List of 16 Major Base Havens with Offshore Financial Centres

Here is a list of sixteen major base havens with offshore financial centres.

1. Antigua & Barbuda:

Antigua and Barbuda (“Antigua”) is located in the Northeast Caribbean Sea. Under its tax laws, a company is tax resident if it is incorporated under the 1995 Companies Act. Antigua levies corporate tax on resident companies at the 40% rate.

Capital gains are tax-exempt. Antigua also provides tax holidays to foreign investors; its length depends on the net value addition to its economy. Corporate taxes are waived for up to 15 years (renewable) of profitable operations.

The bulk of the government revenue comes from indirect taxation. There are no personal income taxes. The absence of personal income tax makes it attractive as a tax residence for high net worth individuals.

Antigua provides a special tax regime of an international business company for trading, investment or commercial activities undertaken outside Antigua. Under the International Business Corporation Act (“IBC Act 1982”), IBCs are fully tax-exempt and pay no income, capital gains, estate, transfer, and other taxes for 50 years. Moreover, there is no withholding tax on the payments of dividends, interest or royalties by them to nonresidents.

An IBC is a company limited by shares. The set-up and annual registration fees are low. Although its formation needs an approved trust company as a shareholder or two Antigua residents, only one shareholder is required after incorporation.

It requires at least one director, which can be a company. There is no citizenship or residence requirement for directors, officers or shareholders; moreover, directors need not be shareholders.

The meetings may be held, and the books kept, anywhere in the world, but the company must have a registered office and a resident agent in Antigua. Corporate re-domicile or migration is permitted.

There are no minimum capital requirements, and the company may vary its capital. There is no stamp duty on capital issues. The shares may be bearer or registered shares of nominal or no par value. There is no requirement to file corporate returns or reports.

Tax information is not provided to foreign authorities but the corporate ownership details may be revealed to them only in certain specified circumstances. The IBC Act provides criminal penalties for any unauthorized disclosure of banking or trust transactions of customers, except in the case of criminal offences under its laws.

Antigua also grants tax residence to high net worth individuals. They are required to pay an annual immigration tax of at least USD 20,000. They must also own or lease property and spend at least 30 days annually in the country.

Antigua has a free trade and processing zone, which is exempt from all taxes and customs duties. It has preferential trade agreements with Canada, United States, European Union countries and several countries in the Caribbean. It is a recognized jurisdiction for Internet gaming. Antigua also provides a flag of convenience for registration and charter of ships.

Antigua has a mutual legal assistance treaty with the United States and strict money laundering laws. Foreign transactions above a specified amount must be reported to the government. There is no tax information exchange agreement or TIEA.


2. Bahamas:

The Bahamas is a group of approximately 700 islands located off the South-eastern coast of Florida, USA. The Bahamas levies no direct taxes. Resident companies pay an annual business licence fee. There are no tax treaties.

Exchange controls are administered by the Central Bank of Bahamas. Local business is conducted largely through a domestic resident company under the Companies Act 1992. It can be a private company limited by shares or by guarantee (or both) or a public company. It requires two shareholders, a registered office in the Bahamas and a local business licence.

The Bahamas is an established financial services centre for offshore companies.

Offshore activities are conducted largely through international business companies (IBC) formed under the IBC Act 1989 (as amended). IBCs are exempt from all taxes and from exchange controls for a guaranteed period of 20 years from the date of incorporation.

An IBC is a flexible corporate entity. They may have Bahamian shareholders or carry on business in the Bahamas with exchange control approval. They can engage in any lawful activity other than trust services, banking, insurance and reinsurance. They can be managed, controlled and operated from the Bahamas.

IBCs require a minimum of two shareholders and one director. The directors may be nominees, nonresidents or corporate entities. A company secretary is not mandatory. There is no minimum capital requirement. The shares must be registered (bearer shares are not allowed), and may have no par value.

Accounts do not have to be kept or audited. There are no requirements regarding holding of meetings. The change of corporate domicile is permitted. The annual licence fee based on authorized capital varies from USD 100 to US 1,000 (over USD 50,000 capital). Shelf companies are available.

The only significant statutory requirements are:

(a) A registered office in the Bahamas, where it must maintain a register of shareholders and a list of officers and directors, and

(b) The company must appoint a Bahamian resident service provider as a registered agent.

They must also submit details of their directors and owners to the Registrar of Companies in confidence. IBCs are not required to keep any books, records or minutes at the registered office. Only licensed banks, trust companies and licensed firms under the new Financial and Corporate Service Providers Act may incorporate IBCs and act as registered agents.

The Bahamas is also active in trusts, offshore banking and mutual funds. The law permits general or limited partnerships, companies limited by guarantee, nonresident companies, and limited duration and limited guarantee companies.

The Bahamas also allows protected cell companies under its Segregated Companies Act. In 2004, the Bahamas introduced the legislation to set up foundations. A Bahamian foundation is a separate legal entity governed by its own charter and treated like a company. There is no statutory audit requirement.

It is not subject to forced heirship rules of a foreign jurisdiction. It can be used for estate planning as well as for a wide range of business purposes. Re-domiciliation of a foundation is permitted. The Bahamas Stock Exchange was established in May 2000.

There are stringent regulations over money laundering and criminal activities under its new financial regulatory regime. Banks must keep details of their customers’ identities. All banks must have physical presence. The Central Bank has powers to assist and cooperate with overseas authorities on regulatory issues.

The Bahamas has mutual legal assistance treaties with the United States, Canada and the United Kingdom that exclude fiscal information. The treaties are limited to information exchange on criminal matters. Tax evasion is not a crime in the Bahamas. In 2002, it signed a tax information exchange agreement with the United States that now covers both civil and criminal matters.

3. Belize:

Belize (formerly British Honduras) is located on the Caribbean coast of Central America. It is an independent country within the British Commonwealth. Belize is a signatory to several trade agreements including the Caribbean Basin Initiative and the Caricom Multilateral Tax Agreement. In 2006, six Caricom members established the Caricom Single Market and Economy (CSM).

Tax residence is based on incorporation or central management and control. Resident companies pay corporate tax at 25% and a turnover based tax at a general 1.75% rate on the gross domestic turnover (“business tax”). The business tax is creditable against the corporate tax and any excess can be carried forward for future offset.

Foreign earned income is taxed only when it is remitted to Belize. There are no capital gains, wealth or gift taxes. It has only one tax treaty, namely with the United Kingdom. Banking secrecy is maintained in Belize, but strict controls apply to money laundering and economic crimes.

Offshore activities are encouraged under the International Business Act 1990 (as amended). An international business company (IBC) can establish, maintain and operate an office in Belize for business with nonresidents.

It cannot carry on business with residents of Belize, engage in banking or insurance (or reinsurance) business, or own real estate in Belize, although it may lease office premises. Its income is exempt from all taxes and withholding taxes, exchange controls and stamp duties. The company pays a flat annual fee.

IBCs require one shareholder and one director, who may be one and the same. There is no requirement to have a local director. A company secretary is not required (but desirable). Corporate directors are permitted.

The details of shareholders and directors do not have to be filed and are not available for public inspection. A company may have nominee shareholders using local licensed registered agents. There is no requirement to hold meetings of directors or members in an IBC.

There is no audit or other reporting or filing requirement; however, proper accounts must be kept. Corporate re-domicile or migration is permitted. There is no minimum capital requirement. Both registered and/or bearer shares may be issued with or without par value or voting rights. Bearer shares must be held under custody of a local registered agent.

They are immobilized under a 2001 Regulation, which ensures that the beneficial ownership can be ascertained at any given time through the agent. The company must appoint a licensed registered agent and maintain a registered office in Belize at his address. Ready-made companies are available.

Belize has promoted a liberal trust law (useful for asset protection trusts) under common law with a maximum life of 120 years thus eliminating the rule against perpetuities. A trust may be set up by oral declaration, in writing (e.g. will or codicil), conduct, by law or in any other manner.

As from June 15, 2007, all offshore trusts must be registered by a trust agent with a registry overseen by Belize’s International Financial Services Commission. The register is not open to public inspection and strict confidentiality is imposed, except for certain official inquiries.

Belize provides tax-free export processing zones for both goods and Internet services and also grants tax holidays to qualifying domestic companies.

In 1999, it introduced provisions for the set-up of protected cell companies (PCCs), limited liability partnerships (LLPs) and limited life companies (LLCs) with a maximum duration of 50 years. Additional statutes were enacted for offshore banks, shipping, offshore captive insurance and mutual fund activities, all of which may conduct business in a tax-free environment.

Belize has signed the exchange of information agreement under the Caribbean Basin Initiative with the United States that entitles Belizean exports to the USA duty free entry. In July 2003, Belize signed a treaty on Mutual Legal Assistance in Criminal Matters (MLAT) with the United States.

4. British Virgin Islands:

British Virgin Islands (“BVI”) is a self-governing British Overseas Territory consisting of 60 islands with a land area of 150 sq. km. in the Northeast Caribbean Sea.

A company is resident if it is effectively managed and controlled in the BVI. A locally incorporated company is deemed to have its effective management and control in the BVI if the majority of the directors are tax residents.

From January 2005, BVI resident companies are wholly tax-exempt. They pay fixed annual licence fees and stamp duties only. In addition, local companies pay a new payroll tax. There are no withholding taxes and no capital gains tax. BVI has no exchange controls or currency restrictions.

BVI applies the withholding tax option on interest payments to EU resident individuals under the EU Savings Directive. The BVI has tax treaties with the United Kingdom, Japan and Switzerland. Treaty benefits are only given to companies that are resident under the BVI Companies Act 1963 (Cap 285) rules.

Prior to 2007, British Virgin Islands had a special tax-free regime for offshore activities under the International Business Companies Act of 1984 (as amended). An international business company (“IBC”) was exempt from corporate tax and from all withholding taxes and stamp duties in the BVI.

It paid a flat licence fee varying from USD 300 to USD 1,000, depending on the authorized capital. In general, an IBC could not transact business with BVI residents or carry on business as a bank, trust company or engage in insurance businesses.

As from January 2007, existing IBCs are automatically re-registered as BVIBC under the BVI Business Companies Act 2004. The new company law provides for a company limited by shares.

In addition, a company can be incorporated as a company limited by guarantee, as a hybrid company (limited by guarantee and by shares) or as an unlimited or restricted purposes company.

It also permits segregated portfolio companies (“SPC”), namely protected cell companies. Limited companies pay an annual licence fee varying from USD 350 to USD 1,000, depending on the authorized share capital. A restricted purpose company pays USD 5,000 per year.

There is no statutory share capital requirement. Shares can be issued with or without par value. They do not have to be fully paid, and can be redeemed or repurchased by the company. Bearer shares are not permitted unless specifically allowed in its memorandum and articles.

Certificated bearer shares must be held by a custodian approved by the BVI Financial Services Commission. The custodian must also have the full name of the beneficial owner and any other persons with an interest in the share. Segregated portfolio companies cannot issue bearer shares.

The company must have at least one director. Corporate directors are allowed and there is no requirement to have local directors. Companies limited by shares must have at least one shareholder.

Directors’ and shareholders’ meetings may be held anywhere. The appointment of a company secretary is optional. There is no requirement to file accounts or annual returns, and there is no audit requirement.

The new company law also provides for re-domiciliation to or from BVI. There is no trading restriction on carrying on business in BVI or with persons resident in the BVI. The records of directors, shareholders or beneficial ownership are not available to the public. Strict confidentiality is ensured under the Act.

Other useful offshore structures include:

(i) Limited partnerships:

The Limited Partnerships Act 1980 provides for local and international partnerships. Local partnerships can transact local business but are not tax-exempt. International partnerships are tax-exempt but can only do offshore business.

There must be at least one general partner with unlimited liability. The identity of the limited partner does not need to be disclosed. There are no minimum capital requirements or debt-equity ratios.

(ii) Trusts:

BVI trusts are exempted from registration and trustees do not have to file annual returns. Trusts are tax-exempt if all the beneficiaries are nonresident and the trust conducts only offshore business.

The trust pays an annual duty of USD 50. BVI introduced three new trust laws in 2004. They include provisions to allow trustees to leave the management of an underlying BVI Company to the company directors, and also protect them from “forced heirship” claims.

(iii) Others:

BVI is a major centre for offshore banking, captive insurance, shipping, mutual funds. Tourism accounts for over 25% of the national income.

The British Virgin Islands is a reputable offshore financial centre and well known for its successful International Business Company regime. The offshore activities are supervised by the Financial Services Commission, an independent body set up in 2002.

BVI has a mutual legal assistance treaty with the United States and has also signed a tax information exchange agreement. The agreement includes both civil and criminal tax investigations and excludes the dual criminality requirement. It is currently negotiating a similar agreement with Australia.

5. Cayman Islands:

The Cayman Islands (“Islands”) is a British overseas territory in the Western Caribbean Sea. Under its domestic law, there is no income tax, capital gains tax, profit tax, death tax, or other direct taxes on individuals, partnerships, corporations or trusts in the Cayman Islands. Moreover, there are no exchange controls or currency restrictions.

Under the Companies Act 1961 (as amended), an ordinary resident company can be limited by shares or by guarantee, a limited liability company, or with unlimited, limited or perpetual duration. It may carry on business from within the Islands under a Trade and Business Licence.

Unless local residents own at least 60% or more of the equity, a licence under the Local Company Control Law must also be obtained. All companies must maintain a registered office in Cayman. The company must have an annual general meeting in Cayman and file a list of all its shareholders with the Registrar of Companies each year.

The list is open to public inspection. There is no minimum capital requirement or need for an audit or filing of accounts.

The Cayman Islands is also a well-established jurisdiction for offshore activities.

The two common offshore structures are:

(i) The exempted company and

(ii) The ordinary nonresident company, as follows:

(a) The exempted company allows the offshore business to be managed from the Islands, but not to conduct any business within the Islands. Moreover, it cannot engage in banking, insurance or mutual fund activities and cannot raise funds from the public. A limited form of annual return is required every year as a simple declaration that it is only engaged in offshore activities.

The company must maintain a registered office within the Cayman Islands and appoint a registered agent. It must have at least one shareholder and one director. Directors do not have to be resident in Cayman Islands. The use of nominees and alternate directors is permitted.

Corporate and nonresident directors are allowed. A company secretary is not necessary. The accounts must be kept but do not have to be filed or audited. Details of directors are filed with the Registrar of Companies but are not open to public inspection.

The company is granted a government guarantee of non-taxability for a renewable 20- year period for an annual fee. Shelf companies are available. The beneficial share ownership does not have to be disclosed on the share register. It can issue par or no par value shares but the shares must be issued in registered form. Bearer shares are no longer allowed except through recognized custodians.

(b) An ordinary nonresident company is similar to an exempted company, but it has several limitations. Like the exempted company, it cannot conduct business within the Islands. It must have its annual general meeting in Cayman (use of proxies is permitted).

The register of members and the annual return of shareholders are open to public inspection. The company is not eligible for the tax-exemption guarantee from the government.

The Cayman Islands is the largest offshore banking centre in the world. It is the second largest captive insurance base after Bermuda. It is also well known for its mutual funds, trusts and ship registration activities. There is a comprehensive trust law for mutual funds under the English common law system. Its lack of securities legislation provides flexibility under a self-regulation system. The Cayman Islands Stock Exchange was opened in 1997.

Strict confidentiality is maintained under the law. Information and assistance may only be provided to foreign regulatory authorities in cases of money laundering and criminal investigations. However, under the EU Savings Directive Cayman has opted for the information exchange on interest payments to EU resident individuals.

The earlier mutual legal assistance signed with the United States specifically excluded tax offences. It has signed a further tax information exchange agreement with the United States in 2002 (effective from January 2004) to provide information on criminal tax evasion.

6. Dubai:

Dubai is one of the seven emirates of the United Arab Emirates (UAE) in the Arabian Gulf. It is essentially a civil law jurisdiction influenced by French, Roman and Islamic laws. Common law principles have also influenced it with its rapid growth as an international commercial centre during the past thirty years.

Unlike some of the other emirates, Dubai does not have significant oil reserves. Its traditional activities are trading. In recent years it has diversified into eco-tourism, information technology and a wide range of offshore financial services. The UAE is a member of the Gulf Cooperation Council. The other members of the Council are Kuwait, Qatar, Saudi Arabia and Bahrain.

Dubai has its own tax laws. There is a Dubai Decree of 1969, which levies taxes at rates up to 55% on foreign companies and branches of foreign companies. This Decree is not enforced, except in respect of branches of foreign banks and oil exploration companies.

Oil companies pay up to 55% tax on domestic sourced income while the tax rate applicable to branches of foreign banks is 20% on their taxable income. Oil companies also pay production royalties. With the exception of banks and oil companies no corporate tax is currently payable by businesses. There is no personal tax in the UAE.

The UAE has signed several investment protection agreements and over forty bilateral tax treaties. These treaties have a non-fiscal objective to promote trade and investment of the country by encouraging cross-border transactions through fiscal concessions in the other Contracting State.

Tax treaties allocate the various taxing rights under the treaty and grant treaty benefits such as reduced or nil withholding tax benefits and exemptions to its residents investing abroad.

Moreover, under these treaties profits derived from shares, dividends, interest, royalties and fees are taxable only in the Contracting State where the income is earned. The treaty provisions do not require that their income must be taxable in the UAE for them to qualify for these treaty benefits.

Dubai has no foreign exchange controls, minimal regulatory restrictions and a pro- business policy to attract foreign and local investment. Import duties are kept low. Its rapid growth is largely due to its ability to attract foreign companies and allow resident permits to expatriates relatively freely to run and work in them.

Over 80% of the population comprises of expatriates. It has also made major investments to provide a world-class business and civic infrastructure to attract them. In recent years, it has made money laundering and terrorist financing illegal in the country.

Under the domestic law, commercial activities are either restricted to local ownership or require a local partner. The Commercial Companies law (Federal law No. 8 of 1984) requires that UAE nationals must own at least 51 % of all public and private shareholding companies and limited liability companies (LLC).

Although, local citizens or companies must have majority legal ownership (not necessarily managed or controlled), the law permits variable profit and management sharing arrangements.

A LLC requires a minimum of two shareholders (maximum fifty) and a minimum share capital of AED 300,000. Foreign companies can also establish branch operations provided they have a local national agent or sponsor. They are paid a lump sum or a percentage of profits or turnover as a fee.

In recent years, Dubai has emerged as a rapidly developing offshore centre.

Some of the structures include:

(a) Free trade zones (FTZ):

Dubai has established several free zones for manufacturing industries and offshore distribution activities (e.g. Jebel Ali (JAFZ) and Dubai Airport Free Zone (DAFZ)). FTZs allow 100% ownership to foreign investors and full repatriation of profits and capital.

They are also exempt from export and import duties, personal income taxes and currency restrictions and are permitted to freely hire foreign employees. They also are guaranteed no corporate tax for up to 50 years, subject to renewal.

Foreign investors may set up a local company to operate in the JAFZ. A Jebel Ali Offshore Company is treated as outside the UAE for legal purposes, and may operate only in the Zone or outside the UAE. It must have a minimum capital of Dh. 1 million and one shareholder. Bearer shares are not permitted.

The shareholder register is open for public inspection. Two directors are required and corporate directors are not permitted. Every company must have a secretary and must keep audited accounts. It must also have a registered office and an approved registered agent in the free zone.

(b) Dubai Internet City (DIC):

The Internet City was set up in 2000, as a free zone for electronic commerce and technology. Investors are provided with state of the art facilities, such as high-speed communication links. Foreign companies are allowed 100 percent ownership, fast processing of resident visas and no restrictions on the number of expatriates.

Besides full ownership, they are given 50-year renewable leases, full tax exemption for the future and the protection of intellectual property rights. In 2006, it was merged with Dubai media city to form the Dubai Technology, Electronic Commerce and Media Free Zone Authority (TECOM).

(c) Dubai International Finance Centre (DIFC):

DIFC was opened in 2005 as a financial services centre. Its current focus is on asset management, Islamic finance, regional financial exchange, (re)insurance and back office operations. It allows 100% foreign ownership within the zone, no foreign exchange restrictions, no taxation for 50 years and a supervised compliance environment.

The DIFC is governed by a separate Commercial Code based on common law principles. So far, it has issued its own laws, such as companies law, contract law, a law regulating Islamic financial business, a law on the application of civil and commercial laws, insolvency law, arbitration law, data protection law, markets law, etc.

It has also enacted a comprehensive trust law. The Code permits freedom of investment, avoids conflicts with the existing local laws and at the same time provides strict supervision. The DIFC will also have its own Courts in the near future.

Dubai is today the Gulf’s largest free trade zone. It is also a rapidly growing transhipment point for Europe-Asia cargo, and for air-sea cargo through its Freeport at Jebel Ali. Its broad-based economy is not dependent on oil and gas, but based on international trade, tourism, manufacturing, banking and service industries.

Dubai has a large and modern international airport. The airport, free trade zones, the continued growth of its free port at Jebel Ali, and its growing role as a regional headquarters, shopping and distribution centre make it an exciting offshore centre.

7. Gibraltar:

Note:

Gibraltar is a full member of the European Community as a British dependency. The offshore regime in Gibraltar is currently in the process of change to comply with the EU state aid rules. Gibraltar dissolved its qualifying company regime in January 2005. The EU Commission has given it until 2010 to phase out its present exempt company regime.

Gibraltar is a British overseas territory situated at the Southern tip of Spain. Under its domestic law, a company is tax resident if the management and control is exercised in Gibraltar, or Gibraltar residents exercise control from outside Gibraltar on business activities in Gibraltar. The place of incorporation is not relevant.

The worldwide income of resident companies is taxable but the remittance basis applies to certain foreign income. The corporate tax rate is 35%. A 20% small company rate applies to taxable profits up to UKP 35,000 provided at least 80% of the turnover is derived from sources other than dividends, interest, rents or royalties.

There is no capital gains tax, and no exchange controls or currency restrictions. Gibraltar grants unilateral credit relief to residents in the United Kingdom and other British Commonwealth countries provided they give reciprocal relief to Gibraltar residents. Any unused relief may not be carried forward.

Under an imputation system, residents may claim an underlying tax credit on domestic dividends from tax paid by the company; any shortfall is claimed from the company. Foreign dividends are taxable, subject to the benefits under the EC P-S Directive. Nonresidents are subject to tax on dividends from Gibraltar companies.

Other interest and royalties paid to companies are subject to 35% withholding tax (30% for individuals). However, no tax is withheld on qualifying payments under the EC Interest and Royalties Directive.

Gibraltar companies must have a minimum of one shareholder and at least one director. Corporate directors are allowed. Prior approval of the company name is not required. The issue of bearer shares and share transfers require approval. Shares of no par value are not allowed.

The company must maintain a registered office address in Gibraltar. An annual return must be filed with the details of the shareholders and directors that can be inspected by the public. All Gibraltar companies must appoint a resident company secretary and file annual accounts with the Registrar.

Ready-made companies are available. Gibraltar offers several structures for offshore activities, including:

(a) Offshore Company:

Gibraltar provides preferential tax treatment for companies and branches of nonresident companies that are confined to business activities with nonresidents only.

A company may be set up in Gibraltar in several forms, such as:

(i) Exempt company:

The current exempt company regime is expected to be phased out soon and abolished by 2010. However, existing exempt companies are expected to retain their exempt status until that date, provided they do not alter their activities or beneficial ownership.

In the early 2000s, the European Union requested that the qualifying company and exempt company regime be abolished under its state aid rules. In 2002, Gibraltar proposed a reduction in its profits tax to zero and to replace it with payroll and property taxes as an alternative.

Financial services companies will pay 8% profits tax, subject to a maximum of 15% aggregate tax. In March 2004, the European Commission rejected this proposal as inadequate since it would give Gibraltar an unfair tax advantage, particularly for offshore companies, under the “regional selectivity” principle.

Gibraltar has appealed to the European Court of Justice (ECJ), and the case was heard in March 2007. Gibraltar is still waiting for the ECJ’s decision (expected in the summer of 2007). It expects that a new low-tax regime (possibly a 10% rate) will be introduced to enable Gibraltar to compete favourably with other low-tax jurisdictions.

(ii) Gibraltar 1992 company:

The Gibraltar 1992 company regime was introduced to allow the benefits under the EC P-S Directive to offshore entities. The 1992 company is resident in Gibraltar and is subject to tax at the full domestic rate on its profits. However, under the Directive, the dividends received from a qualifying EU subsidiary are tax- exempt in the hands of the 1992 company.

Moreover, there is no withholding tax when the dividends are paid to a qualifying EU parent company under the EC P-S Directive. The dividends paid to a non-EU parent company suffer a 1% withholding tax.

A 1992 company is subject to several conditions.

In particular:

(i) The 1992 company must own at least 5% of the voting share capital in its subsidiaries, and at least 51% of its income must be derived from such investments;

(ii) A reasonable debt-equity ratio must be maintained;

(iii) No Gibraltar resident must have a beneficial interest in its shares except as a shareholder of a public listed company; and

(iv) It must have local physical presence with at least 40 sq. metres of office space and two employees in Gibraltar. The 1992 company must submit audited accounts to the tax authorities.

Currently, only the United Kingdom and Denmark have recognized this type of company for the EU Directive concessions. The anti-Directive shopping legislation restricts its use in certain EU countries (Examples: France, Germany, Italy and Spain).

(iii) Nonresident company:

A nonresident company is a Gibraltar incorporated company, which is wholly-owned by nonresidents of Gibraltar and managed and controlled by directors, who reside and hold their board meetings outside Gibraltar. It is not taxable except on profits remitted to Gibraltar.

To avoid foreign taxation, it is necessary to ensure that the company is not deemed to be resident in another tax jurisdiction where it is managed and controlled and it must not maintain bank accounts in Gibraltar. It is cheaper than an exempt company since it is not liable to pay the fixed rate annual duty and other fees payable by an exempt company.

(b) Qualifying (Category 2) Individual Scheme 1999:

Individuals can become residents of Gibraltar under certain conditions. To qualify as a Category 2 individual, the applicant must have an approved residential accommodation (purchased or rented) in Gibraltar for his exclusive use throughout the year, but there is no requirement that he actually resides in Gibraltar.

Moreover, he must not have been a tax resident or engaged in any trade, business or employment activities in Gibraltar within the past five years. Only applicants with net worth of UKP 2 million or more are accepted.

The person becomes a Gibraltar tax resident but with certain benefits that are granted to nonresidents. He is liable to pay tax only on the income received in Gibraltar. The assets held outside Gibraltar are not taxed and do not have to be revealed to the tax authorities.

As from July 2004, the maximum tax payable is UKP 14,000 per year on taxable income limited to UKP 50,000. There are no inheritance or other wealth taxes in Gibraltar.

The individual must comply with the following additional requirements.

He must:

(i) Provide an audit certificate that his wealth is at least UKP 2 million;

(ii) Provide additional references from a lawyer, bank or auditor; and

(iii) Have adequate health insurance covering Gibraltar while resident in Gibraltar.

Once the Category 2 status is granted, the individual must not engage in any trade, business or employment activities in Gibraltar, unless they are incidental to such activities based outside Gibraltar. The tax status certificate is issued for three years, subject to renewal.

(c) Trusts:

Offshore or nonresident trusts can be set up in Gibraltar under the same rules as resident trusts. However, the income received by a trust or a beneficiary is tax-exempt provided the settlor is nonresident, the income is derived from outside Gibraltar and the trust deed specifically excludes residents of Gibraltar as beneficiaries.

At least one trustee is required. Except charitable trusts, other trusts do not have to be registered. There is no provision for non-charitable purpose trusts. Gibraltar has signed the Hague Convention. There are no anti-forced heirship provisions in the trust law. Offshore trusts are used for estate planning, asset protection, asset accumulation and unit trusts.

There is no limitation period on creditors’ claims in asset protection trusts. Unlike most common law countries the trust rules in Gibraltar do not follow the Statute of Elizabeth I.Third party claims can, therefore, be ignored as long as no litigation or fraud was suspected when the trust was formed.

There is no requirement for registration of trusts. To qualify for statutory protection, the transfer of assets must be registered under the Bankruptcy (Register of Dispositions) Regulations with the Financial Services Commission in Gibraltar.

(d) Others:

Freeport and other facilities are available for duty-free transhipment or processing. A captive insurance company may be formed with a minimum capital depending on the class of business written in accordance with EU requirements.

Gibraltar is an established offshore centre for banking and insurance activities, and for co-ordination of business operations within the European Union. Collective investment schemes are covered by regulations applicable under the EC UCITS Directive.

The company law provides for incorporation of companies limited by shares, guarantee companies with or without share capital, hybrid companies limited by guarantee and by shares and unlimited companies as well as protected cell companies.

8. Guernsey:

Note:

Guernsey authorities have given an undertaking to the European Union to follow its Business Code of Conduct, provided other EU and offshore jurisdictions also comply with it. As from January 2008, Guernsey companies will adopt a “zero/ten” system of taxation. The status of Exempt Company (other than for funds and their subsidiaries) and the International Company will be abolished.

Guernsey is the second largest of the Channel Islands located off the Northwest coast of France. The Islands are British Crown dependencies with the right to legislate on domestic issues. They form part of the single market but are outside the fiscal area of the European Union.

Under Guernsey law, a company is resident for tax purposes if it is incorporated in Guernsey, or is beneficially owned by Guernsey residents. Central management and control is not relevant in Guernsey when deciding residency.

Resident companies pay tax at 20% on their worldwide income and follow the imputation system. The tax withheld on the dividend payments at 20% rate is set off against the company’s income tax liability and any excess tax payment is refunded.

The interest and patent royalties paid to nonresidents are subject to 20% withholding tax. The authorities have also introduced a withholding tax on interest payments to EU resident individuals to comply with the EU Savings Directive, as from July 2005.

There are no capital gains taxes, no estate duties, no value-added taxes and no exchange controls. Guernsey has tax treaties with the United Kingdom and Jersey. Prior approval is required for the company name.

Guernsey company law allows incorporation of companies limited by shares, guarantee or shares and guarantee (e.g. Hybrid Company).

It also offers several offshore structures, regulated by the Guernsey Financial Services Commission, including:

(a) Exempt Company:

An Exempt Company is tax resident in Guernsey. However, as a resident company, it may elect for an exempt company status provided its beneficial ownership is held wholly by nonresidents. To qualify, it must have reported its Guernsey source income in the previous year and paid all its Guernsey taxes.

Moreover, it must have disclosed its beneficial ownership. The exemption must be applied for annually. A foreign registered company with a branch in Guernsey may also be designated as an exempt company.

The company is fully exempt from income and withholding taxes on any business activities outside Guernsey. It is only required to pay a flat annual fee of GBP 600. If it carries on business in Guernsey, it is subject to tax on its local income.

Its activities, such as holding board meetings or performing administrative functions in Guernsey, are not regarded as carrying on a business in Guernsey. The company must have at least two shareholders and one director, and a company secretary. There is no requirement to have resident directors.

Corporate directors are allowed. There is no minimum capital requirement (usually GBP 10,000). Document duty is payable on the incorporation of a company and is set at a rate of 0.5% of the authorized share capital with a minimum duty payable of GBP 50 and a maximum duty payable of GBP 5,000.

The register of members and directors must be kept at the registered office in Guernsey for public inspection. Bearer shares are not allowed, but a company can have nominee shareholders. The identity of beneficial owners have to be revealed confidentially to the Guernsey authorities on incorporation. Shelf companies are not available.

An annual return has to be filed with the details of shareholders and directors. The accounts must be prepared, but there are no filing requirements. An audit is compulsory (unless the company is a dormant company or an asset holding company in which case it may elect to have unaudited status). Corporate migration or re-domicile is permitted.

In January 2008, the Exempt Company regime will be replaced by a “zero/ten” tax system. Most, corporate entities will be taxed at nil tax rate. Certain companies, carrying on regulated activities, such as banking, trust and company administration, fund management and insurance company management, will be subject to a 10% tax rate.

(b) International Company:

An International Company has broadly similar requirements as an exempt company, but its tax rate can be negotiated up to 30% for five years, subject to review. The status is granted to domestic and foreign incorporated companies, and to unincorporated entities (e.g. partnerships).

Withholding tax is levied on dividends and royalties at 20%, but the amount withheld on dividends may be set off against the corporate tax payable and any surplus refunded. No withholding tax applies on interest paid to nonresidents.

As mentioned above, the International Company regime will be abolished as from January 2008.

(c) Collective investment scheme, bank and insurance company:

Guernsey is a popular base for mutual funds, captive insurance and offshore banking. A collective investment scheme and or captive insurer may be set up as an exempt company. Guernsey provides special tax concessions for offshore banking and insurance companies with tax rates as low as 2%.

(d) Offshore trust:

Guernsey has a well-established trust law. A resident trustee is not required. Specific provisions are made to exclude foreign inheritance laws. Non-charitable purpose trusts are not permitted. Guernsey has implemented the provisions of the Hague Convention.

(e) Others:

Guernsey is used as a base for a wide range of other offshore activities, such as:

i. An international holding company, joint venture vehicle, or a tax neutral base when operations are conducted in several jurisdictions.

ii. International finance company, including direct finance, leasing, re-invoicing, factoring and other financial services.

iii. International licence holding or routing company for intangible assets.

iv. Employee Service Company for expatriate personnel, and offshore pension funds.

v. Partnerships and Limited Partnerships.

vi. Protected Cell Company (“PCC”), where each cell is liable to its own creditors for its own capital and asset base.

In 2006, Guernsey introduced the Incorporated Cell Company (“ICC”). An incorporated cell company (“ICC”) is an extension of the concept of a protected cell company with several differences. An ICC is a company, which has within it incorporated cells or ICs.

An IC is a company in its own right. Unlike a protected cell company, each IC is ring- fenced by virtue of its separate legal existence apart from other ICs and the ICC itself. It is effectively a ‘company within a company’.

Guernsey is a major offshore centre. It has the largest captive insurance business in Europe and is strong in banking, investment fund and trusts. It was the pioneer in protected cell legislation (and now incorporated cell companies) and is widely used for holding and trading companies into the European Union.

The Channel Islands Stock exchange is based in Guernsey. Guernsey has signed a tax information exchange agreement with the United States in 2002. The agreement provides the exchange of tax information on request on tax evasion and money laundering activities.

9. Hong Kong:

Corporate residence is based on the place of its central management and control. For Hong Kong tax purposes, corporate residence is not a relevant factor, except for treaty purposes. Hong Kong follows the territorial basis of taxation.

A company is taxable on its profits if:

(i) It carries on a business or trade in Hong Kong,

(ii) The profits arise from such a trade or business, and

(iii) The profits arise in or are derived from Hong Kong. All three conditions must be met.

Therefore, the profits of a business or trade in Hong Kong are not taxable if the income is sourced outside Hong Kong, even if received in Hong Kong. Similarly, income from Hong Kong sources is not taxable if the business or trade is conducted outside Hong Kong. Thus, no tax is payable if a Hong Kong company is not actually doing business in Hong Kong.

All incorporated businesses pay tax at 17.5% profits tax rate. There are no withholding taxes, except on certain royalties, i.e. the use of intellectual property is deemed to be a trading receipt and can be taxed in Hong Kong.

Dividend and interest income is tax-exempt. There is no capital gains tax and capital losses are not deductible. Tax losses can be carried forward indefinitely for future offset, unless there is a significant change in ownership.

There are no exchange controls or currency restrictions, and no restrictions on remittances. There are no CFC or thin capitalization rules. Stamp duty is levied on share issues (including share premiums) and on share transfers at 0.2% rate.

As the tax is based on the source of income by reference to the location of the profit- making activities, one has to look at what the taxpayer has done to earn the profits and where he has done it.

An office established in Hong Kong is not taxable unless it generates profits within the territory. The tax authorities examine the location(s) where the trading contracts (both sales and purchases) were negotiated and the deals were concluded. If the business is transacted in Hong Kong, the profits are deemed to arise in Hong Kong.

Manufacturing and services follow the place where the activity or service took place. The re-invoicing of goods and services traded outside Hong Kong is not taxable, provided both the purchase and sales contracts are undertaken outside Hong Kong. If the profits arise partly in Hong Kong, the amount may be apportioned for tax purposes. Hong Kong tax authorities give advance tax rulings.

Tax deductions are also similarly limited. For example, interest is deductible only if it is incurred to derive taxable income in Hong Kong. Similarly, royalties are taxable only if the intellectual property rights are used in a Hong Kong business or trade. Nonresident branches are taxed on the same basis as companies, i.e. on domestic-source income only.

Under the present constitutional arrangement or “Basic Law,” Hong Kong retains its independent tax status until 2047, as the Hong Kong Special Administrative Region (“HKSAR”) of China.

Since Hong Kong does not provide unilateral relief, the foreign withholding taxes on cross-border transactions are not creditable. Treaty benefits can, however, be obtained through structures that involve a Hong Kong branch of a foreign company located in a country with a favourable tax treaty network (e.g. Netherlands, Singapore).

So far Hong Kong has signed tax treaties with Belgium, Thailand and China. Its tax treaties may be accessible to companies incorporated outside Hong Kong if their central management and control is situated in Hong Kong.

Hong Kong also provides a favourable tax regime for personal taxes. Salary income is taxed at progressive rates from 2% to 20% (over HK$ 100,000) or at 16% flat rate, whichever is more beneficial to the taxpayer. Individuals pay tax only on the income arising in or derived from employment or services rendered in Hong Kong.

The duties performed in Hong Kong during visits up to 60 days in a tax year are not taxable. Generally, fringe benefits (other than school fees) are tax-free unless they are convertible into cash, or they represent a payment for the employee’s own liabilities. Share options and housing benefits are taxable at reduced rates.

A local company requires a minimum of one shareholder, one director and a local resident company secretary. The directors may be companies and may be nonresidents. The board meetings may be held outside Hong Kong and directors may be resident anywhere in the world.

However, each director has to provide a refundable deposit of HKD 17,225 to guarantee compliance with the Hong Kong Company and tax laws. The use of nominees is allowed, but bearer shares and no par value shares are not permitted. The usual minimum authorized capital is HKD 1,000. Transfer of shares is subject to stamp duty at 0.3% rate. Ready-made companies are available.

The company must file an annual return and its full audited accounts. The annual return gives details of current directors and shareholders at any time during the year. The company information is available on public record.

The company must also have a registered office and a resident company secretary in Hong Kong but it does not need a resident agent. There is no provision for re-domiciliation of companies. The tax authorities also enforce several anti-abuse measures under the domestic law.

Hong Kong was not included as a tax haven in their “Harmful Tax Competition” report issued in June 2000 by the OECD. It is an established tax jurisdiction for offshore activities (particularly as a booking centre for international trading or sourcing operations) or as a regional finance, marketing or administration centre.

Its strong protection of intellectual protection rights makes it an attractive base for holding high technologies. Hong Kong is a popular base for headquarters companies, particularly for doing business with China and other Asian countries, and is an active centre for mutual funds and offshore banking.

10. Isle of Man:

The Isle of Man (“IOM”) is a self-governing dependency of the United Kingdom located in the North Irish Sea. The corporate tax residence is based either on central management and control or on incorporation in the IOM.

Before April 2006, the only direct tax was income tax, which was applied on the worldwide income of companies and individuals resident in the IOM. The standard rate was 15% with a higher rate of 18%.

A 15% rate applied to resident trading companies, with a lower 10% rate on the first UKP 500 million of profits. On April 6, 2006, IOM introduced a “zero/ten” taxation system with zero corporate tax rate for all companies, other than banks and certain property companies which are taxed at 10% rate.

All IOM incorporated companies also pay a corporate charge of UKP 250 annually, creditable against any taxes payable by them. There is also a maximum personal tax liability of UKP 100,000 per year for individuals and UKP 200,000 for a married couple.

IOM companies owned by IOM residents are obliged to distribute at least 55% of their trading profits and all of their non-trading profits annually. Failure to do so renders all of the profits for the year subject to tax at 18%; trading companies may elect not to distribute for five years for bona fide business reasons and pay a lower 10% tax annually.

Dividend distributions are deducted as an expense for computing the profits before tax and taxed in the hands of the shareholder. Withholding tax, corresponding to the appropriate rate of profits tax, is imposed on the payments of passive income (except bank interest and distributions from approved investment companies) to nonresidents.

IOM has agreed to withhold tax on interest paid to EU resident individuals under the EU Savings Directive as from July 2005.

There is no capital gains tax, turnover or transfer tax. Business losses may be carried forward indefinitely or offset against other income of the same year. Group relief is provided within 75%-owned subsidiaries or a consortium.

IOM has a tax treaty with the United Kingdom. Unilateral credit relief is given under domestic law. VAT is operated in parallel with the United Kingdom. It is treated as part of the European Union only for VAT purposes. All companies must file an annual tax return, accompanied by accounts, with the IOM Treasury.

There is no audit requirement provided the company satisfies two of the following three criteria:

(i) Turnover of less than UKP 5.6m;

(ii) Balance sheet total not exceeding UKP 2.8 million; and

(iii) Fewer than 50 employees.

The IOM does not have special regimes for offshore entities. The Income Tax (Corporate Taxpayers) Act 2006 abolished exempt companies, exempt managed banks, international business companies and nonresident duty companies from April 5, 2007. Its Companies Acts allow companies limited by shares, or limited by guarantee, or a combination (hybrid companies), or as an unlimited company.

Some of their main features are given below:

(a) 1931 Act and 2006 Act Companies:

In November 2006, IOM enacted its Companies Act 2006 to supplement the existing 1931 Act. The Act creates a new company vehicle, the “NMV” (also called a 2006 Act Company) with a simpler and more flexible corporate structure.

The 2006 Act removes the requirement to have local, directors and company secretaries, annual general meetings or authorized share capital. It also provides rules for both single member companies and protected cell companies. The 1931 Act Companies are permitted to convert to the 2006 Act if they wish in future.

A NMV requires only one shareholder and one director (including licensed corporate directors). The statutory register of members has to be kept at the registered office but is not open to public inspection. Shelf companies are available. Prior approval of the name is essential.

Corporate migration or re-domicile is permitted. It allows issue of no par value shares while par value shares can be issued in any currency or for non-cash consideration. Bearer shares are not permitted. The shares may be issued in any currency as registered shares with or without voting rights.

The new Act has reduced the filing requirements with the Registrar. The company must file the details of its directors and declare that legal requirements under the Acts have been complied with in its annual return. The company must also maintain a registered office address within IOM and have a local registered agent.

Annual accounts do not have to be publicly filed, but have to be prepared for tax return purposes. The accounting records and registers must be retained by the agent for official inspection, if required. They are not open to public inspection.

(b) Company Limited by Guarantee and having Shares:

A Manx Family Foundation or “quasi-trust” may be set up through a hybrid company limited by shares and by guarantee. The shareholders elect the directors to carry on the day-to-day management but do not benefit from the company. The guarantee members do not control or manage the company but are the beneficiaries. A protector may be appointed to safeguard the interests of the beneficiaries.

Unlike a trust, a hybrid company is a legal entity. It can be set up with minimal initial capital and additional funds may be added as a gift by the founder, as settlor. The company can be structured under its by-laws to have a purpose.

It can also trade like any other company and can be controlled effectively by the founder. For US tax purposes, the hybrid company is generally treated as a trust. In a civil law jurisdiction, it is deemed as a corporate body.

(c) Others:

Nonresident partners in a limited liability company or limited partnership are taxable only on domestic income in IOM while foreign income is tax-free. Captive insurance companies are taxable at zero rate. Trusts with nonresident beneficiaries are tax-exempt on offshore income and IOM-source bank interest.

The principal offshore activities of the Isle of Man are life assurance and captive insurance, ship owning and management, trusts and special purpose companies. IOM is also active in offshore banking business and mutual funds.

IOM Freeport provides facilities for processing, storage and manufacture without the levy of any import duties or taxes. In recent years, the IOM has developed itself as a base for e-business activities. IOM plans to establish a registry for privately owned aircraft during 2007.

IOM has an agreement with the United States for exchange of tax information on a specific request basis. It is currently negotiating a similar tax information exchange agreement with Australia. In 2005, IOM signed a bilateral economic cooperation treaty with the Netherlands.

The agreement contains several tax-related measures. For example, it includes a shipping and aircraft agreement, a transfer pricing agreement, a commitment towards a full double taxation agreement and a tax information agreement.

11. Jersey:

Note:

Jersey is part of the Single Market of the European Union but is outside its fiscal area. It is currently undergoing a major change in its corporate tax regime to comply with the EU Code of Conduct. As from 2009, Jersey companies will be subject to a “zero/ten” corporate tax system, and the present exempt company regime will be abolished.

Jersey is the largest of the Channel Islands situated off the Northwest coast of France. It is a British Crown dependency although in practice it is self-governing. Under its present tax system, a company is tax resident if either it is incorporated in Jersey or its central management and control is in Jersey.

A Jersey incorporated company may also be nonresident if:

(i) Its management and control is based outside Jersey,

(ii) The company is resident in another jurisdiction, and

(iii) The highest statutory corporate tax rate is at least 20% in the other jurisdiction.

Resident companies in Jersey are taxed on their worldwide income at 20% rate. Exempt companies, international business companies, and nonresident companies pay tax on Jersey-source income only.

Under an imputation system, dividends are deemed to be paid net of 20% tax. Interest (other than on bank deposits and short-term debt) and royalties are subject to 20% (final) withholding tax. As from July 2005, Jersey imposes a withholding tax on interest paid to EU resident individuals under the Savings Directive.

There is no capital gains tax. Tax losses may be carried forward indefinitely for future offset. There are no exchange controls, no capital taxes and no value-added tax. Jersey provides advance tax rulings.

Jersey grants foreign tax relief to non-treaty countries generally as an expense deduction for taxes paid abroad. Jersey has double tax treaties with the United Kingdom and Guernsey.

These treaties do not contain an exchange of information clause; however, under its recent legislation Jersey authorities can obtain a Court order to disclose tax information to foreign tax authorities.

Jersey signed a tax information exchange agreement with the United States in November 2002, but it does not provide for an automatic exchange of information. Requests are considered on a case-by-case basis.

The Companies (Jersey) Law was amended in 2002 to provide for new corporate structures. They include companies with no par value shares, hybrid companies limited by guarantee and shares, single member companies and unlimited liability companies. The companies with no par value shares allow return of capital without Court order.

In addition, foreign-incorporated companies can elect to operate as a Jersey company by continuance (and vice versa), if permitted by the laws of the other jurisdiction. Re- domiciliation and merger of companies is permitted.

Jersey is a low-tax jurisdiction.

Its present structures for offshore activities include:

(a) Exempt company:

An exempt company is a tax resident company in Jersey that applies annually to be treated as nonresident for tax purposes. The company may be incorporated in Jersey or operate as a branch of a foreign company managed and controlled in Jersey. To qualify, its beneficial ownership must be held wholly by nonresidents. Moreover, it must have paid all its Jersey taxes and disclosed its beneficial ownership to the authorities.

Only Jersey source income (other than bank deposit interest) is subject to Jersey tax. Its offshore income and dividends and interest received from another Jersey exempt company are tax-free. There is no withholding tax on dividends, interest and royalties paid by an exempt company. The company cannot benefit from Jersey’s tax treaties.

The company must maintain a registered office address within Jersey but it does not require a local agent. As a private company, it must have at least two shareholders, one director (corporate directors are not allowed) and a company secretary. The company name must be approved in advance. There is no minimum share capital.

The share capital may be in any currency or class with or without voting rights. Bearer shares are not permitted. The directors’ meetings may be held anywhere in the world. The details of directors must be kept at the registered office.

The company must keep a share register open for public inspection, but nominee shareholders are allowed. Beneficial ownership must be revealed to the authorities on a confidential basis; it can only disclose it under a Court order. Shelf companies, otherwise known as reserved companies, are available.

The offshore activities of the Jersey exempt company can be managed and controlled from the Island. However, it cannot undertake any banking, finance or insurance activities. It must also file an annual return with the details of shareholders. The exempt company must prepare local accounts annually but does not have to file them. There is no audit requirement. The annual exempt company fee is UKP 600.

As mentioned above, the “zero/ten” tax system will replace the exempt company regime in 2009. It is proposed that there will be a standard rate of corporate income tax of 0% and a special rate of corporate income tax of 10%.

Thus, most companies will be tax- exempt, except for specified financial services businesses that will be taxed at a flat 10% rate. They will include banking, fiduciary and certain fund activities. Investment companies incorporated outside Jersey but managed by a Jersey trust company business will be charged an annual corporate residence fee of £150.

The present 20% rate will be maintained for Jersey utility companies and for Jersey property income, including development gains. To compensate for the loss of government revenues, Jersey will introduce 3% goods and services tax with a registration threshold of UKP 300,000 in April 2008.

(b) International Business Company (IBC):

The IBC regime was abolished in January 2006, but the rules still apply to pre-2006 companies until the end of 2011. An IBC is subject to similar provisions as an exempt company and the status is granted under an annual application.

The tax rate up to 30% can be negotiated in advance, depending on the taxable profits. The rate can be as low as 2% (profits below UKP 3 million) to 0.5% (profits over UKP 10 million). A minimum tax (non-refundable) of UKP 1200 is payable annually in advance, but this amount is allowed as a credit against the final tax payable.

The company must pay tax at the standard 20% rate (or more) to benefit from the Jersey- United Kingdom treaty. There is no withholding tax on dividends, interest or royalty payments made by the company.

Jersey is noted for its wide range of financial services for the offshore industry.

Some of them include:

(i) Nonresident individuals are not taxed in Jersey on their earned income and are not required to pay any social security contributions, provided the employment is exercised wholly outside Jersey. As a result, Jersey provides a useful base for employment service companies for expatriate personnel.

(ii) Trusts and its distributions are tax-exempt if the settlor, life tenants and beneficiaries are all nonresident; otherwise, its income is taxable. The settlor can have additional statutory powers reserved under the trust.

The powers that may be reserved by the settlor include the power to appoint and remove trustees, to amend or revoke the terms of the trust and to appoint or remove an investment manager or investment adviser. The amendments also permit a trustee to delegate any of his powers if permitted by the trust deed. The Jersey trust is not affected by any rights under a foreign law.

(iii) The trust law specifically excludes foreign inheritance laws and does not recognize foreign judgments. Trust accounts must be kept but do not require an audit or do not have to be filed.

The law also provides for re-domiciliation of trusts. Jersey is a party to the Hague Convention. Jersey is recognized as one of the leading jurisdictions for trusts in the world with a well-developed legal and financial infrastructure for trust management.

(iv) Jersey partnerships are non-transparent and taxed like companies as a body of persons. Foreign partnerships (e.g. control and management abroad) are charged to tax only in respect of Jersey income.

Limited partnerships can be formed with one general (unlimited) partner, who can be a nonresident individual or company. The tax is levied on resident partners and on the Jersey source income (except bank interest) of the nonresident partners only.

(v) Jersey is an established base for captive insurance, collective investment funds, pensions and offshore banking. The 2006 amendments provide for protected as well as incorporated cell companies.

It has also entered the market for Sharia compliant financial products and is currently considering the enactment of a new law to permit foundations in Jersey. The consultation paper was published in 2004; however, no final decision has been taken yet (April 2007).

Jersey is one of the world’s leading international financial centres. It is recognized for its high quality of regulatory framework, sound business infrastructure, a strong legal system, and the availability of a range of professional capabilities.

In recent years, it has also shown its ability to adapt to changes dictated both by market forces and supranational bodies, such as the European Union and the Organization for Economic Cooperation and Development. Jersey signed a bilateral economic cooperation treaty with the Netherlands-in 2007.

12. Liechtenstein:

The small principality of Liechtenstein is situated between Switzerland and Austria in Central Europe. A company is tax resident if it is registered or incorporated in Liechtenstein.

Resident companies carrying on activities in Liechtenstein are taxed on their income and gains (except on real property) at tax rates varying between 7.5% and 15%, depending on the company’s return on taxable capital (i.e. net worth) ratio.

The ratio is based on the taxable income as a percentage of twice the taxable capital and reserves. The 15% rate applies if the return ratio exceeds 30%. A surcharge of 1% to 5% is levied if the dividend payments exceed 8% of the taxable capital. The maximum 5% surcharge applies when the dividends exceed 24% of the dutiable capital.

Thus, the corporate tax rate (including surcharge) cannot exceed 20%. The corporate tax payment is deductible as an expense in the accounting period in which it is paid. The profits derived from-a foreign permanent establishment of a Liechtenstein company are usually tax-exempt with progression.

A distribution tax is levied on certain interest payments and distributions as a 4% coupon tax, which is withheld at source on payment. This tax applies to interest on bonds, on local bank deposits over one year and on loans over CHF 50,000 with terms exceeding two years.

There is no maximum debt-equity requirement for financing activities. It also applies to distributions of dividends, profit shares and liquidation proceeds by companies limited by shares (Aktiengesellschaft or AG), and by establishments (Anstalt) with capital divided into shares. The tax is not creditable for resident recipients.

Generally, no withholding tax is imposed on royalties and other interest payments. In 2004, Liechtenstein accepted the EU Savings Directive to withhold tax on interest paid to EU residents from July 2005 as a paying agent. It has also agreed to provide mutual assistance in cases of tax fraud.

Besides corporate tax, companies carrying on business operations pay an annual capital tax of 0.2% on their taxable capital. Stamp duty is levied at 1% rate on share issues, subject to an initial exemption up to CHF 250,000.

It is reduced to 0.5% for capital up to CHF 5 million and 0.3% for capital exceeding SF 10 million. The directors must keep proper books and records for companies with commercial activities for filing with the tax authorities and the Registry, for companies limited by shares.

Board and shareholders’ meetings can be held anywhere in the world. There are no exchange controls. Bearer shares and shares of no par value, as well as shares with variable voting rights, are allowed.

Liechtenstein has strict confidentiality laws. For example, it only provides for exchange of information on criminal tax matters under a Court order. Although there is no requirement to disclose the beneficial ownership to the Registry, the trust company administering an offshore company must be able to identify the contracting party and the beneficial owner(s).

As from 2001, details of beneficial ownership have to be kept in a separate due-diligence file, and may be disclosed under a Court order. Moreover, the disclosure of the ultimate beneficial ownership is required on opening a bank account. Liechtenstein has only one tax treaty, which is with Austria.

Liechtenstein provides several special tax regimes for entities that do not engage in commercial activities (i.e. non-investment activity) within Liechtenstein, such as holding and domiciliary companies. Generally, under the tax rules, they only pay tax on their capital base and not on their income.

A holding company may own and manage assets and investments both within and outside Liechtenstein. A domiciliary company is a legal entity registered in Liechtenstein but with all its commercial or trading activities conducted outside the country.

Both types of companies may maintain an administrative headquarters or co-ordination centre in Liechtenstein. Liechtenstein is also widely used as a base for civil law foundations. It is also the only country within the civil law system of continental Europe that permits a common law-type trust under its laws.

These entities for offshore activities may be set up as a:

(a) Company limited by shares (AG) or

(b) As an establishment (Anstalt), or

(c) As a trust enterprise (Treuunternehmen) with or without shares, or

(d) As a foundation (Stiftung), or

(e) As a trust settlement (Treuhanderschaft).

They may also be nonresident companies active only outside the country but with a Liechtenstein headquarters.

(a) Company limited by shares (AG):

An AG must have fixed capital, divided into shares, fractions or quotas. Fully paid-up bearer shares are permitted. The minimum capital requirement is CHF 50,000. One shareholder can hold the company although two founders are needed to establish the company.

Annual audited accounts must be presented at an annual general meeting and filed with the Registrar and the Liechtenstein tax authorities. An AG is widely used for holding and managing assets, collecting service income and receiving royalties on intellectual property rights.

These companies only pay a capital tax of 0.1 % of taxable capital (minimum CHF 1,000) annually in advance. They cannot benefit from its treaty with Austria, unless 51% of its capital is held by Liechtenstein citizens.

(b) Establishment (Anstalt):

An Anstalt or establishment is an entity that has a capital base but may or may not issue shares.

An Anstalt can be operated either like:

(i) An AG if the capital is split into shares or

(ii) Similar to an AG with commercial activity but without split capital, or

(iii) As a foundation with no commercial activities, unless ancillary to its non-commercial objects.

If it is set up as a company without shares, then the holder of the founder is the highest governing body, and a so called “deed of assignment” is granted to the beneficiaries. The beneficiaries are usually named in the by-laws.

The final authority rests with the current holder of the founder’s rights. He can change the by-laws, appoint and remove directors, etc., if permitted under its constitution. The deed of assignment is transferable similar to shares.

The Anstalt must have a board of directors (which can be a single individual resident in the European Economic Area) and a resident legal representative. An Anstalt is often used as a pure holding company to own and manage group investments. In cases where no commercial purpose is permitted under its constitution, there is no need for an audit or the filing of annual accounts.

The Anstalt is taxed on the same basis as an AG, if it has a similar type of activity. Stamp duty is reduced to 0.5% for capital exceeding SFr 5m, and 0.3% for capital exceeding SFr 10m.

(c) Trust Enterprise (Treuunternehmen):

Besides an Anstalt, the Liechtenstein law also provides for a trust enterprise. In 1928, the legal provisions were amended to include a business trust. The business trust is a separate legal entity, which combines the characteristics of a common law trust and a corporation or establishment under the civil law.

The Trust Enterprise is set up by a founder through a deed of trust that specifies the name and purpose of the enterprise, the identity of the board of trustees, the composition of the trust fund, and (if the purposes are commercial) the identity of the auditors.

Usually, it is set up as a “non-active trust” with a legal personality to hold investment assets, for instance in merger situations, and for the distribution of income from real estate holdings. One member of the board should be a resident of Liechtenstein or European Economic Area and must be licensed.

A commercial Trust Enterprise must file accounts annually with the Liechtenstein tax authorities, whereas non-commercial (i.e. unaudited) trust enterprise only needs to file a declaration that the trust has kept proper books and that no commercial activities have been carried out. There are no other reporting requirements.

(d) Foundation:

A foundation (Stiftung) is a separate legal entity with no owners, shareholders or participants but beneficiaries. It is more like a discretionary trust but the settled assets are not treated as trust property.

The settlor may be an individual, a company or a partnership that gives the foundation its constitution and specifies the form of administration and benefits. Usually the settlor appoints a local trust company to establish the foundation on his behalf. The foundation can have a limited or unlimited life depending on the purposes specified by the settlor.

A Board under the foundation deed administers the assets and even designates the beneficiaries and their rights. Once the settlor has legally transferred the ownership of the assets to the foundation, he has no further founder’s rights.

The settlor may specify his wishes, which would normally be followed by the Board, in the statutes and/or by­laws or in a separate letter of wishes. Where no beneficiaries are specified, the founder is presumed as the beneficiary.

The provisions relating to the beneficiaries may take the form of supplemental by-laws that do not have to be registered or deposited anywhere. The by-laws as a rule form an integral part of the constitution and frequently override it. They may be revocable or irrevocable, modifiable or unalterable.

The foundation is not liable for any income taxes and pays a reduced capital tax at 0.1% rate (minimum CHF 1000). The annual capital tax is reduced to 0.075%, if the net worth exceeds CHF 2 million.

The rate is further reduced to 0.05%, if the total net worth is over CHF 10 million. The minimum registered fund must be CHF 30,000. Assets donated by persons domiciled abroad are not subject to the Liechtenstein gift tax.

Payments to nonresident beneficiaries of a Stiftung (or Trust Settlement) are free of withholding tax. Family foundations pay a reduced rate of stamp duty of 0.2% on their formation capital.

The foundation is generally set up for non-profit activities or as family foundations. It may not engage in commercial activities, unless they are essential to meet its objectives. Any claims under forced heirship rules depend on the law of the nationality of the settler.

(e) Trust Settlement (Treuhanderschaft):

Liechtenstein enacted a codified law in 1926, to provide for a common law type trust. A Liechtenstein trust settlement is usually formed by a written agreement (trust deed) between the trust or (settlor) and trustee(s) who hold the assets on behalf of the beneficiaries.

Some of the characteristics of Liechtenstein trusts include:

i. One trustee must be either an authorised Liechtenstein professional or Liechtenstein trust company (other trustees may be an individual, a corporation or an association);

ii. A settlor may be a beneficiary but not the sole beneficiary (if no beneficiary is mentioned, the law assumes the settlor to be the beneficiary);

iii. The trust deed may provide for a protector, curator or auditor;

iv. The entitlements of certain beneficiaries can be specified in the trust documents;

v. The trust law does not prohibit perpetuities or accumulation of funds and provides wide powers to settlors; and

vi. Trust documents, including the trust deed, can be in any language.

Unlike a foundation, the trust settlement is not a separate corporate entity. It may be set up for an indefinite period by a trust deed or by a letter or declaration of trust. A trust may be revocable or irrevocable, modifiable or unalterable. There is no minimum capital requirement. Trusts pay a capital tax of CHF 1,000 annually in advance.

Funds transferred to the trust (unless the settlor is domiciled in Liechtenstein) and payments to beneficiaries domiciled abroad are tax exempt in Liechtenstein. The trust can migrate or re-domicile tax-free without prior authorization.

There is no restriction of purpose, as under the foundation law. Non-charitable purpose trusts are allowed. The trust settlement may be either registered in the public register or its deeds deposited with the Registrar of Trusts. Deposited documents are not open to public inspection.

Liechtenstein ratified the Hague Convention in 2004 and it is in force since April 2006. Foreign inheritance or forced “heirship” rules in civil law jurisdictions can influence the trust, although there are time limitations on such claims.

Trusts may also be set up under a foreign law. Liechtenstein law applies to them if the sole trustee or more than half of them are Liechtenstein residents, if the trust property is in Liechtenstein, or if the Trust deed says so.

Liechtenstein is widely used for international holding companies, domiciliary companies engaged in cross-border trading, marketing and distribution operations, private banking, and foundations and trusts. In particular, it is reputed for its high level of confidentiality over banking and tax matters.

13. Monaco:

Monaco is a small independent principality bordering France on the Mediterranean coast.

Monaco taxes profits and capital gains at 33.33% rate on certain specified enterprises and income only. It follows the territorial regime for active corporate income. Foreign income from permanent establishments overseas, the business transactions under a “complete commercial cycle” outside Monaco, and the activities of dependent agents abroad, are tax-exempt.

Profits of enterprises that engage in industrial or commercial activities in Monaco are taxable, provided they are derived predominantly from non-Monegasque sources. An entity is deemed to be engaged in such activities if its effective place of business is in Monaco.

The residence of the directors, officers and the main shareholders and the location of the board meetings are factors taken into account in determining the place of business.

In addition, companies whose activities in Monaco consist of receiving proceeds from the sale or licensing of patents, trade marks, manufacturing processes or formulae, and literary and artistic copyrights, irrespective of their source, are taxable. No tax is levied on professional income and income from investments or sale or purchase of real estate.

Thus, the tax is payable on specified profits only, as follows:

(a) Industrial and commercial profits:

The income of an entity from industrial and commercial activities in Monaco is taxable as ordinary income if 25% or more (“25% rule”) of its worldwide turnover is directly or indirectly derived from activities outside Monaco.

Therefore, they may have tax years and exempt years, depending on the percentage of the foreign turnover. The dividend income received by the entity is excluded when calculating the 25% threshold.

(b) Dividend income:

If an entity is subject to tax under the 25% rule, the local and foreign dividend income is also taxable as ordinary income. However, if the shareholding in the subsidiary is 20% or more, the dividends are tax-exempt subject to a taxable portion for disallowable management expenses.

The taxable portion varies from 5% to 20% of the net dividend receipts, depending on the shareholding percentage. If this exemption privilege is claimed, the dividends are not eligible for foreign tax credits.

(c) Royalty income:

The 25% rule does not apply to royalty income. Companies involved in intellectual property, such as sale or licensing of patents, trademarks, literary or artistic rights and other royalties, are subject to profits tax.

They are fully taxed at regular rates, subject to credit for any foreign taxes paid, regardless of source. Capital gains are taxed as ordinary income but may be avoided if the sale proceeds are reinvested within three years in new qualifying assets.

There are no withholding taxes on dividend, interest or royalty payments. However, Monaco has agreed to withhold tax (subject to information sharing) under the Savings Directive on interest payments to EU residents.

Unilateral direct credit is given for foreign taxes. Tax losses may be carried forward five years and back three years.

Monaco incorporated companies are expensive and difficult to set up. Social security and other costs are high. Shelf companies are not available. A local office is required before approval is given.

The Monegasque government must grant a business licence, the premises must be owned or rented, and the company must have substance of operation. Full disclosure of ownership must be made to the authorities at the time of incorporation on a confidential basis.

The company’s accounts are subject to audit by a registered Monaco auditor. The minimum share capital must be at least EUR 150,000 with two shareholders and two directors (at least one of them resident). A company secretary is not required.

Bearer shares may not be issued. Capital duty and stamp duty on share issues is payable at a rate of 1.5%. Re-domiciliation is not permitted. Authorization normally takes up to three months.

These provisions do not generally apply to offshore companies administered by Monegasque management companies. A company is regarded as an offshore company if its place of effective management is outside of Monaco. Offshore companies are tax- exempt in Monaco on their income, provided they do not engage in any industrial or commercial activities in Monaco.

Offshore trusts, companies and groups may, therefore, be managed tax-free from Monaco. There are no disclosure or public records or register or filing requirements for offshore entities, even if the directors are resident in Monaco.

Pure holding companies are not permitted. However, multinational groups can use Monaco as a location for a headquarters company or administrative office (“bureau administratif’). They are often given favourable tax status and advance rulings may be negotiated with the Monegasque tax authorities.

If they do not perform any industrial or commercial activities in Monaco, they are taxed on a deemed income based on an agreed percentage (frequently 8%) of expenses.

Monaco provides for a civil law foundation. A foundation can be created for any purpose which does not offend public policy and which is seen to be in the public interest. It can be created by will or created inter vivos by deed. It cannot be used by foreign nationals to avoid forced heirship rules of civil law jurisdictions. They are strictly supervised and require royal approval under Monaco law.

Monaco has a tax treaty only with France. It has also signed a mutual legal assistance treaty with France, and cooperation agreements with several countries. Banking secrecy is strictly enforced, unless specifically permitted by law. Monaco has also complied with various international commitments to counter money-laundering and organized crime.

14. Panama:

The Republic of Panama is situated between Costa Rica and Colombia in Central America. Panama follows the territorial tax regime. The Fiscal Code (Article 694) specifically excludes income from

(a) Profits from re-invoicing foreign goods and services;

(b) Profits of operations directed from Panama but conducted abroad; and

(c) Dividend distributions from offshore income. Income from domestic bank deposits is tax-exempt.

Corporate income derived from sources in Panama is taxable at 30% tax rate. An advance withholding tax of 4% is applied on its after-tax income, if the company does not declare any dividends during the year.

This advance withholding tax is adjusted against the full withholding tax when dividends are paid to the shareholders out of the taxable income. These dividends are subject to a withholding tax of either 10% for registered or nominative shares, or 20% for bearer shares.

There is no withholding tax on dividends paid from tax-exempt foreign income. Foreign companies with branches in Panama pay an additional 10% of their post-tax income as a deemed dividend tax each year.

There are no double tax avoidance and exchange of tax information treaties, and no transfer pricing rulings. The official currency is freely convertible and kept at par with the US Dollar. Panama also uses the US dollar as legal tender.

Since Panama taxes only domestic-source income, it effectively acts as a tax-free centre for earnings derived from foreign sources. The royalties, interest, dividends, commissions, profits on trading and other income received from foreign sources are tax- exempt.

Specifically, any income from the re-invoicing of goods not delivered in Panama and any income from the management of offshore activities is considered as foreign source even if the transactions are conducted from an office in Panama.

Panama also tax- exempts international shipping revenues. A Panama company costs around USD 650 for a standard charter company with an authorized capital of up to USD 10,000 or 500 shares of no par value to set up. Shelf companies are available. The company pays a franchise tax of USD 250 on incorporation and USD 300 the following year.

The company law is based on the corporation law of Delaware in the United States. The company must have two shareholders, which may be nominee shareholders, for incorporation. Usually the nominees subscribe one share each and their resignations to the subscribed share are included in the corporate package, leaving the entire authorized capital available for issue.

However, the law also allows for a single shareholder company. Both bearer and nominative shares can be issued. There is no requirement to disclose the beneficial ownership. There is no minimum paid-up capital requirement. There must be at least three directors, who may also act as officers of the company, if needed.

The directors need not be shareholders or residents. Corporate directors are permitted. A company must have a president, a secretary and a treasurer. However, one person may hold more than one office and additional officers may be appointed.

There is no requirement to have a registered office in Panama, but the company must retain a local lawyer (or a law firm) as a resident agent. The corporate records may be kept in any language anywhere in the world. There is no requirement to file accounts or to have an audit. Corporate re-domicile or migration is permitted.

Provided all the business is offshore, there is no requirement to file any returns with the authorities or to provide financial or other information. Its mutual legal assistance treaty with the United States specifically excludes the exchange of tax information.

Under a 1995 law, Panama allows the formation of a private foundation without members or shareholders as a civil law trust. It must not have a profit motive or carry on any business activities.

The foundation must have a minimum endowment of USD 10,000 and be registered at the Public Registry. As the regulations of the foundation are contained in a private document, which is not registered, there is no disclosure of beneficiary(ies).

The Foundation Council must have at least three individuals as members, who may be appointed by the founder. A legal entity can be appointed as a sole member of the foundation. There is no requirement to file accounts or to have an audit. Only the domestic source income of the foundation is taxable in Panama.

The set-up costs and recurring costs are relatively low. These foundations are generally used as asset protection trusts and for estate planning. Panamanian law specifically excludes the operations of foreign heirship rules or foreign judgments against foundation assets.

Panama is the largest offshore centre for exempt or zero-taxed companies and international shipping. It is an established base for offshore trading, investment and holding companies, offshore banking, captive insurance, trusts and private foundations. In addition, Panama has one of the largest tax-free zones in the world in Colon, at the entrance to the Panama Canal.

15. Turks and Caicos Islands (TCI):

The Turks and Caicos Islands (“TCI”) are located 575 miles south-east of Miami, some 30 miles south-west of the Bahamas. There are eight inhabited islands. The seat of government and capital is Grand Turk. The Turks and Caicos Islands are an internal self-governing British Overseas Territory with a ministerial system of government.

TCI’s success as an offshore centre is based on its Companies Ordinance 1981 (as amended). The legislation provides for an exempted company (similar to International Business Companies used elsewhere) for offshore activities.

It cannot trade or own real estate in TCI. The exempted company receives a certificate, which guarantees that the company will be exempt from all forms of taxation, both in respect of its own operations and on the shares in the company, for a period of 20 years from its date of incorporation.

Thus, there is no tax on income, capital gains, corporate profits, inheritance, estates, interest or dividends. The US Dollar is the national currency with no currency restrictions or exchange controls.

There is no requirement to file accounts or a detailed annual return. However, each company must file a short statement stating that it has traded offshore and that the company has complied with various statutory requirements.

The law requires that financial records be maintained. Incorporation can be achieved within 24 hours. Ready made companies are available for immediate purchase. Re-domiciliation is permitted. The annual fee is USD 300; however, a TCI exempted company may elect to pay a number of years’ fees in advance at a discounted rate.

There are minimal disclosure requirements. Meetings need not take place in the Islands, the objects may be unrestricted and details of shareholders and directors need not appear on any public record. Beneficial ownership has to be revealed to the corporate service providers only. The directors’ details can be kept confidential and need not be registered on the public file.

Both the Companies Ordinance and the Confidential Relationships Ordinance 1979 make it an offence punishable by a maximum fine of USD 50,000 and/or a prison sentence of up to three years to reveal confidential information or to threaten to reveal such information, including details of the owners and directors of a TCI exempted company.

The company must maintain a registered office address within the TCI and must also appoint a TCI resident as a registered agent. All TCI companies must have a company secretary, who may be a natural person or body corporate, and may also be nonresident. The minimum number of shareholders and directors is one.

Corporate directors are permitted. There is no requirement to have resident directors or have directors or shareholders’ meetings. Shares can be registered, bearer, with or without par value, preference shares, redeemable shares or with or without voting rights. Bearer shares are allowed provided they are held by a licensed custodian.

TCI has a well-defined regulatory framework for a wide range of financial services including banking, insurance, trusts, mutual funds, investment dealing, companies and partnerships. These activities are regulated and supervised by a single agency, the Financial Services Commission.

In recent years, TCI has introduced an updated legislation for regulated asset protection trusts under its Trust Ordinance 1990 (revised 1998). There is no tax on distributions to nonresident beneficiaries and no requirement for the trusts to be registered.

The Turks and Caicos Islands legislation provides for an exempted hybrid company, which is limited both by shares and by guarantee. It has two classes of members: Shareholders and Guarantee Members.

Shareholders own shares with voting rights but no rights to dividends or over the capital or income of the company. Guarantee Members have no voting rights but they can participate in the income and capital of the company. The control rests with the shareholders (mostly professional managers) but the financial benefits flow to the Guarantee Members.

Guarantee Members are elected by the directors on condition that they undertake to contribute to the debts of the company up to a certain specified maximum amount (typically very nominal). They have a contingent liability as an obligation, and not shares. Hybrid companies are widely used as quasi trusts by residents in civil law jurisdictions.

TCI also has an economic residency scheme for high net worth retirees and investors under its 1996 Regulations.

16. Uruguay:

Uruguay follows the territorial tax regime under which companies are only taxed on the domestic-source income derived from activities performed, property situated or economic rights used in Uruguay.

The corporate tax rate is 30% on the inflation-adjusted business profits and capital gains. A net worth tax is levied at 1.5% rate on companies; two-thirds of this amount may be credited against the corporate tax liability. Dividends paid to residents are tax-exempt. There is no withholding tax on interest payments.

Nonresident corporations are subject to 30% withholding tax on dividends, royalties, technical assistance payments and branch remittances, if they are taxable in their home country and they can claim a tax credit for the Uruguay taxes. Uruguay has tax treaties with Germany, Hungary and the Netherlands.

The standard value-added tax rate is 23%. Capital duty is levied at 1% of the authorized capital of the company. There are no exchange controls and no export/import controls. There is no personal income tax. Uruguay is a member of the MERCOSUR common market in South America. The other members of MERCOSUR are Argentina, Bolivia, Brazil, Chile, Paraguay and Venezuela.

Uruguay permits three main types of offshore entities:

(a) Financial investment company (“SAFI”):

A SAFI is exempt from corporate income and withholding taxes and net worth tax in Uruguay. It is subject to a single annual business licence fee of 0.3% of the equity plus the excess of liabilities over twice the equity. The equity is capital plus retained earnings and reserves. SAFI may elect to pay this fee in advance for up to 15 years.

A SAFI is meant for use in financial and commercial activities outside Uruguay. The activities of SAFI within Uruguay are restricted.

For example:

i. It cannot engage in any financial or investment activities in Uruguay, or hold real estate in Uruguay.

ii. It cannot hold movable assets in Uruguay, other than shares in other SAFIs, government and municipal bonds and local currency deposits. The local currency bank balances are restricted to 10% of its total assets.

iii. There is no restriction on foreign currency deposits held in banks or financial institutions in Uruguay or abroad.

iv. It cannot repatriate to Uruguay funds that are derived either from direct investments abroad in excess of 5% of its paid-up capital plus reserves, or from the sale of assets held abroad.

v. Its investment in a foreign company is restricted to 30% equity ownership, if it holds shares in more than one company engaged in the same business activity in a country.

A SAFI requires a minimum of one shareholder and one director, whether individual or corporate. Although the Board meetings may be held anywhere, the shareholders holding at least 50% of the share capital must be present at the annual general meeting in person or by proxy. It must maintain a registered office and keep its books of account in Uruguay.

The year-end accounts must be submitted to the tax authorities to calculate the licence fee. The authorized capital must be at least USD 50,000, with 20% subscribed and 25% of the subscribed capital paid-up. The shares may be ordinary, preferred, nominative or bearer, and voting or non-voting. There is no capital duty on share issues.

SAFIs are now used as regional holding companies, treasury centres and regional co­ordination centres for financial and commercial activities within the MERCOSUR common market. Uruguay is a popular holding company base for investments in Latin America. Other uses include offshore trading companies, licensing companies and international trusts.

(b) Free zone company:

A free zone company can distribute, assemble or manufacture goods, or render any trading, professional or financial service in one of the eight trade zones in Uruguay. They pay no income tax and no net worth tax. They are exempt from capital duty on share issues.

They are also exempt from all import taxes, customs duties and other import charges, and are free from value-added tax within the zone. The payments to nonresidents are subject to regular withholding tax at 30% rate. The withholding tax on dividends applies if a tax credit is given in the Residence State for the amount withheld in Uruguay.

The minimum authorized capital is USD 20,000, of which three or more individuals or companies must subscribe 50%, and at least 60% must be paid in cash or in property.

At least 75% of the employees of the free zone company must be local employees and the company must contribute towards their social security costs as an employer. The foreign employees and free-zone companies are granted exemption from these contributions, if the foreign employees waive their rights to social security benefits in Uruguay.

(c) Offshore banks:

Offshore banks are restricted to transactions with nonresidents only, including activities in the free zone. They cannot engage in any commercial, industrial or other activities besides financial services.

They may not invest in shares, obligations or other instruments issued by private entities, except with approval. Moreover, an offshore bank cannot make loans guaranteed by its own capital, or lend or guarantee loans to its own officers or management personnel.

The offshore banks are regulated by the central bank and protected by the bank secrecy laws of Uruguay. There is no minimum capital requirement. However, the central bank usually sets a minimum of USD 500,000.

Subject to this minimum, the capital must be equal to at least 5% of the assets at all times. The offshore banks are also required to maintain a deposit of USD 500,000 in interest-bearing government bonds with the Bank of Uruguay.

Offshore banks are exempt from all taxes on the income from financial services to nonresidents and free-zone customers. There is no withholding tax on interest payments and no value added tax on banking transactions.

Dividend and royalty payments are, however, subject to withholding tax. Offshore banks are exempt from the Uruguayan capital duty. They are not subject to exchange controls or currency restrictions.

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