Dear Colleague,
In this week's update, in addition
our usual headline news, we take a fresh look at two offshore
jurisdictions: Barbados and Bermuda.
Also this week we are featuring
our Offshore Investment Funds report and intelligence service
as both have just been significantly expanded - you can find
some sample content and an offer
in this update.
Here is a full menu of updated
content featured in this message:
You might be interested to know
that one of the Lowtax Network team is planning a visit to
the Cayman Islands next month! In addition to his other business
in the region he intends to generate some editorial content
for the network during his stay. If you are based in the Cayman
Islands and would like to meet him, please let me know. This
visit forms part of a regular program of IOFC visits by Lowtax
Network staffers.
I hope you find this update useful.
Please remember
that you can customise your mailing preferences by visiting
your own profile
page to choose from 29 offshore tax and law subjects
in order to receive just the information you want.
You can also unsubscribe completely by following the instructions
at the bottom of this page.
Kind regards,
Kate James
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Featured
Report
Offshore Investment: Country-by-Country
Analysis of Offshore Investment Funds, Stock Exchanges and
Trusts, with an Analysis of the US QI Regime
The first section of the report studies
the booming offshore funds sector. We analyse the growth of
offshore funds from humble beginnings until now they challenge
their onshore competitors, using the Internet to keep up with
innovation in marketing and product development. For the eighteen
top offshore jurisdictions we describe the funds sector and
its legislative base, noting recent developments.
The second section of the report studies
offshore stock markets, making the controversial claim that
one day they will rival and even eclipse their grand onshore
counterparts by linking with electronic newcomers to develop
pools of liquidity in low-tax jurisdictions. There are thirteen
offshore stock-markets and for each one we describe its history,
its regulatory environment, its size and its growth pattern.
The Trusts section of the report studies
the 20 top jurisdictions which offer trust regimes. It's a
fairly well known fact that the trust originated in England
many hundreds of years ago, and that its purpose was to preserve
assets against depredations occurring through death, matrimonial
and family squabbles, spendthrift descendants and the like.
Taxation at death was one of the incidents that trusts were
effective against, but they were not particularly designed
to guard against the taxation of income or capital during
the settlor's life, because such taxes were not a major threat
to wealth at the time, and anyway a domestic trust was a taxable
person in itself. Now the trust is a major component of asset
protection structures, as well as having many business uses.
The final section of the report
studies the draconian new US withholding tax rules and qualified
intermediary status which applied from January 1 2001. The
new regime affects every non-US based investor with US source
income, and every non-US based financial institution which
handles such income. We explain the legislation and give its
full text, along with a copy of the contract qualified intermediaries
sign with the IRS, which effectively turns them into tax collectors!
We also set out the rules to be followed in each of the countries
'approved' by the IRS.
Excerpt from the introduction:
The word 'offshore' is used quite
loosely in describing investment funds, often meaning nothing
more than 'off our shores', that's to say, foreign. 'Alternative'
is another word that can be used to describe offshore investment
funds, but is still not very precise. In this review, we will
stick to the word 'offshore', taking it to mean 'based in
a low-tax jurisdiction'. Thus, we exclude tax-privileged investment
funds in high-tax jurisdictions, which indeed have interest,
but are studied elsewhere.
Offshore jurisdictions often
provide a welcoming environment for investment vehicles, which
may take a variety of forms: unit trust, mutual fund or investment
company, and may be open-ended or closed. The most widely-used
jurisdictions are Bermuda, the Cayman Islands, Guernsey, Hong
Kong, Ireland, the Isle of Man, Jersey and Luxembourg. Jurisdictions
vary greatly in the legal and fiscal regimes they provide
for offshore funds, but in all cases the key reasons for being
offshore are that the gains from investment are untaxed or
very lightly taxed in the jurisdiction concerned, and that
the regulatory regime is 'lighter touch' than in the high-tax
countries where the investors and often the promoters (owners)
of the fund are to be found. This allows offshore funds to
invest in a wider range of target assets than is permitted
in many high-tax jurisdictions, and to adopt a more aggressive
investment strategy, leading to potentially high returns but
also to higher risk.
Just because offshore funds offer
greater returns and often greater risks than onshore funds,
many countries restrict marketing by offshore funds on their
territory or to their citizens. The USA is particularly fierce
in this regard, and offshore funds take great care not to
offend against US law, refusing to accept investment from
US residents. The UK's regime is more permissive, while still
not very flexible. The laws and regulations of high-tax countries
in respect of offshore funds are directed not just to limiting
the behaviour of their citizens but also to preventing 'money-laundering'
and other illicit uses of offshore jurisdictions.
'Illicit uses' includes tax avoidance,
and part of the motivation which causes high-tax countries
to restrict access to offshore funds is the fear that income
and gains from investments made abroad are harder to tax.
The spread of anti-avoidance legislation during the last 20
years or so means however that for many high-tax countries,
honest residents have nothing to gain in fiscal terms by putting
their money offshore. Unfortunately for the high-tax countries,
many of their residents have traditionally - and ill-advisedly
from a legal standpoint - considered that they are too highly
taxed, and thus have not declared overseas income. However,
the higher returns obtainable from offshore funds are very
attractive even if there is tax to pay. Thus there has been
a drift towards offshore investments.
CLICK
HERE to buy the report and read it in full....
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Featured
Headline News
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Eurostat Publishes 1995-2005
Tax Figures, by Ulrika Lomas,
for LawAndTax-News.com, Brussels 21/03/2007 |
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The European Statistics
Office (Eurostat) on Tuesday published figures examining taxation
in the EU from 1995 to 2005. According to the Eurostat report,
in 2005, tax revenue in the EU27 stood at 40.8% of GDP, compared
with 40.4% in 2004. [
FULL
STORY ] |
| Hong
Kong To Have Competition Law,
by Mary Swire, for LawAndTax-News.com, Hong Kong
21/03/2007 |
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After
a 3-month public consultation, Hong Kong's government is going
ahead with proposals for a competition law and a matching
regulatory authority which will cover all sectors, although
with certain exemptions. [
FULL
STORY ] |
| Canada
Budget To Reduce Tax Burden,
by Mike Godfrey, Tax-News.com, Washington
21/03/2007 |
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Jim
Flaherty, Canada's Minister of Finance, disappointed the investment
community by failing to follow through on a pledge to cut
capital gains tax in the Conservative government's second
budget announcement, although a series of new measures will
chip away at the tax and regulatory burden faced by businesses
in Canada. [
FULL
STORY ] |
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Offshore
BERMUDA
Bermuda Not in The Caribbean
Bermuda is a mid-Atlantic archipelago
1,000 km from the USA; it is not in the Caribbean (1,500 km to the
south). Bermuda is a self-governing Crown dependency. It is politically
stable; English is the official language; and the Barbadian dollar
is at parity with the US dollar. The climate is warm and humid;
but sea breezes temper the high summer temperatures. Population
is 65,773 (July 2006 est.) and growing despite limited land availability.
The islands are rich: Bermuda's GDP in 2004 was over $4.5 billion,
giving a GDP per head of more than $69,900. GDP growth in 2004 rose
to 4.6%.
Economy Buoyant Based on
Financial Services and Tourism
By excluding foreign banks until recently,
Bermuda avoided problems and grew as a reputable international finance
centre with three of its own widely-branched banks. Financial services
account for a significant majority of GNP; tourism is also important,
with more than 400,000 visitors a year, mostly from the US. The
Bermuda Stock Exchange (established 1973) trades electronically
and provides global access to its settlement systems.
Bermuda's Lowtax Specialisations
Bermuda has particularly strong insurance,
investment fund and trusts sectors, with very well-developed advisory
and financial infrastructure. The Bermuda captive insurance sector
is the world's largest. Hamilton is a British port of registry.
There is a sophisticated infrastructure including the major international
law and accounting firms. The Government intends to encourage the
development of e-commerce in Bermuda and has put effective legislation
in place.
No income tax in Bermuda!
There is no income tax, capital gains
tax, VAT, sales or use tax or wealth tax. Annual government fees
are imposed on businesses and there is a payroll tax. Local businesses
must be controlled by Bermudians but offshore operations take place
through 'exempt' or 'permit' companies. Due to an error in Brussels,
Bermuda is not subject to the EU's Savings Tax Directive.
Immigration Controlled
by Housing and Work Permits
With space severely limited, the Government
controls access to Bermudian housing and jobs through systems of
permits which encourage suitable business development but otherwise
discourage immigration. Government moves to introduce strict quotas
enforcing the employment of local workers are seen as negative by
business and have not been effective.
Bermuda Not On OECD Black-List
In June 2000 Bermuda signed a letter
of commitment to the OECD agreeing to conform with international
standards of transparency and financial supervision. As a result
it was not included on the OEDC's Financial Action Task Force 'Black-List'
of unco-operative jurisdictions.
Learn
more in our full Bermuda
Knowledgebase and Bermuda
News sections.
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Offshore
BARBADOS
Barbados Is In The Caribbean
And Caricom
Barbados is a sub-tropical island
in the Caribbean; it is a member of Caricom, the Caribbean Common
Market. Quite densely populated, with 270,000 people of mostly African
descent on 430 sq km, Barbados is an independent Commonwealth member.
It is politically stable; English is the official language; and
the Barbadian dollar is fixed against the US dollar at 2:1. The
climate is warm and humid; sea breezes compensate for high summer
temperatures. GNP/head of US$18,200 at PP is reasonable.
One-Crop Economy Has Successfully
Diversified
Barbados was mostly a sugar producer but the
island has diversified into tourism, manufacturing (with a host
of incentives), informatics and financial services. After a bad
time in the 1980s, Barbados has grown well in the 1990s, although
slowing down in 1998/99. The impact of 9/11 was moderately serious,
with the economy contracting slightly in 2002, but rebounding in
2003, 2004, 2005 and 2006. Unemployment has been reduced from catastrophically
high levels to only 10%. In the last ten years the Government has
been business-friendly and economically sound.
Barbados's Lowtax Specialisations
Barbados has preferred quality to quantity,
and has developed a remarkably wide range of offshore formats to
suit all tastes! A good US tax treaty and the Foreign Sales Corporation
legislation (now repealed) have particularly encouraged US interest;
Canada has also been a traditional partner. The offshore insurance
sector is as big as the BVI's, and there are 40 offshore banks.
Barbados is very picky about who it will have, and probably stands
in better with the OECD than many OIFCs, although it is nervous
about current developments. There is a stock exchange, fully computerised
as from July 2000, with a central depositary; but mutual funds have
not yet developed strongly. Barbados probably has a good shot at
becoming an e-commerce centre if it plays the right cards - so far
the Government doesn't seem sufficiently aware of this.
Lots of Taxes In Barbados!
Alongside a really large selection of corporate
formats, Barbados has many different taxes. Although the introduction
of VAT in 1997 got rid of eleven of them, there are plenty left,
and for a resident person rates are quite high. The structure of
manufacturing and other incentives is complex, but properly used
can reduce the tax burden substantially. It may be that fewer, simpler
taxes would be beneficial; anyway, an offshore business will be
able to avoid all taxation in one way or another.
In July 2000, Barbados pledged to make changes
to its financial supervisory regime in order to have its name removed
from an OECD blacklist; in February, 2002, shortly before the OECD
finally published its long-delayed revised list, Barbados was removed.
Learn
more in our full Barbados
Knowledgebase and Barbados
News sections.
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