St Vincent and the Grenadines Offshore Legal and Taxation Regime

Swiss lawyers introduced St. Vincent and the Grenadines (SVG) to the international financial services sector in 1976. Three years later the country gained independence from Britain and embarked on the process of nation-building – setting up the foundations of an independent nation state. When the country was more mature it was able to take a second look at the international finance industry in 1996 and take the policy decision to move this sector into the forefront of the national economy. The international finance legislation was overhauled and a package of financial laws was introduced. Regulated and licensed agents and trustees, known in SVG as Registered Agents, provide international financial services.

The Offshore Finance Authority was created by Parliament to institute a new system to manage, directly control and supervise the offshore financial services industry in the country. Its role was clearly defined by its governing statute – The Saint Vincent and the Grenadines Offshore Finance Authority Act, 1996. The business of The Authority is under the direction of a five-member board of directors.

In November, 2003, the Offshore Finance Authority was re-named as the International Financial Services Authority (IFSA). Speaking on the new name of the Authority, Deputy Governor Errol Allen announced at the time that: “The change of name to International Financial Services Authority must however be seen in its proper context. If an organization is to meet the challenges of a changing world, it must be prepared if necessary to change everything about itself, except its beliefs, as it moves through corporate life. The only sacred part in an organization should be its basic philosophy of doing business. It therefore follows that our organization can change its operating practices and business strategies constantly, in response to a changing world.”

On the new financial environment the then IFSA Executive Director, Louise Mitchell stated “We have an industry to build. Much groundwork has been done. We are not starting from scratch. In fact we have a very solid foundation, but we have new [regulatory] rules in the game. The application of these new rules will require much effort and commitment on behalf both of the regulator and the regulated.”

IFSA has the following specific responsibilities:

To administer and oversee the process of licensing Registered Agents, Private Trustees, Financial Fiduciaries, and Registered Trustees and regulate the activities of Registered Agents and their services to ensure compliance;
To administer and oversee the licensing, regulation and supervision of International Banks;
To appoint, and to supervise the activities of, the Offshore Finance Inspector; and
To oversee the activities of the Registrar of IBCs and the Registrar of International Trusts.

In 2001, in response to the increased international attention being paid to the operation of international offshore financial centres, SVG's legislation was substantially amended, and an enhanced regulatory structure was put in place. At this time, the government, in its attempt to ensure that the international banking sector was reputable took the strategic decision in 2001 that the Eastern Caribbean Central Bank should have a significant role to play in the supervision of the international banks in SVG, in conjunction with the OFA. The International Banks Act was amended in May 2002 to provide for the joint supervision of international banks with the ECCB. This development has greatly increased the capacity of the regulatory regime. (However, the ECCB withdrew from this role in 2005.)

St. Vincent and the Grenadines now has a small, carefully vetted and properly regulated international private banking sector. As of 2009, 7 banks were licensed to conduct international operations from St Vincent and the Grenadines. The regulatory body, the IFSA, has concentrated its efforts on ensuring that only banks with a real presence, and sound business operations and policies, operate in SVG. There are no shell banks licensed in St. Vincent and the Grenadines. All banks have been and will be subject to further on-site examinations by the authorities every 12-18 months.

In 2008, amendments to The Banking Act repatriated control over international banks to the International Financial Services Authority (IFSA).

St. Vincent and the Grenadines Forms of Offshore Operation

Offshore entities may take the following forms (click on a form for a description of the legal regime under which it is constituted):

Banks, insurance companies, mutual funds, trust management companies and other financial institutions use an appropriate corporate form from the above list; in addition they are subject to registration or licensing as described in Offshore Business Sectors.

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St. Vincent and the Grenadines Taxation Of Offshore Entities

Exempted companies and exempted limited partnerships receive a statutory guarantee on formation against the imposition of any taxes for a 20-year period.

St. Vincent and the Grenadines Regulation Of Banking

Until 2005, the IFSA collaborated with the Saint Kitts-based Eastern Caribbean Central Bank in the licensing and supervision of offshore banks. All banks are either granted Class I or Class II offshore banking licences. A Class I bank must establish and maintain a capital fund with fully paid-up capital of not less than one million US dollars (US$1,000,000.00) or its equivalent in another currency, and Class I banks are required to hold a deposit or invest the sum of five hundred thousand US dollars or its equivalent in another currency, in such a manner as the Authority may prescribe. A Class II bank must establish and maintain a Capital fund with fully paid-up capital of five hundred thousand United States dollars (US$500,000.00) or its equivalent in another currency. In addition, Class II banks are required to hold a deposit or invest the sum of fifty thousand United States dollars (US$50,000.00) or its equivalent in another currency in such a manner as the Authority may prescribe.

Under the International Banks Act, 1996 and associated regulations an international bank must have a place of business within St. Vincent and designate a licensed registered agent resident in the jurisdiction. They must also have local employees An offshore bank must have a minimum of two directors who must be natural persons (rather than a corporate entity) and at least one must be resident in St. Vincent. Director appointments are subject to the approval of IFSA. Only registered shares may be issued, and these may not be transferred or disposed of without prior permission of the regulator.

Annual audited accounts must be submitted to the regulator, and the auditors must be engaged at the time of the application. The annual accounts must be submitted within three months of the close of the business year, unless an extension has been approved. An application for registration must include the names of all shareholders, the names of all bank officers or managers and evidence must be supplied that the applicant or some person connected with the bank has banking experience. The application must include the name of the applicant’s lawyers and their written agreement to serve.

St. Vincent and the Grenadines Regulation Of Trusts

Trust deeds are registered in a confidential government trust registry. A registered trust under the International Trust Act, 1996 will not be rendered unenforceable because it was invalid under the laws of the settler or grantor’s domicile or residence. Purpose trusts, which are created for a specific purpose but without named beneficiaries, are allowed. A foreign judgment against a registered international trust, or its settlor or beneficiaries, is not enforceable in Saint Vincent if the judgment was based on law inconsistent with the act.

Actions against registered international trusts must be commenced within two years from date of creation of the trust. A complaining creditor may satisfy his claim against the property of a registered international trust only if that creditor can show both that the settler/grantor’s principal interest in creating the trust was to defraud him, that the disposition of property to the trust rendered the settler/grantor insolvent. Creditors must deposit US$25,000 (at the time of writing) with the courts of Saint Vincent prior to commencing an action against a registered international trust or its property. If the creditor is unsuccessful in the claim, the money may be used to pay the costs and expenses of the trust in defending the action

Traditional fraudulent conveyance laws (Statute of Elizabeth) are not applicable to registered international trust. Unauthorised disclosures of trust information are punishable under criminal laws. The bankruptcy or insolvency of the settler/grantor under the laws of his residence or domicile will not affect a registered international trust, under the legislation. An international trust may own one or more Saint Vincent international business companies.

St. Vincent and the Grenadines Regulation Of Mutual Funds

Mutual funds are regulated by the Mutual Funds Act, 1997 as amended by the Mutual Funds (Amendment) Act 1998, and regulations issued in 1999. The act provides for the licensing of both domestic and offshore mutual funds. Licenses are granted either as a private and accredited fund or as a public fund. A public fund can offer any shares it issues for subscription or purchase to any interested member of the general public. All public funds registered must publish a prospectus and file it with the International Financial Services Authority. There are no capital adequacy requirements or minimum subscription limits placed on public funds. Public funds must maintain accounting records and financial statements. Public funds that intend to do business with residents must also submit an offering document synopsis to the IFSA.

Private and accredited funds either must have no more than fifty investors, or issue shares on a private basis. An accredited fund issues shares only to accredited investors, with an initial investment of not less than US$25,000. An accredited investor is one who has a net worth in excess of US$1 million.

Mutual funds can be formed as an incorporated company, a partnership or a unit trust. Umbrella funds, open ended, closed ended and integral funds are permitted. Administrators and managers must apply to the regulator for a license to carry on business as administrators or managers. A natural person, any mutual fund, company, trusts or trustee may apply for a license to carry on business as administrators or managers. Applicants must show evidence that they have the expertise and resources to carry out a mutual fund business.