A time to refine

Anthony Bristol, Financial Centre Corporation

The Government of St. Lucia (GOSL) has continued to pay close attention to the growth of its offshore centre and has determined that effective regulation of the industry is the key to long-term success. In this regard, there has been continuous training and exposure of the persons in the regulatory arm, increased cabinet supervision of the industry and proactive modifications to existing laws.

The laws as originally drafted have proven to be well thought out and none of the changes being considered are geared to increasing or decreasing regulatory oversight.

The enabling legislation was passed in December 1999 with the supporting regulations being passed between March and June of 2000. Therefore the centre was fully operational from June 2000 not December 1999 as one may be led to believe from the dates of the various acts.

The requirements of the Money Laundering (Prevention) Act and the Registered Agent and Trustee Licensing Act (RATLA) provide an environment for supervision of professionals. This has been reviewed by the IRS as part of its assessment of the jurisdiction's application for qualified intermediary status and, as expected, St. Lucia's Know Your Client systems have been approved.

The proposed changes to the legislation are therefore geared to improving the flexibility and versatility of St. Lucian offshore entities and also to make them more responsive to market and client needs. There is no change of regulatory effect as the highest standards are maintained and this will not be compromised.

The annual fees initiative

All offshore legislation was amended as of March 17, 2001 to allow prorating of annual fees. These included the incorporation fees for IBC's and the licensing fees for banks, insurance companies, mutual funds, trusts and registered agents/trustees. The intention of this change was to provide a universal renewal date of January 1. At first some providers questioned this initiative, however over time they, their clients, and financial intermediaries have expressed satisfaction with the certainty and simplicity of a single renewal date.

The Income Tax initiative

This instrument seeks amongst other things to provide an incentive for service providers licensed as registered agents or trustees (trust companies) and other professionals providing services to the International Financial Services sector.

For entities licensed under the Registered Agent and Trustee Licensing Act the incentive is a blanket one against all profits as follows:

100% allowance in years 1-4
75% allowance in years 5-7
50% allowance in years 8-10

It is important to note that the corporate tax rate is 33.33%.

Where a person derives income from the provision of professional services other than through an entity licensed under the RATLA, a foreign tax credit will be allowed in respect of the earnings from the International Financial Services sector. The percentage relief will vary from 35% to 95% for a period of 10 years depending on the percentage of profits from foreign currency. The profits from foreign currency earnings which determines the level of relief shall be deemed to be profits arrived at by the formula:

Foreign currency earnings X net profits
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Total Gross earnings

The legislative intent seems to be to encourage the local trust companies to invest in the marketing and development of the industry and to benefit directly from incorporation and basic trust services as well as from other professional services including mutual fund services, audit/accounting services insurance management and administrative services. It is anticipated that these benefits will also attract established providers form other jurisdictions to seek to relocate part if not all of their operations into St. Lucia.

The primary engine for growth in most centres is the International Business Companies Act. This legislation though very flexible and well known, being based on the British Virgin Islands model, did require a few amendments. The most significant is that of the inclusion of provisions for the resignation of a registered agent if unwilling to act for a company. There was not set procedure to deal with an agent wishing to resign and the client not accepting the resignation. Under the proposed changes the agent will serve notice on the company and communicate this to the registrar. If the request is not acceded to then the agent will inform the registrar who will publish the intention in the gazette and if there is no satisfactory reaction, may proceed to strike the company off.

The original draft did have the limitation of requiring the authorized capital to be in US dollars. This has been changed to "any currency" in the interpretation section and elsewhere. Another noteworthy change is the removal of the word "for use as an office" in the statutory exclusions of what is regarded as "not doing business in St. Lucia". This provision had caused some uncertainty and it was felt that the limitation was unnecessary and may be seen to be restricting the flexibility of St. Lucia IBCs.

Some attention was paid upon revision to the income tax election in the act. This election allowed a company either to be subject to income tax at a rate of 1% or to be exempt from tax. It was not clear previously if a company could elect to pay/not to pay tax and then simply change this election. The amendment proposed makes it clear that an IBC may elect to pay tax either at incorporation or after incorporation. An IBC may elect to pay tax after incorporation only if it did not elect not to pay tax at the time of incorporation. However once a company has elected to pay tax it is bound by this election for the life of the company. A company that does not elect either way at the time of incorporation is deemed not to be liable to tax but is still able to make a later election to be liable to tax at the statutory rate of 1%.

It is important to note that the St. Lucia IBC Act does differ from that of the BVI and other centers as it makes no provision for bearer shares. It was felt at the time of drafting that this would not be sustainable as there would be need for more certainty of the beneficial owners of offshore entities. In light of the FATF initiatives and the recent events of 9-11 this thinking has been proven correct.

The International Mutual Funds Act

The amendment to this legislation is geared to provide for the professional market which has been developed in large measure in the BVI. These funds are very flexible both in terms of the number of members up to 100 in the St Lucia fund vs. 50 in the BVI with a minimum investment of $50,000 per member whereas this is $100,000 in the BVI. There is no restriction on participation by an IBC thereby providing even more flexibility. One useful difference is that unlike the BVI where there are three categories, the St. Lucia model simply expands the class of private fund maintaining a simple two-tier system of private and public funds. The early start up provisions have been introduced which allow for a private fund to operate for a period of up to 21 days prior to registration provided certain conditions are met. This compares favourably with the BVI where the period is 14 days.

The International Trust Act

The most important amendment to this act relates to the definitions and exemptions relating to taxation of trustees of qualifying trusts. As this is the subject of a separate article in this feature no more will be said at this time.

Other changes simplify the registration process removing the need for an attorney's certificate and allowing the registered trustee to certify that the international trust accords with the act. There is no more ring fencing and so though St Lucian real property is excluded, the settlor or the beneficiaries can be resident at the time of settlement - their individual tax liability will be assessed under the domestic income tax act.

Conclusion

Legislative responsiveness tied in with a definite strategy to position St. Lucia as a model reputable jurisdiction are proving critical to St. Lucia's acceptance and growth in the industry. While many other centers are desperately trying to get their legislation up to speed St. Lucia has the luxury of being able to focus on refining what is surely one of the finest suites of offshore laws to be found anywhere.