I have reviewed the following laws in preparing this summary:
- The International Trusts Act, Cap 491 of the Laws of St. Vincent and the Grenadines Revised Edition 2009, hereinafter referred to as the “ITA.”
- The International Trusts (Amendment) Act, 2018, hereinafter referred to as the “Amendment Act.”
- The Income Tax Act, Cap 435 of the Laws of St. Vincent and the Grenadines Revised Edition.
INTRODUCTION
On December 27th 2018 St. Vincent and the Grenadines amended its IBC and Trust legislation to meet its commitments to the EU Code of Conduct Group (Business Taxation) under its Tax Governance initiative and at the same time to the OECD Base Erosion and Profit Sharing (BEPS) Inclusive Framework.
The SVG IBC Act and International Trust Act were deemed to offend Criteria 2.1 (prior to the Dec 27th amendments) in the following ways:
- The regime accords advantages to non-residents to which residents do not have access;
- Advantages are ring fenced from the domestic market;
- Advantages are granted without the requirement for real economic activity in the country concerned;
- The rules of profit accumulation depart from international rules (transfer pricing-multinational companies); and
- Tax measures lack transparency or legal measures are applied in non-transparent way.
TRANSITIONAL PROVISIONS
St. Vincent trusts are in a state of transition. On 31st of December 2018, the Amendment Act was passed, amending the ITA, which had governed international trusts up until that point in time.
The Amendment Act contained a transitional provision which sets out that the provisions of the Amendment Act do not come into force until 30 June 2021. However it will apply right away to trusts set up after 1 January 2019.
The Amendment Act provides as follows:
"66A.(1.) Subject to subsection (2) this Act shall continue to apply up to 30th June 2021 if a trust is registered under this Act before 1 January 2019 as if the provisions of this Act have not been amended on the commencement of this section.
(2) notwithstanding subsection (1), the provisions of this Act as amended on the commencement of this section shall apply to
(a) intellectual property assets acquired or newly created by a trust on or after 1 January 2019; and
(b) income derived from –
(i) the intellectual property assets referred to in paragraph (a)
(ii) specific assets acquired by a trust on or after 1 January 2019; or
(iii) specific projects commenced by a trust on or after 1 January 2019.
Based on these transitional provisions, if a trust is registered prior to 1 January 2019, you need to look at the ITA to determine what rules apply to it, that is up until June 30th 2021 – when the Amendment Act will apply to all trusts; while if it is registered after 1 January 2019, the rules of the Amendment Act will apply straight away.
DOES A TRUST NEED TO REGSITER WITH THE FSA AND WHAT IF ANY ARE THE ADVANTAGES OF REGISTRATION
Neither the ITA nor the Amendment Act requires that a Trust be registered.
However, section 5 of the ITA provided that the Act only applied to registered trusts. As such while you were not required to register a Trust, if you did not so register, it was unclear which law would govern the Trust as presumably the Trust statute could not apply. The Act had stated “This Act applies only to trusts… which are registered in accordance with the provisions of Part XII hereof.”
Section 5 has now been repealed by the Amendment Act, as such the ITA will now apply whether the Trust is registered or not. (This of course being subject to the transition provisions, so it will impact trusts established prior to Jan 1 2019 only at end of June 30 2021 etc).
Under the ITA section 52, it provided that “An international trust may be registered as provided in this Part, and if it is so registered then the following benefits shall inure to the trust and to the settlor thereof.” This means that it has not been mandatory for trusts to register.
Section 52(2) goes on to state that if an international trust is registered then the trust, its income and its beneficiaries are entitled to the exemptions from tax and duties set forth in Part XIII. As such while you were not required to register, you did not get the benefits of tax exemptions and arguably due to section 5, the benefits of the Act altogether.
Part XIII contains a comprehensive list of exemptions, which includes that all income, profit or gain realized or received by a trust or any beneficiary of a trust shall not be subject to income tax by the State.
Under the Amendment Act section 52, a trust, may be registered. It provides “A trust may be registered under this Part.” As such the Amendment Act did not move away from the traditional discretion that could be exercised regarding the decision to register or not. It remains the case that trusts in St. Vincent do not need to be registered.
According to the Amendment Act, all the comprehensive list of tax exemptions of Part XIII of the ITA are repealed and replaced with the following exemption, which applies to non-resident beneficiaries.
It reads:
“Exemptions. 62 (1) No estate, inheritance, succession, gift tax, duty, levy or other charge is payable by non-resident beneficiaries of the trust with respect of any income or assets of a trust registered under this Act.”
As such under the Amendment Act, there is still a tax advantage remaining, this one to non-resident beneficiaries. This however, only applies to trusts registered under the Act.
JURISDICTION OF THE COURTS OF ST. VINCENT AND THE GRENADINES
Under the ITA, section 35, for the Court of SVG to have jurisdiction in respect of any matters concerning an international trust, the following had to be in place. (Due to the use of the word ‘or’ it was enough that any one of these aspects were present.)
A. The proper law of the trust, is the law of St. Vincent and the Grenadines
B. A Trustee of the Trust is a Resident
C. Any Part of the administration of the trust is carried on in the State, or
D. The Trust is registered under this Act.
Under the Amendment Act, section 35 is amended so that instead of “a Trust registered under this Act,” it reads “a registered trust.” It also goes on to add another provisions that is “E. any trust property of the Trust is situated in the State.”
As such the Amendment act appears to widen the trusts that can have the benefit of St. Vincent and the Grenadines having jurisdiction in that it applies to “a registered trust,” not just one “registered under this Act.” As such presumably a trust registered under another jurisdiction can have the benefit of SVG jurisdiction. However, it must have a nexus to St. Vincent and the Grenadines such as having assets in the State or a Resident Trustee etc.
REQUIREMENT TO HAVE A REGISTERED TRUSTEE
While trusts are not required to be registered, according to Section 6A 2(c) a trust is only valid if it has at least one trustee who is a registered Trustee. This is in accordance to Section 8 of the Amendment Act which adds this Section 6A to the ITA.
TAXATION OF TRUSTS
The Amendment Act removes the comprehensive list of tax exemptions that applied both to Trust income and to beneficiary income. However it left in place an exemption for income of non-resident beneficiaries.
It provides: “Exemptions. 62 (1) No estate, inheritance, succession, gift tax, duty, levy or other charge is payable by non-resident beneficiaries of the trust with respect of any income or assets of a trust registered under this Act.” However, this exemption only applies to trusts that have been registered under the Trust Act.
How does the local Income Tax Act treat trusts and is it relevant?
First one must consider why was the Amendment Act introduced.
The policy aim of the Government in introducing the Amendment Act was to comply with the European Union Code of Conduct Group requirement to remove the ring fencing around offshore entities and to bring them in line with how onshore entities are treated, to remove so-called ‘unfair tax advantages’. As such, one might wish to raise the question, now that the word ‘International’ has been removed and trust have been opened up to residents, can the local Inland Revenue seek to tax trusts?
Historically and to this date, the Inland Revenue has not attempted to tax or regulate trusts. Trust are still rare and somewhat unfamiliar vehicles in the onshore world in St. Vincent and the Grenadines. However, it is important to note that at least in theory, the Inland Revenue can tax trusts.
Section 15(1) of the Income Tax Act Cap 435 of the Laws of St. Vincent and the Grenadines Revised Edition 2009 provides as follows:
"(1) Subject to subsection (3) any income accruing to a trust, where there is no beneficiary entitled to the immediate benefit thereof, shall be included in the assessable income of the trust and the chargeable income ascertained therefrom shall be charged to tax in the name of the trustee.
(2) Subject to section 14, any income accruing to a trust, where there is a beneficiary entitled to the immediate benefit thereof, shall be deemed to have accrued to the beneficiary and shall be included in his assessible income.
The taxation of income on trusts based on the Income Tax Act would only apply where the trust is deemed to be resident. However, the tax exemption to non resident beneficiaries would apply based on the Trust Act as the ITA is now called.
According to the Income Tax Act a trust is resident if it is established in St. Vincent and the Grenadines.
BENEFICIARIES
The Amendment Act has added a new section making it clear how much certainty there must be regarding naming of beneficiaries. It allows for both a named individual and a class of individuals to be the beneficiaries. It also allows a person to be a beneficiary by virtue of a relationship with someone else, even if they are not specifically named.
9A. Beneficiaries of a trust
(1) A beneficiary shall be–
(a) identifiable by name; or
(b) ascertainable by reference to–
(i) a class; or
(ii) a relationship to some person whether or not living at the time of the creation of the trust or at the time which under the terms of the trust is the time by reference to which members of a class are to be determined.
(2) The terms of a trust may provide for the addition or removal of a person as a beneficiary or the exclusion of a beneficiary from benefit either revocably or irrevocably.
(3) The terms of a trust may impose an obligation on a beneficiary as a condition of benefit.
(4) A settlor or trustee of a trust may also be a beneficiary of the trust.
SUMMARY
Trusts are not required to be registered in St. Vincent and the Grenadines, neither under the International Trust Act Cap 491 nor The Trust Act Cap 491, as amended by the provisions of the International Trusts (Amendment) Act, 2018. There are however tax benefits to registration, as set out above.