Peter Macfarlane comments on Offshore Companies, Banking and Investing for Q Wealth Report
Even though not much has appeared in the press since the election of the new British government, it’s clear from the word on the street that offshore service providers in the BVI and TCI are feeling the heat…
Some years ago, especially under Margaret Thatcher, policy in London was to encourage the development of offshore financial centres in British territories around the world. It suited Whitehall perfectly: a diverse group of islands with not much going for them, except small tourist industries and dying sugar and banana businesses, could – with the advent of fibre optics and the like – suddenly become tropical trading desks and would no longer need to be propped up with subsidies.
Some islands, like Anguilla, have become minor offshore players that never really took off. Others, most notably the BVI (British Virgin Islands), the Cayman Islands and the TCI (Turks and Caicos Islands) have done really well for themselves, carving out respective niches in the offshore investing business. Cayman is famous for offshore banking and captive insurance, while BVI is possibly the world’s most important offshore corporate registry with a reputation for quality. Over 600,000 IBCs or International Business Corporations are incorporated in the British Virgin Islands, with most of the demand for such services these days coming from Asia.
Unfortunately, all is not rosy and the professional service providers in the BVI and elsewhere are clearly worried. Very worried. Offshore finance has become a thorn in the side of the British government and today, it is something they would love to close down. It can’t be done overnight, as revenues from the offshore finance business provide the largest single contribution to BVI government revenues. But every move London makes in this direction is another nail in the coffin for jurisdictions like the BVI and TCI.
Last year, then UK Prime Minister Gordon Brown explicitly warned several British overseas territories that they would face tough economic sanctions if they did not make further commitments to increase tax transparency and dilute banking secrecy. Faced with little choice, they jumped to attention immediately. The new British government is no less hostile to the British offshore havens, and the writing is on the wall.
I have advised clients for years to avoid doing offshore business in British territories but people are sometimes tempted by the good publicity and marketing, and the assurances from company formation providers there that “everything will be OK.” Recently, however, I’ve had a stream of clients with BVI Business Companies looking to redomicile. Even though not much has appeared in the press since the election of the new British government, it’s clear from the word on the street that offshore service providers are feeling the heat.
Where then, can you go?
You may not have to go far. A lot of people don’t understand the difference between British territories and Members of the British Commonwealth.
British territories are ‘owned’ by the UK. While territories operate with a substantial degree of independence, they are not democratic but are ruled by governors sent from London to represent the Queen.
Members of the Commonwealth, however, are independent sovereign nations who do not have to obey diktats from London. This group include offshore centres like the Bahamas, Antigua, St Vincent, Dominica and my personal favourite for a number of reasons: Nevis. (It’s no coincidence that two of these countries offer economic citizenship programs, that the British territories cannot because people who live on those islands hold British passports)
Looking a little further afield, Panama is another of my favourites. I like to tell people, somewhat tongue-in-cheek, that Panama is a ‘real country’. What I mean by that is you can live there without getting island fever. Panama, with its canal, is a real hub of international trade, of such strategic importance that the US are not about to mess with it. While everyone knows that a BVI company is only at best a brass plate that is not even permitted to do any local business in its place of incorporation, Panama is a real thriving business centre, travel and trade hub where you can easily fly in set up a serious office. Panama also has hundreds of stable banks, whereas little Caribbean islands typically have two or three that are worth speaking of.
So my advice: if you’re looking to incorporate offshore, avoid jurisdictions that are British territories.
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