but by a corporate structure. This arrangement seg- and operation of all the more important as it is a pre-requisite for regates the inherent risks involved, makes owner- flexibility, quick decision-making and the freedom ship private and might even lead to a number of property-holding to choose from a network of professionals. other benefits, including tax and VAT savings. structures A HIGH FLYER Experienced and knowledgeable service providers (such as Abacus) who have established relation- Over the years, the Isle of Man has become a re- ships with their local ship registries can make the nowned aviation jurisdiction. Leading aviation law- experience of navigating through the potentially A PLACE TO SETTLE yers from around the globe have voted the Isle of choppy waters of yacht ownership and registration Man Aircraft Register ‘best in the world’ because of a great deal smoother. With their help, the custody Last but by no means least, there is the Isle of Man’s its well-known high customer service ethos and its and management of a prized vessel can stay on an residence and citizenship opportunities. Although insistence on safety and good service. even keel. the Island’s immigration rules are not identical to those of the United Kingdom, they are very similar. But why choose the Isle of Man to register your A GOOD INVESTMENT aircraft? Aside from having the largest dedicated Aimed at high-net-worth individuals and their private and corporate aircraft register in Europe, it The Isle of Man’s close proximity to London and the families who are looking for alternative residences offers other benefits that include: other key markets of Europe also makes it ideal for and citizenship by injecting money into the Isle of private clients and the requirements they have for Man through ‘qualifying investments,’ the UK Tier 1 • a neutral nationality registration prefix; investment, fund management and administration. (Investor) Visa provides successful applicants who • a secure mortgage register; It is home to a variety of schemes such as open- or meet the necessary eligibility and ‘due diligence’ • high regulatory standards; closed-ended companies, unit trusts, limited part- requirements with the opportunity to obtain • a competitive scheme of charges; nerships and contractual arrangements that target British citizenship. • no insurance premium tax; retail, institutional and sophisticated investors. • a professional infrastructure; and The initial period of entry is granted for three years • a place in the European time zone. Available fund types include: and four months at which the applicant can ask to have his visa extended for another two years. After Furthermore, an Isle of Man company offers note- • an Authorised Scheme which targets retail that, he may qualify for, and apply for, indefinite worthy advantages when set up as an ownership investors and protects them against sharp leave to remain. structure for the purchase of an aircraft. It can practice to a high degree and can be promoted manage risks and maintain confidentiality. For peo- to the general public; THE FINAL PIECE? ple who want to use their aircraft predominantly for business, the use of an Isle of Man company • a Regulated Fund which offers flexible Now that our jigsaw puzzle is nearly complete, can also allow them import their aircraft into the regulations and is suitable for listing on a stock where does a service provider such as Abacus fit in? EU fully and it also allows for full and free circula- exchange – normally sold through independent To put it simply, we are the final piece. As one of tion. The Isle of Man is the only international centre financial advisors; the longest-established and reputable service pro- that allows people to register for EU VAT/IVA, and viders on the Isle of Man, expanding into Europe also has a zero direct tax regime for Isle of Man • funds that target the more sophisticated and a few years ago through the establishment of an businesses. professional investor, such as the Specialist office in Malta, we have a lengthy track record of Fund which has no regulatory restrictions on more than 40 years in providing a range of financial A SMOOTH VOYAGE asset classes and the Qualifying Fund which can and professional administration services. be marketed to institutional and experience Then there is the island’s maritime industry – home non-retail investors; and then * Abacus is a fiduciary and fund services group to one of the fastest growing ship registers in Eu- with offices in the Isle of Man and Malta. Its rope, with a significant number of yachts currently • the popular Exempt Scheme – a private offering experts can be reached on +44 1624 689 600 or waving the Isle of Man Ensign. and an attractive proposition for a ‘friends and at [email protected]

IFC WORLD 2016 52 INNOVATION, CHANGE AND DIVERSITY

* John Garland, Head of Corporate Financial Services, Department of Economic Development

The Isle of Man is famous for its sound financial start-ups the necessary financial support, train- It will expand the existing class 1 (deposit taking) services sector and its decades of experience and ing and business acumen to get their businesses banking licence to include: success in the front line of corporate and retail fi- off the ground. The Small Business Grant Scheme nance. However, against a backdrop of intoxicat- offers start-ups and existing small businesses a • class 1(1) – for the typical existing bank and any ing global change and shifting attitudes, the face higher level of grant support up to a maximum of institution that takes retail deposits; of finance has changed, leading the isle to recon- £25,000. We especially want to use these funds sider its objectives and assess its future. This has to support businesses that undertake certain ap- • class 1(2) – for non-retail deposit takers, i.e. the convinced the Government that it should shift proved research and development. ones that perform services for a very limited away from concentrating on finance as an industry class of individuals, and corporations; and towards making financial firms support local Accelerator. At this higher level the Government business and entrepreneurs in general. might advance a loan (of up to £100,000) or • class 1(3) – for the representative offices of make an equity investment (of up to £250,000) foreign banks, which will not be able to take Our Government understands the barriers that in small-to-medium enterprises (typically with deposits on the island; businesses face all the way through their growth 5-20 employees) as they enter their next phase of cycle, from the initial investment in a concept right growth. ‘The Accelerator’ is also available to busi- The class 1(2) non-retail (or wholesale) banks (in- through to the multi-million sale of a corporate nesses new to the island that want to grow and cluding private/merchant banks), if and when they success. Our island itself often works as an incu- develop. appear, will create a new banking sector on the Isle bator, offering entrepreneurs and industries the of Man. Class 1(2) licences will only be available to chance to experiment with new ideas and inno- Relocator. This next level of support offers loan corporate depositors and a very limited class of in- vate. Our large pool of financial capital is attractive and equity investment (of up to £1million) for the dividuals (with a high minimum entry criterion that to new businesses that are looking for somewhere establishment of medium-to-large firms on the is- is still being discussed). Participants in the consul- to expand and develop. land, or for firms of that size that are relocating tative process are weighing up the pros and cons there. of describing an eligible depositor as “an individual This year we are introducing new financial initi- depositor who certifies that they have a minimum atives and laws that will allow us to expand our of £500,000 net worth.” The standard licensing financial offering and diversify our population of policy requirements for competency, solvency, in- businesses even further. Our objective is to encour- tegrity and the need for a real presence on the Isle age entrepreneurship, innovation and enterprise A regulated and of Man will still apply to class 1(2) licence holders. and to create new jobs. However, if we are to help existing businesses to grow and attract new busi- experienced We see the greatest potential for new operators in nesses we must give them access to capital and, the ‘representative office’ option as this would al- in this regard, there are a number of exciting new third-party scheme low foreign banks to set up operations quickly and initiatives in the pipeline. cheaply with the eventual aim of seeking approval manager will for classes 1(1) or (2) licences. The general charac- THE ENTERPRISE DEVELOPMENT SCHEME teristics and requirements of class 1(3) might be manage the EDS very similar to those for representative offices in Our flagship initiative for 2016 will be the Enter- Australia and Canada and the licence fees might be prise Development Scheme (EDS). A total of £50 much lower than for classes 1(1) and 1(2). million will be available over a five-year period to invest in businesses that are likely to create jobs This level of investment is aimed at encourag- The ABR holds many benefits for both banking op- on the island, with funding including grants, ing industry leaders and entrepreneurs to expand erations and customers who are looking for new fi- and equity. businesses on the island, establish new ones, or nance options. It offers up the possibility of existing relocate existing ones there. This is aimed largely companies, such as family offices and international The Isle of Man knows that every diverse and at businesses that are entering the ‘commercialisa- e-gaming businesses, using banks in new ways to successful economy is good at encouraging the tion phase’ of their growth cycle, the phase when develop and expand their businesses. development of businesses through all phases of they are introducing a new product or service to the business growth cycle. The scheme will provide the general market. By offering two new sub-classes of Class 1 banking support to small- and medium-sized businesses, operations, we are diversifying opportunities for and is also designed to help with the expansion of The different tiers of funding will enable us to sup- banking operations and non-retail customers to businesses that are both well-established and new port development in these three stages of business choose options outside of the Depositors’ Compen- to the island, particularly those that provide their growth. As a vital safeguard, a regulated and expe- sation Scheme. The high minimum entry criteria for goods and services to off-island customers. This rienced third-party scheme manager will manage Class 1(2) and the low licence fees for Class 1(3) will also complement the parallel work within the the scheme, investing the funds impartially and for demonstrate a tailored approach to banking rather department to create two grant support packages the greatest benefit to the island. than the traditional ‘one size fits all’. and make them available to individuals who want to take their first steps into self-employment or AN ALTERNATIVE BANKING REGIME A NEW CROWDFUNDING REGIME small businesses that want to expand. The scheme consists of three different levels of funding. Alongside the new EDS we have also been working We are also developing a new crowdfunding re- on an Alternative Banking Regime (ABR) which will gime. We have been working with the Isle of Man Micro and Small Business. At this level there are be in place by the spring. The ABR aims to encour- Financial Services Authority (FSA) to develop a to be Government grants for start-ups on the is- age new banks to set up in the Isle of Man and wid- suitable regulatory environment for both equi- land (typically with 1-10 employees) that can rise en the variety of banking facilities for many sectors. ty and debt crowdfunding platforms that will be to £25,000. launched later this year. The ABR, when it appears, will be the result of The Micro Business Grant Scheme has been de- months of consultation and collaboration between Investors and companies the world over have signed to give budding entrepreneurs and small the Government and the financial services industry. turned to crowdfunding to support the growth and

ISLE OF MAN INNOVATION, CHANGE AND DIVERSITY 53 development of SMEs. The Isle of Man wants to vestment-based crowdfunding within carefully set shores. In the Isle of Man, we use the British Home evolve a regime that will be beneficial to entrepre- limits. There are also detailed proposals regarding Office’s online system and mirror the UK’s rules to neurs, platforms and investors alike. The Isle of Man website disclosure and the display of crowdfunding a very large degree, with the same points-based can fill the void for those who wish to operate in an opportunities. system. We are also part of the so-called Common efficient marketplace with the appropriate balance Travel Area, so there are no border controls be- of protection and ‘freedom to flourish.’ AN ENTREPRENEUR-FRIENDLY ISLAND tween the Isle of Man and the UK. Our immigra- tion office has speedy turnaround times for Tier 1 Crowdfunding also fits naturally with the island’s Local Initiatives applications of around 10-14 days. continued growth in the e-business and financial technology arena because it allows people to At the same time as it strives to attract new take a truly autonomous approach to funding and business and investment, the Isle of Man is also opens up opportunities to a wider audience of en- nurturing existing talent and business through a There are no border trepreneurs and investors. range of initiatives. This includes a proposal for a scheme to offer relief from income tax to investors controls between in growing island-based businesses. The Manx En- terprise Investment Scheme will aim to encourage the Isle of Man and Our objective is to investment in SMEs resident in the Isle of Man, by offering such tax relief to investors who subscribe the UK encourage entrepre- for new shares. neurship, innovation The island’s courtship of entrepreneurial talent also takes the form of business incubation and angel in- A Better Way of Life and enterprise vestment. The Department for Economic Develop- ment is planning to offer more of this kind of help On the Isle of Man we are not just looking at devel- to firms at various stages of the business cycle. oping our financial options and business incentives, we are also investing in our quality of life and de- The FSA consulted interested parties on the subject Tier 1 Immigration veloping our proposition for relocating businesses of crowdfunding throughout 2015, with the third and individuals. The island has one of the lowest consultation closing in January 2016. The details The Isle of Man Government has been gearing up crime rates in Europe, a free property market and of our bespoke regulatory regime are still being for some time to attract more high-net-worth in- excellent schools and other facilities. Together we finalised, yet essentially the legislation will allow dividuals and is proactively seeking so-called Tier are building a place where both businesses and licenceholders to facilitate loan-based and/or in- 1 entrepreneur and/or ‘investor immigrants’ to its people want to be.

IFC WORLD 2016 54 JERSEY KEEPING JERSEY AT THE CUTTING EDGE

* by Geoff Cook, the chief executive officer of Jersey Finance

Having focused its resources on maintaining the sultation with the regulator, the industry continues fices, and advisers to wealthy families, that have competitive environment that international inves- to offer more services. relocated to Jersey. That growth can be attributed tors are seeking, while meeting the global stand- to the appeal of the jurisdiction’s sophisticated ards required of all modern, leading international BUILDING ON SOLID FOUNDATIONS private client landscape, its international outlook, finance centres (IFCs), Jersey’s finance industry its proportionate approach to regulation, its strong continues to thrive. At the same time, innovation remains key and there rule of law, its mature professional infrastructure are some significant projects on the horizon for Jer- and its political and economic stability. The industry, supported by the Government of Jersey sey, including a fresh approach to banking. and the regulatory authorities, has evolved continu- The 2015 World Wealth Report, for instance, sug- ally during its 50-year history to meet the demands The ‘Future of Banking’ project will hopefully help gests that the attitudes of high-net-worth individ- of the market, adapting all the while to the growth Jersey to establish itself as the go-to location for uals (HNWIs) are changing. It finds that they are in global trade, shifting wealth patterns from west to innovative global banking. The project is looking at allocating increasing amounts of wealth, currently east and the ageing population explosion. Alongside how cooperation between Jersey’s finance industry, around 36% of their asset allocation, outside their these developments, Jersey shares the global com- regulator and government combined with the juris- home regions with HNWIs in Asia-Pacific and Lat- mitment of major governments to encourage greater diction’s unique advantage of a stable banking sector in America investing the most in opportunities in transparency and the exchange of account informa- and commitment to a digital economy could help it other regions. tion for tax and other purposes between states. create a sustainable, highly digitised banking model. The real attraction for using Jersey, particularly It is a testament to the quality of its drafting that amongst families in the emerging markets, is its the Trusts (Jersey) Law has been amended only a few ability to manage diverse family assets securely times since its enactment in 1984 and that many across borders. With the average family office hav- There has been a other jurisdictions have used it as a blueprint. The ing total assets of $806 million, according to the clarity of the language, the balance it strikes be- Global Family Office Report 2015, the implications steady climb in tween the interests of settlors, trustees and benefi- for Jersey’s globally focused and growing family of- ciaries and the supporting role played by thirty years fice sector are significant. the number of of world-class jurisprudence have all contributed to its success. Moreover, as the landscape continues to evolve single-family and with family offices and HNWIs looking not only for However, it has never been a rigid piece of legisla- asset protection and estate planning services but multi-family tion and, because of global trends and changes in also increasingly to further their investment strat- the needs of private clients, recent years have wit- egies into new sectors and markets, Jersey’s holis- offices nessed amendments that have introduced such in- tic offering right across the alternative investment novations as trusts of unlimited duration, the ability arena and knowledge of the emerging markets is for settlors to reserve powers and the introduction standing it in good stead. With globalisation, shifts in wealth patterns, and of non-charitable purpose trusts. volatility in international markets all prompting With decisions being made by wealth advisers and changes in people’s approaches to private wealth The arrival of the Jersey Foundation on the statute family offices being driven now not by tax but by a management, the demand for the wide-ranging book in 2009 provided a Civil Law alternative to need for very specific expertise, knowledge, strong specialist expertise in cross-border wealth planning traditional trust structures. To date, more than 270 case law and the availability of a range of struc- that high-quality IFCs such as Jersey offer is rising. Jersey Foundations have been formed, a significant tures, there will be increasing opportunities for ju- proportion of those being used for philanthropic risdictions that can demonstrate substance on all Jersey Finance’s current strategy takes stock of purposes. of those factors to play a key role in meeting the global trends, especially the huge acceleration of needs of a growing family office business. industrialisation and urbanisation in emerging Practitioners might also recall the latest amend- economies that has, in recent years, powered eco- ment in 2013 rendering into statute Jersey’s law on CO-OPERATION nomic development to an unprecedented degree. mistake and the ‘rule in Hastings-Bass’, which was The intention is to ensure that Jersey remains a welcomed as an exciting development in the global Jersey believes firmly in international co-operation high-quality jurisdiction with the appropriate reg- trust industry. in tax matters, while also striking a vital balance ulatory and legislative armoury, while helping it to between transparency and confidentiality. Hav- penetrate new markets. Against that backdrop, Jersey’s trusts law will short- ing introduced anti-tax-evasion legislation in the ly come under scrutiny again as the Government of 1990s, Jersey has received endorsements from The financial services industry continues to focus Jersey prepares to consult interested parties about the OECD and IMF, and has a raft of co-operation primarily on banking, fund services and wealth some new proposals. It will be asking questions agreements in place. management, including specialist sectors such as about beneficiaries’ rights to information and the Islamic finance and capital markets. Its partnership availability and appropriateness of mechanisms de- Whilst Jersey has tax agreements with more than with the City of London, which enables it to act as a signed to bring about the variation of trusts. 40 countries, with both Romania and Rwanda gateway to Western markets, is a further attraction added to that list during 2015, it has also signed to investors, especially those based in the emerging Meanwhile, the new Charities (Jersey) Law has cre- a number of Double Taxation Agreements in recent economic powerhouses. In the meantime, Jersey’s ated a robust and modern legal structure to support years, not least with the authorities in Hong Kong, authorities are making long-term investments in all types of international philanthropic and charitable Singapore and Luxembourg. order to meet new global standards of compliance. enterprises, whilst recent amendments to pension leg- Jersey has repeatedly earned an AA+ rating from islation have also helped Jersey to meet the ever-more Alongside co-operation agreements, Jersey has Standard & Poor’s, one of the leading rating agen- sophisticated demands of the private client investor. one of the most advanced systems that can track cies, and its political and economic stability is the beneficial ownership of companies. It has held proving particularly appealing to international in- The last couple of years have also seen a steady such information centrally since 1999 and makes it vestors. Through effective and collaborative con- climb in the number of single and multi-family of- available to overseas law enforcement agencies in

JERSEY KEEPING JERSEY AT THE CUTTING EDGE 55 www.linkedin.com/company/jersey-finance @jerseyfinance www.youtube.com/jerseyfinance

Jersey for Private Wealth

For more than 50 years, Jersey has From simple trusts and underlying delivered private wealth management, company structures to high-value and trusts and estate and succession more complex structures involving planning, and more recently foundations, trusts, companies, limited partnerships, to clients around the world. and foundations, there are solutions to every requirement. Virtual family offices are also available for ultra-high net With highly-skilled financial service worth families. providers and a robust, modern and sophisticated legal framework, Jersey For further information, please visit leads the way in delivering private www.jerseyfinance.je client services. or call +44 (0)1534 836000

J005609_IFC_WORL_ADVERT2_V1.indd 1 14/03/2016 15:52 accordance with information exchange protocols. and leading academics in recent years. The result- structure of developing countries. General current A World Bank report has cited Jersey as a model of ant body of academic work has been informative in wealth management trends are presenting Jersey good practice in the processing of details of benefi- and of itself but has also revealed the great finan- with a real opportunity, thanks to the jurisdiction’s cial ownership of corporations and trusts. cial benefit that Jersey brings to the UK through ability to show investors that its regulation is strong, its financial services. It has also, by pure weight of that it is very interested in transparency, and that it The latest significant move in the global drive evidence, revealed the ways in which IFCs help to is keen on appropriate innovation. for ever-more transparency is the introduction of increase international financial flows and facilitate the OECD’s Common Reporting Standard (CRS). trade and investment. Some analysis has brought In the private wealth management business in Jer- Planned as a means of improving cross-border tax the role that Jersey can play in facilitating foreign sey’s target markets in the Far East, Gulf, India and compliance, the CRS has the support of 90 coun- direct investment (FDI) in Africa to light; other pub- Africa, and to a lesser extent in the more mature tries. Jersey is one of a group of ‘early adopters’ lished research has revealed, among other things, markets of Europe and the United States, it is clear which will begin reporting in 2017 with other na- Jersey’s wider contribution to FDI in global markets that a need for services of good quality is increas- tions to follow in 2018. through its range of investment vehicles. ingly important.

THOUGHT-LEADERSHIP When taken all together, these reports have With this in mind, Jersey is always striving to offer shown that top-quality IFCs such as Jersey can more and better services and to widen its global Jersey Finance has commissioned a series of inde- help spread knowledge, solve problems and pro- appeal while placing great emphasis on innovation, pendent, evidence-based reports from economists vide some much-needed investment in the infra- high regulatory standards and quality of service.

NEW MEASURES CONTINUE TO ADD TO JERSEY’S APPEAL

* by Geoff Cook, the chief executive officer of Jersey Finance

Jersey’s enduring status as a leading internation- the highest figure in the last four years and another Jersey’s authorities, however, are not complacent. al finance centre (IFC) spans more than 50 years. signal of business growth. They continue to concentrate on improving Jersey’s Having weathered the impact of the global reces- laws and regulatory efforts, including the all-impor- sion very capably, Jersey remains one of the world’s The world’s population is growing more slowly with tant trust law, which has been at the heart of Jersey’s pre-eminent providers of world-class, robustly regu- every passing year, resulting in an ageing population, wealth management offering for more than 30 years. lated cross-border financial services to the asset and while its trade is continuing to grow briskly. Commen- wealth management industry. tators believe that these two trends will change wealth STANDARDS patterns around the world profoundly and cause de- Furthermore, it is meeting the evolving demands of mand for investment in infrastructure to sky-rocket. Having worked closely with the Government of the market, having introduced new measures in re- Jersey and the JFSC, Jersey’s finance industry has cent years to develop its industry offering further. Taken together, these trends are expected to lead to helped ensure that the jurisdiction remains at an By modernising its legislation and making regulation demands for safe and efficient international financing advantage in meeting new global standards of reg- more onerous, it has broadened its appeal as a cen- and capital management. As a stable, secure and high- ulation and co-operation in matters relating to tax tre for wealth management and cross-border invest- ly regarded IFC which has the experience and expertise and compliance. ment funds activity. to tap into increasing cross-border trade flows, Jersey is bound to benefit. Meanwhile, the continuing rise of In particular, Jersey has invested in the resources Statistics collated by the financial regulator, the economies in the Far East, the Gulf of Persia, India and necessary to become one of the first adopters of Jersey Financial Services Commission (JFSC), are Africa are opening up a range of new opportunities for the new Common Reporting Standard (CRS), the Or- indicative of the scale and diversity of Jersey’s fi- Jersey’s finance industry. ganisation for Economic Cooperation and Develop- nancial services. In addition to the long-established ment’s new global standard for automatic exchange banking industry, where deposits held in Jersey total Mindful of the accelerating accumulation of wealth of financial information in tax matters. The way in circa £130 billion (September 2015), there are 108 in many of these growing economies, Jersey Finance which Jersey regulates alternative funds received the Jersey companies listed on stock exchanges all over has extended its international links. Having success- European Securities and Markets Authority’s seal of the world with a market capitalisation of £159 bil- fully hosted conferences in London for many years, approval last year. This ought to be of help when the lion – a testament to Jersey’s prominent role as a it recently held a series of ‘roadshows’ devoted to European Union decides whether Jersey deserves a centre for international banking, capital markets and private-client cross-border structures and services ‘passport’ as described in its Alternative Investment listings activity. and the international funds market in crucial loca- Fund Managers Directive (AIFMD). tions in the Gulf and Asia. In 2015 it extended its The industry is also experiencing growth. The alter- efforts further, adding important locations in Africa As a result of the measures it has taken, Jersey is native asset classes in the funds sector, which form to the itinerary of its representatives. in an excellent position to develop business in both around 70% of Jersey’s total fund business (which its traditional markets and in the newer, emerging itself is valued at £218 billion and is growing by 12% These efforts are paying dividends. For example, ones in 2016. The island’s political and economic annually), continue to stride ahead. funds, the growing ultra-high net worth population in stability, its sophisticated legal and fiscal infrastruc- private equity funds, real estate funds and infra- Asia is demanding more and more help from Jer- ture, its long-standing partnership with the City of structure funds are all present. There are also more sey practitioners for complex multi-generational London and its aggressive courtship of new markets than 33,000 live companies on Jersey’s company and multi-jurisdictional family and estate plan- is balanced by its effective response to the challenge register – the highest figure for six years. The finan- ning, often involving a combination of Jersey trusts, of tax-transparency and an increasing volume of cial workforce of Jersey increased to 12,820 in 2015, foundations and other corporate vehicles. regulation in its dealings with other countries.

JERSEY NEW MEASURES CONTINUE TO ADD TO JERSEY’S APPEAL 57 secure effective dependable

Getting it Right

Malta’s financial services centre offers financial institutions a combination of the essential ingredients for success: convenient location, rapid access to market, effective regulation, rock- solid legislation, accessible authorities and a pool of highly competent, experienced professionals.

Many internationally recognised financial institutions have already experienced the merits of operating out of Malta and their continued growth and success stands as testament to Malta’s strengths and potential.

The jurisdiction already hosts hundreds of international finance companies, credit and financial institutions, insurance companies, fund managers, insurance managers, pensions, trusts and treasury companies, all attracted by Malta’s unique and well-balanced recipe for success.

Success depends on getting it right - Malta is getting it right.

more information on: www.financemalta.org

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FinanceMalta is the public-private initiative set up to promote Malta’s International Financial Centre MALTA A SUCCESSFUL IFC OF RECENT VINTAGE

* by Ivan Grech, the head of business development at FinanceMalta

The financial sector in Malta has been growing on Malta has grown from 38 in 2006 to 67 in 2015, ance special purpose vehicle are unique to the island. average by 25% per annum, with the latest availa- of which 28 are credit institutions and 39 are Malta is the only full EU member state with PCC ble figures showing that its contribution to Malta’s financial. These new entrants to the Maltese mar- legislation that allows a company to establish its GDP has grown from 3% in 1988 to 13% in 2015. ket benefit from a regulatory regime that is suited own cell in an existing PCC and ‘write risk’ through It employs more than 10,000 people. to their needs, passporting rights that open the that cell. The PCC set-up allows the regulatory bur- door to the whole EU, lower licensing fees than den of an insurance company to be spread among The sector has seen some remarkable and steady in other European jurisdictions and a network of all the owners of the various cells (and through- growth over recent years and is now a major force more than 70 double-tax treaties. Many new en- out its core) without putting the assets of any cell in the country’s economy. Recent figures from the trants are using the country as a strategic launch owner at risk from the liabilities of any other. Cells National Statistics Office show that financial and pad for future expansion into Europe, Africa and the are particularly attractive to medium-sized corpo- insurance activities accounted for 98.1 % of for- Middle East. rate groups that want to establish their own singu- eign direct investment during the first six months lar insurance vehicles. of 2015, with an estimated flow of €5.2 billion dur- Substantial infrastructural investment in informa- ing the period – an increase of €3 billion over the tion technology and telecoms has also spurred the Malta is an attractive jurisdiction for the establish- first six months in 2014. growth of Malta’s e-business, with e-money insti- ment of international corporate holding structures. tutions making up 20% of all financial operations. These are not only useful to multinational groups; In June 2015, the stock position of FDI in Malta This has, in turn, prompted several hundred gam- owner-managed companies set them up and they amounted to €148.2 billion, an increase of €11.8 ing and IT companies to set up on the island, with are also used to hold the assets of high-net-worth billion over the figure for that month a year before. more than 250 companies requiring services such individuals (HNWIs) in a wide range of investment As in previous years, financial and insurance activi- as payment gateways. vehicles including trust companies. ties dominated the scene, accounting for 97.9% of FDI stocks, i.e. the value of the share of capital and The combination of Malta’s tax system and its Trusts include discretionary, maintenance, charita- reserves (including retained profits) attributable to extensive double-tax treaty network allows in- ble, fixed-interest and unit trusts that cater for asset overseas parent enterprises, plus the net indebted- vestors, with proper planning and structuring, to protection, estate or tax planning, or are used as a ness of their affiliates to them. achieve considerable fiscal efficiency when they commercial tool, or for testamentary purposes. Trust use Malta as a base. The European Commission has law amendments in Malta in 2014 saw the introduc- stated that Malta’s tax system complies with EU tion of the Private Trust Company (PTC), which of- non-discrimination principles and the Organisation fers interesting opportunities to HNWIs and families PCC legislation for Economic Co-operation and Development has who favour tailor-made trustee solutions. also approved of it. allows a company Malta has specific legislation for foundations and Malta is the only EU state with a full imputation tax allows for the set-up of two types – private and to establish its own system. Although all companies pay tax at a rate of purpose foundations – which have particular uses 35%, there is a refundable tax credit scheme that is and benefits for named persons or classes of per- cell in an existing available on revenues as dividends to shareholders. sons or for the fulfilment of specified purposes. It is also an ideal place of tax-residency for highly PCC and ‘write risk’ qualified foreign professionals, who pay a flat tax Another innovative and important legal instru- rate of 15%. ment relating to wealth management is a recent through it white paper that pertains to family businesses. This Malta’s excellent reputation as an emporium for in- emerged in October 2015 and will soon become ternational business rests partly on the impartiality law. This is the first piece of legislation of its type of its regulatory regime and its recent introduction in Europe (and probably in the world) and aims to Despite the fact that it is a small island, Malta has of the EU’s fourth anti-money-laundering direc- help family businesses survive after the founding become a leading international banking centre and tive. It subjects new companies that want to op- generation has departed by encouraging their reg- today accounts for a significant share of global erate from its shores to a very thorough screening ulation and ‘governance.’ banking activity. The sector suffered no systemic process and subsequent supervision. The Maltese shocks or banking failures at the beginning of, or authorities take any allegations of irregularity very HNWIs are also attracted by the favourable con- at any stage of, the current . seriously and enforce the applicable rules efficient- ditions for the registration of their aircraft and ly and effectively in such instances. yachts, with more than 450 ‘superyachts’ listed on This is attributable to firm prudential regulation the Malta Ship Registry. and the sound policies and practices of partici- Although Malta is a relative newcomer on the in- pants in its financial sector. Capital buffers retained ternational insurance scene, it has recently proven The fund industry is one of the Malta financial by local banks are among the highest in Europe, very attractive to companies in the insurance and centre’s main engines of growth and is a dynam- and Maltese banks are ranked among the safest reinsurance business, including captive insurance ic and cost-effective venue for new fund set-ups and best-run financial institutions in the Europe- companies passporting their services throughout and redomiciliations from non-EU jurisdictions. The an Union whose solvency ratios have consistently the European Union. The sector has increased from jurisdiction was voted the best European Fund stood at almost double the EU average. The World 8 operators in 2004 to 62 in 2015. A number of Domicile by Hedge Fund Review in both 2013 and Economic Forum’s Global Competitiveness Report Fortune 500 companies have set up captives in 2014. In 2015 it hosted more than 600 funds with 2014-2015 ranked the Maltese banking system Malta, among them multinationals such as BMW, a net asset value in excess of €10 billion, two fund among the top ten in the world for its soundness, Peugeot, Citroen, Vodafone and Virgin. administrators, eight custodians and 147 invest- also ranking its auditing and reporting standards ment service operators. 13th out of 144 economies. Much of this success can be attributed to The Mal- ta Financial Services Authority which, by working in The basic structure used for collective investment The country has attracted some of the most high- consultation with the local market, has created an schemes in Malta is the SICAV (société d’investisse- ly respected names in institutional finance to its atmosphere in which innovation flourishes. Some ment à capital variable) with its variable capital na- shores. The number of financial institutions in types of protected cell company (PCC) and reinsur- ture and the option to establish sub-funds within

MALTA A SUCCESSFUL IFC OF RECENT VINTAGE 59 such structure. This is the most widely used vehicle from a particular country can also be excluded if dia organisations and firms that perform real-es- to date, especially in the non-retail sector. It can the Government so chooses. tate services, recruitment services, business and be structured to include master feeder funds and professional services. umbrella funds with segregated sub-funds. ABOUT FINANCE MALTA The FinanceMalta team reports to a board of gov- The majority of funds in Malta are professional in- FinanceMalta is a non-profit public-private initiative ernors which is chaired by Mr Kenneth Farrugia, a vestor funds or PIFs, which typically take the form that was set up in 2007 to promote Malta’s interna- banker by profession, who has stated: “The aim of of open-ended public or private limited liability in- tional business and financial centre within Malta as FinanceMalta is to position Malta as a financial vestment companies. The creation of a new regime well as outside it. It harnesses the resources of the fi- centre of repute from which firms can conduct for alternative investment funds or AIFs is one of nancial industry and the Government to ensure that international investment service business. The the biggest recent developments on Malta’s fund Malta maintains modern and effective legal, regula- key financial sectors on which we focus are asset landscape and has opened the door to the promo- tory and fiscal regimes in which its financial services management, insurance, reinsurance, wealth man- tion of diverse structuring opportunities such as sector can continue to grow and prosper. agement, capital markets and Islamic finance. Our private equity, venture capital, real estate, infra- focus for the coming twelve months is to explore structure and loan funds. The founding associations of this foundation in- new markets, including those of the Middle East, clude the Malta Funds Industry Association, the New York and Asia, whilst simultaneously develop- Malta was one of the first countries to enshrine the College of Stockbroking Firms, the Malta Bankers ing business in more familiar areas that show great EU’s fourth Undertakings for Collective Investment Association, the Malta Insurance Association, the potential for growth.” in Transferable Securities Directive directive (UCITS Association of Insurance Brokers, the Malta Insur- IV) in its law and hosts a number of UCITS schemes ance Managers Association and the Institute of Fi- Mr. Ivan Grech, the head of business development and non-UCITS retail funds that may be registered nancial Services Practitioners. at FinanceMalta, has also commented, “Malta is in Malta and ‘passported’ to the rest of the EU. A internationally recognised as a brand denoting new vehicle was added to Malta’s repertoire of cel- The organisation offers corporate and affiliate excellence in financial services and our remit is to lular fund vehicles in 2012, called the Recognised membership through which members benefit from market it as such both locally and globally. We fo- Incorporated Cell Company (RICC). This structure their direct experience and knowledge of each oth- cus on representing the interests of our members directly targets fund platform providers and allows er, regular industry updates, training and seminars by promoting the virtues of Malta’s financial ser- the RICC to provide, in exchange for payment of a on specialist subjects, industry lobbying and, inter- vices industry, creating networking opportunities platform fee, certain administrative services to its national marketing and public relations initiatives and helping our members, and our country, prosper. Incorporated Cells (ICs). under the FinanceMalta umbrella. With this in mind, we are continuously developing relationships with intermediaries in Europe, Asia The Government’s Individual Investor Programme Corporate Membership, which currently accounts and the Americas and supporting our members is designed to attract people from abroad who can for more than 200 members, is open to such en- and operators at every level by informing them share their talent, expertise and business connec- tities in the financial sector as fund, insurance and about changes in product legislation and emerging tions with people on the island. Only reputable pension management companies. Affiliate Mem- business opportunities.” applicants are allowed to acquire Maltese citizen- bership, which 60 entities have, is designed for ship thorough a rigorous ‘due diligence’ process. organisations and companies that wish to take ad- Applications from countries to which international vantage of the growth of Malta’s finance industry * For further information about FinanceMalta, visit sanctions apply may not be accepted. Applications and the FinanceMalta network. These include me- www.financemalta.org

A JURISDICTION OF ENERGY, VIBRANCY AND SKILL

* by Samantha Snow, Abacus Corporate Services Ltd

During the course of the last five years, it has been clients buying or operating yachts and private busi- Malta, which both internationally (through events a pleasure to see Malta thrive as an international ness jets, or through entrepreneurs availing them- like the Monaco Yacht Show) and internally (through financial centre, supported as it is by a very pro- selves of structuring opportunities through the various local yacht and aviation events) is a credit to gressive economic infrastructure and a strong gov- many double-tax treaties that Malta has signed the island and which approaches business in a very ernment that is friendly to entrepreneurs. during its life as an international financial centre. commercial and energetic manner, while always try- ing to serve the best interests of Malta as a whole. The number of cranes reaching out into the skyline So why is Malta such a success story? Its entrepre- seems to increase almost daily and the number of neurial government has been highly instrumental According to the latest official statistics, Malta now new financial jobs advertised in the Times of Mal- in its prosperity. Other reasons include its burgeon- has the sixth largest ship register in the world and ta on a Sunday also seems to be growing steadily. ing ship registry business, the stable venue that it the largest of such registers in Europe. The Maltese These are perhaps two of the most obvious signs of provides for online gaming and, most recently, the flag is the flag of choice for several major- inter a successful economy. Malta Individual Investor Programme. national ship-owning companies. Last year the Malta ship register recorded spectacular growth Abacus has been in Malta since 2010, during which SHIP, YACHT AND AIRCRAFT REGISTRATION in the number of merchant ships flying the Mal- time we have witnessed both our business and the tese flag, with around 500 vessels being enrolled. island build on success year after year. In our case, Malta’s registry business can rely on exceedingly This is largely because of the modernisation of the this success has principally been through private good support from trade bodies such as Transport registry and the flexibility of Maltese rules.

IFC WORLD 2016 60 Year-on-year record growth is the norm for the ing gaming operators and was the first EU member economy; more often than not, their families are island’s register. Malta has become a leading mari- state to regulate remote gaming. Along with other from entrepreneurial backgrounds and, consequent- time hub because it is strategic location in the cen- laws, Malta’s Income Tax Act (written specifically ly, create jobs. tre of the Mediterranean, it has natural harbours with international companies in mind) makes it a and an extensive range of maritime services such very popular destination for online gambling oper- Abacus has been fortunate enough to have helped as shipbuilding and repair, its freeport, bunkering ators. More than 450 gaming firms are based on the a number of globally active HNW families, all of services, ship supplies and towage services. island, employing around 7,000 people in the sector. which have enriched the world’s economy in their Online casino and poker sites are just two of the different ways. Their presence in Malta is a testa- It has also become a world leader in commercial typical gaming businesses that one can find there. ment to the jurisdiction’s hospitality towards en- yacht registration. Despite the current worldwide trepreneurs. It is a place where an HNW family can financial malaise, there has been a significant in- With new ideas and technological innovations pop- enjoy sun, sea, sport and architecture and also cre- crease in the registration of superyachts over 24 ping up all the time, the MGA is now reviewing cloud ate businesses that generate employment. These metres in length over last year. products and finalising its policy for digital games of businesses can produce further income which the skill with prizes. The island also hosts many back-of- family can then use to buy significant real estate, For pleasure yachts, in addition to the brisk regis- fice operations that process transactions for gaming import and operate its yacht and register its pri- tration process, Malta offers a favourable regime operators based in other European countries. vate/business jet. All of these things are beyond for value-added tax (VAT) minimisation, with a most people’s wildest dreams but Abacus has VAT rate as low as 5.4% available through leasing With offices in Malta and the Isle of Man, both helped clients of this type do exactly that. structure arrangements. There are marinas all over of which are key gaming jurisdictions, Abacus has the Maltese islands that cater for the superyacht seen its portfolio of services expand in line with the owners and crews. marketplace, thanks particularly to the VAT-related issues that apply to gaming entities in the context Malta now has the of the new VAT rules that the Government intro- duced in January 2015. The outlook for the remote sixth largest ship More than 450 gaming industry in Malta has never been brighter. register in the world gaming firms are IMMIGRATION FOR INVESTORS and the largest in based on the island, The same can be said of Identity Malta, the ‘cit- izenship by investment’ service that administers Europe employing around the Malta Individual Investor Programme (Malta IIP) that has proven so successful for Malta as a 7,000 people whole. Citizenship-by-investment is one of Abacus’ A GOLDEN AGE key business areas and has bolstered its private cli- ent base massively. How do we envisage Malta developing as a ju- risdiction in late 2016/early 2017? We certainly Malta has also become an attractive jurisdiction One of the first schemes of its kind, it grants Mal- expect its economy to keep growing, although on for aircraft owners, or people who are thinking of tese Citizenship to foreign high net-worth (HNW) a slightly more moderate upward slope. There are purchasing an aircraft, owing to the introduction individuals of a reputable standing, along with their already plans in place to invest in medical and ter- of an aircraft VAT leasing arrangement that its VAT dependants, subject to a stringent ‘due diligence’ tiary education tourism over the next few years – department introduced. This is based on the suc- process, through Certificates of Naturalisation. these sectors will help to prevent Malta’s economic cessful Malta Yacht VAT leasing scheme and aims Successful applicants are rewarded with visa-free revolution from running out of steam. Because of to reduce the effect of VAT on the purchase of an travel to more than 160 countries (including the the high standards that Malta now follows in ac- aircraft (or just its engine, if necessary). It is worth United States), the right of work and establishment countancy, legal services and IT, any company of noting that the Malta aircraft registry started out in all 28 EU countries and, potentially at least, any size will receive excellent support services if it with just 18 aircraft in 2010 but now contains tax-planning benefits. chooses to base itself there. more than 200 registrations – a testament to good regulation, to the local tax regime and to the Applicants and their dependants must be represent- In short, Malta is going through a golden age and general safe and secure environment that Malta ed by ‘accredited persons’ licensed by Identity Malta we strongly expect it to stay that way. Its progres- affords to businesses and people alike. to act as authorised intermediaries. As an accredited sive government will continue to work hand-in- agent, Abacus can help people complete their indi- hand with the private sector, Malta IIP will carry on LET THE ONLINE GAMES BEGIN! vidual Investor Programme applications, collating being successful, and the sun will continue to shine. the necessary identifying documents to ensure that The remote gaming sector is the most dynamic the forms are ready for processing and approval. * Abacus is a fiduciary and fund services group and the fastest growing gaming sector in Malta, with offices in the Isle of Man and Malta. Its regulated under the guidance of the Malta Gaming The great benefit of Malta IIP is that not only do experts can be reached on +356 2065 0500 or at Authority (MGA). Malta has a long history of host- high-spending individuals put their income into the [email protected]

MALTA A JURISDICTION OF ENERGY, VIBRANCY AND SKILL 61 UNIQUELY INTERNATIONAL UNIQUELY LOCAL

Our highly experienced international lawyers, advocates Advocacy & Litigation and tax advisors, provide the full range of legal & advisory Aviation services in a multi-disciplinary practice. Banking Representing private individuals, corporations, family offices Competition & other organisations, our services include advocacy in Corporate Services Malta, the UK, at EU level & throughout the Commonwealth. Cross Border Transactions & Disputes Centrally managed in the EU tax efficient jurisdiction EU Law of Malta, Acumum provides superb client service & practical advice at competitive, transparent pricing. Financial Services Gaming Divisions: Insurance Legal, Tax, Compliance, Outsourcing Intellectual Property Managing Partner International Crime Geraldine Noel LPO UK Barrister – Registered in Malta Mergers & Acquisitions B.A. (Hons) (Oxford), Pg Dip, LLM (Fordham) Private Client Public & Private law Malta Office: +356 2778 1700 Taxation Telecoms, Media E: [email protected] & Technology W: www.acumum.com Trusts & Estate Planning Skype ID: acumum Wealth Management 260 St Albert’s Street, Gzira, Malta, GZR 1150, Malta (EU) Yacht & Maritime

Acumum AD_FullPg A4_Feb14_v2.indd 1 02/03/2014 23:44 MALTA - A TAX & FISCALLY COMPETITIVE JURISDICTION; PERSONAL & CORPORATE STRUCTURING

* by Geraldine Noel, Barrister - Registered in Malta; M.A (Oxford), LLM (Fordham)

The Republic of Malta, a full member of the Euro- years; and a returnable investment of €150,000 for and commercial affairs. It has no withholding taxes pean Union and the Schengen visa-free travel area, five years. Individuals are subject to extensive ‘due and limited capital gains rules, no entry or exit tax- has excellent country credit ratings and has expe- diligence’ checks before the citizenship programme es and no rules that pertain to thin capitalisation, rienced steady and impressive growth in recent can accept them. Applications may include grand- transfer pricing or controlled foreign companies. It years. Such growth is not solely the result of its tax parents and other dependents up to 27 years of age. is a signatory to more than 70 tax treaties. It also and fiscal policies – other factors, such as a mul- boasts a number of advantageous tax and fiscal tilingual workforce, fairly low labour costs, a stra- The Global Residence Programme. With a €15,000 regimes that it has set up to attract business in a tegic location and a sound telecommunications annual tax payment, which covers the entire fam- variety of economic sectors. infrastructure, are important. The result has been ily, the GRP (including grandparents and servants) an influx of investors, high-net-worth individuals offers a flexible ‘residency solution’ with no income MALTA’S ADVANTAGES FOR HNWIS and corporations in search of a stable, reputable ju- or wealth thresholds; low requirements for the risdiction in which to reside and/or structure their rental or purchase of property; the possibility of Personal taxation. Resident but non-domiciled per- personal and corporate affairs. family members and staff living in Malta; and no sons are only taxed on income arising in or remitted ‘minimum stay’ requirements. to Malta, a fact that allows for a highly tax-efficient structuring of personal assets. Capital (income held The Malta Residence & Visa Programme. Permanent for over a year) is not taxed in Malta; this taxation residency can be achieved, subject to ‘due diligence’ regime is applicable for all applicants for residency Trusts law is based checks on the applicant, payment of €30,000 and and citizenship too. an investment in Malta of €250,000 and a purchase upon the law of of property (Malta €320,000 / Gozo €270,000) or Maltese citizenship-by-investment. The ‘Individ- rental for 5 years (Malta €12,000 / Gozo €10,000). ual Investor Programme’ requires a contribution of Jersey and may be €650,000 to the Maltese Government; the hold- MALTESE COMPANIES ing of property in Malta (a minimum purchase of used for personal €350,000, or €16,000 rental per annum) for five A Maltese company is considered to be ordinarily years; and a returnable investment of €150,000 for and commercial resident and domiciled in Malta for tax purposes five years. Individuals are subject to extensive ‘due and is subject to Maltese tax on its worldwide in- diligence’ checks before the citizenship programme applications alike come at an effective corporate rate of 5% for trad- can accept them. Applications may include grand- ing income, reduced from the standard rate of 35% parents and other dependents up to 27 years of age. by certain tax refunds. In addition, any overseas tax Malta’s legal system is a mixture of civil and com- suffered by a Maltese company is generally eligible The Global Residence Programme. With a €15,000 mon law, with the commercial laws – companies, for relief as a credit against the Maltese tax liability annual tax payment, which covers the entire fam- trusts, financial services etc. – being modelled on arising on the corresponding source of income. ily, the GRP (including grandparents and servants) English and now EU law. Clients always find com- offers a flexible ‘residency solution’ with no income fort in stable legal systems of this type. Malta is one of the few remaining countries to re- or wealth thresholds; low requirements for the tain a full imputation system. Once tax is levied on rental or purchase of property; the possibility of Malta is a cost-effective, tax-efficient and highly a Maltese company’s profits, no further tax is levied family members and staff living in Malta; and no flexible jurisdiction in which to structure corporate on those dividends at the level of the shareholder – ‘minimum stay’ requirements. and commercial affairs. It has no withholding taxes thereby completely avoiding double taxation. and limited capital gains rules, no entry or exit tax- The Malta Residence & Visa Programme. Perma- es and no rules that pertain to thin capitalisation, The Republic of Malta, a full member of the Euro- nent residency can be achieved, subject to ‘due transfer pricing or controlled foreign companies. It pean Union and the Schengen visa-free travel area, diligence’ checks on the applicant, payment of is a signatory to more than 70 tax treaties. It also has excellent country credit ratings and has expe- €30,000 and an investment in Malta of €250,000 boasts a number of advantageous tax and fiscal rienced steady and impressive growth in recent and a purchase of property (Malta €320,000 / Gozo regimes that it has set up to attract business in a years. Such growth is not solely the result of its tax €270,000) or rental for 5 years (Malta €12,000 / variety of economic sectors. and fiscal policies – other factors, such as a mul- Gozo €10,000). tilingual workforce, fairly low labour costs, a stra- MALTA’S ADVANTAGES FOR HNWIS tegic location and a sound telecommunications MALTESE COMPANIES infrastructure, are important. The result has been Personal taxation. Resident but non-domiciled an influx of investors, high-net-worth individuals A Maltese company is considered to be ordinarily persons are only taxed on income arising in or and corporations in search of a stable, reputable ju- resident and domiciled in Malta for tax purposes remitted to Malta, a fact that allows for a highly risdiction in which to reside and/or structure their and is subject to Maltese tax on its worldwide in- tax-efficient structuring of personal assets. Capital personal and corporate affairs. come at an effective corporate rate of 5% for trad- (income held for over a year) is not taxed in Malta; ing income, reduced from the standard rate of 35% this taxation regime is applicable for all applicants Malta’s legal system is a mixture of civil and com- by certain tax refunds. In addition, any overseas tax for residency and citizenship too. mon law, with the commercial laws – companies, suffered by a Maltese company is generally eligible trusts, financial services etc. – being modelled for relief as a credit against the Maltese tax liability Maltese citizenship-by-investment. The ‘Individ- on English and now EU law. Clients always find arising on the corresponding source of income. ual Investor Programme’ requires a contribution of comfort in stable legal systems of this type. €650,000 to the Maltese Government; the hold- Malta is one of the few remaining countries to re- ing of property in Malta (a minimum purchase of Malta is a cost-effective, tax-efficient and highly tain a full imputation system. Once tax is levied on €350,000, or €16,000 rental per annum) for five flexible jurisdiction in which to structure corporate a Maltese company’s profits, no further tax is levied

MALTA A TAX & FISCALLY COMPETITIVE JURISDICTION; PERSONAL & CORPORATE STRUCTURING 63 on those dividends at the level of the shareholder – YACHTS, MARITIME AND SHIPPING BUSINESS security and estate-planning benefits and are trans- thereby completely avoiding double taxation. parent for tax purposes. In other words, trust income Subject to registration as a shipping company and may be “looked through” and is exempt from tax in Businesses that use Maltese holding compa- payment of the set tonnage tax, a total 0% tax-ex- the hands of non-resident beneficiaries. Alternative- nies can benefit from the so-called participation emption applies to all the income of a licensed ship- ly, a trust may opt to be treated like a company for exemption, which allows for a tax-efficient extrac- ping organisation that owns, charters or operates a tax purposes, thereby enjoying the tax refund facility tion of income or gains from a foreign subsidiary tonnage tax ship. Income, profits or gains derived (i.e. 5% effective corporate tax rate), while still having as no Maltese tax is levied on such income and no from the sale, or other transfer of, or rights over a access to Malta’s extensive tax treaty network. foreign withholding taxes are either. tonnage tax ship is exempt from tax. For yacht leas- ing, the reduced VAT regime allows for VAT rates to FOUNDATIONS Alternatively, a Maltese holding company might be levied only for time spent in EU waters, payable include such income or gains as part of its taxable over a three-year period. Income derived from a As a foundation has a separate legal personality, income and pay tax at 35%. Upon the distribution Maltese company engaged in such activities is taxed for tax purposes it is treated as a company and of dividends by that company, its shareholders at 5% as per Malta’s corporate taxation rules. is therefore subject to Malta’s corporate tax rules would then be entitled to a full (100%) refund of (5% effective corporate tax rate), such as the use the Maltese tax that it had paid. This option might FUNDS AND FINANCIAL SERVICES of the participation exemption provisions (holding be desirable if the shareholders wish to receive part companies), including the remittance rules (down of the earnings in refunds rather than exclusively If a fund holds 85% of its assets outside Malta, income to 0% tax rate). As a result, beneficiaries may be in dividends. There are many intellectual property and capital gains are 0%-tax-rated, as are distribu- entitled to claim a refund of all or part of the tax holding companies in Malta. Royalties from pat- tions to non-resident investors. In addition, statutory paid at the level of the foundation. ents, artistic copyright and trademarks are 0% fees for funds are highly competitive. For example, a taxed for three years - and this is renewable. Am- Professional Investor Fund’s statutory application fee Alternatively, for tax purposes, a foundation can ortisation over the life of the intellectual property is €2,000 and €500 per sub-fund. Maltese law pro- opt to be treated like a trust and enjoy the “trans- is allowed, as is a step up in value upon the trans- vides for a number of flexible structures for funds and parent” tax rules of trusts i.e. 0% tax rated in Malta. fer of intellectual property to a Maltese company investment companies, such as SICAVs and invest- This is the case if all of the income of the trust from book to fair market value upon transfer, whilst ment companies or INVCOs, incorporated cells, con- arises outside Malta and all beneficiaries are per- capital gains may not be levied upon disposal in tractual funds, LLPs and unit trusts - both trusts and sons who are either not ordinarily resident in or not certain circumstances. foundations are regularly used. Furthermore, Malta domiciled in Malta. Such income is deemed to be complies with the EU’s Alternative Investment Fund derived directly by the beneficiaries of the founda- AVIATION Managers’ Directive and certain financial services can tion. A Maltese foundation is therefore highly ad- be ‘passported’ throughout the EU. vantageous in cases where it involves non-resident Private aircraft are not considered to generate in- founders, beneficiaries and assets. come and are therefore free of tax. For commercial TRUSTS operations, tax can be reduced and the tax-deduc- * Geraldine Noel, M.A (Oxford), LLM (Fordham) is a tion rules are generous in respect of finance and Both trusts and foundations may be used for personal, barrister trained in England and the USA and registered operating leases. On top of this, accelerated de- as well as commercial, purposes. The law of trusts is in Malta. She can be reached at [email protected]. preciation periods are available for aircraft, aircraft based upon Jersey law. Maltese trusts, which do not In Malta’s Best in Business Awards for 2015, Acumum engines and related parts. have to be governed by Maltese law, offer protection, was hailed as the best law firm.

BENEFICIARIES Malta located trusts are tax-transparent and no tax is levied in Malta.

Alternatively, such a trust can opt to be treated for tax purposes like a company, thereby enjoying: PERSONAL MALTA LOCATED ASSETSPROTECTOR TRUST / FOUNDATION • 5% effective tax rate applies

• clear flow through or operating income

• ability to use of Malta’s tax treaty network OPERATING PERSONAL REAL COMPANIES ASSETS ESTATE • use of participation exemption

IFC WORLD 2016 64 MALTA’S INDIVIDUAL INVESTOR PROGRAMME - A MODEL OF DUE DILIGENCE

* by Till Neumann, IMCM, the managing partner at Citizen Lane GmbH in Zurich

Having come into force after some controversy in Among other tests, main applicants have to show The application procedure is perhaps the most 2014 under the recently-elected Labour govern- that they and their dependants have a global important part of a citizenship-by-investment re- ment of the time, the Malta Individual Investor Pro- health insurance policy (so as to avoid becoming gime. The issuing country must ensure that its re- gramme is one of many ‘golden visa’ and economic a burden to local Maltese taxpayers) of at least gime is not open to bribery – this problem surfaced citizenship initiatives by which the governments €500,000 per person a year, and to be able to a year ago in Portugal, which had to suspend its of small international financial centres hope to obtain coverage indefinitely. residence-by-investment programme. The Govern- encourage wealthy persons to invest from abroad. ment sacked the head of the relevant unit for tak- (It is important that this programme should not be Applicants and dependants will go through a ing money in exchange for ‘fast tracking’ a Chinese confused with an older – and still extant – Maltese checking process to ensure that they are fit and client. residence regime that bestows special tax status, proper persons to hold a Maltese citizenship. Iden- such as a flat rate of 15% on foreign-sourced in- tity Malta, the organisation that manages the To get around this problem, Antigua & Barbuda come, on the participant if he remits it to Malta. programme, might ask anyone who applies for an have established a Citizenship by Investment Unit, Participants have to pay a minimum annual tax interview, although it cannot demand one. a stand-alone body that receives ‘government fees,’ charge of €15,000.) charged for each family member, of US$50,000 or The names of successful applicants are published more to cover its expenses (fees for dependent each year in the Malta Government Gazette. This children are less than that, but children always applies to those who have achieved this status have to be accompanied by adults, making $50,000 Countries that offer either by registration or naturalisation during any the smallest amount payable). With these, it can previous 12-month period. pay its functionaries salaries that are high enough citizenship-by- to deter them from accepting bribes. Its relative At the core of the programme are investment re- independence from the rest of the Government investment are now quirements and each applicant has to meet a num- is important as well; when a CIU is housed in the ber of conditions. Firstly, he must contribute to the ministry of finance, as it is in St Kitts/Nevis, it is afraid to accept aforementioned National Development and Social likely that the ministry’s revenue-generating in- Fund. The principal applicant must contribute at stincts will inhibit it from processing applicants as people whom the least €650,000, purchasing property worth at least fastidiously as it might. €350,000, or leasing property for a minimum an- great powers dislike nual rent of €16,000 and investing €150,000 in ‘Due diligence,’ then, is something that every ju- government-approved financial instruments. The risdiction’s programme must take seriously in an spouse must contribute at least €25,000; depend- attempt to avoid reputational risk. Jurisdictions ent children aged up to 17 years must contribute at are now wary of taking on foreign applicants who The programme is designed to grant, or make it least €25,000, while each dependent child from 18 come from countries with ‘bad’ reputations or who easier for the Maltese government to grant, citi- and above must put in at least €50,000. The prin- themselves (according to submitted documents, zenship to foreign high net worth individuals and cipal applicant also must pay ‘due diligence fees,’ open-source news searches and, these days, reports their families. Malta is a full member of the Europe- when the application is submitted, of €7,500. Oth- from private investigators who work for the gov- an Union and is therefore offering investors an easy er due diligence fees include €5,000 for the spouse ernments) are not of good repute. Since the sum- route to settlement in the Western half of Europe and adult dependents and €3,000 for children mer of 2014, the authorities of St Kitts now ask as well. The citizenship is granted on condition of aged 13-17. Identity Malta charges other fees for for far more documents than they did before, even applicants investing significantly in the National passports (€500) and bank charges (€200). turning clients down for minor infractions such as Development and Social Fund, a government-es- drink-driving and speeding. tablished asset pool. The fund focuses on capital In the more discerning of jurisdictions such as An- and social projects that the Government believes tigua, Malta and St Kitts/Nevis, the ‘due diligence’ to benefit the country. process no longer concentrates solely on the clean- liness of the applicants’ funds or wealth. Any CEO A programme Because Malta is a member of the EU and the of a company that has polluted the environment Schengen Area, a participant from outside the EU is now extremely unlikely to be granted a passport participant from who becomes a citizen has full access to the EU; he in those jurisdictions. In more flexible countries can travel without hindrance throughout the bloc such as Vanuatu and Dominica, the regimes might outside the EU who and also in the four states of the European Free let such people in. The less fastidious jurisdictions Trade Association (Iceland, Norway, Switzerland, are also more likely to sell passports to Syrians or becomes a citizen and Liechtenstein). A holder of such citizenship can other people whose nationality might disqualify also travel to more than 160 countries all over the them elsewhere, but they still insist on these peo- has full access to world, including the USA, without need of visas. ple passing all the necessary tests for reputational probity. the EU At present, to achieve citizenship by means of the programme, the so-called ‘main applicant’ has to St Kitts/Nevis still runs the biggest citizen- pass the following tests: he must be 18 years old ship-by-investment programme around. The people In the last couple of years, the programmes have or above; he must provide proof of residency in in charge of these programmes rarely publish any started to compete with one another. Powerful Malta for a period of 12 months before the day numbers, although Cyprus and Malta publish the Western onshore countries are also pressurising that a certificate of naturalisation is awarded, and names of the economic citizens (alongside those of smaller jurisdictions to check the backgrounds of he must meet the requirements for application other citizens) in their government gazettes. Malta applicants very stringently, and this pressure even set out in the regulations. At present, the programme is one of the most fastidious jurisdictions, having extends to forcing them to add to the information is limited to 1,800 main applicants, excluding their de- wisely insisted on good ‘due diligence’ right from that their passports must contain. The price of pendants. (It is, as with all such government-run pro- the start of its programme, and its ceiling of 1,800 non-compliance can be high, with onshore pow- grammes, possible that this number might change.) applications is another guarantee of tight control. ers cancelling their visa-waiver agreements with

MALTA MALTA’S INDIVIDUAL INVESTOR PROGRAMME - A MODEL OF DUE DILIGENCE 65 More than an Island The Malta Individual Investor Programme.

Citizen Lane advises clients depending on their personal situation with the choice of a residence solution or aiding with the selection of the right citizenship program. The Program Together with our clients we identify the best-possible investment category and Malta Individual Investor Programme (IIP) came efficiently execute the application process from A to Z. The focused consulting into operation at the start of 2014. Malta is the approach of Citizen Lane, our sound knowledge of the various residence and only EU country which offers an official Citizen- citizenship programs and our expertise on the local situation makes it possible ship-by-Investment program. The Maltese pro- for us to provide a personal, lean service fulfilling all requirements for quality – gram is limited to a total of 1,800 applicants and the Maltese program is one of many options that Citizen Lane offers. is designed in such a way that it not only gene- rates foreign investment for the national fund but also integrates new citizens into the country. Accordingly, the program is set up in a manner that requires applicants to initially hold a resi- dence permit for a period of one year before they can submit the effective application for citizen- ship. The Maltese passport permits holders to enter 166 countries without a visa and is there- fore the most convenient passport of all Citizen- ship-by-Investment programs.

We look forward to Citizen Lane LLC getting to know you. Zentrum Staldenbach 15 8808 Pfäffi kon SZ Switzerland +41 55 511 54 00 [email protected] www.citizenlane.ch countries that offer CIP programmes of which they a passport application in St Kitts can take six weeks Russian and Chinese clients are very interested in somehow disapprove, thereby reducing the use- and often longer. travelling the world without the need for visas and fulness of those programmes to high-net-worth have to buy these passports to do so, as Western participants who originally signed up in the hope Other intervention on the part of the great powers countries will insist on visas otherwise. Many of that they would then be allowed to travel to those is evident. In December 2014, Antigua stated that these people want to travel for leisure or to meet- onshore locations without visas. it would ban anyone from Afganistan, Iraq, North ings in the US, the UK, the Schengen area and else- Korea, Somalia and Yemen from its programme un- where for commercial reasons. In November 2014 the nightmare came true when less they were resident in the UK, the US or Canada. the Canadian Government cancelled its visa waiv- The threat of a withdrawal of visa rights therefore er agreement with St Kitts and Nevis – this was a Countries that offer citizenship-by-investment are gives the great powers a measure of real control warning shot across the bows of all offshore cen- now afraid to accept people whom the great pow- over the issuers of citizenship-by-investment tres. Even though St Kitts, in the summer of 2014, ers dislike, and in some cases are changing the rules passports. As in other fields of offshore endeav- had already started to issue a new format of pass- of their citizenship programmes to favour those our, the need to offer innovative products is bal- port for all citizens which contained their dates and onshore powers’ economies. anced by the need to avoid the displeasure of the (again) places of birth, this was not fast enough for onshore world. Offshore governments already Canada. The Canadians forced St Kitts to renounce Why should the suspension of visa waivers matter check the backgrounds of applicants for econom- all the relevant passports, setting the end of Janu- to them? One might expect many applicants for ic citizenship in far more detail than in the case ary 2015 as a deadline. They announced their pol- passports to care solely about moving their assets of people who want to be naturalised through the icy in late November 2014. This upset the sched- to a new jurisdiction where their home govern- usual channels (e.g. by marrying citizens of coun- ules of many people who were planning to come ments cannot steal them. This is sometimes the tries they want to live in or by residing in coun- back from their Christmas holidays in the middle case – Citizen Lane occasionally deals with people tries for long periods before applying for passports) or even the end of January (the Eastern Orthodox who want to set up trusts in Nevis, for example – and such scrutiny can only increase as time Christmas being later than others), especially since but most clients are not from Western countries. goes on.

MALTA’S OFFERING TO HNWIs AND TO THE WORLD

* by Tom Burroughes, editor of WealthBriefing

Whenever a jurisdiction battles to win business ample, designed to help family businesses achieve A senior figure in the Maltese financial and legal and create a strong brand for itself, there is great continuity between generations; provide legal form community, Dr Nadine Lia, née Sant, who is an merit in having one or more signature offerings for and clarity to the sector; give a legal and adminis- advocate in Malta and barrister at law in England which they are widely known. The Cayman Islands trative framework against which family businesses & Wales, and legal advisor at the Ministry for the has its hedge funds; Jersey and Guernsey have can finally have a method to guide, and facilitate Economy, Investment and Small Business in Malta, funds, trusts and other features; Bermuda has its their transition to ensure growth and continuity. has recently told your writer of the international reinsurers. Features include a formal definition of what con- calls for such an act. The European Commission, stitutes a family business (not always as obvious as for example, has called on governments to address And now there is Malta. In the case of this jurisdiction, it might seem), who should be considered for fam- what she calls the “Achilles Heel” that family busi- an economy is taking shape that means outsiders ily membership (again, not always obvious), how nesses face when they transfer wealth and business might associate it with more than just the Knights is governance regulated, how can foreign-owned to younger family members. The European Com- of St John, noisy August festivals and more than 300 family businesses avail themselves of the Act, and mission has repeatedly asked for such legislation days of sunshine a year. Malta has gone for several other matters. from member states, stating this point as recently legislative features it hopes will become widely rec- as 30 June, 2015. ognised as attractions, which seems to have created a whole greater than the sum of its parts. A crucial aspect, Dr Sant says, is that family busi- The Family nesses will for the first time be given an identity One element that is already very much in practice and a platform. The Act is also intended to act as and generating attention is its citizenship-by-in- Business Act could a complement to present legal and financial struc- vestment programme (since early 2014), which is tures that apply to local and foreign family busi- one of a number of “golden visa” initiatives adopt- be a game-changer ness that are thinking of making Malta their juris- ed by European and other states to encourage in- diction of choice. ward investment. (Other examples include the UK, for Malta Portugal and Spain.) And there is a new element on The Act is also a kind of innovation that makes the horizon that could be a game-changer for this sense for an island that in some ways has a hy- former UK colony and now European Union mem- brid identity. It is an ex-British colony (independent ber state - the Family Business Act. The idea of creating such an act makes plenty of since the 1960s) of which there are visible signs sense for an IFC because so large a chunk of the such as old red telephone boxes, loyalty to English The Act, which at the time of writing is in its White world’s businesses are family-owned. For business soccer teams and English as a second language. Paper stage and heading through the Maltese leg- owners who want to protect what they have creat- Malta is a European Union member-state and mul- islature – due to be signed into law during 2016 ed over the generations, the legislation, so its fram- ti-lingual and multi-legal (a mixture of Anglo-Sax- – is designed to do a number of things. It is, for ex- ers hope, will provide an enticing option. on Common Law and Napoleonic Civil Code law).

MALTA MALTA’S OFFERING TO HNWIs AND TO THE WORLD 67 There is relative proximity to the European main- outside the European Union – there are minimum still. The country’s financial services industry now land with regular flights from European and other requirements in terms or purchasing/renting prop- accounts for about 12% of gross domestic product hubs and, crucially, there are robust property rights erty and those who qualify have a 15% flat income (roughly the same as that of Switzerland). While and a stable political system. tax on income remitted to Malta. the island certainly had some nervous moments in the financial crisis years, not a single bank went CITIZENSHIP BY INVESTMENT OTHER INITIATIVES AND BUSINESS LINES bust or needed state rescue. Maltese banks have been admirably “dull” in terms of giving no great Such a background also explains why Malta felt Citizenship-by-investment and the FBA may be cause for alarm. Moreover, the island ranks as the able to enter the “golden visa” world and create the two most recent and high-profile features of 14th soundest economy on the World Economic another signature “brand” offering. Enacted in early Malta’s investment story, but the island also likes Forum’s Competitiveness Index for 2013/14; it has 2014, amid some controversy in Europe at the time to draw attention to other features. Malta has a generally been given a clean bill of health by global before adjustments were made, the Malta Individu- vigorous funds administration and fiduciary sector, rating agencies. al Investor Programme was eventually endorsed by which shows few signs of decelerating; its Common the EU. Anyone who wants to join the programme Law system is of course fertile soil for trusts, but must make a significant and non-refundable con- more continental European features of its legal tribution to the country’s National Development code also are a useful fit for entities such as foun- Malta appears to be and Social Fund. dations. Such a combination is relatively unusual in southern Europe. There is no shortage of banks; well-placed to keep Main applicants must commit at least €650,000 firms such as HSBC, FIMBank and Banif Bank, op- (there are smaller amounts for spouses and chil- erate in Malta. (A couple of large European banks its edge dren). Another requirement is that applicants must have cut some services in the island.) Meanwhile, commit to having a residence in Malta for at least there are private banking boutiques serving high- five years, which can be done by buying a property net-worth and ultra HNW individuals such as Med- worth at least €350,000, or by leasing such a prop- iterranean Bank. The country is also home to the The state of the overall economy is still relatively erty for five years or more where the annual rent is “Big Four” accountancy firms – Deloitte, EY, KPMG robust; the EU forecasts the island’s GDP to expand €16,000. Before the application goes through, the and PricewaterhouseCoopers – a fairly potent seal by 4.3% this year and by 3.6% in 2016 – growth person in question must invest at least €150,000 of approval. rates that many European finance ministers will in government-approved financial instruments envy. Unemployment, while not tiny, is in low sin- such as bonds, stocks, and debentures that benefit There have been other developments in recent gle digits. All this has been achieved at a time when the nation and must commit to keeping the invest- times, such as the rollout of Malta’s aviation reg- the country, with fewer than 500,000 people in to- ment for at least five years. Once all this has been istration legislation in 2010, which has galvanised tal, has been affected, along with much of southern done, the candidate is issued with an eResidence developments in this area. Unsurprisingly for an Europe, by refugees who are trying to leave North card; 12 months after the applicant has established island, it also has shipping registration capabilities. Africa and parts of the Middle East. residency in Malta, those who have maintained residency become citizens. Significantly, a citizen It is important to put some of these details into NO GROUNDS FOR COMPLACENCY does not have to spend all 365 days in the Malta context. Malta is a relatively low-tax jurisdiction, before getting that citizenship. The Maltese author- but this point should not be overstressed. Income There are no grounds for any complacency; this ities will be satisfied by a stay of a minimum of 183 tax, for example, is charged at progressive rates of is an island that has had, in the absence of major days or by the purchase/rental of property togeth- up to 35% – a rate that nevertheless compares natural resources, to live on its wits. Tellingly, how- er with a visit to Malta. favourably with the UK’s top rate of 45% on the ever, along with many other small locations that highest earners, for instance. are IFCs, Malta hasn’t the natural resource “curse”. Its main capital is human brainpower, not oil or Malta also operates an imputation system for divi- precious metals. There is a substantial, educated dends, which means that tax that is paid by a firm middle class and many Maltese are keen to study Family businesses is imputed as a credit against the tax due by the abroad and take their learning back home. Looking shareholders when a dividend is paid out. across the range of offerings in Malta – citizenship, will for the first time the new Family Business Act, registration for funds, Companies are taxed at a flat rate of 35%, but the aircraft and ships – what comes across is an im- be given an identity imputation system can significantly mitigate the pression of a relatively balanced financial jurisdic- impact of the tax on shareholders, encouraging tion. It also has a busy sector of online gaming, a and a platform firms to incorporate in the island. The amount of vibrant film-making industry and business relating the tax refund is set at 6/7ths of the advanced cor- to technology, medicine and tourism. (Some of poration tax paid by the company. the most memorable scenes of Gladiator, Game of Thrones and Troy, for example, were filmed there.) It is worth pointing out that this initiative operates What all these forces and ventures mean is that This balance and broad appeal are important tests alongside the jurisdiction’s existing Global Resi- Malta appears to be well-placed to keep its edge, of successful IFCs, particularly when jealous rivals dency Programme, open to foreigners inside and although other jurisdictions will not want to sit are always trying to encroach on their business.

IFC WORLD 2016 68 PORTUGAL LAND OF THE GOLDEN VISA

* by João Gil Figueira, Lugna

Portugal is not an offshore jurisdiction; among its d) the acquisition of real estate for a minimum Portuguese nationality allows for dual nationality, possessions only Madeira, an island in the Atlantic, purchase price of €350,000, if the property enabling new citizens to retain their previous citi- could claim that title because of some quirks of its is at least 30 years old or is located in an urban zenship. There are no ‘minimum stay’ requirements corporate income tax regime. This coastal Atlantic regeneration area and the acquirer refurbishes and Portugal does not levy taxes on wealth or tax jurisdiction does, however, have a kind of citizen- it; or anyone according to citizenship. Applicants for the ship-by-investment regime. Other European coun- Sephardic Jewish programme must have their crim- tries have similar schemes and there has been no e) sponsorship for the production of art, for inal records, if they have any, verified in order to international pressure from the European Union to the restoration of Portugal’s cultural heritage apply for citizenship and must produce evidence of stop this regime. Portugal is currently a target for (€250,000) or scientific esearchr (€350,000), their Portuguese and religious ancestry. foreign direct investment, a safe country to live in, through services carried out by a range of and the quality of living is unmatched by that of public or private entities; or The Portuguese Foreigners and Borders Service most of its competitors. controls immigration and visas, together with the f) capital transfers amounting to at least Ministry of Foreign Affairs. The Civil Registry deals THE GOLDEN VISA PROGRAMME €500,000 for the acquisition of shares in with requests for citizenship, although the SEF may investment or venture capital funds aimed co-ordinate or evaluate some matters. Portugal does not have a ‘direct-to-citizenship at the capitalisation of small and programme’ for investors. There is, however, a fast- medium-sized enterprises. Golden Visa holders are not subjected to a specific track scheme for residency leading to possible income tax regime, but the greater part of Golden citizenship using the so-called Golden Visa Pro- Citizens of foreign countries can conduct the said Visa applicants are people who have never resided gramme. Its formal name – seldom used – is the investment activities either individually or through in Portugal. Because of this, they will be entitled Residency Permit for Investment Activities and the companies. Investment and quantitative thresh- to ask for ‘non-habitual resident’ status (valid for regime has been in force since 2012. All successful olds (b), (c), (d) and (e) are reduced by 20% if the 10 years) and benefit from a special regime. This applicants for Portuguese citizenship receive the investment is located in an area with low popula- special income tax regime applies to people who same type of passport as native citizens and are tion density. have not qualified as tax residents in Portugal for entitled to the same rights. the last five years.

The differences between the Golden Visa and oth- If someone becomes a tax resident (i.e. a non-ha- er international citizenship-by-investment pro- There are no new bitual resident rather than an ordinary resident) grammes lie in timing, with the Portuguese regime in Portugal it will not, in most cases, cause addi- lacking speed (it may take six years for an applicant laws in the pipeline tional taxation. The reason behind this is the fact to become a citizen, after he has met all the require- the non-habitual residents regime provides for ex- ments) but making up for this shortcoming by cost- regarding citizenship emptions for most types of income that are taxed ing less. at source or could have been taxed according to or residency an applicable treaty. The only types of income A Golden Visa entitles the holder to a permanent that will lead to tax in Portugal would be capital residence permit and unrestricted access to the gains on the sale of shares and capital gains on Schengen area (which consists of 26 European the sale of Portuguese real estate. Because most countries that have abolished passport controls Almost all eligible investments are refundable in HNW investors have structures, their income is – and all other types of border control – for each the sense the investor is able to sell the property/ usually dividends or interest, which in most cases is other’s people). In addition to that, he has the right assets or divest from a company or business if need exempt from tax in Portugal. The regime has helped to bring in his children if they are minors or young be. will only be regulated by the par- to make Portugal a target for foreign direct invest- adults still at school, and his parents if they are de- ticularities of the investment deal itself. ment and a prime location for high-net-worth pendent on him. After six years, Golden Visa holders individuals to live in. who reside in Portugal may apply for Portuguese Sponsorship of the arts and scientific research is, citizenship and so can their spouses, children and however, not a refundable investment, mainly dependant parents. because of the way that contract law/public law (which makes them almost a donation) works. Eligible investments The Portuguese passport allows for visa-free travel to 141 or 172 jurisdictions (depending on whose As for requirements for permanent residence, visa include capital concept of jurisdiction on uses) and is only a few holders are required to stay in Portugal for as few countries away from the United Kingdom and as seven days per year during the first year and as transfers, bank ahead of the United States of America passports. few as 14 days in the following two-year period. deposits or The Golden Visa was designed as an investment visa There are no new laws in the pipeline regarding for citizens from outside the European Union and is citizenship or residency. The latest amendments investments in granted to investors who pursue eligible investment in 2015 to the Portuguese immigration and citi- activities in Portugal. These are as follows: zenship laws introduced new types of eligible in- financial products vestments for the Golden Visa and created a new a) capital transfers, bank deposits or investments ‘citizenship programme’ for foreigners of Por- of €1 million in financial products valued in excess of one tuguese Sephardic Jewish ancestry. For some of million ; or these people, the Portuguese passport represents a chance to live in their spiritual homeland that their b) the creation of at least 10 jobs; or ancestors lost when the Inquisition expelled them Visa-free travel to Portugal, incidentally, is an op- in the last decade of the 15th century. For others it tion for stays of up to 90 days (as a rule it can be c) the acquisition of real estate with a market is an opportunity to gain free access to the benefits renewed for the same period) for the citizens of value exceeding €500,000; or associated with an EU passport. 141 countries.

PORTUGAL LAND OF THE GOLDEN VISA 69 Don’t leave anything to chance. Invest, wisely.

Lugna is a boutique firm specialised in Tax, Corporate Restructuring and Business Model Optimisation, Private Client Advisory, Family-owned Businesses and Business Immigration. Due to its international footprint, the firm handles cross-border and jurisdiction-specific issues and has a deep understanding of the cultural and practical aspects of investing and doing business in Portuguese speaking jurisdictions. Simply put, we are easy to work with.

Bespoke Tax & Structuring Solutions Private Client | Corporate & International Business Portugal | Brazil | Angola | Timor-Leste

WWW.LUGNA.PT

Lugna pub.indd 1 18/01/16 18:22 GOOD POINTS FOR HNWS in non-European markets. For Portuguese-speaking An increasing number of multinational groups and countries such as Brazil, Angola or Macau, a Portu- family businesses use efficient holding structures Benefits for HNWs who apply for non-habitual guese company is a flexible and efficient gateway in Portugal to do business worldwide and benefit resident status include a tax exemption for most through which businesses can tap into the Euro- from a broad participation exemption regime (no types of passive income such as foreign dividends pean Union market. For Chinese companies, it is a tax on dividends, capital gains on the sale of shares and interest, a full exemption for foreign pensions strategic hub to prepare investment into any of the or foreign branch profits). and special tax rates for earned income (20% for jurisdictions of Portugal’s wide tax treaty network, “high-value-added activities,” i.e. activities of a sci- namely Portuguese-speaking markets. The banking system has seen its fair share of trou- entific, technical or artistic nature, 0% for foreign bles since the meltdown of 2008, with government salaries taxed at source and progressive rates for intervention in two big banks, but investors are non-eligible activities). There are no wealth or in- safe. heritance taxes in Portugal. Gifts between spouses and to parents or offspring are, as a rule, liable to tax. After six years, The Portuguese Deposit Guarantee Fund compen- Portuguese company law does not recognise such sates Portuguese bank account holders up to one vehicles as trusts and foundations because Portu- Golden Visa holders hundred thousand euros per bank / bank account gal is a Civil Law jurisdiction. These structures are in the event of a bank . usually taxed in Portugal on a case-by-case basis. who reside in Structures are available to mitigate this. Portugal may apply * Lugna is a boutique firm that specialises in PORTUGAL AS A FINANCIAL CENTRE IN tax, corporate restructuring, business model GENERAL for citizenship and so optimisation, private client advisory services and immigration. It handles investment-related business Portugal has become a popular jurisdiction to set can their dependants in Portugal, Brazil, Angola, Timor-Leste (East-Timor) up a holding company with the purpose of investing and Macau.

PORTUGAL LAND OF THE GOLDEN VISA 71

SEYCHELLES OFFERING AFRICA SAFETY AND THE RULE OF LAW

* by Rupert Simeon, CEO, Seychelles Investment Board

For any country’s economic sector to flourish, two Maritime Organisation’s white list. The tourist sec- funds. Each of these has its own unique benefits to key elements must be present. First, the state must tor triumphed during the 22nd annual World Travel offer, yet they all result in more effective risk man- draw up regulations and follow economic policies Awards this year, with the Seychelles being voted agement, company structuring and tax planning. that are conducive to the growth of the econ- in as the leading Indian Ocean destination and For example, the CSL is subject to only 1.5% tax on omy. Second, it must have the active support of home of the Indian Ocean’s leading Tourism Board. its worldwide (gross) income and is incorporated the private sector. Both these elements are pres- During the award ceremony the national airline, Air as a domestic company under the Companies Act ent in the Seychelles, which has been successful Seychelles, was also hailed as the leading Indian 1972 but awarded a special licence that allows the in making use of them to promote such growing Ocean airline. The Seychelles also won the award company to benefit from access to the Seychelles’ sectors as renewable energy, tourism and the fi- for the Indian Ocean’s leading cruise port and lead- growing network of Double Taxation Avoidance nancial services sector. All three are key economic ing cruise destination. Agreements (DTAAs). pillars of the jurisdiction. In addition, the country is situated in an advantageous time zone and offers A WELL-REGULATED FINANCIAL SECTOR The CSL can also operate part of its business in the foreigners a modern legal system and body of law Seychelles. The establishment of a CSL in the Sey- and a wealth of experience in tax-planning and tax The financial services sector has had many- suc chelles’ International Trade Zone (SITZ) can very management. Despite being the smallest of Africa’s cesses of its own and today there are close to 70 well be one of the most efficient ways to export countries, the Seychelles are on track to become corporate, trust and foundation service providers products and services into Africa. the premier financial centre for both Africa and the operating in the islands, offering foreign compa- Middle-East. nies an abundance of legal, tax and management The Seychelles Mutual Fund & Hedge Fund Act 2008 services to choose from. One milestone worth allows for full exemption from Seychelles business mentioning is the signing of the Multilateral Con- tax on the income of licensed funds and exempt vention on Mutual Administrative Assistance in foreign funds, which are also exempted from with- The first securities Tax Matters in February 2015 which represents holding tax and stamp duties. Furthermore, foreign the country’s commitment to continuing to make funds which are already licensed in jurisdictions exchange, named improvements to its existing laws and legal prac- ‘recognised’ by the Act are granted exemptions tices in the field of exchanging information for tax from Seychelles licenses as long as they are man- Trop-X, was set up purposes. However, Seychelles’ policy-makers have aged by Seychelles-licensed fund administrators also been thinking of improving existing legislation and listed on stock exchanges in recognized juris- in 2012 that governs several products and services such as dictions, or as long as the minimum investment by international business companies (IBCs) and com- each investor is not less than US$100,000. These pany special licenses (CSLs) which are expected to ‘Exempt Foreign Funds’ can be of particular inter- POLITICAL STABILITY be more in line with current market trends and the est to fund managers who are looking for the best current economic situation. location from which to operate their funds. When investors weigh up the pros and cons of entering a new market, one of their key consider- It should be noted that all professionals who work The Government has also set up several mecha- ations is whether or not the country is stable polit- in the international financial services sector must nisms to allow for the development of other ser- ically. The Seychelles can definitely be described as meet the strict requirements of the Seychelles Fi- vices. For example, a banking license granted by the one of the most, if not the most, politically stable nancial Services Authority (FSA). This ensures that Central Bank of Seychelles (CBS) allows the bank in countries in Africa. This makes it the ideal location only reliable and qualified individuals are able to question to carry out both offshore and onshore for business because investors can rest assured offer these services. Examples of these include the banking. This means that it may cater for all the that their investments are safe. In fact, in the 2013 need to have sufficient experience in the industry companies currently incorporated in Seychelles, Ibrahim Index of African Governance the Seychelles and to possess academic and professional quali- which number almost 150,000. Moreover, the Se- were ranked the highest for “safety and the rule of fications such as those provided by the Institute curities Act 2007 also allows for the Seychelles’ first law” in East Africa. The jurisdiction was also ranked of Chartered Secretaries (ICSA) or other globally securities exchange, named Trop-X, which was set higher than any other African country in the cate- recognized qualifications such as those issued by up in 2012. It also sets out rules for a number of gories of human development, infrastructure, edu- the Association of Chartered Certified Accountants other new activities in the industry. cation and health. Moreover, the Seychelles Invest- (ACCA) or the Chartered Institute of Management ment Act 2010 also protects investors against sharp Accountants (CIMA). This is very reassuring for in- A NEW TOURIST BOARD practice, minimising any risk of expropriation and vestors and adds to the country’s positive reputa- allowing for the full repatriation of profits. tion across the globe. In 2014, the Seychelles Investment Board (SIB) took on the task of promoting the financial ser- The country’s Exclusive Economic Zone (EEZ) con- CORPORATE STRUCTURES AND INVESTMENT vices sector for the country and since then has tains about 115 islands. It occupies 1.3 million VEHICLES been holding an ever-more fruitful dialogue with square kilometres in all, with only 455 square kilo- representatives of the private sector both locally metres consisting of land. Several products and services are available to in- and overseas. Its job is to be proactive in inform- vestors who are looking for efficient ways in which ing the world of what the Seychelles have to offer. The Seychelles have in the past been heavily reli- to run international companies. These include IBCs, SIB plans to host and participate in a number of ant on their fishing and tourist sectors and these Limited Liability Partnerships (LLCs), CSLs, Protect- forums in the Seychelles and overseas and is also are still the strongest. During the past few months ed Cell Companies (PCCs), trusts and foundations. looking to attract reputable international legal both sectors have notched up significant achieve- The Seychelles register airlines and ships. Its in- and accounting firms that will complement the ments, not least their inclusion on the International vestment vehicles include mutual funds and hedge financial sector and help it grow.

SEYCHELLES OFFERING AFRICA SAFETY AND THE RULE OF LAW 73 SEALED WITH TRUST

A HERITAGE OF TRUST

At Asiaciti Trust, we understand the importance of delivering reliable, discreet, personalised service. Place your trust in our 45 year record of adding long term value to clients’ wealth preservation strategies. We are committed to serving the best interests of our clients, protecting their assets and building a legacy for their families. Asiaciti Trust, a heritage of trust.

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Cook Islands • Dubai • Hong Kong • London • Nevis • New Zealand • Panama • Samoa • Singapore www.asiacititrust.com SINGAPORE THE SINGAPORE PRIVATE FUND – A NEW VEHICLE FOR STRUCTURING PRIVATE WEALTH

* by Aaron Mullins, managing director of Asiaciti Trust Singapore Pte Ltd

Funds have long been a part of the commercial and flexible way of providing appropriate degrees of In Singapore, then, the client is always secure in the investment landscape. They became widespread participation for different beneficiaries, through the knowledge that his assets are going to be managed in the early 20th century and allowed investors granting of different numbers and classes of units well and that he will always be able to customise to pool investments in the stock market. The first in the fund. Above all, a fund – although a sophis- their management to his own needs and prefer- type of fund was a unit trust, essentially a trust ticated and robust structure – is conceptually very ences. arrangement between a fund manager and a simple and is familiar to most clients. In this sense it trustee for the benefit of investors, who are known is a very ‘user-friendly’ structure that is often easier OTHER FEATURES OF THE SINGAPORE as unit holders. Nowadays, commercial funds may to understand than a traditional structure such as PRIVATE FUND be structured either as unit trusts or companies a trust or foundation, where the formal governance and the regulated fund market worldwide is esti- model may be less familiar. Confidentiality is a growing worry for many clients, mated at some 100,000 funds with US$37 trillion who wish to maintain compliance with their tax of net assets. and reporting obligations but also want to uphold their personal privacy. As one of the most respect- Increasingly, funds are also being used as the cen- Fund reporting ed financial jurisdictions in the world, Singapore tral vehicles of private wealth structuring. Such applies the highest standards of compliance and private funds are not available to public investors requirements can its primary regulator, the Monetary Authority of and their existence may not be a matter of pub- Singapore, has an excellent reputation. However, lic record, but their legal structure and the ways be customised Singapore also respects personal privacy and a Sin- in which they work are the same as those of com- gaporean private unit trust is a private and confi- mercial funds. dential arrangement with no registration or public disclosure requirements. PRIVATE FUNDS IN SINGAPORE A private fund is non-tradable, so third parties can- A private fund can Like any other structure, a private fund can be not buy in to such a fund without some pre-de- established under the laws of many jurisdictions. fined agreement. However, in cases where the in- formalise different However, Singapore offers a number of well-known vestors are looking for co-investors – for example advantages, not least its reputation as a well-regu- to bring external capital into a family business they investment lated onshore jurisdiction with an excellent banking can use a Singapore private fund which they can, if infrastructure and professional services to match. they desire, subject to an external audit. This gives mandates co-investors confidence, which is particularly im- Funds are also well-regulated in Singapore. A Sin- portant when a business is making the transition gapore private fund is typically established as a from being owned only by the members of a family private unit trust, which provides the security and to having diverse investors. THE STRUCTURING OF FUNDS FOR WEALTHY confidentiality benefits of Singapore trust law, and FAMILIES is normally free of Singaporean tax for internation- Whether or not co-investors are on the menu, Sin- al investors. gapore private funds are straightforward long-term Let take a simple example. A fund is created for one ownership vehicles for family and business assets. family. It acquires family assets – say a financial A fund manager is appointed, with the client be- They are well-governed, structured in a familiar portfolio – and the shares in the fund are held by ing given wide latitude to propose a fund manager manner and located in a secure onshore jurisdiction. family members. More commonly, a private fund of his choice, subject to certain criteria. The fund would have sub-funds holding separate classes of manager need not to be resident in Singapore and ASIACITI TRUST’S OWN EXPERIENCE assets – for example, the family business, property in practice would more usually be located close to and financial assets. the client and/or the assets – say in London, Swit- An interesting practical example is a private fund zerland, Dubai or the client’s home country. that we established for a client with significant It is possible to structure a private fund so that sub- business interests, all of which were located in his funds have different classes of shares each with Different managers may be appointed for different home country. They included an operating busi- different rights. For example, shares in a financial sub-funds, each holding a particular asset class or ness that had grown very successfully over the last portfolio may be freely cashed-in – perhaps sub- following a distinct investment strategy. For exam- twenty years or so, together with some associat- ject to liquidity provisions – whereas shares in the ple, a real-estate sub-fund might have a specialist ed real estate assets. The client was beginning to family business may be inalienable for a set period. property fund manager; a financial investment sub- consider his longer term plans. His children did not This flexible arrangement is important as it allows fund would probably appoint a suitable bank or in- wish to work in the family business, but the family the governance of a fund to be precisely custom- vestment manager or managers to pursue different as a whole wanted to maintain a significant stake ised to the circumstances and requirements of the strategies in the portfolio; specialist private equity in it and the object of the exercise was therefore client family. managers may manage private equity holdings; to find a model of ownership that could allow and, in some cases, the client’s own private office the members of the family to realise some value A private fund structured in this way is often the might act as a fund manager, assuming that it was while remaining long-term strategic investors. An centrepiece of a family governance model because it capable of that. Fund investment mandates and outright sale was therefore inappropriate. A single afford family members a clear, consolidated view of fund reporting requirements can be customised ex- investor would be likely to want to take control all assets, it can formalise different investment man- tensively in almost infinitely variety to suit the na- and might also want the promise of an outright dates appropriate to different assets and it is an easy ture of the assets and to the client’s requirements. sale at some point. The client’s home country had

SINGAPORE THE SINGAPORE PRIVATE FUND – A NEW VEHICLE FOR STRUCTURING PRIVATE WEALTH 75 also experienced some political instability, which After considering various options, including a pri- which chose fund managers for each asset class. In threatened to make it hard for us to find investors vate trust company and a foundation, he opted for most cases these were managers with whom the in the business. a private fund because it allowed for the alloca- client had long-standing relationships. The family tion of assets to beneficiaries in a simple way and council agreed on specific reporting details in re- After we had all considered the various options, the also because it allowed him to oversee the assets spect of the assets and it now meets annually with client decided to establish a Singapore private fund. closely without incurring onerous legal obligations the fund managers to review their performance. This acquired the business, with the units held by a to do with governance. This was because, as is not trust on behalf of the client and his family. In order the case with alternative structures, the client had As a Singapore private unit trust, the fund is a com- to be governed well, the fund appointed special- extensive reporting rights and was able to choose pletely private and confidential arrangement. The ist private equity fund managers and other advi- fund managers without incurring any formal client has chosen those family members whom he sors, including external auditors. After a period of responsibilities in respect of the structure. wishes to inform about the structure and involve successful trading, the fund had built up a good in its oversight, but its existence is not publicly re- track record of performance that the client could corded and there is no publicly accessible source of flaunt in his search for a small number of co-in- information about it. vestors. This happened, allowing the family to re- A private fund is alise some money while maintaining a long term In this way, the client has created a structure that stake, and the fund structure made it much eas- non-tradable, so ensures that his assets will eventually go where he ier to move the firm’s ownership to a diversified wants, making an appropriate provision for his cho- investor base. third parties cannot sen beneficiaries. It allows the family members of his choice to oversee its assets. It is also a permanent MR S GOES TO SINGAPORE buy in structure that does not require any family member to take on any responsibility for ‘governance’. Perhaps a more common use of the private fund structure is illustrated by the case of a client to A private fund was therefore created with four CLEAR AND STRONG GOVERNANCE whom we can refer as Mr S. He was a successful en- sub-funds for different asset-classes. The patriarch trepreneur of advanced years who wished to make took considerable care in specifying who would be These two examples illustrate the way the private provision for his family in a way that would ensure entitled to units in each sub-fund on certain con- fund structure works in very different situations, a secure succession whilst allowing him and certain ditions, for example the condition that units in the but in both cases its appeal lies in its clear and other family members to oversee a diverse range of family business fund could only be passed on to strong governance, together with its flexibility in assets, including property, financial assets, the fam- family members of his choice. The units were held owning and managing virtually any type of asset ily business and several private equity investments in trust for these chosen beneficiaries on this basis. in a way that is customised to the client’s circum- closely. His family situation included children from stances and needs. It is for these reasons that the three marriages and also certain people he wished The client created an informal family council con- private fund is becoming increasingly popular as a to exclude as potential beneficiaries of his estate. sisting of himself and selected family members, vehicle for structuring wealth.

IFC WORLD 2016 76 UNITED KINGDOM THE CITY OF LONDON: THE MIGHTIEST IFC OF ALL?

The City of London’s contribution to the UK’s na- In 2014 the appointed the China part of its tax ‘offering’ for 200 years. It is available tional income is estimated at £45bn in 2014, or Construction Bank, one of China’s “big four” banks, to wealthy individuals who are resident but not 3%, while London itself accounts for £334bn or as the Chinese currency clearing bank in London, domiciled in the UK. In other words, people who 22% of the UK’s national income. [Source: Centre London’s renminbi (RMB) clearing house. This was migrate to the UK can elect only to pay British for Cities and Cambridge Econometrics, June 2015.] a central pillar in HM Government’s drive to make taxes on foreign income and gains that they remit According to the most recent Business Register London a hub for Chinese currency dealing. The (hence the word ‘remittance’) to the UK and/or and Employment Survey in October 2015, 414,600 year before, the Foreign and Commonwealth Of- bring in with them. If they were to be both resident people are employed in the City of London. This fice had published a report with the title “London and domiciled in the UK, they would pay income represents 8½% of Greater London’s workforce gaining strength as an offshore RMB centre,” citing tax and capital gains tax on their worldwide income and 1.4% of the UK’s total. All major British banks a report that showed huge increases in the use of and gains. Other countries – notably southern have their main offices in The City and 385 foreign RMB in London: a 390% increase in RMB trade ser- Cyprus – are belatedly offering the same tax- banks are there, as is the London Stock Exchange, vices, a 20-fold increase in RMB letters of credit breaks. the Lloyd’s of London insurance market, the Bal- and a 150% increase in trading in yuan foreign ex- tic Exchange for shipping contracts and the Lon- change products. It added: “Developing London as don Metal Exchange. Every year a Lord Mayor is the Western hub for RMB business, complementing elected as monarch of the “Square Mile,” second in Hong Kong as a bridge to the West, is a key priori- Deals are originated, precedence at formal occasions only to the Queen, ty for the UK.” The results have been mixed so far; and the British Parliament does not make a move in the middle of 2014 Singapore overtook London brokered and without consulting him. He is the leader of the City to become the biggest offshore renminbi centre of London Corporation and his representative in the outside Hong Kong. partially structured House of Commons, who sits behind the Speaker’s chair, is called the Remembrancer. The UK is bidding to become a major centre of in London but then Islamic finance. In October 2013, premier David Altogether, there are more than 1,400 financial ser- Cameron told a conference: “I don’t just want Lon- finished off vice firms in the UK which are owned mostly by don to be a great capital of Islamic finance in the foreigners from about 80 countries – 498 of these Western world, I want London to stand alongside elsewhere are American and 424 are Swiss. Overseas-owned Dubai and Kuala Lumpur as one of the great cap- companies represent 46% of all financial service itals of Islamic finance anywhere in the world.” At groups worth in excess of £100m. This is nearly the moment Malaysia’s domestic debt issuance is three times larger than any other sector of the in the form of sukuks or Islamic bonds, making it Government attempts to curb this system, which market and demonstrates the international nature the world’s largest Islamic bond market with more in the eyes of the public favours high-net-worth of the United Kingdom’s financial services. than 60% of world sukuk issuance originating individuals at the expense of the ordinary tax- there. Singapore has been trying to make its way in payer, have been pusillanimous. Labour’s Gordon the world of Islamic finance since at least 2007 and Brown promised in opposition to end the non-dom countless other offshore jurisdictions are jumping rule in the 1990s. In 2008, after Brown had been Overseas-owned onto this bandwagon. chancellor for a decade and had then moved on to become prime minister, Alistair Darling, his suc- companies represent The City is, according to some measurements, cessor, imposed a mere £30,000 annual charge on the largest financial centre on Earth, but its reach all non-doms, which was subsequently bumped up 46% of all financial is even wider than it seems. Many offshore com- to £50,000 – the kind of money that the average mentators see the United Kingdom’s network of UHNW individual might spend on a party. service groups worth financially active overseas territories as an exten- sion of the services that London offers. Jersey Fi- From April 2017 onwards, however, the Govern- in excess of £100m nance, for its part, writes in its brochure entitled ment plans to abolish ‘remittance basis’ taxation Jersey: for Banking: “For many corporate treasurers, for anyone who has resided in the UK for more institutional bankers and treasury specialists, fund than 15 years in a 20-year period. People who are promoters, brokers and other corporate financiers, born in and live their entire lives in the UK will no The City’s grip on the life of greater London is like- Jersey represents an extension of the City of Lon- longer be able to benefit and neither will people ly to increase in future. A research institute called don.” Deals are originated, brokered and partially who acquire a foreign domicile of choice be able to Centre for Cities and Cambridge Econometrics structured in London but then finished off else- retain resident non-domiciled status should they forecasted in June 2015 that employment in the where, often in Britain’s gigantic offshore centres elect to return to the UK. City of London will rise from 396,800 to 435,700 such as the Cayman Islands, Bermuda and the Brit- by 2025. This represents an increase of almost ish Virgin Islands. Despite these developments, it seems inevitable 39,000, equivalent to a rise of almost 10%. Em- that remittance basis taxation will continue in- ployment in Greater London is projected to rise by The UK, and especially London, attracts money definitely as a means of attracting offshore wealth 404,000 during the same period, so 1 in every 10 and finance by another device: the so-called remit- to the UK, which itself in many ways is a gigantic new jobs in the capital will be based in the City. tance basis of taxation, which has formed a crucial offshore jurisdiction.

UNITED KINGDOM THE CITY OF LONDON: THE MIGHTIEST IFC OF ALL? 77 Dreams come true The Vanuatu Economic Rehabilitation Program.

Citizen Lane advises clients depending on their personal situation with the choice of a residence solution or aiding with the selection of the right citizenship program. The Program Together with our clients we identify the best-possible investment category and The Citizenship by Investment Program of Va- efficiently execute the application process from A to Z. The focused consulting nuatu, the VERP (Vanuatu Economic Rehabili- approach of Citizen Lane, our sound knowledge of the various residence and tation Program), was introduced by the govern- citizenship programs and our expertise on the local situation makes it possible ment in 2015. The government’s motivation to for us to provide a personal, lean service fulfilling all requirements for quality – introduce this program is to raise money for the the Vanuatu program is one of many options that Citizen Lane offers. reconstruction of the destroyed infrastructure after the cyclone Pam hit the island in March 2015. The Vanuatu citizenship program stands out because of its processing time of between one-to-two months, making it the most efficient program of its type in the world. In order to uphold and enhance the programs quality, the process includes a thorough investigation of the applicant and their family, meaning that suffi- cient financial resources and a good reputation are essential. The Vanuatu passport permits holders to enter 106 countries without a visa.

We look forward to Citizen Lane LLC getting to know you. Zentrum Staldenbach 15 8808 Pfäffi kon SZ Switzerland +41 55 511 54 00 [email protected] www.citizenlane.ch VANUATU THE LAND OF CONTRASTS

* by Till Neumann of Citizen Lane

Vanuatu is a land of contrasts, where the 21st can go to more or less anywhere around the globe. tion upon receipt of our fees, and the client pays Century melds comfortably with the 19th Centu- The political system is a democratic Westminster the first 50% of the amount. After the final approv- ry. Located in the South Pacific, it is often referred system of government with a Parliament elected al, the client has to pay the remainder within 30 to as the Isles of Contrast and the Paradise Islands. by universal suffrage every four years and a presi- days. The Citizenship Commission, as we have said, With its sub-tropical climate, carefree attitude and dent as the head of state. usually meets in the second half of the month and easy-going lifestyle, it has been voted the “Happi- this is when it bestows “final approval.” After he has est Place on Earth” twice in recent years. The executive arm of the State is a democratically received that approval, the client has to swear his elected government headed by a prime minister oath to the country. He can do this in Vanuatu or The country has a population of around 270,000 elected by Parliament on the basis of majority rule. abroad. If the latter, he can invite the commissioner and its indigenous inhabitants speak more than to travel anywhere in the world, but would then 170 different languages and dialects, making it, The nature of the people is such that, despite irreg- have to pay his expenses. per capita, the most ethnically diverse national ular changes in the country’s dynamic democrat- population on the planet. ic political environment, peaceful transition has always been the order of the day. The peoples’ historical origins are predominantly Melanesian, intermixed with Polynesian, and also THE CITIZENSHIP PROGRAMME There are no tax include the famed Lapita People who sailed across the Pacific from Asia almost sixteen hundred years In recent years the country has amended its laws treaties with other before Christ. to allow for dual citizenship. Several types of citi- zenship classes exist. These are naturalized citizen- countries, although The country still retains a mixture of its historical ship, citizenship by virtue of marriage, citizenship colonial past as it is a condominium – a colony of by entitlement, citizenship by investment and there are now a both England and France – with a comfortable in- honorary citizenship. Further information on types termixture of ethnic varieties on top of its already of citizenship, processes, requirements and proce- dozen TIEAs diverse indigenous population and a peaceful, dures is available at http://www.vnso.gov.vu/ . relaxed, easy-going lifestyle. In mid-March 2015, Vanuatu was affected by cy- The official languages are Bislama (which is a clone Pam and its infrastructure and buildings were THE FINANCIAL ECONOMY AS A WHOLE type of lingua franca spoken by all) and English seriously damaged. In response, the Government and French. The languages used in the education launched the Vanuatu Economic Rehabilitation The economy is dominated by tourism but there is system are English and French, with state schools Programme (VERP) to grant citizenship to appli- an agricultural industry and just as important is the teaching a locally developed curriculum and pri- cants who were willing to make a cash contribu- country’s Offshore Finance Centre. More informa- vate schools teaching an Australian or French cur- tion of US$130,000 to it. Each applicant was enti- tion on the nation’s economic and social param- riculum. Most students come out of the country’s tled to honorary citizenship of Vanuatu pursuant to eters can be obtained from: http://www.vnso.gov. secondary education system able to speak English section 20(1) Vanuatu Citizenship Act [Cap 112] and vu/ . and French on top of Bislama and their native the Honorary Citizenship (Vanuatu Economic Reha- indigenous language. bilitation Programme) Regulation Order Nos 34 and Vanuatu has a very well-developed international 37 of 2015, and the Privileges for Honorary Citizen- communications system, with a new submarine ship (Vanuatu Economic Rehabilitation Programme) cable connecting it to the global communication Regulation Order No 38 of 2015. The honorary cit- network. It also has two major domestic telecom- izen enjoys all privileges except the ability to par- munications companies: Telecom Vanuatu Limited The honorary ticipate in political life (i.e. elections). Beyond the (a subsidiary of Mauritius Telecom) and Digicel contribution there are other fees which come to (Vanuatu). citizen enjoys all US$70,000. In total, this amounts to US$200,000 – plus our fees. Vanuatu has a very well developed Offshore Fi- privileges except nance Centre, which has been operating since 1971 The Citizenship Commission, which is an independ- with confidentiality provisions, excellent commu- the ability to ent governmental entity regulated by its own Act nication systems and experienced professional of Parliament, has appointed only a few companies service providers. Vanuatu is in a uniquely advan- participate in to deal with applications, of which Citizen Lane is tageous time zone for the location of a financial political life one. centre. Citizenship applications can be processed within The Vanuatu International Finance Centre was two months. The Citizenship Commission usually established in 1972 and its members have in- meets once every month on the last or second last depth financial, investment, banking, accounting Medical services are available from the state- week of the month. and legal expertise. They facilitate the formation run health services and expatriate and local for- of international and local companies, trusts and eign-trained private medical specialists who dis- Vanuatu’s citizenship investment programme foundations, provide full international banking and pense such services. There is also ready access scores over those of other centres because the insurance services and offer access to internation- to modern medicinal drugs and remedies from commission does a “pre-check and pre-approval.” al investments and share trading in international commercial chemists. This saves everybody time and effort. The prospec- markets. For more information please visit the tive client sends copies of passports and police Vanuatu Financial Centre Association’s website at: Vanuatu is situated about 3 hours’ flight from Syd- clearance certificates to us, we forward them to http://www.fca.vu/fca/ . ney or Brisbane, almost 3 hours from Auckland, 1½ the government and within one to two weeks we hours from Fiji, 1½ hours from Honiara and 1 hour receive a “pre-approval.” Only then has the client There are no income taxes, withholding taxes, from New Caledonia. From these destinations, one to sign the agreement, we then lodge the applica- or capital gains taxes. No gift, death, estate or

VANUATU THE LAND OF CONTRASTS 79 succession duties apply to companies, trusts or Although it is always keen to promote the financial living environment. It is a country where one can individuals. There are also no tax treaties with centre’s facilities, the commission has an unwaver- enjoy a tropical environment surrounded by ocean, other countries, although there are now a dozen ing commitment to keeping the centre’s reputation customs and tradition and still access the world Tax Information Exchange Agreements (TIEAs) for integrity spotless. Accordingly, Vanuatu always at large. It is also a country that has been tradi- with foreign governments. Under the Vanuatu In- updates its laws to conform to international stand- tionally politically independent, choosing to walk ternational Companies Act, companies have a 20- ards and best practices. An overhaul of the finance the middling path in global politics according to its year guarantee against taxes, duties and exchange centre’s body of law is underway. conscience rather than foreign influences. controls. This ought to bolster both the reputation of The Vanuatu Investment Promotion Authority is a Vanuatu as an international finance centre and one-stop shop for interested investors who wish to promote confidence among investors. The latest invest in Vanuatu’s myriad of opportunities with developments include a user-friendly system of Citizenship tourism and agriculture featuring prominently company registration which can be done over the alongside the finance centre’s activities for those Internet. applications can who want to take advantage of Vanuatu’s tax ha- ven privileges. More information on such opportu- More information on the types of commercial be processed within nities can be obtained from: http://www.investva- structure available and on the registration process- nuatu.org/ . es of different commercial structures (including two months international companies and international banks) The Vanuatu Financial Services Commission is re- can be obtained from: https://www.vfsc.vu/. sponsible for the regulation and supervision of in- vestment business and trust and company service PICTURESQUE REMOTENESS AND BUSINESS providers. The commissioner is also the Registrar CONNECTIVITY SIDE BY SIDE It is a country where, in one day, one can visit tra- of Companies, Charitable Organizations, Credit ditional villages and see lifestyles unchanged over Unions, Trade Unions, Personal Property Securities The Republic of Vanuatu is especially unusual in centuries, look into the world’s most accessible and Controller of Stamp Duties. The commission the Pacific not only because of its indigenous and volcano, dive on one of the world’s largest most ac- has additional responsibilities that include the traditional ethnic diversity but also in its coloni- cessible shipwrecks, and then return to being a part development of the financial services industry in al heritage, which has resulted in a melting pot of of a dynamic and ever-changing modern world. It Vanuatu. people coming together in a peaceful and relaxed is truly a Land of Contrasts.

VANUATU THE LAND OF CONTRASTS 81

JURISDICTIONS IN PROFILE JURISDICTION PROFILE DIRECTORY

The world of international financial centres is in constant flux. In this index we look at the place of each one in the world market. These profiles also look briefly at jurisdictions’ recent history, the tribulations that some of them are undergoing and changes to their reputations as they all go about the business of developing and surviving. Readers may find it interesting to detect common themes, a task made simpler in a collection of reasonably short profiles that go to the heart of the matter in each case.

its shape, at any event) is tried and tested. The new prospect of becoming unsecured creditors in the ABU DHABI financial regulations and rules are comprehensive wake of a bank failure. in scope, spanning a variety of regulated financial Abu Dhabi moved into offshore financial services services, including asset management, banking This is a very relevant point as the banking system in 2015. The jurisdiction has in the past focused and insurance businesses. The regulations also in- was rocked to its depths in March last year in the its efforts on oil and gas exclusively but it hopes clude imperatives to safeguard the interests of the Banca Privada d’Andorra (BPA) money-laundering to remedy this with the Abu Dhabi Global Market, marketplace, a market infrastructure system, mar- scandal. The US Financial Crimes Enforcement Net- its ‘financial free-zone’ which, according to reports, ket conduct rules and the ADGM’s enforcement work’s wounding inquiry into the bank led to the was ‘created’ in 2013 and is developing gradually. powers and disciplinary procedures. bankruptcy of one of its subsidiaries, Banco Ma- drid. Joan Pau Miquel Prats, the main bank’s CEO, It officially opened for business in October of last As of early January, the new IFC was awaiting its was arrested. The report that FinCEN eventually year. Cabinet Resolution No 4 of 2013 called for first batch of applicants for entry. It has already un- released on BPA painted a picture of a veritable the setting-up of the financial free zone on Al Mar- dertaken roadshows in India and the United States money-laundering shop. In FinCEN’s words: “It is yah Island and Law No 4 of 2013 established the with the aim of drumming up business. difficult to assess on the information available the ADGM and its board of directors as its authority. extent to which BPA is used for legitimate business purposes.” The big news is that the ADGM is eschewing the ANDORRA Code Napoleon for English common law as its le- The bank has five foreign branches that operate gal base. This is largely an acceptance of the fact This tiny principality, wedged between Spain and in Spain, Switzerland, Luxembourg, Panama, and that most offshore centres, or at least the most France, has the president of France and the Bish- Uruguay. One of its managers allegedly colluded successful, are rooted in common law or some op of Urgell as its joint heads of state. Its banking with Andrey Petrov, a money manager who worked approximation to it. The free-trade zone is aiming assets are about 6½ times its annual economic for Russian criminal organizations and who used high from the very start, proclaiming its desire to output, while its financiers have assets under man- the proceeds of transnational organized crime to be regulated to the highest degree and to compete agement on the order of 17 times GDP. It is not bribe officials in Spain. Petrov is thought to be con- with Dubai. a particularly popular venue for incorporations, nected to Semion Mogilevich, one of the US Fed- although Andorran companies pay low taxes. eral Bureau of Investigation’s “ten most wanted” In one of its consultative documents, it says: “Eng- fugitives. In another scheme, a Venezuelan laun- lish common law, as it stands from time to time, The main financial endeavour in Andorra is offshore dryman and his network relied on BPA to deposit will govern matters such as contracts, tort, trusts, banking, especially for high-net-worth individuals. the proceeds of public corruption. FinCEN says that equitable remedies, unjust enrichment, damages, Banking accounts for one-fifth of GDP. There are BPA gained some fame among criminal networks conflicts of laws, security, and personal property.” five banks which are as follows: for its weak AML controls and its provision of high-risk services to shell companies. Abu Dhabi’s and the United Arab Emirates’ civil and • Andorra Banc Agrícol Reig (Andbank), which commercial law does not apply in the ADGM, but concentrates on products and services in asset Since the scandal broke, the bank has been on fi- the federal criminal law of the UAE does. British, management, private banking and investment nancial ‘life support.’ Its non-toxic assets have been Caribbean, Australian and New Zealand law firms, funds for worldwide customers. put into Vall Banc, which was created especially for ex-regulators and compliance consultants are • Mora Banca, which concentrates on asset the purpose and is being sold off. reportedly rubbing their hands in anticipation. management services and ‘personalises’ them for customers with significant assets. The jurisdiction has been making appointments to • Banca Privada d’Andorra, which does private BELIZE the board of its all-in-one Financial Services Regu- banking, asset management and investments. latory Authority, which appears to be modelled on • Banc de Sabadell d’Andorra, which does private A former British possession, Belize is an Eng- the old Financial Services Authority of the United and commercial banking, plus lish-speaking country in central America that Kingdom. Sir Hector Sants, a British former regula- and other services. gained independence in 1981. Since the late 1980s tor, has been appointed as the chief advisor to the • Credit Andorra, which performs personal and it has branched out into areas such as a shipping chairman, Ahmed Al Sayegh. Five very senior An- commercial private banking services and which registry (more than 3,000 vessels fly the Belizian glo-Saxon judges from the ‘White Commonwealth,’ has a branch in Panama. flag), and has become an international financial most of them with titles, have in the meantime centre. been appointed to preside over the ADGM’s courts. All banks have non-residents on their books, but Banca Privada d’Andorra and Credit Andorra are the In 1990, Belize enacted the International Business The ADGM is proud of its unique selling-points, one main ones. Companies Act. More than 15,000 IBCs have been of which is the so-called ‘restricted-scope com- registered since then. In 1992, a Trusts Act was en- pany’ which is designed for use by family offices. Many commentators have noted that the jurisdic- acted, providing for onshore and offshore trusts. The centre is touting this innovation as the ideal tion is peculiarly vulnerable to the harm that bank In 1996, the jurisdiction enacted the Offshore holding company for institutions and professional failure might wreak on its economy, as it did on Banking Act, providing for two categories of off- investors. the economies of Iceland and Cyprus a few years shore banking licenses – the Unrestricted “A” Class ago. Unlike Cyprus, whose banks benefited from and the Restricted “B” Class license. The holder of Firms and individuals can now apply for the ap- onshore bailouts, Andorra’s banks have no central a “B” Class license maintains lesser capital and is propriate financial service licences, under an easily bank to act as lender of last resort. This is likely restricted to conducting certain limited business recognisable system of law and regulation that (in to make HNW investors wary, as they face the activities only.

IFC WORLD 2016 84 In the late 1990s, the country enacted the Inter- into that business too. In 1962, once again acting national Financial Services Commission Act which as a first mover, Bermuda helped US entrepreneur BRITISH VIRGIN ISLANDS seeks to promote, protect and enhance Belize as Fred Reiss to set up the first true modern-day an international financial services centre and to captive insurer, although the heritage of captives This British overseas territory in the Caribbean ex- regulate the provision of international financial began in the coffee-houses of London in the 17th cels in offshore company formations and offshore services; it also enacted the Protected Cell Compa- Century. In the 1960s Bermuda invented captive trust formation. It was a fluke that Michael Riegels, nies Act and the Mutual Funds Act. insurance companies, established by parent firms a barrister who later became the first head of the (usually large ones from the USA) for the purpose Financial Services Commission, received a tele- There are also Acts that provide for the creation of covering the risks that those parent firms faced, phone call in the 1970s from an American lawyer of limited liability partnerships and international and remains the world’s top domicile for them. It with a proposal to incorporate a company that business companies. The country has an interna- was also the ‘first-mover’ venue in the 1970s for took advantage of an Anglo-American double-tax tional foundation registry and a trusts registry. All rent-a-captives (in which clients rent the cells of treaty. American lawyers were already using the international (i.e. offshore) trusts must be regis- captive insurance companies), which work along Dutch West Indies for their offshore activity but tered. the same lines as today’s protected cell companies the callers were interested in doing business with but without any statutory (only contractual) pro- an English-speaking jurisdiction – an important International banks include Atlantic International tection for the cells from each other’s liabilities and example of the inherent appeal of the English lan- Bank; Belize Bank International; Caye International other problems, but then Guernsey stepped into guage in the offshore world. Other incorporations Bank; Heritage International; Market Street Bank, the breach in 1997 with the Protected Cell Com- followed in great numbers and the BVI’s offshore and Choice Bank. panies Ordinance which provided that protection, sector was born. with Bermuda and the rest of the world following The country passed anti-money laundering legis- suit. No regulatory or filing processes are required After the US Government abrogated the treaty in lation in 1996. to create a cell in a PCC. 1982, devastating the BVI’s nascent offshore sec- tor, Riegels and his ‘gang of five’ lawyers drew up The banking sector (including offshore banking) is This British overseas territory has a huge expa- the legendary International Business Companies Act regulated by the Central Bank of Belize, while the triate population for its size – about one-third of 1984. It authorised the creation of a new form of non-banking sector falls within the jurisdiction of the entire workforce – much of which consists of International Business Company or IBC. Take-up the International Financial Services Commission. the professionals and skilled functionaries who are was slow but then gathered pace. The organisations give lists of banks/other financial a necessary support for its lofty position in insur- institutions registered in the country. ance and reinsurance. This is what happens when Harneys, the law firm to which three of the lawyers a jurisdiction moves into a niche and goes out of belonged including Riegels himself, writes: “The IBC There is a 15% withholding tax paid to non-resi- its way to attract the best minds in the business Act was radical at the time – it streamlined the in- dents and the same tax rate applies to interest paid before any rival can do so; the weight of its skill- corporation procedure, removed the requirement to non-residents. A withholding rate of 25% ap- base propels it to ‘critical mass.’ When large num- of corporate capacity, abolished the need for cor- plies to management fees, rentals and charges for bers of such people operate close together, they porate benefit, recognised that companies could services to non-residents. invent new products and create new investment exist without members and permitted companies opportunities without having to look outside the to provide financial assistance for the acquisition There is no capital gains tax. VAT rises to 12.5%. jurisdiction for support, as Bermuda-based ‘expats’ of their own shares. It provided for true statutory and home-grown experts do in reinsurance. Dur- mergers and created new statutory tools for re- Employed persons resident in Belize pay a 25% tax ing the past few years, ‘hedge-fund reinsurers’ have structuring and reorganisation. It was based on Del- on chargeable income. emerged there. aware corporation law but incorporated additions from elsewhere.” As a result, the BVI has for the Belize has double taxation agreements in force Bermuda benefits from lying closer to London and past thirty years been the preferred jurisdiction for with the UK, Austria and the countries of the Car- the prosperous east coast of the United States – in registrations for offshore vehicles and the world’s ibbean Community (source: PKF, 2013.) In 2014, other words, to its consumers and counterparties – leading centre for company incorporation, with Belize signed the OECD’s Convention On Mutual than do its Caribbean fellow-jurisdictions. Climate more than a million shell companies (i.e. compa- Administrative Assistance In Tax Matters (Source: and geographical position are important factors in nies with no physical presence) incorporated since OECD website). the fortunes of offshore centres because of their 1984, of which 479,000 were still active in early appeal to expatriates and their general likelihood 2015. The country is due to adopt the Common Report- to be picked as locations for offices. So, too, are ing Standard in 2018. their immigration policies – Bermuda’s is more lib- IBCs were also only required to keep records “as the eral than some, although the introduction of a con- directors consider necessary”; in other words, they troversial term limit policy a few years ago (now were very opaque in the way they worked and in BERMUDA rescinded) caused problems. their ownership. Nominee directors could be used and money-laundering was rife. The IBC Acts of An- “When the world needs someone to solve its in- Bermuda is a low-tax jurisdiction. There are no guilla, the Bahamas and Belize copied the original surance problems, it turns to Bermuda.” So said the Bermuda income or profits taxes, withholding tax, Act parrot-fashion but the BVI, as so often in the CEO of Business Bermuda, the jurisdiction’s promo- capital gains tax, capital transfer tax, estate duty or offshore world, retained ‘first-mover advantage.’ tional agency, a few years ago. The Bermuda insur- inheritance tax payable by a Bermuda company or ance market as a whole is more than half the size its shareholders, other than shareholders who nor- Eventually, pressure from the Organisation of of the dominant market in London. Bermuda is a mally reside in the archipelago. Economic Co-operation and Development over prime example of how a jurisdiction can dominate ‘harmful tax competition’ convinced the BVI to an offshore business line – in this case the offshore Bermuda is famous for registering aircraft. There change the Act and it passed a reformed version, insurance sector – if only it can gain ‘first-mover is an online gambling sector (although not much the BVI Business Companies Act 2004, with con- advantage.’ The foundation of the Bermuda Marine else is available to gamblers) and duty is charged stant amendments since then but nominees still Assurance Co (which insured cargo en route from at the rate of 20% on all bets made. The archipel- possible. Michael Riegels was by then the islands’ Bermuda to Philadelphia aboard the ‘Liberty’ ship) ago has a solid British common law system. The chief financial regulator, looking for fresh markets provided such an advantage and the jurisdiction Bermuda Monetary Authority has signed co-oper- to conquer. has never looked back. In 1948 the International ation agreements with the majority of European Reinsurance Co became the first reinsurance com- Union member-states in relation to the Alternative Also because of international pressure, companies pany to operate there, propelling the archipelago Investment Funds Managers Directive or AIFMD. do not issue many bearer shares any more as new

JURISDICTION PROFILE DIRECTORY 85 laws have undermined their once-notorious anon- the BVI’s premier, has long had the development of the Mississippi River to Chicago. Miami is just one ymous transferability. The licence fees for them are this sector as one of his top priorities. Because of hour’s flight away. The Cayman Islands’ clientele – punitive and any bearer share that is not held by a the very nature of arbitration, the development of much of it from these regions – is predominantly licensed custodian loses its legal value and cannot this sector is bound to take time. Law firms such as institutional. There are no direct taxes – no income be used to vote or to receive dividends. Harneys have been putting arbitration clauses (with tax, company, corporation tax, inheritance tax, the BVI as the venue) into financing documents for capital gains or gift tax. There is no form of taxa- More than 2,100 regulated funds are domiciled a few years, but parties to such deals do not usually tion in the Cayman Islands relating to individuals, in the BVI, making it the second largest funds ju- end up in arbitration immediately after signing up corporations or trusts. risdiction – and the second jurisdiction for hedge to them and the spate of cases has not yet begun. fund formation – in the world. Its financiers had the The Government has signed 36 ‘international ex- sense to begin to develop the sector in the 1990s, change of information’ or AEOI agreements with perhaps realising that the glory days of IBCs were CAYMAN ISLANDS other countries, 29 of which are in force. In 2013 numbered. it signed a ‘model 1’ international governmental The Cayman Islands dominate the hedge fund agreement with the US Government to fall into The jurisdiction’s considerable pool of fund practi- industry and host the fifth largest banking centre line with the US Foreign Account Tax Compliance tioners offers advice to asset managers, promoters, in the world. They are an overseas territory of the Act 2010. To accommodate the indirect nature of public, private and professional funds and other in- United Kingdom and are largely self-governing, the tax system in the Cayman Islands, the IGA is a dustry participants on the structuring and restruc- especially after the latest injection of devolution model 1B (non-reciprocal) IGA. turing of BVI funds and on regulatory issues that into their constitution in 2009. The Governor can affect funds. The BVI does not have a tax regime exercise complete executive authority if he wishes, The islands, unlike quieter offshore centres such as in relation to dividends, interest, rents, royalties, but chooses not to. the Isle of Man, are grappling with a spike in gang compensations and other amounts paid by an in- violence, robberies and shootings and unprece- vestment fund to anyone who is not resident there There are twice as many companies registered in dented levels of unemployment. The jurisdiction and funds pay no stamp duty. Investments can be the Caymans as there are people. More than 9,000 has a solid British common law system. worldwide. mutual funds, some 260 banks and 80,000 compa- nies operate through the islands. Generally speak- Far Eastern business has played a large part in the ing, it is cheaper to set up shop in Cayman than DELAWARE rise of the BVI, with many BVI companies being in- in Bermuda, the island with which the jurisdiction corporated in Hong Kong and most BVI law firms has a slightly symbiotic (and competitive) relation- As one set of business incorporators among many having offices there. The BVI became Hong Kong’s ship. There is a huge expatriate community for the relates in its advertising material, one can form a jurisdiction of choice after Li Kai-Shing and his jurisdiction’s size, accounting for 31% of total em- Delaware USA limited liability company (LLC) or Hutchison Whampoa business empire decided to ployment in financial services, while the remainder corporation without ever coming to the United use a new BVI IBC as his holding company in the is Caymanian. States, that is even if one is not a resident or cit- 1980s and caused a massive migration of copycat izen. If one is neither of these things and has no Asiatic business to the BVI. In 2013 the Govern- The Government often forces ‘expats’ to reapply for ‘US source’ income, one owes no income tax to ment of the BVI set up BVI House Asia in Hong work permits every year, but certain occupations the US or Delaware. This is a significant concession Kong to help BVI corporations to be near their (senior managers and underwriters) in the fund ad- because part of a dividend paid by a foreign corpo- Asian clients. ministration and reinsurance industries are eligible ration is considered ‘US source’ if one-quarter of for ten-year work permits and ten-year term limits its gross income is effectively connected with a US The Virgin Islands Special Trusts Act 2003 created without having to become ‘key employees.’ Previ- trade or business for the three tax years before the the VISTA trust, the best-known of all types of BVI ously seen as a money-launderer’s paradise and the year in which the dividends are declared. trust, of which there may be more than 10,000 in venue for many scandals too numerous to mention existence. The BVI is now regarded as one of the here, the Cayman Islands have spent recent years The Delaware Division of Corporations does not world’s premier jurisdictions for this sector. moving up-market and now have a very impressive maintain the names of Delaware LLC members/ battery of regulations and AML laws. The Cayman managers on public record. BVI trusts are, in general, exempt from registra- Islands Monetary Authority, their financial regula- tion and filing requirements and there are broad tor, is one of the most respected in the world. Not only is Delaware a tax haven in the heart of exemptions from taxation in the Trustee Ordinance. the very country that spends the most time perse- The BVI also hosts a shipping register of global im- The jurisdiction was the first to explicitly legislate cuting other tax havens; it is far more opaque than portance. Owners find this attractive because there in favour of hedge funds with its Mutual Funds Law jurisdictions such as Switzerland. It does not make is no corporation tax to pay on ships and the local 1993. As befits the world’s most famous tax shelter, details of trusts, company accounts and beneficial trust law is so advanced that they can set up spe- the Cayman Islands harbour a large pool of highly ownership a matter of public record. This is a major cial purpose trusts to provide finance and protect skilled auditors, banking and trust personnel, com- reason why it hosts one-half of America’s quot- all parties from environmental hazards. pany directors, fund administrators and lawyers of ed firms and 60% of Fortune 500 companies are the highest standard. incorporated there. Offshore banking is a minor part of the BVI’s busi- ness. The jurisdiction has, however, seen an influx Evidence is mounting that the European Union’s On 1st May 2008, along with senators Cole- of banking business because its insolvency regime Alternative Investment Fund Managers Direc- man and Obama, Senator Carl Levin of Michigan is very congenial for secured creditors. It is also a tive, which regulates managers stringently for the introduced a bill called the Incorporation Trans- hospitable forum conveniens for international cas- first time, is helping onshore European funds to parency and Law Enforcement Assistance Act (US es, which ties in with the use of BVI companies to compete more effectively with the Caymans. The legislators, rather optimistically, usually refer to funnel investments into countries with less de- EU has yet to grant Cayman funds a ‘passport’ to their bills as ‘acts’ in anticipation of a happy out- veloped judiciaries or rules of law – a crucial sell- allow them to trade more easily in Europe under come) into the federal Senate, proclaiming: “This bill ing-point for so many offshore jurisdictions. the AIFMD. Competition is also rearing its head tackles a longstanding homeland security problem from other quarters: UBS recently used a new involving inadequate state incorporation practic- The jurisdiction has recently modernised its arbitra- Irish structure, the ICAV, to move a fund-of-hedge- es that leave this country unnecessarily vulnera- tion and dispute resolution regime, making some funds with assets of $565m to the Emerald Isle. ble to terrorists, criminals, and other wrongdoers, small provision for mediations. The Government hinder law enforcement, and damage the interna- has appointed five people to sit on the board of the Cayman enjoys success in attracting business from tional stature of the United States. Each year, the International Arbitration Centre. D Orlando Smith, western Canada and the gulf part of the US up States allow persons to form nearly two million

IFC WORLD 2016 86 corporations and limited liability companies in this However, the Gulf Co-operation Council, to which to private wealth management. As of the end of country without knowing – or even asking – who the UAE belongs, is thinking about introducing VAT September 2015 deposits in Guernsey banks stood the beneficial owners are behind those corporations. on various things. Dubai has signed tax information at £81.6 billion. Total funds under management of exchange agreements (TIEAs) with Denmark, Nor- Guernsey-registered funds stands at £225 billion “Right now, a person forming a US corporation or way and Sweden. Their status is ‘pending.’ and there are 816 captive insurance funds and cells limited liability company (LLC) provides less in- (source: Guernsey Finance.) formation to the State than is required to open a The process of opening a bank account in Dubai is bank account or obtain a driver’s license. [A] report not super-fast, taking between one and four weeks. Cell companies were, GF says, pioneered in Guern- revealed that one person was able to set up more Know-your-customer guidelines are in force, at least sey; they are also called segregated cell companies than 2,000 Delaware shell corporations [i.e. cor- on paper. No minimum deposit is normally required and segregated portfolio companies. The concept porations with no physical presence] and, without for a business account, but a private client who does has grown more sophisticated over the years with disclosing the identity of the beneficial owners, not have a registered address in Dubai might open the introduction of the Protected Cell Company open US bank accounts for those corporations, a private bank account. To open a current account, and Incorporated Cell Company. which then collectively moved about $1.4 billion according to the Government website, one has through the accounts. It is one of the earliest gov- to be a resident but some banks allow non-UAE The country also hosts many private trust compa- ernment reports to give some sense of the law residents to open savings accounts. Some banks nies; it has a register of image rights and is doing enforcement problems caused by US corporations set a minimum account/balance limit, sometimes well in the market for this form of intellectual prop- with unknown owners. It sounded the alarm 8 US$ 500,000 or more. Many international banks erty; it has a law for foundations – a relatively new years ago, but to little effect.” have representative offices in Dubai, but few have area; its services also encompass custody, managed chosen to acquire banking licences. No exchange trusts and Shariah-compliant trusts. The island is The Bill has been introduced into the US legisla- controls are in place, making it easy for people and also home to family office service-providers. ture four times, but it has never been passed and it offshore corporations to move funds in and out. never will be. The commitment of Senator Obama Another source of income for the jurisdiction its its to it seems to have waned since his election to the The DIFC had just over 1,000 companies with a Channel Islands Aircraft Registry. Details of this can presidency. Nor have US bank regulators ordered combined workforce of more than 15,000 by the be found on the Guernsey Finance website. US banks – or any other banks – to stop dealing third quarter of 2013. By then, it had attracted 21 with Delaware corporations. As long as this jurisdic- of the world’s top 25 banks, 11 of the top 20 mon- The Association of Guernsey Banks has an exten- tion’s habits persist, American diatribes against the ey managers, 6 of the world’s 10 largest insurers, sive list of members that includes the likes of Julius rest of the offshore world will ring hollow. and 6 out of 10 top law firms. Arabian Business Baer, the Bank of Cyprus, Barclays, Butterfield, Cred- states that during 2014 it had experienced dou- it Suisse, Deutsche Bank, EFG, Kleinwort Benson, ble-digit growth and its workforce had risen by HSBC, Rothschild Bank and Skipton International. DUBAI 14% to 18,000. Dubai Islamic Bank, established in 1979, was the world’s first modern commercial Guernsey has a depositors’ compensation scheme. Dubai, the foremost of financial centres in the Islamic bank and Dubai has been a major locus for United Arab Emirates, is an oasis of calm in the Islamic banking ever since. The island remains home to more non-UK en- turbulent Middle East, with a common law court tities listed on the London Stock Exchange (LSE) system for its offshore business and a regulatory The jurisdiction does have its detractors, however. than any other jurisdiction globally, according to regime copied almost entirely from the UK’s, com- Misha Glenny in his book McMafia in 2008 says: figures published in early 2016. plete with top regulators recruited from all over the “Dubai thrives on conflict, provided none of the Anglo-Saxon world. drama takes place on its territory. Desert Storm, The Guernsey Financial Services Commission over- the Palestinian Intifada, 9/11, the American attack sees financial services. Its website lists regulated It was Sheikh Mohammed’s decision to establish on Afghanistan and the second Iraq war all led and registered entities, as well as warnings, public the Dubai International Financial Centre (and its to people funnelling large sums into Dubai. 9/11 statements, legislation and key documents. regulator, the Dubai Financial Services Authority) provoked a spectacular flight of money from the in 2002 that made Dubai the biggest financial United States into Dubai.” He adds that there are Guernsey is in the first “early adopter” wave of hub between Western Europe and Singapore. The no bombs or assassinations in this almost tax-free countries signing up to the global Common Report- jurisdiction’s offshore business takes place in other jurisdiction because nobody, including Al Qaeda, ing Standard, gathering data from 2016, exchang- venues as well, notably the Dubai Investment Park, wants to disrupt it. The US State Department in its ing information from 2017. Dubai Internet City and the The Jebel Ali Free Zone. International Narcotics Control Strategy Report for The jurisdiction offers the incorporation of Dubai 2015 says that there is pervasive corruption within The island has signed a number of tax agreements Offshore Companies and offshore banking servic- the ruling and religious elite, government ministries with other jurisdictions: 60 Tax Information Ex- es, among other things. The currency of the United and government-controlled business enterprises. It change Agreements (TIEAs) so far; 14 full dou- Arab Emirates, a confederation of principalities of has, nonetheless, risen above its neighbours to be- ble-tax treaties (and 13 partial ones, including two which Dubai is the second largest, is the dirham. come the principal IFC in its time-zone and region. with Poland on different subjects) and the EU Tax One US dollar = 3.67 dirham. Savings Directive.

There are no taxes on the income and profits of GUERNSEY The European Securities and Markets Authority companies in the DIFC. In that free trade zone, and recommended in late July 2015 that Guernsey in others in the United Arab Emirates, foreigners A British Crown Dependency with a population should be granted a ‘passport’ for the purpose of can own shares in companies and pay no tax when of almost 66,000, the island is one of the better the European Union’s Alternative Investment Fund they dispose of them. Those companies are classi- known IFCs. In recent years, through its promotion- Managers Directive, or AIFMD. There have been fied as tax-resident in the DIFC if they are substan- al agency, Guernsey Finance, it has sought to raise concerns that the directive will freeze out manag- tially managed and controlled from Dubai. DIFC its profile in regions such as Asia. It has, for exam- ers based outside the EU, a bloc of which Guernsey companies’ income in the form of dividends from ple, recently opened an office in Hong Kong. Other is not a member. investments anywhere in the world (and income recent moves include the signing of an agreement from interest or royalties) is not taxed, nor are prof- with the Shanghai Family Office Union to work on its. No remittance tax applies to profits that a DIFC business links. HONG KONG branch has transferred to its head office onshore. There is no stamp duty. There is no withholding tax There are 30 licensed banks in the island; servic- Hong Kong, a former British colony now owned by on interest payments to local or foreign recipients. es range from and deposit-taking China, competes with (and operates on the same

JURISDICTION PROFILE DIRECTORY 87 level as) London and New York as an international from Hong Kong and four from China proper) as ing. It duplicated that Act in 2006 for its own pur- financial centre. Its has a small share of the global part of a long-awaited ‘mutual recognition of poses and thereby gained an important stream of bond markets but its equity markets a had 23% funds’ scheme, which gives the world’s asset man- business. ‘2006 companies’ can be limited by share share in 2009 [source: Chatham House] and have agers access to Chinese investors. About 100 Hong and/or guarantee or can be unlimited companies been growing quickly, partly because of the exper- Kong-domiciled funds used by overseas investors with or without shares. They pay no capital gains tise that this hub can bring to bear when organ- are eligible to use the scheme. tax, income tax or inheritance tax. The identity of ising international placements of the largest sort, the beneficial owner can be hidden from the eyes including initial public offerings. It has the second There is no withholding tax on interest and divi- of the public (though not the authorities) through biggest stock market in Asia after Tokyo. Its rela- dends, no wealth tax, no capital gains tax and no the use of a corporate shareholder. tionship with mainland China slightly resembles accumulated earnings tax on companies that keep the UK’s relationship with its overseas territories earnings instead of distributing them. One day, ac- In 2014 many virtual (e.g. Bitcoin) currency ex- in the Caribbean. cording to the ruling elite, there will be no stamp changes fled the stifling regulatory environment of duty on the sale and issuance of securities. Hong New York for the ‘light touch’ regulation-to-be of the It is the main fund management centre in Asia. Kong adheres to a “territorial source principle of Isle of Man, responding to the pragmatic welcome The Securities and Futures Commission (the SFC, taxation,” not taxing any income from outside, its that the authorities gave them. It was one of the first a much more active regulator than the Hong Kong tax laws are very simple and easy for outsiders to countries in the world to amend legislation to apply Monetary Authority) states that there are 1,935 use and the mainland Chinese government levies to digital currency; the London Daily Telegraph chris- authorised funds there with a net asset value of no taxes there. Tax on salaries is only 16%, making tened it ‘Bitcoin island’ and ‘Crypto valley.’ Crypto just under US$1.3 trillion. Hong Kong’s combined it a good destination for offshore operators who businesses have to register with the government and fund management business, rising rapidly, stood at want to relocate there. undertake some background-checking bureaucracy 2.27 trillion at the end of 2014 (up 10½% since to avoid money laundering and other financial irreg- 2013). The number of SFC-authorised funds domi- ularities, but once that is out of the way the doors to ciled in Hong Kong increased by 26% year-on-year ISLE OF MAN innovation are wide open. to 594 in March 2015. In the mid-1980s the tourist trade declined per- Aside from this, the jurisdiction has spent recent Hong Kong is the international hub for mainland manently, leaving this rainy Crown Dependency in years reacting to a tidal wave of financial legis- China, which is now the world’s manufacturing the Irish Sea in a quandary which it solved trium- lation – such as the Alternative Investment Fund powerhouse and the home of many captains of phantly by becoming an offshore centre of finance. Managers’ Directive – from the European Union, to industry and ‘princelings’ of the Communist party The isle, which already had ‘British infrastructure’ which it does not belong, and tax initiatives from who are keen to re-route their money to the Unit- including National Insurance and income tax and the OECD. Only recently has it come out with a ed States and/or offshore. This makes it the world’s could therefore appeal to British businesses and new batch of policies to help it diversify, and these largest offshore hub for renminbi business, which high-net-worth individuals, began by taking over are not specifically financial ones. China has been supporting more and more in re- banks’ and funds’ outsourced back-office functions, cent years, and the world’s largest offshore pool of with various banks shunting their back offices off Finance, indeed, is not the island’s only type of renminbi liquidity. there in the 1990s. Subsidiaries came to the is- offshore business. It has always been interested land as well: Barclays Private Clients International in technical innovation – such as online gambling Switzerland has always been the leading wealth operates from there. with the enactment of the Electronic Transactions management centre, but Hong Kong has grown the Act 2000 and the Online Gambling Regulation Act fastest since 2008 and by 2014 was the fifth larg- The island has the biggest offshore life insurance 2001. These Acts allow it to grant operators full est. Assets under management in the private bank- business, which employs 2,000 people. It has rel- licences, sub-licences and Isle of Man network ing sector, according to the SFC, came to a total of atively low taxes and its offshore financial sector licenses, which allow businesses registered to US$397 billion in 2014. accounts for most of its GDP. It has a comprehen- non-Isle of Man operations to play on Isle of Man sive talent-pool of offshore lawyers, accountants servers without re-registering. The isle has also Shanghai-Hong Kong Stock Connect, a cross-bound- and other professionals and is very well-regulated. been very successful in aircraft registry business, ary investment channel, was set up in November One of the isle’s selling-points is that it immediate- becoming the market leader for business jets. 2014 to provide mutual trading access between the ly agrees to practically every international or British Shanghai and Hong Kong stock markets. initiative without demur, giving it the advantage of letting global investors know where it stands at all JERSEY In effect, it opened one of mainland China’s two times. The latest example is the Organisation for stock markets – and the fifth largest in the world Economic Co-operation and Development’s ‘auto- Jersey has 42 banks and 1,334 funds, with a com- by market capitalisation – up to capital from all matic exchange of information’ initiative – com- pensation scheme in place for depositors. For the over the world. Investors, including fund manage- monly referred to as “GATCA” or “Global FATCA” last 50 years at least, it has been a venue for private ment firms based in Hong Kong, can trade eligible - regarding financial accounts at banks, which con- wealth management, trusts and estate and succes- shares listed on the other market subject to daily tains the reporting and ‘due diligence’ rules of the sion planning, and more recently foundations. The and aggregate quotas. The northbound daily quo- so-called Common Reporting Standard or CRS. The financial sector takes up one-quarter of the work- ta is set at 13 billion renminbi, the southbound at Isle of Man agreed to it quickly while Jersey and force. Jersey’s trust law, established in 1984, is a 10½ billion. Guernsey dragged their heels for some time. model for others and for the Hague International Convention on Trusts. One hundred Jersey com- As of June 2015 there were 2,626 SFC-authorised Company formation times are speedy – two or panies are listed on stock exchanges all over the collective investment schemes, including 2,063 unit three days being normal – but formation costs are world and Jersey has the highest number of FTSE trusts and mutual funds, 294 investment-linked as- relatively high. Manx companies can register for 100 companies registered outside the United King- surance schemes, 243 pension/MPF-related funds value-added tax or VAT. dom, its ‘big brother next door’ with which it has and 26 other investment schemes. The ETF mar- a love-hate relationship. It is a Crown Dependen- ket in Hong Kong has demonstrated remarkable One popular vehicle is the ‘2006 company.’ When cy outside the European Union but is not entirely growth in recent years. At the end of November the British Virgin Islands experienced mounting independent of the UK. 2015, there were 135 ETFs listed in Hong Kong, as criticism from the OECD that its Internation- against 122 ETFs listed at the end of 2014. al Business Companies Act was creating opaque Offshore banking is an important consideration in IBCs and giving them “harmful tax competition” assisting with wealth creation and preservation. In December 2015, mainland and Hong Kong reg- advantages, it enacted the placatory BVI Business The range of banking services provided from Jer- ulators approved seven cross-border funds (three Companies Act 2004. The Isle of Man was watch- sey is extensive, including multi-currency banking,

IFC WORLD 2016 88 offshore mortgages and investment structuring. shore” jurisdiction. The languages are Malaysian a certificate of residency from the Malaysian tax The pool of professional talent to be found on the and English. Besides its international financial ser- authorities. This tax-resident certificate is issued island is equal to none. vices, it has oil and gas reserves. by the Inland Revenue Board (IRB) or Malaysia and subsequently shown to the foreign tax authorities The island levies no capital transfer tax, capital The jurisdiction has taken steps to be a hub not overseas. gains tax, value-added tax or VAT, withholding tax- only for conventional finance but also as a centre es or wealth taxes. Its offshore financial sector is for Shariah-compliant finance in the region. By extremely well-regulated. According to an expert some measures, it is home to more than 6,500 LIECHTENSTEIN at MONEYVAL, Jersey and Guernsey undertake offshore companies. the best anti-money-laundering compliance in Eu- The tiny European principality’s financial sector rope. There are no secrecy laws. ‘Tax-resident’ (and The Labuan Financial Services Authority (former- contributes about 30% to its gross domestic prod- therefore zero-tax) status goes automatically to ly called LOFSA or the Labuan Offshore Financial uct. Financial services are private asset manage- every company incorporated in Jersey unless it is Services Authority) was set up in 1996; it is respon- ment; international asset structuring, funds and in- substantially controlled from somewhere else or it sible for overseeing and developing the Labuan surance. It has a total population of around 37,000. undertakes certain types of financial service busi- International Business and Financial Centre, the ju- ness, in which case there is an income tax of 10%. risdiction’s promotional agency. Important bodies The jurisdiction signed a customs agreement with Jersey has been very late in boarding the global include the Chartered Tax Institute of Malaysia and Switzerland in 1923 and adopted the as ‘tax-transparency’ express train which is now com- the Malaysian Financial Planning Council; educa- the legal currency in 1924. It joined the European ing down the tunnel at top speed. This, however, tional institutions such as the International Centre Economic Area in 1995; since that year it has also seems not to have caused it much trouble. for Education in Islamic Finance; legal service pro- been a member of the World Trade Organisation. viders such as ZICOlaw; insurance entities includ- Jersey is a massive fund management hub. The way ing The Archipelago Group; and trust companies. There is a Finance Liechtenstein organisation, with in which funds are regulated there depends on the a website available in English and German, giving types of investor they attract and whether or not The Association of Labuan Banks and the Associ- useful facts and figures about trade bodies, key they are closed-ended or open-ended. Sophisti- ation of Labuan Trust Companies are important legislation and business groups. The Liechtenstein cated or institutional investors are regulated less trade bodies in Labuan. Banks operating there in- banks are represented by the Liechtenstein Bank- onerously than others, as long as the offer docu- clude HSBC, Maybank, and Standard Chartered. ers’ Association. Prominent banks and financial ments make the risks obvious. institutions include LGT, Kaiser Partner, Liechten- The IBFC in Labuan is used for trading; investment steinische Landesbank, VP Bank, Banque Havilland, The jurisdiction’s funds sector has gone into Islamic holding; fund management; money broking, issu- Raiffeisen Privatbank Liechtenstein, EFG Bank von asset management recently and is now a domicile ance of financial instruments, both Islamic and Ernst, Bank Frick & Co. for developed asset classes such as real estate, pri- conventional; tax planning; banking, insurance, vate equity, commodity and equity for Islamic fund mutual funds, trusts; company management, fami- The Authority Liechtenstein (FMA) mandates. Jersey’s financiers have a good reputa- ly trusts and estate planning. regulates financial services. The country also adheres tion for corporate structuring, especially involving to the global standards for transparency and ex- special purpose vehicles or SPVs for a variety of Labuan has no capital gains taxes, or withholding change of tax information developed by the OECD. purposes, and customers from the Gulf of Persia taxes on dividends, fees and interest; there is no It has a AAA credit rating from Standard & Poor’s. have long been taking advantage of this. However, stamp duty. Non-Malaysians working in a Labuan Shariah scholars have deemed this unacceptable company enjoy a 50% tax exemption from person- In November 2013, the ‘Liechtenstein declara- because they believe that SPVs should be inde- al income taxes. tion’ was issued, reconfirming the country’s com- pendent. This has allowed Jersey products to be mitment to the existing OECD standards for tax used successfully with Sukuk structures, i.e. Islamic There are two types of offshore companies in La- co-operation. Liechtenstein is among the “early asset-based bonds. Jersey-based SPVs have been buan: trading companies and non-trading, or hold- adopter” jurisdictions for the Common Reporting used in connection with a wide variety of Shari- ing, companies. Then there is the Labuan Charged Standard and will start following it in 2017. ah-compliant Islamic capital markets transactions, Company; this can choose to be taxed under fed- some for the purpose of taking investments off the eral Malaysian law, benefiting from Malaysia’s dou- In accordance with the European Union’s directives, balance sheet and securitising assets. A variety of ble-taxation agreements. Labuan trading compa- Article 7 Liechtenstein Banking Act (the BankG) con- legal vehicles are available including Jersey-incor- nies are taxed at 3%. Such companies cannot trade tains provisions for the guarantee of bank deposits porated companies that issue Sukuk, limited part- in the Malaysian currency. and the protection of investors. nerships that issue partnership interests and trusts that issue units or trust interests or certificates. A Labuan trust must have a resident settlor. The The law requires banks and other financial service beneficiary must be a ‘Labuan person,’ but this can providers to protect deposits and investments ade- Jersey companies are governed by the provisions be a foreign-owned legal body. Both residents and quately with supervised financial service providers of the Companies (Jersey) Law 1991, as amend- non-residents are entitled to set up trusts. In the by establishing separate organisations or by partic- ed, and the formation of offshore companies is case of a non-resident, Malaysian property can be ipating in foreign protection schemes. quick and cheap. An urgent incorporation service injected into a Labuan trust while a Malaysian res- allows a company to be incorporated in less than ident can place international assets into a Labuan Liechtenstein has signed comprehensive double-tax twenty-four hours, if all the required information is trust but Malaysian property requires the approval treaties with Austria, Germany, the Hong Kong supplied. Jersey companies are limited by share and of the regulator, the Labuan FSA. Special Administrative Region (SAR), Luxembourg, shelf companies are not available. New regulations Malta, San Marino, Singapore, the United Kingdom in 2011 simplified mergers between Jersey compa- In February 2010, Labuan enacted a law which and Uruguay. It has initialled double-tax treaties nies and foreign ones and the Hong Kong Stock Ex- made Limited Liability Partnerships (LLP) possible. with Bahrain, the Czech Republic, Georgia, Guernsey, change allowed Jersey companies to be listed there At least two partners are required. Hungary and the United Arab Emirates. The treaties in 2009. follow the draft model of the Organisation for Eco- Personal income tax is the same as in Malaysia, nomic Co-operation and Development. ranging from 0% to 26%. LABUAN Liechtenstein has also signed limited double-tax More than 70 double tax agreements are in force. treaties with Switzerland and with two cantons of Labuan is a federal territory of Malaysia and lies off When investing overseas, a Labuan company that Switzerland. In 2015, Liechtenstein and Switzerland the coast of Borneo. Its authorities call it a “mid- wants to benefit from a DTA may need to ask for initialled a new treaty.

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© 2016 ClearView Financial Media Ltd, Heathman’s House, 19 Heathman’s Road, London, SW6 4TJ, UK / Tel: +44 (0) 207 148 0188 [email protected] / www.clearviewpublishing.com / VAT Reg No: 843 3686 09 In 2009 Liechtenstein and the UK signed a and fiduciary companies, 58 insurance vehicles and Licence is liable to tax at the rate of 15%; a com- ground-breaking disclosure agreement about se- 12 retirement scheme administrators. pany holding a Category 2 Global Business Licence cret accounts – the famous Liechtenstein Disclo- is exempt from tax. It is considered as non-resident sure Facility. Under its terms, Britons who held There is an established offshore Malta company for treaty purposes and is thus not covered by any accounts in the country could ‘regularise’ them on regime, introduced in the 1980s and adapted to double taxation agreement concluded by Mauri- condition that they paid certain amounts. It was EU rules when Malta joined EU in 2004. As an EU tius, except for exchange of information purposes, seen as a relatively lenient way for accounts to be member, Malta has to (or will soon have to) obey if the agreement so provides. disclosed. such laws as the Alternative Investment Fund Man- agers’ Directive, the second Markets in Financial Residents of Mauritius are eligible to tax credits in As a result of the tax reform that entered into force Instruments Directive and ‘Solvency 2. ‘ respect of foreign tax paid on their foreign source on 1 January 2011, the ‘net worth’ tax is no longer income. A foreign tax credit includes a tax-sparing calculated separately but is integrated into the in- Legislators are due as of the time of writing to en- credit and in the case of dividends credit is also come tax. act the Malta Family Business Act, a structure de- granted for underlying tax charged on profits out signed for family-owned companies from around of which the dividends are paid. All resident or domiciled individuals are subject the world. to income tax on worldwide income, with the ex- The jurisdiction has ratified the Convention on Mu- ception of income from real estate located abroad The country has promised to comply with the Com- tual Administrative Assistance in Tax Matters. It is and income from either a fixed place of business mon Reporting Standard and engage in the auto- among 56 “early adopter” nations that are imple- or a permanent establishment located abroad. matic exchange of information for tax matters from menting the Common Reporting Standard, gather- Non-residents are subject to tax if they are em- 2017 onwards; it has enacted primary legislation. ing relevant data since the start of 2016. ployed in Liechtenstein, if they own real property in Liechtenstein or if they have business premises in Affluent people who are not citizens of the EU To obtain a tax residency certificate, applicants for Liechtenstein. Non-residents are subject to tax on can use the Global Residency Programme, with a a Global Business Company must have two local income derived from Liechtenstein sources includ- 15% flat tax rate on income remitted to Malta; it directors, a local auditor, a principal bank account ing Liechtenstein real estate, owned or leased, and is linked to the purchase of property. In 2014, Mal- in Mauritius and board meetings held and chaired business premises. In addition, non-residents are ta introduced its Individual Investor Programme, in Mauritius. taxed on income from self-employment and busi- offering Maltese citizenship by paying at least ness activities carried out in Liechtenstein (source: €650,000, and by meeting other conditions. Because of its period as a British colony, the coun- EY). The income tax rates (for 2015) range from try adopted the trust structures under English 3% to 24% (for a commune applying a commu- Income taxes are progressive, rising to a limit of Common Law. Besides rulings in England, Mauritius nal multiplier of 200). Income from foreign assets, 35% on income of €60,001 or above. There is a legislation such as the Trusts Act 2001 is significant. including real property and business premises, and corporate tax rate of 35%; through the country’s Trusts are normally liable to income tax on their other foreign income is considered in calculating full imputation system shareholders can claim tax chargeable income. the progressive tax rate. credits for tax paid by their companies. Capital gains tax is generally levied at a flat rate of 12% on Capital gains derived from transfers of participa- the transfer value or the selling price. MONACO tions (business assets) and personal movable as- sets are generally exempt from income tax. Capital This tiny, independent state near the Franco-Italian gains derived from transfers of personal and busi- MAURITIUS border is renowned as an offshore centre, a home ness immovable assets are subject to a separate for the super-rich and the venue for the annual capital gains tax on real estate. A former British and French colony (English and Formula One motor race. There is a resident pop- French are both spoken there), the island is located ulation of 35,000 people and a working population in the Indian Ocean and is a popular tourist desti- of 50,000. MALTA nation as well as a financial hub. Its financial sector makes up around 10% of GDP. The island has been Some 35 banks are licensed; Monaco has 58 as- The Mediterranean island-state, a former British renegotiating a Double Taxation Avoidance Agree- set management houses and €103 billion of assets colony, is in the European Union; its legal code is ment with India. Mauritius is an important conduit under management are held at the Monegasque a mixture of English Common Law and continen- of foreign direct investment flows to India. Banking and Finance Centre (source: Monaco For tal European civil law. Languages are Maltese and Finance). English. The Malta Financial Services Authority reg- International banking groups such as HSBC, Stand- ulates financial services. ard Chartered and Deutsche Bank operate in the The jurisdiction is promoted by the Commission island. A full list of banks can be obtained from the for the Promotion of the Monaco Financial Cen- There are 26 banks (source: Finance Malta), 615 Mauritius Bankers’ Association. tre and has a website under the title of Monaco investment funds with a total net asset value of For Finance. The MFF website has a list of banks €8.95 billion (June 2013); Malta-based banks cur- The Financial Services Commission regulates the and other institutions. Banking groups operating in rently hold over €30 billion in deposits. The Tier 1 non-bank financial services sector and global the principality include Bank J Safra Sarasin; Credit regulatory capital of the domestic banking sec- business; it was established in 2001. The Bank of Suisse; Compagnie Monégasque de Banque; HSBC tor sits at 11.8% (June 2014). Major banks in the Mauritius, the country’s central bank, oversees and Private Bank; UBS; Société Générale and Union country include HSBC, Banif Bank, FIMBank and licences banks as part of its remit. Bancaire Privée. Asset management firms include Bank of Valletta. Among the private banks serving Atlana Wealth Monaco; Bedrock Monaco; BSI Asset HNW individuals specifically are Mediterranean The Mauritius Revenue Authority is the tax-collect- Managers, CMB Asset Management; Global Securi- Bank. ing agency. The MRA says that so far, the country ties; Goldman Sachs; Julius Baer Wealth Manage- has concluded 43 tax treaties and is party to other ment (Monaco); Knight Vinke; Wealth MC Interna- Banking institutions in Malta are regulated by the treaties under negotiation. It has concluded DTAAs tional. There are mutual funds run by such firms Banking Act, which is founded on EU legislation. with countries such as Luxembourg, Singapore and as BNP Paribass, HSBC and Edmond de Rothschild. The non-bank financial institutions are regulated Malta. by the Financial Institutions Act. Some 70% of the industry’s assets belong to There is a flat rate of 15% on chargeable income. non-resident clients from all over Europe and There are 27 recognised fund administrators and Under its international corporate structure system, sub-Saharan Africa, the Middle East, Latin America more than 70 fund managers; there are 137 trust a company holding a Category 1 Global Business and Asia-Pacific.

JURISDICTION PROFILE DIRECTORY 91 Monaco-based banks are supervised by the Pru- cy is exceedingly slow. It also has a slew of bank dential Supervisory Authority (Autorité de Contrôle secrecy laws. PORTUGAL Prudentiel - ACP). This authority was created in 2010. The US Central Intelligence Agency’s recent World The Government of Portugal established the Ma- Factbook states that Panama is a “major cocaine deira Free Trade Zone, where most of the island’s Another regulator is Financial Activities Supervi- trans-shipment point and primary money-launder- offshore financial business takes place, in the sory Commission; this was founded in September ing centre for narcotics revenue; money-laundering 1980s, originally as an industrial complex and place 2007. It oversees the financial marketplace, such activity is especially heavy in the Colon Free Zone; for the free movement of goods. as deciding on licence applications from mutual monitoring of financial transactions is improving; fund firms. official corruption remains a major problem.” Its As Madeira is an autonomous part of Portugal and corporations have often featured in the recent therefore in the European Union, its offshore regime Service d’Information et de Contrôle sur les Circuits spate of non-prosecution agreements that Swiss counts as ‘state aid’ and therefore requires EU per- Financiers, or SICCFIN, is the body responsible for banks have been signing with the US Department mission to carry on. With the EU’s blessing, the pres- preventing and catching money launderers. of Justice. Panamanian law requires all banks in the ent tax regime allows for the incorporation of new jurisdiction to undertake “” entities until the end of 2020. There is a reduced Every foreigner over the age of 16 who wishes to controls and to report suspicious activity to the corporate tax rate of 5% until the end of 2027. reside in Monaco for more than three months of Financial Analysis Unit for the Prevention of Capi- the year must apply for a resident card issued by tal Laundering Crimes or UAF, but its regulatory re- In the case of activities to do with international the Monegasque authorities. Anybody who wants gime is lax. Its economy is pegged to the US dollar. services, the reduced rate is applicable to profits to become resident must prove that he has fi- derived from operations exclusively carried out nancial resources by producing a work contract, Offshoreprotection.com lists the major advantages with non-resident entities or with other companies showing that he is self-employed or the manag- of a Panamanian corporation as follows. operating within the ambit of the IBC of Madeira. er or director of a firm, or producing evidence of liquid savings or of financial support from some- • The freedom to appoint directors and officers of According to the Tax Incentives Statute, the follow- one else. The organisation handling that handles any nationality and country of residence. ing is exempt from income tax: such matters is the Monaco Welcome & Business • The freedom to appoint nominee directors and Office. officers. a) income derived from the concession or tem- • The legal protection afforded for the porary licensing, by non-resident entities in the All foreigners officially residing in Monaco and confidentiality fo business and banking territory, of patents, utilisation licenses, models, people with Monegasque nationality pay no in- transactions. industrial models or designs, trade marks, names come tax. There is one caveat: French citizens who • The tax exemption status provided to offshore and establishment insignias, manufacturing or are resident in Monaco must pay personal income companies. conservation processes and similar rights, as well tax in accordance with French tax law. They pay • The complete anonymity afforded to owners as the income derived from the supply of technical the French Government directly. Monaco does of Panamanian Corporations through the use of assistance and from the provision of information not have capital gains tax or wealth tax. Assets in bearer shares of stock. acquired through an experience in the industri- Monaco are subject to inheritance tax. • The freedom of capital movement in and out of al, scientific or commercial sectors, provided that Panama and the absence of regulatory these rights relate to the activity developed within Monaco will be under the Common Reporting supervision. the free trade zone; and Standard regime from 2018, collecting data to that • The absolute confidentiality of banking end from 2017 onwards. In 2014 Monaco signed transactions under numbered accounts b) income derived from the rendering of services, the Convention on Mutual Administrative Assis- belonging to corporations with nominee obtained by non residents, as long as such income tance in Tax Matters, managed by the OECD. directors and bearer shares in the hands of the is not imputable to a permanent establishment lo- . owner cated in the Portuguese territory outside the free In December 2015, Monaco signed the multilateral trade zones, and as long as such income is paid OECD Mutual Agreement Procedures agreement Non-resident corporations in Panama are free from by entities located within the free trade zone and on automatic exchange of information for tax having to pay tax on capital gains from the sale relates to the activity developed there. purposes. of company stock and tax on dividends, income, interest, rents and royalties. Indeed, the jurisdiction In Europe, Portugal (and therefore Madeira also) does not levy taxes on foreign source income and has double-tax treaties with Austria, Belgium, Bul- PANAMA until recently has shied away from signing dou- garia, Cyprus, the Czech Republic, Estonia, Finland, ble-tax treaties with other countries. This changed France, Germany, Greece, Holland, Hungary, Ireland, Recent revelations only go to show that this pub- in 2009 when it ended up on the OECD’s ‘grey list.’ Iceland, Italy, Latvia, Lithuania, Luxembourg, Malta, lication’s low opinion of this jurisdiction has been It has now signed such treaties with the Czech Re- Moldova, Norway, Poland, Romania, Russia, Slova- entirely justified. For years now, deficiencies in the public, France, Ireland, Israel, Italy, Korea, Portugal kia, Slovenia, Spain, Sweden, Switzerland, Turkey, rule of law and conformity to international stand- and the United Arab Emirates. It has a comprehen- the Ukraine and the United Kingdom. In the Amer- ards have been gnawing away at Panama’s reputa- sive free-trade agreement with Canada. It also has icas, it has DTTs with Brazil, Canada, Chile, Colom- tion as a safe and credible international financial a model 1 ‘agreement in substance’ with the Unit- bia, Cuba, Mexico, Panama, Peru, Uruguay, the Unit- centre. ed States as regards compliance with the Foreign ed States of America, and Venezuela. In Africa it has Accounts Tax Compliance Act, which was not in DTTs with Argelia, Cape Verde, Morocco, Mozam- Bearer share corporations still exist in Panama, force at the end of last year. In 2014 it also found bique, South Africa and Tunisia. In Asia its treaties leading to a heightened risk of money-laundering itself on the Financial Action Task Force’s ‘grey list,’ are with China, Hong Kong, India, Indonesia, Israel, in the eyes of the US State Department which pro- from which it has, surprisingly, emerged this year. Japan, Qatar, Kuwait, Macao, Pakistan, Singapore, duces a report on the subject every year. There is South Korea, and the United Arab Emirates. now a law on the statute book (Law 43 of 2013) Panama in 2008 was home to 350,000 interna- that dictates that all bearer shares must be held tional business companies or IBCs, the third highest The Central Bank of Portugal is the banking regu- by custodians but this only came into effect last number anywhere except for the British Virgin Is- lator. Both onshore and offshore banks still have summer and allows for a transitional period of lands and Hong Kong. There are more than 400,000 good correspondence networks with the rest of the three years, which means that it will not be fully corporations & foundations, making Panama one world, despite the recent trend of ‘de-risking.’ Most in effect until 2018. Panamanian shell companies of the globe’s most popular incorporation jurisdic- of them subscribe to international banking services also exist. Panama’s move towards tax transparen- tions. It also hosts a world-class shipping registry. like SWIFT and Reuters.

IFC WORLD 2016 92 In Portugal, the incorporation of a standard pre-ap- taken over by the central bank in 2014. Any Singaporean law allows people to form foreign proved company may take place in hours and a confidential banking and personal information may trusts, and distributions to beneficiaries are free of tailored one usually takes less than a week. only be divulged after a court ruling. The Govern- tax under Section 13G Income Tax Act. Singapore ment might hand such information on to foreign trust law also allows use of a private trust company Decree-law nr. 352-A/88, according to the IBC, reg- law-enforcers after a domestic investigation, but or PTC to act as the trustee of a specific trust, or a ulates the incorporation and operation of offshore banks may not. Offshore banks are now obliged to group of related trusts. trust companies or branches in the Madeira Free ascertain the beneficial ownership of accounts, al- Trade Zone. Article 11(1) states that the names of though non-face-to-face business is still possible. Singapore has a progressive tax rate starting from the settlor and the beneficiaries are subject to se- zero, up to 20% above S$320,000 (from 2016 on- crecy and may only be disclosed by way of a court The Seychelles Financial Services Authority is the wards it will end at 22% above S$320,000). There decision. The stated object of the law is to give en- regulator for non-bank financial services in the is no capital gain or inheritance tax. tities “the legal instruments and means...provided Seychelles. Established under the Financial Services in other offshore centres.” Authority Act 2013, the FSA is responsible for the Individuals are taxed only on income they have licensing, supervision and development of the non- earned in Singapore. The income earned by individ- bank financial services industry of the Seychelles. uals while working overseas is not subject to tax- SEYCHELLES It is also responsible for the registration of IBCs, ation barring few exceptions (source: Hawksford, foundations, limited partnerships and internation- other). Tax rules differ according to the tax residen- This Indian Ocean archipelago’s offshore financial al trusts in the jurisdiction. In 2014 it replaced the cy of the individual. services sector has grown from 650 international Seychelles International Business Authority which business companies or IBCs in 1996 to 140,000 had since 1995 done the two jobs of regulating and A person is considered a tax resident in Singapore today. There are also about 1,000 registered trusts publicising the financial services sector. if he is a Singaporean or a Singapore Permanent and more than 300 foundations. The archipelago Resident and has established a permanent home in is a small offshore tax-haven. Its finances are be- In February 2015, the Seychelles became the 85th sig- Singapore; or a foreigner who has stayed or worked ing restructured with the help of the International natory of the OECD’s Multilateral Convention on Mu- in Singapore for 183 days or more in the tax year. A Monetary Fund, which has lent it money by means tual Administrative Assistance in Tax Matters. There is person is deemed a non-resident for tax purposes if of its Extended Fund Facility. It has had a turbulent no capital gains tax. Income from abroad – e.g. from he is a foreigner who stayed or worked in Singapore political history since it gained independence from shares in the form of dividends – is not taxed. for fewer than 183 days in the tax year. the United Kingdom as a republic in 1976. The jurisdiction is, along with other regional hubs, The first Gulf War (1991), which happened a mere SINGAPORE competing to win business in areas such as offshore 2,000 miles away, wreaked havoc with the islands’ renminbi-denominated transactions, as well as de- tourist industry and its politicians decided to diver- Financial services are regulated and overseen by velop as a development centre for financial technol- sify their economy to escape their dependence on the Monetary Authority of Singapore. The city- ogy and private banking talent management. it. The year 1994 was the crucial one for the evolu- state is home to more than 200 banks and these tion of offshore business in the Seychelles with the had almost $2 trillion in assets as of 2013 (source: An extensive number of law and accountancy firms passage of the International Business Companies MAS). There are more than 1,200 financial institu- operate there and the ‘Big Four’ accountancy firms, Act. The National Assembly amended this in 2013 tions, ranging from banks to IFAs. It is estimated as well as law firms such as Withers and Baker & to force IBCs to keep accounting records – not full that up to 70% of money in Singaporean banks is McKenzie, have large practices. accounts, but evidence that would allow for the from abroad. preparation of accounts, including receipts, invoic- es and bank statements. Other legislation followed Of the 123 commercial banks, there are five local SWITZERLAND this seminal Act, including the International Corpo- banks, 118 foreign banks and 36 offshore banks. A rate Service Providers Act 2003 (which provided for study late in 2015 by Aite Group said there could The Alpine state holds around $2 trillion of offshore the formation and running of foundations as well be as many as 330 wealth management institu- assets out of a global total of $9.2 trillion (source: as corporations), the Securities Act 2007 (which led tions (private banks, family offices, other) in the Deloitte, 2015). The country has 275 banks (source: to the setting up of the first exchange, Trop-X, in jurisdiction. Swiss Bankers Association). There are SFr6.656 tril- 2012), the Seychelles International Trusts Act 1994 lion ($6.57 trillion) of assets under management in (amended in 2011 to make the trust structures Singapore is a member of the Financial Action Task the country, with 51.1% of this AuM coming from more flexible), the Limited Partnerships Act 2003 Force (FATF) and a founding member of the Asia / abroad. Switzerland has 25% of global cross-border (such partnerships being formed to conduct busi- Pacific Group on Money Laundering. asset management business, making it the global ness outside the islands), the Protected Cell Com- leader. Some 28,000 people work in the industry, panies Act 2003 and the Mutual Fund and Hedge In 2013, the authorities said that they would make creating SFr19 billion in gross earnings. Switzerland Fund Act 2008. the handling of proceeds from foreign tax evasion is outside the European Union. a crime, making Singapore the first state in the re- The IBC Act was amended in 2013 to please the gion to do this. The jurisdiction has also inked more UBS is the country’s largest bank, with Credit Suisse Organisation for Economic Co-operation and De- than 50 agreements to facilitate the exchange of and Julius Baer in second and third place respec- velopment. The OECD had just found the jurisdic- tax data with other countries. Singapore has also tively. The country’s law dates back tion to be ‘non-compliant.’ It is now rated ‘largely agreed to adopt the OECD’s Automatic Exchange in modern form to 1934 and it has not yet been compliant.’ Bearer shares ceased to exist in 2014. of Information standard, which comes fully into repealed. The power of this law in protecting non- force in 2018. However, Singapore has warned Swiss account holders has been eroded by automat- Barclays was the first to estab- that other financial centres must agree to similar ic exchange of information agreements and is ex- lish operations in Seychelles in 1959 by opening standards so that it is not put at a disadvantage. pected to weaken further in 2018. Its repeal requires a local branch and in 1999/2000 this became a national legislation. local subsidiary. Although six more banks were to Singapore has an English Common Law legal system appear in the local market, it remained the lead- and therefore has an established business in trusts Financial services are regulated by the Swiss Finan- ing bank and went into offshore banking there that follow those of other Common Law jurisdic- cial Market Supervisory Authority (FINMA). in 2004. The other pre-eminent , tions, such as the UK and US. Trustees in Singapore BMI Offshore Bank which was registered for busi- have statutory duties under the Trustees Act; trust There are 26 cantons, each with their own ness in 2008, lost its correspondent relationships companies are licensed and regulated by MAS under law-making bodies and taxes. The Swiss political abroad and its day-to-day running had to be the Trust Companies Act 2005 (see below). system is federal.

JURISDICTION PROFILE DIRECTORY 93 In 2014, Swiss voters supported a referendum pro- (from approximately 12% up to a limit of around ness. Companies qualifying for domiciliary status posal to curb immigration from the EU; this is due 24% in 2012). are exempt from cantonal tax on dividend income to become law by 2017. and on capital gains from qualifying participation. Since January 2015, eligibility for being classified People who reside in the country must pay tax on as an expatriate employee – and its tax status – Other Swiss-sourced income is taxed at ordinary their worldwide income and assets, except on the has been tightened. Swiss citizens, foreigners with income tax rates but profits from trading outside income and wealth from foreign business or real a permanent residence permit C, or any foreigners are usually also subject to tax at reduced rates. estate or if tax treaties prevent double taxation. who are married to Swiss citizens need to file tax Swiss federal tax does not provide for any particu- Residence for tax purposes arises if a person stays returns each year. lar relief for domiciliary companies (source: PKF). in Switzerland for 30 days, or for 90 days if the per- son does not work. Non-residents can be taxed on Federal withholding tax is levied at 35% on cer- Holding companies are exempt from cantonal and income from Swiss sources such as property, per- tain forms of income, such as dividends, interest on communal corporate income tax and are often manent business operations. debt, liquidation proceeds, lottery prizes and pay- also subject to capital tax at reduced rates. Hold- ments by life insurances and private pension funds. ing companies may own real estate in Switzerland. Cantonal income tax rates are mostly flat but some cantons use graduated rates. The federal in- Special purpose companies (i.e. domiciliary and However, as an exception, any income or capital come tax is as high as 13% and is a progressive tax. holding companies) exist. Domiciliary companies gains generated from such real estate is subject to Effective ordinary corporate tax rates on income only have administrative activities in Switzerland ordinary taxation. Federal income tax is levied at vary significantly from one canton to another and are exclusively engaged in international busi- ordinary corporate income tax rates.

IFC WORLD 2016 94 䈀刀䤀吀䤀匀䠀 嘀䤀刀䜀䤀一 䤀匀䰀䄀一䐀匀

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