Isaac Legair, Guest Writer

With the advent of the Caricom Single Market and Economy (CSME), Caricom nationals are now open to a wider range of corporate and trust structures for use in tax and succession planning.

There are many offshore financial centres within Caricom, Barbados, St. Lucia, Nevis and Belize being among them.

However, in terms of the flexibility of legislation and costs, St. Vincent and the Grenadines (SVG) is among the most competitive. Its International Trusts Act 1996 and the International Business Companies (IBC) Act 1996 are versatile tools in the hands of lawyers and accountants whowish to plan the personal and business affairs of their clients.

The jurisdiction is likely to become even more attractive within the next month or so, as it launches an amended and consolidated version of the 1996 IBC Act.

Two sections of this new 2007 IBC Act are of particular interest to Caricom nationals:

Section 180, which introduces the 1.0 per cent tax regime; and

Section 36, which dovetails into the International Trusts Act so as to give trustees indemnity, and directors of IBC whose shares are held in a St. Vincent trust, freedom from supervision by the trustees of such trusts.

The 2007 IBC Act will be especially attractive for Caricom nationals wishing to establish companies - including holding companies - in St. Vincent.

For the first time, such com-panies will be able to take advantage of the Caricom Tax Treaty by virtue of which they will pay tax at 1.0 per cent in St. Vincent, with no further liability to tax in any Caricom state. Currently, such companies are available only in St. Lucia at a high cost.

Each St. Vincent IBC is expected to sell at under US$1,000.

Under Section 180 of the 2007 IBC Act, companies make an irrevocable election to either remain totally exempt from taxes as at present, or pay corporate income tax at the rate of 1.0 per cent on annual profits.

Companies that choose to pay the 1.0 per cent tax must also file annual tax returns in St. Vincent and comply with the requisite provisions of income-tax legislation.

GOOD TAX PLANNING

The 1.0 per cent option is an extremely good tax-planning tool for companies based in the CSME region, the member states of which have ratified a multilateral double-taxation agreement among them-selves.

This treaty provides that income arising in one member state by a resident of another shall be taxed only in the source country, and taxed only once.

It further exempts dividends payable by a company resident in one member state from taxation not only in the country in which the income arises, but also in the country in which the shareholder is resident.

The treaty, therefore, provides significant tax-planning opportunities for companies resident in one member state but doing business in another through a subsidiary.

Many international companies are currently investing in the oil and gas industry in Trinidad and Tobago and in the real estate and hotel-development projects across the Caricom region.

Such investors could benefit greatly from using St. Vincent companies as part of their group structure.

Section 36 of the 2007 IBC Act states:

(1) Notwithstanding any statutory provision or rule of law to the contrary, where voting shares of an international business company are settled into a unit trust, the proper law of which is the law of Saint Vincent and the Grenadines or into a trust established under the International Trusts Act, 1996; the trustees of such trust shall have an overriding duty to hold the shares but no duty to enquire into or take any active part in the management of the company unless otherwise provided in: (a) the articles; (b) the bylaws, or (c) the trust deed.

(2) The directors of a company to which Subsection (1) applies shall have exclusive right to manage the affairs of the company without any interference or intervention what-soever from the trustees.

The intention of Section 36 is clearly to negate the effects of the common law arising from judgments such as the ruling in Bartlett v Barclays Bank.

On a more practical and commercial level, the chance was also seized to simultaneously capture some of the strengths of the VISTA trust currently available in the BVI.

The VISTA trust has proved very attractive in the international marketplace and when the opportunities given in Section 36 are coupled with the indemnities available under Section 109 (1)(c), a trust or unit trust formed under SVG law could prove useful to those engaged in international tax planning.

RESERVED POWERS

Section 9 of the International Trusts Act provides inter alia that an international trustshall not be declared invalid or affected in any way if the settlor retains power to revoke the trust, amend the trust, direct, or appoint or remove the trustees.

These so-called reserved powers provisions enable the settlor to retain control over the trust.

Section 42 provides that any claimant wishing to challenge or proceed against an international trust or sue the trustees for breach of trust must do so within two years from the date of creation of the trust or from the date the cause of action arose.

Before commencing his claim, the claimant must pay a cash sum of US$25,000 into court as security for costs.

Section 39 provides the final seal of security.

It provides that, notwithstanding the provisions of any treaty, convention, statute, rule of law or equity to the contrary, no proceedings for the enforcement or recognition of a judgment or order obtained outside SVG shall be entertained by the court if the judgment or order is based wholly or partly on the application or interpretation of law which is inconsistent with the International Trusts Act, or relates to a matter governed by the laws of SVG.

Isaac Legair is a practising barrister at the law firm Dennings and a director of Dennings (Trustees) Limited, a regulated trust company operating in St. Vincent and the Grenadines. Email: dennings@vincysurf.com.