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FIDESCO TRUST CORPORATION was incorporated in 1997 in the
Federation of Saint Christopher (St. Kitts) and Nevis for the purpose of
providing a wide range of trust, corporate and fiduciary services.
The Federation of St. Kitts and Nevis
offers you an environment where doing business is easier and more
profitable. St. Kitts and Nevis form a twin island federation located in
the Eastern Caribbean. Strategically located in a convenient time zone,
the Federation has set out to attract foreign investors by enacting very
favourable legislation for incorporating companies, forming limited
partnerships, establishing foundations, and creating trusts.
Its International Financial Centre is ideal for
establishing profitable enterprises because of its modern business
legislation, strict confidentiality laws, no tax on foreign income, low
cost of labour and state-of-the-art telecommunication capabilities. The
Federation is an independent state with a parliamentary democracy within
the Commonwealth of Nations. The legal system is based upon English
Common Law served by a High Court of Justice, a Court of Appeal, and
until 2003, Her Majesty's Privy Council in London. Final appeals were since heard by the
organization of Eastern Caribbean States Court of Appeal. St. Kitts & Nevis agreed to be
included in the Caribbean Court of Justice, to hear cases previously
brought to Her Majesty's Privy Council.
The Offshore Financial Industry
Introduction
Offshore Companies
International Tax Planning
Tax Treaties
Residence of Companies
Introduction
The existence and prosperity of the Offshore Financial
Industry is firmly based on the demand made by multinational companies
and high net worth individuals to find ways to legally reduce their tax
burdens and, in the latter case, to protect their assets. The industry
is able to meet these demands because of the existence of tax treaties
and so-called Tax Havens.
As suggested by Dr. Barry Spitz - a leading expert in
international tax laws, former professor at Rice University in Houston,
and editor of the Spitz Tax Havens Encyclopaedia published by
Butterworths - the term Tax Haven should be used to refer to a
jurisdiction -
-
where there are no relevant taxes; or
-
where taxes are imposed only on local profits, but not at all, or at
lower rates, on profits from foreign sources; or
-
where special tax privileges are granted to certain types of taxable
persons or events.
These special privileges could be in the form of a local
tax holiday accorded to certain types of enterprises under an investment
incentive program or they could be derived from tax treaty provisions.
By extension, this basically means that even high tax
countries will become Tax Havens if they can be used to reduce the tax
burden of a taxable person or event. And indeed, it is not uncommon to
see places like London, New York, Sydney or Tokyo becoming temporary Tax
Havens for specific short-term recurring and non-recurring taxable
events such as concerts, shows, football games, tennis tournaments and
other similar events.
In addition to these temporary Tax Havens we have about
41 jurisdictions that are considered permanent Tax Havens.
Interestingly, some of these are Tax Haven designated areas or zones
located within a high tax country (e.g. The International Financial
Services Centre in Dublin, Ireland, the Labuan Territory in Malaysia, or
the cantons of Fribourg, Zug and Vaud in Switzerland).
Offshore Companies
Having defined the term Tax Haven, we can now define the
term Offshore Company.
The word offshore, as used in this context, was initially
used by professional tax advisers of the United States of America to
denote a Tax Haven located off the shores of the United States. Over
time, the meaning of this word has changed and today it is used to refer
to any Tax Haven wherever it is located. The term Offshore Company
therefore denotes a company located in a Tax Haven.
Subject to company law provisions of the relevant Tax
Haven, an offshore company could be -
-
private or public;
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limited by shares or guarantee; and
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for taxation purpose, either resident, non-resident, or exempt.
Non-resident and exempt companies are not subject to
local taxes, but in order to qualify as non-resident, a company is
usually required to exercise its management and control functions
elsewhere than in the jurisdiction where it was incorporated or where it
maintains its registered office. The concept of exempt companies was
introduced by some Tax Haven jurisdictions in order to solve the serious
fiscal problems encountered by many high tax country residents who were
directors or shareholders of non-resident companies.
One common factor for resident, non-resident, and tax
exempt companies is that they are usually governed by one and the same
company law. However, many Tax Havens have enacted new legislation for
their exempt companies and this is the reason why they have one company
law for resident and non-resident companies and another one (usually
called an International Business Companies Act or Ordinance) for exempt
companies. Unfortunately during this process these Tax Havens lost one
very useful form of company, namely the company limited by guarantee.
Many of these Tax Havens also enacted legislation for Limited Liability
Companies based on one of the United States models for that type of
company. For the legislators in the United States to have selected the
term Limited Liability Companies to denote this type of company was most
unfortunate for English common law jurisdictions since in those
jurisdictions companies limited by shares or guarantee are also
considered to be limited liability companies. The term Associations with
Limited Liability or Limited Liability Associations should have been
used instead in these jurisdictions.
International Tax Planning
Offshore companies and trusts can offer significant tax
minimisation opportunities since locating a taxable person in a Tax
Haven may reduce the tax burden of such person with regard to a taxable
event in a high tax jurisdiction by removing the link between that
person and the taxable event. In order to achieve the desired result,
one or more companies or trusts must be used in conjunction with, or
even better, as part of an international tax plan.
According to Dr. Spitz, international tax planning is
concerned with finding ways to legally reduce tax burdens and the term
"tax avoidance" is used to indicate that a taxpayer has lawfully reduced
his tax burden by arranging his affairs in accordance with an
international tax plan. Tax avoidance therefore differs fundamentally
from "tax evasion" which is used to indicate activities deliberately
undertaken by a taxpayer to attempt to free himself in an illegal manner
from tax burdens to which he would otherwise have been subject to.
Generally speaking, international tax planning consist of
arranging the affairs of a taxpayer in such manner as to reduce his tax
burden by using one or more tax treaties concluded between two
contracting states for the purpose of avoiding double taxation. How this
can be achieved is beyond the scope of this article, but examples of
various tax planning techniques are included in our International Tax
Planning Primer
Tax Treaties
In July 1963 the fiscal committee of the Organisation for
Economic Co-operation and Development (the OECD) published a model
convention for the avoidance of double taxation in respect of taxes on
income and capital, and in may, 1966, this same committee published a
model convention for the avoidance of double taxation in respect of
estate and inheritance taxes.
These two model conventions together with their
amendments have exercised a considerable influence on most tax treaties
concluded in recent years.
Briefly stated, a company may qualify for tax treaty
benefits -
-
if it is subject to taxes in the jurisdiction where it is
resident;
-
if it is owned by residents of one of the contracting states;
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if at least half of its income is paid to residents of the contracting
states.
Residence of Companies
One of the principle provision of a tax treaty is to
limit its application to persons who are resident in either or both of
the contracting states. To use tax treaties effectively it is therefore
important to be able to establish in which jurisdiction a person is
resident for tax purposes.
In the case of companies there are three connecting
factors that will have to be investigated in order to establish the
place where it is resident for tax purposes. The first one is the place
of incorporation or registration of the company, the second one is the
place where its management and control is exercised, and the third one -
applicable mainly in civil or Roman law jurisdictions - is the centre of
its economic interests. A company will become a resident of the
jurisdiction where its directors are holding board meetings by the
simple fact that such action is considered to have the effect of
removing the connecting factor between the company and the jurisdiction
in which it is incorporated or registered.
It is therefore important that the documents establishing
the company be drafted in such way as to prevent the unintentional
transfer of its residency of origin to an other jurisdiction.
Modern offshore company legislation usually permit a
company -
-
to have only one shareholder;
-
to be managed by only one director; and
-
to conduct meetings by telephone.
Unfortunately, it is not clear whether the Courts of
every country would recognise the doctrine that one person can
constitute a meeting (e.g. in England see East v. Bennet Bros., Ltd.,
[1911] 1 Ch. 163). These Courts could very well rule that if a company
can be managed by only one director, such director would not need to
hold a meeting since there would be no one else to agree or disagree
with him (e.g. in England see Parker and Cooper Ltd. v. Reading, [1926]
Ch. 975; [1926] All E. R. Rep. 323). Basically such ruling could mean
that the company concerned would face the risk of being unable to prove
where it is resident for tax purposes as it could be disallowed by the
relevant Court to produce minutes of board meetings to substantiate its
claim of where it is resident for tax purposes. Obviously a company
which permits the holding of board meetings by telephone would also
encounter difficulties in unequivocally establishing where it is
resident for tax purposes unless it can provide evidence that during
each of its board meetings a quorum of directors was only present in the
place where it claims to be resident for tax purposes.
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