Choice of 'perfect' jurisdiction and portfolio of offshore professionals

by: Samuel Lohman, President of the Offshore Institute

What is the 'perfect jurisdiction and who are the 'right' offshore professional providers to use? Questions such as these are often asked by clients and planners alike. The answers are often dependent on the objective of the structure involved. Once the objective of the structure is determined (and confirmed to be legitimate), then the planner is in a position to move onto the next level of analysis which is to determine the 'perfect' jurisdiction and 'right' portfolio of professionals (e.g. company formation agent, corporate director, registered agent, trustee, protector, bank, custodian, portfolio manager, financial intermediaries, etc.) for the particular case at hand.

Jurisdictions often specialise in particular planning areas. There are jurisdictions which have established laws, regulations, and infrastructure in order to attract the following: captive insurance, mutual fund, banking, international business corporations, limited liability companies, forced heirship trusts, asset protection trusts, e-commerce, treaty driven planning, public listing, manufacturing, shipping, general tax planning, treasury, royalty and holding company, etc.

Unfortunately, decisions are too often made on the basis of habit alone. Therefore, when reviewing the options available, it is helpful for the planner involved to keep in mind these general principles.

Avoid the 'professional octopus' and consider the 'stereo component system' approach

Traditional stereo enthusiasts would tend to agree that the all in one single box stereo system delivers less performance than a separate multi-component system (separate receiver, compact disc player, tuner, etc.). Likewise, offshore professional firms may offer a 'one stop shop' approach wherein they establish the company, provide the trust, manage the assets involved, and offer banking facilities, etc. as well. This can easily lead to problems.

It is rare that one organization is in position to provide all service that are needed with a level of excellence in every area. Furthermore, should there be a need to add or change service providers in the future, it may be more complicated as a result of the extent of participation of the particular organization involved.

Thus, typical planning structures may include one or more company formation agents: corporate directors, registered agents, trustees, protectors, portfolio managers, lawyers, accountants, auditors, etc. One needs to select the 'right' professionals on the basis on which you compare professionals in the particular domain involved.

Client participation

Often times, structuring involves vesting some or complete control of assets to third parties located in a jurisdiction far away from the home jurisdiction of the Client involved. If the Client participates in the process of selecting jurisdictions and professionals, there is a strong likelihood that the Client will enjoy a higher level of trust and comfort with the structure once it is established and thereafter.

Know your provider

In order to ensure an appropriate level of competence and to meet the defined objectives involved, it is important to conduct adequate due diligence on the professional providers under consideration. Due diligence in this context may begin with the purchase of a specialised report, informal discussions with fellow OI members, etc.

There is always a level of risk when dealing with third parties. The research envisaged here, is designed to mitigate risk of loss to the Client and further ensures a minimum level of reasonableness on the planner s part should the referral be questioned down the road.

Do your homework

Review your in-house library, specialised magazines, journals and books, as well as the Internet concerning candidate jurisdictions and professional providers at each stage of the planning process. However, always consult with local practitioners to ensure that you have the latest information concerning the jurisdiction involved.

Further, track trends that affect the international financial service industry as reflected in positions taken by the OECD, EU , UN, Financial Action Task Force, US State Department.

This overview does not attempt to be exhaustive. However, it is intended to concentrate on the planning step that concerns choice of jurisdiction and selection of offshore professional providers. It is imperative that the points raised herein are considered in the process of selecting the 'perfect' jurisdiction and 'right' portfolio of offshore professional providers.

The Focus on:...St. Lucia

Contributed by: Angéline Gazio, Assistant Managing Director, Financial Centre Corporation

After years of deliberation, planning, and the launch of St Lucia into the financial services industry in March 2000, the island has now established itself in the market as a unique and reliable model jurisdiction for financial services. Key ingredients attributed to this fact are an updated suite of legislation that meet both confidentiality and regulatory expectations, committed regulated professional service, a state of the art public online registry system and a private sector promoter.

The laws passed in December 1999 include; The International Business Companies Act (IBC); The International Trust Act; The International Mutual Funds Act; The International Insurance Act; The International Banks Act, and regulatory legislation including the Registered Agent and Trustee Licensing Act, and the Money Laundering (Prevention) Act. The collective nature of the laws is unique in that they are formulated to provide an effectively regulated environment, in conjunction with satisfying the demands of the client.

The IBC Act has the distinctions of allowing an election either to pay tax at 1% or to be exempted, as well as having an annual license fee of only US$300 regardless of the stated capital of the company. The IBC Act has the added advantage of being treated as an LLC or Limited Life Company. The most significant factor in the suitability of the IBC to provide the LLC-type flexibility is Reg.301.7701- b (8)(i) of the US Internal Revenue Code, 1986, as amended, which lists various countries and the types of entities in those countries as being corporations. Where an entity is listed, absolutely no election can be made under the entity classification rules (commonly referred to as 'check-the-box') to treat these entities as anything but corporations. St. Lucia is not listed in this Reg. and as such corporations formed in this jurisdiction can make an election.

One niche area for St. Lucia has been in insurance. The legislation for this product is very flexible and allows captives companies to be established. The annual fees are amongst the lowest in the industry and the professional service infrastructure is rapidly developing. In fact insurance managers from other jurisdictions are using the jurisdiction and in some cases relocating parts of their operations to St. Lucia. Being excluded from the Mexican black list has also been a major drawing card for the island and it is felt that in this area St. Lucia will soon be a major player amongst the higher end jurisdictions. With the increasing use of insurance vehicles for tax planning and asset protection by the US market, professionals, middle sized businesses and individuals in the US are ready targets for a St. Lucian offshore insurance company.

Trusts formed under the International Trusts Act will be able to benefit from aggressive, well thought out asset protection provisions that are in line with other competing centres

The Mutual Funds Act allows for private and public funds that can be constituted either as IBC's or as unit trusts.

The Money Laundering (Prevention) Act serves to ensure that both the local institutions and those engaged in international financial services are aware, trained and prepared to detect and prevent this harmful activity, with a particular emphasis on the 'Know Your Customer' theme.

Regulation of the industry is carried out by the Director of Financial Services and the Financial Services Supervision Unit or FSSU. This is a dedicated regulatory body responsible for the licensing of local registered agents (LRA's) and higher end entities such as banks, insurance companies and mutual funds formed under the offshore suite of legislation. Not only does the FSSU license the applicants, it is also responsible for the ongoing supervision and monitoring of these entities to ensure that they are solvent and not involved in money laundering or related activity.

Changing markets...

Contributed by: Ariane Slinger, CITCO (Suisse) SA, Geneva

Irish tax reduction ahead of schedule

Irish companies whose profit level is under £200,000 are now subject to a reduced corporate tax rate of 12.5% - two years ahead of schedule.The reduction was announced in the latest Budget with effect from 1st January 2001.

The Finance Act of 1999 stated that the standard rate for trading companies would be progressively reduced to 12.5% with effect from January 2003. However, the Budget announcement now means the new rate is available to a considerable amount of companies.

Tax Reform in Portugal During the month of October 2000, the Portuguese Government introduced in front of Parliament a long waited tax reform that is expected to be implemented in the course of 2001. Some of the significant changes in the tax law are:

taxation of capital gains derived from the sale of bonds.
taxation of capital gains derived from the sale of securities.
taxation of capital gains derived from the sale of shares or stocks held for more then twelve months.
new taxation regime on real estate transactions and on derivative financial instruments.

Moreover the existing national bank secrecy rules will become "breachable" for the purpose of tax inspections, which will make it less attractive for Portuguese and foreign individuals to keep saving on a local account.

New legislation in the Bahamas

The Bahamas Government has officially adopted nine new pieces of legislation designed in specific response to the blacklisting of this Caribbean jurisdiction by three G-7 led committees, namely the Financial Stability Forum (FSF), the Financial Action Task Force (FATF), and the Organisation for Economic Co-operation and Development (OECD).

The Prime Minister has announced that the package of financial services and anti-crime legislation adopted by Parliament in late December is in response to the country s blacklisting and came into force on 29th December, 2000.These new laws are: The Central Bank Act, 2000; The Banks and Trust Companies Regulation Act, 2000; The Financial and Corporate Service Providers Act, 2000; The Financial Transactions Reporting Act, 2000; The Financial Intelligence Unit Act, 2000; The Criminal Justice (International Co-operation) Act 2000; The Proceeds of Crime Act, 2000; The Dangerous Drugs Act, 2000 and The International Business Companies Act, 2000.

These Acts are all designed to address concerns with regards to money laundering regulations and the operation and supervision of financial entities.

Denmark New Withholding Tax Legislation

The Danish Parliament has officially adopted a new legislation regarding withholding tax on dividends. This change will enter into effect for dividends declared or paid on July 1st, 2001 or later.

The new rules as from this date are as follows:

Dividend distributions from a Danish company to its foreign shareholder will be submitted to a 28% withholding tax except if the parent company owns at least 25% of the Danish company and the parent company is domiciled in a country having a tax treaty with Denmark and is not excluded from treaty protection or the parent company is domiciled in a EU country and the distribution is protected by the EU parent-subsidiary directive.

If the above conditions are met there is no withholding tax in Denmark, regardless of the dividend tax rate according to the relevant tax treaty. However, there will remain a number of ways to distribute funds tax free through Denmark as well as to any jurisdiction.

For further information on the above changes contact: aslinger@citco.com

Financial Intermediary Support Service

The Financial Intermediary is pleased to announce that Due Diligence Consultants Corporation provides due diligence reports designed to meet compliance needs of professional providers when accepting or servicing clients. Due Diligence Consultants Corporation's reports provide information relating to the following compliance areas:

Anti-Money Laundering. Money laundering is a crime in most jurisdictions. In order to comply with legal and regulatory requirements the financial intermediary involved at the least, must verify the identity and source of the funds of the clients involved. Anti-Money Compliance Reports(c) provide information about the identity and the source of the funds of prospective and / or existing candidates.

Asset Protection/Integrated Estate Planning. A typical asset protection structure, using an offshore entity, involves a transfer of assets from onshore to offshore. In order for such transfer to be valid the transfer should be made at a time when the transferor is solvent and does not have any judgements, pending and / or threatened litigation. Asset Protection / Integrated Estate Planning Reports(c) provides financial information on prospective client candidates.

Citizenship. United States Internal Revenue Rules regarding Qualified Intermediaries require that the Qualified Intermediary involved identify the citizenship of its clients. Qualified Intermediary Reports(c) provide citizenship verification and financial information as needed.

Due Diligence Consultants Corporation tailors its services to meet the particular volume needs of the client involved. For further information on fee structure (including volume discount), brochure, etc. or to order Anti-Money Compliance Reports(c), Asset Protection / Integrated Estate Planning Reports(c), and / or Qualified Intermediary Reports(c), contact Due Diligence Consultants Corporation in Europe or North America:

North America Office: Kimberly J. Smith, CPA

Tel: 562.663.0700 Fax: 562.663.0706 guardianfinance@mindspring.com

European Office: Samuel M. Lohman, Esq.

Tel: 41.22.317.8020 Fax: 41.22.317.8030 lohman@lsfa-law.com

Website: www.duediligencecorp.com

The OFC Report 2001

Members of The Offshore Institute will receive an added benefit of membership this year - a complimentary copy of The OFC Report 2001. Now in its tenth year, The OFC Report is a respected annual reference source for professionals, both on- and offshore, which require at-a-glance information on offshore centres and their services. As well as reviews of current affairs, The OFC Report provides a comprehensive analysis of the industry, predicts future trends and monitors legal and legislative changes affecting offshore business.

Look for The OFC Report in your mailbox this May.

Know your regulator...

Starting from this issue on we are planning to list the official regulatory institutions of the different Offshore Jurisdictions. We will cover the major jurisdictions in alphabetical order. All information will be listed on our server.

ANGUILLA: Ministery of Finance, Financial Service Department

P.O. Box 60 The Valley, Anguilla. British West Indies

Tel: +1 264 497 5881 Fax: +1 264 497 5872

anguillafsd@anguillanet.com

ANTIGUA: International Financial Sector Authority

Patrick Michael Building , Lower Nevis Street .

P.O. Box 2674 , St. Johns, Antigua

Tel: 268-462-3372

BAHAMAS: Financial Services Board

P.O. Box N-2764, Nassau, Bahamas

Tel: +1 242 326 7001 Fax: +1 242 326 7007

http://www.bahamas.com/business

BARBADOS: Barbados Investment and Development Corporation

Pelican House, Princes Alice Highway

Bridgetown, Barbados,

Tel: +1246427-5350 Fax: +1 246 426-7802

bidc@interport.net

BRITISH VIRGIN ISLANDS: Dept. of Information and Public Relations,

Office of the Chief Minister, Centr Admin Building

33 Adm Drive, Road Town, Tortola. British Virgin Islands

Tel: +1248 494 2052 gismail@caribsurf.com

THE CAYMAN ISLANDS

Portfolio of finance and Economic Development Government

Administration Bldg, Grand Cayman, Cayman Islands

Tel: 345949 7900 Fax: 345949 8650

The Cayman Islands Government Office in the United Kingdom

6 Arlington Street, London, SW1A 1RE

Tel: +44 20 7491 7772 Fax: +44 20 7491 7944

CYPRUS Central Bank of Cyprus

36 Metochiou Street, P.O. Box 5529 CY-2395 Nicosia

Tel: +357 2 379800 Fax: +357 2 378153

http://www.centralbank.gov.cy/

GIBRALTAR Financial Services Commission

Suite 943, Europort, Gibraltar

Tel: +350 40283/40284 Fax: +350 40282

fsc@gibnet.gi http://www.gibraltar.gi/finance/fsc.html

GUERNSEYGuernsey Financial Services Commission

Vlley House, Hirzel Street, St. Peter Port Guernsey

Tel: +44 1481 712706/712801 Fax: +44 1481 712010

info@gfsc.guernsey.net

Welcome New Members of the Offshore Institute

In this section we are proud to introduce the new members that have joined the Offshore Institute. Do not hesitate to contact them! Welcome aboard!

Harris Hastings Barnes III, BA, JD, LLM

Barnes, Broom Dallas and McLeod PLLC

% River Bend Place, Suite A

Jackson Mississippi 39208 USA

Tel: +1 601 981 6336 Fax: +1 601 981 7075

Tbarnes@wealthmanagement.net

René Kooyman, Drs

International University in Geneva

11 Rue Verdaine

P.O. Box 211, Geneva Switzerland

Tel: +41 22 317 8020 Fax: +41 22 317 8030

offshoreinstitute@bluewin.ch

R. Donavan Munford Jr, JD, CPA

Smith Anderson

P.O. Box 2611

Raleigh NC 27602-2611 USA

Tel: +1 919 821 6689 Fax: +1 919 821 6800

dmunford@smithlaw.com

Maurice Offit, Attorney, CPA/span>

Offit, Kurman & Alms, PA

8 Park Center Court Suite 200

Owings Mills Maryland 21117 USA

Tel: +1 410 356 0600 Fax: +1 410356 0602

moffit@affitlaw.com

J. Randy Temple

Cash Management Group, Inc.

3277 Roswell Road Suite 380

Atlanta Georgia 30305 USA

Tel: +1 800 917 2274 Fax: +1 800 858 7194

temple@snd.co.uk

Conference Calendar

The FATF is organising an number of upcoming events:

09-20.05.2001: CARIBBEAN FINANCIAL ACTION TASK FORCE: Mutual Evaluation Examiners' Training Workshop, Caracas, Venezuela

22-24.05.2001: ASIA / PACIFIC GROUP ON MONEY LAUNDERING (APG): Annual Meeting, Kuala Lumpur, Malaysia

04-05.06.2001: FINANCIAL ACTION TASK FORCE ON MONEY LAUNDERING IN SOUTH AMERICA: (GAFISUD), Plenary Meeting, Montevideo, Urugua

05-07.06.2001: COUNCIL OF EUROPE PC-R-EV COMMITTEE: Third Typologies Meeting, Andorra

07-08.06.2001: OFFSHORE GROUP OF BANKING SUPERVISORS: Annual Meeting, Gibraltar

13-25.06.2001: EGMONT GROUP OF FIUs: Plenary Meeting, The Hague, Netherlands

http://www.oecd.org/fatf

The Offshore Investment, Journal for the Offshore Financial Industry, organises: 16/17 May 2001: The 8th Caribbean Conference El San Juan Hotel & Casino, Puerto Rico. The Conference will give an update on key legislation developments in the Caribbean and will handle the Caribbean strategy in dealing with the OECD 2-8 September 2001: The Offshore Postgraduate Seminar, Jesus College, Oxford, England. Director of Studies: Charles A Cain This seminar is dedicated to providing participants with a thorough understanding of the fundamental principles upon which the offshore financial industry is built. Leading figures within the industry will lecture on the legal and commercial aspects that function as the backbone of today's international financial marketplace. 10 & 11 October 2001: Offshore Investment World Offshore Convention - London London Hilton on Park Lane, London, UK.

http://www.offshoreinvestment.com/index.html

SHOREX Paris 2001: 06/07 nov 2001, Le Palais des Congrès.

The SHOREX event is a showcase of international financial & wealth management services, investment management, private banking, internet banking, international tax planning advice, cross-border e-commerce, complex assets management, fiduciary services for European corporate clients, high net worth individuals, and their advisers.

Keynote speakers including leading specialists from the wealth management industry and the international tax-planning sector will address the conference. The programme will be focussing on the latest developments in fiduciary services, international wealth management and planning for the European clientele:

European financial services regulations
The role of the professional adviser
The future of private banking for European HNWIs
Tax principles for European clients & their advisers
Solutions to anti-avoidance legislation by using overseas structures
Trusts and corporate vehicles latest developments
etc

http://www.shorex.com/

Barry Engel is finalising the venue plans for the OI Annual Conference, scheduled for this coming autumn.The short list of locations include Amsterdam, Montreal, and Singapore.Please contact him if you have any particular input on these locations, or if you have suggestions as to speakers, topics, or functions.

barry@offshoreinstitute.com

An OI Icelandic Conference is scheduled around September next. For info: contact Ben Bendelow at

baseltrustjersey@compuserve.com

© 2001 Samuel M. Lohman
11 Rue Verdaine
Case Postale 3377,
211 Geneva 3, Switzerland
Tel: + 41 22 317 8020
Fax: + 41 22 317 8030

Publishing Facility on OI Website