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Anguilla: Emerging Caribbean Tax Haven

Introduction

That perception may change as a result of a concerted effort by the British and Anguillan governments to develop a viable and well-regulated offshore financial center.

Anguilla once formed part of the Dependent Territories of St. Kitts, Nevis and Anguilla. Anguilla broke away from that union in 1967 but remained legally bound to it up to 1980. The British Crown Colony of Anguilla is a self-governing dependency, and as such has adopted its own tax laws. Anguilla, on its own merit, has chosen to become a full-fledged no-tax haven like the Caymans and the Bahamas.

Early Regulatory Development

In February 1992, Anguilla passed new laws regulating offshore banks and trust companies that choose to do business there. As local lawyer Dan Mitchell puts it: “Our hope is that it will now be difficult for persons who form banks for criminal purposes to form and use Anguilla offshore banks.”

The Mokoro Report (1993)

In December 1992 the British Government aid agency, the Overseas Development Administration, engaged the UK consultancy firm of Mokoro Limited to advise the Government of Anguilla on its economic strategy for the 21st century. The Mokoro Report was completed in April 1993 and identified the financial sector as the principal alternative way forward in the development of additional economic activity in Anguilla.

Principal Benefits Identified

  • Substantial additional government revenue
  • Sizeable increase in the contribution of professional services to the GDP (Gross Domestic Product)
  • Range of new employment opportunities for young people
  • Increase in professional trading
  • Inward migration of Anguillians living overseas
  • Increase in the number of visitors and a decrease in their seasonability

Prerequisites for Development

The Mokoro Report advised that the prerequisites for the development of the offshore financial industry were:

  • Good Communications
  • Good modern legislation
  • A strong diverse professional community
  • Positive role by Anguillian Government in facilitating changes and adapting to marketing requirements

Government Strategy

The Anguillian Government has now accepted the Mokoro Report. Recognizing that the period of rapid growth in tourism has come to an end, the Government now acknowledges that the future economic development of Anguilla revolves around Anguilla becoming a competitive tax haven along the lines of some of its Caribbean neighbors, i.e., the Cayman Islands, the Bahamas, The British Virgin Islands, the Turks & Caicos islands, and Panama.

Current Economic Impact

The financial services section in Anguilla (banking and insurance) currently contribute about 10% of the GDP. In the Bahamas, the financial sector contributes about 30% of the GDP. In the British Virgin Islands, it is believed that the financial sector contributes to over 50% of that country’s GDP.

New Legislation (Enacted January 1, 1994)

The Anguillian government understands that the cornerstone of any offshore sector is the legislation regulating companies incorporated in that center. New legislation enacted on January 1, 1994 include:

  • An International Business Companies Act virtually identical to the IBC Acts enacted in the Bahamas (1989), Belize (1990) and the BVI (1984)
  • Insurance Act
  • Trusts Act
  • Fraudulent Dispositions Act
  • Limited Liability Companies Act
  • Limited Partnership Act
  • Partnership Act

International Business Companies Act

The new IBC Act makes provisions for the incorporation and regulation of International Business Companies. The IBC Act is in addition to the already existing Companies Act.

New Trusts Act

An important part of the new legislation for tax practitioners is Anguilla’s new Trusts Ordinance. The Anguillan Ministry of Finance claims the law is a collection of the latest and most modern trust laws in the world.

Highlights of the New Provisions

  • Abolition of the rule against perpetuities
  • Creation of commercial purpose trust
  • Provision for the office of Protector of a Trust
  • Choice of governing law provisions to resolve the jurisdictional issues of international conflict of laws relating to trusts
  • Optional registration of trusts
  • Provision for recognition of variant forms of trusts and trust to be written in foreign languages
  • Expanded definition of charitable trusts and authorized trustee investments

Fraudulent Dispositions Protection

Under the Fraudulent Dispositions Ordinance, an Anguillan trust is protected by imposing a three-year limitation period within which a creditor can attack a disposition of assets by proving a fraudulent transfer. The burden of proof is on the creditor to establish the fraudulent disposition.

Companies Act, Cap 335 of Anguilla

There are currently 4,700 companies registered under the Companies Act (Cap 335 of Anguilla). In 1993, a total of 213 new companies were registered in Anguilla. No differentiation exists between a local or offshore company in the Company Registry. Such categories as ordinary or exempt company (Cayman Islands and Turks & Caicos Islands), IBCs (Bahamas, BVI and Antigua) are more or less irrelevant in Anguilla because there are no personal or corporate income taxes of any kind. Profits may be retained offshore or repatriated at will. Anguilla has no exchange controls.

Key Features

Directors and Shareholders:

  • Directors or Shareholders may be individuals (persons other than Anguillian citizens) or corporations
  • The Anguillian Register of Companies does not differentiate between a non-Anguillian shareholder or director in its records

Privacy:

  • Companies other than banks, trust companies and insurance companies need not disclose the names of the principals
  • Only a public company if authorized by its Articles can issue bearer shares

Naming Restrictions:

  • No company may use or continue to use the words “bank”, “trust”, “trust company”, “savings and loan” or any other similar derivatives in the company’s name
  • To use such a title you would need to get a license from the Government under the offshore bank and trust companies ordinance

Company Types:

  • Companies are categorized as public or private
  • The number of shareholders in a private company is limited to a minimum of two to a maximum of fifty
  • A public company is limited to a minimum of five

Formation Requirements:

  • The name of the proposed company must have the word “Limited” as the last word of its name
  • The place with which the registered office of the company is proposed to be situated
  • The objectives for which the proposed company is to be established
  • To incorporate a company, a Memorandum of Association stating the company’s objectives must be signed by all the original subscribers
  • Nominees can be used to sign this document

Statutory Records

The Companies Act requires that the following statutory records be kept at the registered office:

  • Register of Members
  • Register of Mortgages and charges
  • Register of Directors
  • Books of accounts
  • Register of transfer of shares

Annual Requirements

  • An annual return containing the names and addresses of the shareholders and directors of the company must be filed each year
  • The fact that Anguillians hold their shares in trust for a foreigner need not be declared
  • Annual meetings are required, but need not be held in Anguilla
  • Every Anguillian company must have a registered office in Anguilla

Editor’s note: No annual return of any kind needs to be filed in either the British Virgin Islands or the Bahamas.

Costs

Government fees to incorporate amount to US$196, with an annual fee of US$186 required to maintain a company. Total additional costs to incorporate, excluding above government fee, range from US$400 to US$2,400 (depending on complexity). Fees for a corporate secretary or nominee director are US$100 to $400 annually.

Proposed Legislative Changes

The Government aims to make some changes to the above Act. Some of these enhancements include:

  • Private companies may have one director in addition to the company secretary, both of whom may be incorporated bodies
  • The company name may end in “Societe Anonyme” or “Sociedad Anonima” or the abbreviations “S.A.” or “N.V.”
  • The authorized capital, if any, may be stated in any currency, or in more than one currency
  • Transfer of domicile is permitted. Any foreign corporation may transfer its domicile into Anguilla, so long as the laws of the foreign country do not expressly prohibit such transfer. Likewise, transfer of an Anguillian company to another jurisdiction will be permitted

Modern Legislative Package (1994-1995)

During 1994 and the early part of 1995, Anguilla has introduced a modern package of financial legislation. It consisted of eight separate ordinances: Companies; International Business Companies; Limited Liability Companies; Partnerships; Limited Partnerships; Trusts; Fraudulent Dispositions; and Company Managers.

With the enactment of the new Companies Ordinance, International Business Companies Ordinance and Limited Liabilities Companies Ordinance, trust and tax practitioners now have a choice of corporate vehicles for their clients.

Corporate Vehicle Options

Offshore companies can continue to be formed under the domestic Companies Ordinance as Anguillan companies or as distinct offshore IBCs. There is also the option now of limited liability companies.

Limited Liability Companies (LLC): The LLC, a US invention first enacted in the state of Wyoming in 1977, is a hybrid company/partnership with characteristics of a company (separate legal identity, capacity to sue and be sued, capacity to own and deal in property and limited liability of interest-holders) and a partnership (being considered ‘pass through’ entities for US income tax purposes). LLCs are commonly used in joint ventures, venture capital formation and real estate syndications.

New Companies Ordinance Features

Anguilla’s new Companies Ordinance is based on the Caribbean Law Institute Draft Bill, which in turn was largely taken from the modern Canadian model, and in particular the Ontario legislation.

Key Provisions:

  • Some private companies, called specified private companies, are exempt from record keeping and financial accounting on certain conditions
  • Each company must have a registered office and agent resident in Anguilla
  • Directors and shareholders need not be Anguillans
  • No requirement for annual meetings to be held in the island
  • Annual returns listing directors, shareholders, registered office and agent must be filed annually
  • No financial statements need be filed unless the company is a public company
  • Nominee shareholders and directors can be used

The Offshore Bank and Trust Company Ordinance

The Offshore Bank and Trust Company Ordinance regulates Anguillan trust companies for the first time.

Trust Company Requirements

Capitalization:

  • A trust company must have a capitalization of at least Eastern Caribbean $1.2 million (US$447,760)
  • At least EC$480,000 must be paid up in cash

Regulatory Powers:

  • Under the new laws, the British Governor has wide powers to inspect and regulate
  • A license refusal is final with no court appeal possible

Operational Requirements:

  • Trust companies must have principal place of business and authorized agents in Anguilla
  • Accounts of trust companies will be audited
  • A detailed questionnaire must be completed by each shareholder, director and officer
  • It is designed to enable agencies like Interpol, the FBI and Scotland Yard to check the background of applicants

Industry Response

John Benjamin, head of a local law firm, says: “We like the idea of an inspector and a relationship with the Bank of England and the requirements for capitalization to make sure companies can do the job properly.”

However, some practitioners fear that some of the stiff requirements on the application form are unnecessarily cumbersome, asking questions which people might find intrusive.

Supervision

Offshore banks are supervised by John Dowling – superintendent of offshore banks. According to Mr. Dowling: “It is a matter of improving the quality. The forms look a bit forbidding at first but they are not difficult to fill out and are only for approval when an institution is starting up.”

Banking Fees and Costs

Banks will incur fees of US$60,000 to start up, including:

  • Non-refundable application vetting fee: US$10,000
  • Bank license fee: US$20,000
  • Stamp duty: US$2,000
  • Lawyer’s fees for incorporation: US$15,000
  • Statutory agents cost: US$10,000

Offshore banks that engage in trust as well as banking business will have a higher capitalization requirement than a purely banking operation. Both a bank and a trust license is required.