Today we are going to talk about offshore companies in Saint Vincent and the Grenadines, a somewhat different option, but one that, in some cases, potentially has a lot to offer.
Offshore companies are without a doubt a topic that interests many of our readers here at Tax Free Today, however, they are rarely the answer to the wishes of entrepreneurs living in high-taxation countries.
This is due to the CFC rules that make managing them from high-taxation countries difficult, in addition to other problems with the opening of bank accounts, the use of payment gateways and the recognition of issued invoices.
But even in the typical offshore countries, there are exceptions that I would like to highlight today. Ultimately, there is always some other offshore jurisdiction finding different ways to gain a competitive advantage over the others.
One of these states is Saint Vincent and the Grenadines. It is best known for its offshore bank, Loyal Bank (EuroPacific Bank left there at the end of 2017). Loyal Bank makes opening a bank account very easy, but the quality of service is not comparable to that of other modern, large offshore banks.
In fact, this bank has had major problems in the past where many customers did not have access to their accounts for several weeks and their commissions are also quite high.
Brief note: Like any small offshore bank, Loyal Bank operates under the International Banking Act (IBA), meaning that it only has a local license and cannot offer its services to local clients nor can it do business in local currency.
Loyal Bank uses the services of the world’s main banks to process and manage client funds on behalf of the bank. However, the other banks can withhold their services, if the risk far outweighs the benefit.
This is what happened with Loyal Bank in the summer of 2013. Since the bank opened accounts for almost everyone who wanted one, the first money laundering scandals were quick to follow. These led to the cancellation of services offered by other banks to Loyal Bank, meaning that some customers could not access their accounts.
Requesting information from the appropriate authority was of no use to the frustrated customers since it was overwhelmed. Carrying out transactions was not possible until several weeks later.
Although Loyal Bank has regained control of these problems, transactions continue to take a great deal of time and have a significantly higher cost.
Therefore, if you really want to make use of a business account with Loyal Bank, you should think it through.
Features of offshore accounts in Saint Vincent
Just as with banks, offshore companies in the Saint Vincent jurisdiction should not be overestimated. Even so, this small island country of the Caribbean attracts people through its interesting offshore legislation, which is quite unheard of and does not have anywhere near as many records as Panama or the British Virgin Islands.
The reputation of the companies in this country, which the OECD has classified as “largely compliant”, is considerably better than the reputations of companies in say Belize or the Seychelles.
However, the automatic exchange of information came into effect in 2017 and many European countries have made bilateral agreements for the exchange of fiscal information with Saint Vincent.
This jurisdiction, therefore, is not designed to avoid taxes and, for this reason, many new companies are not expected to be created in the future.
However, in some cases, it can be worth bearing the option of a company in Saint Vincent in mind. There you can choose to set-up an International Business Corporation (IBC) or an LLC. Recently, we spoke about the differences between these types of offshore companies.
In principle, the legislation of IBCs in Saint Vincent is like that of almost all the other countries in the Caribbean. The law was implemented in 1996 and last amended in 2008.
As is usually the case with IBCs, in Saint Vincent, only one director and one partner are required, who can be the same person, whether physical or not. Registration of the company is public but only contains the name of the company, the partners do not appear.
To achieve greater anonymity, bearer shares can be issued. Saint Vincent is one of the few countries (along with Bulgaria) where this is still possible.
Bearer shares are not assigned to anyone in particular. Similar to what happens with bearer cheques, the one simply in possession of the paperwork is the owner. This results in greater anonymity before third parties.
However, bearer shares must be deposited in a bank and are not designed to avoid the exchange of information. The bank knows who the beneficiary of the account is and has to share that information if the jurisdiction of the beneficiary participates in the automatic exchange of information.
Holding companies in Saint Vincent and the possibility of taxation at 1%
In principle, IBCs in Saint Vincent, just like their counterparts in other jurisdictions, are exempt from corporation taxes and, in practice, do not have to submit any accounting records nor carry out audits (on paper, you are required to conduct bookkeeping, which you do not have to submit).
What makes Saint Vincent interesting is the possibility that it offers to be subject to a tax rate of 1% upon request.
That said, the question is: why would anyone voluntarily submit to paying tax?
The answer is that this minimum tax could provide some advantages that offshore companies exempt from tax do not offer.
Ultimately, with a taxation rate of only 1% on profits, the burden is really low. Although paying taxes requires you to keep accounting records, this can be outsourced to local agencies for a low cost. Around €50 a month should be enough.
By paying this 1%, the IBC receives a tax certificate which has certain advantages when creating your international structures.
A 1% IBC can sell internationally, receive dividends, make investments and later legally exchange them and it can also show where its regulatory tax certificate may be required.
In this way, clients and providers of this IBC will no longer have as many problems with their local tax office for doing business with offshore entities. After all, the company that they deal with in Saint Vincent has shown that it pays its taxes and has a tax certificate.
More interesting still is the possibility of using the holding company in Saint Vincent to optimise taxes. For example, it could have shares in various European subsidiaries, distribute dividends without taxes from those countries and pay taxes at a rate of only 1% in Saint Vincent. If it were a totally tax-free company, transferring profits in this way would not be easy.
For example, take a Saint Vincentian parent company that controls 100% of a subsidiary in Cyprus. The entire profit of the Cypriot limited company can flow to Saint Vincent without withholding tax and be taxed there under a final tax of only 1%.
Of course, despite having a tax certificate, the IBC will not be enough to avoid most countries’ CFC rules.
Combining a holding company in Saint Vincent with an EU subsidiary can be a good option for those that live in a tax-free country or one with territorial taxation.
This is because they can make the most of the advantages of onshore companies in the EU, such as their good reputation, acceptance of their invoices and ease of opening bank accounts and using payment gateways, but without losing the advantages of offshore entities.
Of course, a dual structure also means higher expenses (and is not always necessary) so you have to make sure beforehand that it is worth it. To set-up a Saint Vincentian IBC, you should estimate around €1,500 per year for fees and administration costs. Additional costs will be added if the 1% tax (bookkeeping) or bearer shares are requested.
If you know that this is the type of structure you need, you can get in touch with us and we will help you to set-up your company in Saint Vincent and the Grenadines.
If you prefer to speak about your case first and look for the best option for your business, you can request a consultation with us.
Because your life is yours!