Introduction
On December 27th 2018 St. Vincent and the Grenadines amended its IB 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:
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The regime accords advantages to non-residents to which residents do not have access;
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Advantages are ring fenced from the domestic market;
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Advantages are granted without the requirement for real economic activity in the country concerned;
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The rules of profit accumulation depart from international rules (transfer pricing-multinational companies); and
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Tax measures lack transparency or legal measures are applied in non-transparent way.
Under threat of being blacklisted as a ‘tax haven’ by Dec 31st 2018, SVG committed to
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Undertake a review of the legislative framework for the international financial services and more particularly, the International Business Companies (Amendment) Act, the International Trusts Act and the Income Tax Act, with a view to addressing by amendment or abolition, identified harmful taxation practices pertaining to the EU Tax Criterion 2.1 by December 31st, 2018.
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Take the necessary steps to join the Base Erosion and Profit Shifting (BEPS) Inclusive Framework and commit to adhering to its minimum standards December 31st, 2018.
The legislative changes made by St. Vincent and the Grenadines have had the effect of abolishing what the EU deemed “offending regimes” under the EU Code of Conduct 2.1 Criteria, which is the Criteria dealing with Fair Taxation.
The impact of the changes to the IBC Act, which only affects companies formed post January 1, 2019 are:
IBCS are now known as Business Companies (BCs)
BCs are required to file shareholders and directors
Large BCs are required to file financial statements
BC can not issue bearer shares
BCs are subject to income tax
Customs tax exemptions remain
BC regime is now open to locals. The restriction that IBCs had against doing business with residents in now removed.
There is a transitional provision that has been put in place whereby companies formed prior to January 1, 2019 are not subject to the new changes to the IBC Act until June 30th 2021.
Further the Government has indicated its commitment to consolidate the domestic Companies Act with the Business Companies Act, as now that the “international” element has been removed from the Business Companies Act, there is substantial overlap between the BC and the domestic company. As such the two regimes must now be merged. This is expected to take place imminently.
Changes to the International Business Amendment and Consolidation Act, Cap 149
Act No 36th of 2018, entitled the Act to amend the International Business Companies Amendment Act Cap 149, enacted on 31st December 2018 brought about major changes to the IBC regime in St. Vincent and the Grenadines.
IBCS to BCs – can now do business with residents
The Act firstly changes the name of the International Business Company (IBC) to a Business Company (BC).
Section 7 which is the provision that restricted IBCS from doing business with residents is deleted and IBCS are now referred to as Business Companies. As such business companies CAN do business with residents.
Classes of Shares
It provides that for the class of shares allowed, the rights, privileges, limitations and conditions must be specified in the Articles. It mandates that a statement of all classes of shares shall be listed in the Articles with information about the rights that attach to each share.
Also if the right to transfer the shares is to be restricted, a statement to this effect must be set out in the Articles.
Any restriction of the business that the company can carry on must also be set out in the Articles.
Special rules for Large Companies
It introduces the idea of a “Large Company”, to which special rules apply.
A Large Company is a business where in respect of a financial year, the gross revenue for the company exceeds four million dollars or as at the last day of the financial year, its total assets exceeded two million dollars.
It repeals the definition of approved Custodian, because it abolishes bearer shares, as such a definition of approved custodian is no longer needed.
It defines that a Registered Agent in relation to a Business company is the one which is specified in its Articles.
The amendment specifies that only a Registered Agent may file an application for the incorporation of a Business Company.
The new Act provides that a company can issue more than one class of shares and a class of shares in series provided that this is all set out in the Articles.
No bearer shares
The amended Act repeals the right to issue bearer shares.
The amended Act imposes a requirement, in relation to the transfer of registered shares, where the Transferee MUST sign the instrument of transfer if a liability to the business company is imposed on the transferee.
All IBCS that own an interest in property must have the Registrar certify that all taxes have been paid upon the transfer of shares.
Regarding companies that have members, a change was introduced whereby the guarantee member may also be a shareholder.
The Act is amended whereby the Register of Members shall contain information as may be prescribed (what this may be it is not known at this stage). It has also been amended to state that the entry of the name of a person on the Register of Members as the holder of a share is prima facie evidence that legal title in the shares vests in that person.
Duty to file information on shareholders
One of the most far reaching amendments to the IBC Act, is the amendment to Section 54 which now requires that Notice must be filed regarding membership in the following circumstances:
- Within 35 days of a certificate of incorporation of a company being issued, a company must file a notice setting our prescribed information
- Within 7 days after the first member has been entered on the register, a company must file a notice of members
- A change of members or a change of address or name of any member must be filed within ten days of the change occurring or the business first becoming aware of the change
A company that fails to do filing as required above faces a fine of US$20,000.00
Requirement to have a Registered Office
The new amendment requires that all companies must have a registered office in the state and that registered office may be the office of the Registered Agent. Failure to have an agent results in a fine of US$25,000.00
All companies must have a registered agent and that agent must be someone who holds a valid licence.
Record keeping requirements
The new Act introduces a require for certain records of the business to be kept at the office of the registered agent. These are:
- Articles and by laws of the company and any shareholder agreements
- The register of members of the company and classes of members and committees of members
- The register of directors of the company and committees of directors
- Copies of all resolutions by members or directors or committees
- The minutes of the company or information as to where the minutes are kept
- The register of charges
- A copy of each notice or other document filed by the company for the past ten years
The fine for breaching this section 70 is US$20,000.00
Obligation to keep financial information
A business company is now required to keep financial information that is sufficient to :
- Show and explain all its transactions
- Enable the financial position to be determined with reasonable accuracy at any time
- Enable it to prepare financial statements, declarations of solvency or returns
- Enable its financial statements to be audited
If these are kept outside the registered agent office, there must be clear evidence of where they are kept known to the agent.
The fine for breach of section 72 is US$20,000.00
Requirement for large companies to file financial statements
Large companies are now required to no more than 4 mnths after its balance date have completed financial statements dated and signed. The financial statements must be prepared in accordance with accounting standards.
A large company shall no later than 5 months after its balance date, file a copy of its financial statements, and a financial return.
Fine for breach of 76 D is 20,000.00
Small companies are require to prepare and file declaration of solvency within 5 months of its balance date. Failure to file is US$20,000.00 fine
If a director signs a declaration of solvency containing false information the fine is US$50,000.00
Notice of Directors and Change of Directors must be filed
Notice of directions under section 88 must now be filed within ten (10) days of the appointment of a director.
Where there has been a change of director, such notice must be filed within ten (10) days of the change occurring or the business company first becoming aware of the change. Same applies to change of address or name of director.
Failure to comply with the section 91A means a fine of US$20,000.00
New Striking Off Powers
The Registrar under the amended Act may now strike a business company off the Register if the Company does not have a registered agent, fails to file any return notice or document required to be filed. The Registrar may also strike off the company if it has ceased to carry on business or is carrying on business without a licence or permit required or it if fails to pay any fee payable under this Act or Regulations. If the Registrar is of the opinion that there is a reason why the company should not be struck off the Register, the Registrar may refer the company to the Authority for investigation.
If a company has been struck off, the Registrar cannot restore it to the Register unless he is satisfied that a licensed person has agreed to act as a registered agent for the company and it would be fair and reasonable for the company to be restored.
Members can initiate investigations
There is a new provision for a member of a business company to apply to the court for the company or any of its affiliates to be investigated. It must show the Court:
a. That the business is being carried out with an intent to defraud
b. The company was formed fraudulently or with an unlawful purpose or is to be dissolved for a fraudulent or unlawful purpose
c. The person who incorporated the company has acted fraudulently or dishonestly
d.It is in the public interest that an investigation be made
Now subject to Income Tax
All provisions that existed in the principal Act in relation to taxes are repealed and replaced with the following:
No estate, inheritance, succession or gift tax is payable by persons who are not persons resident or domiciled in the State with respect of any shares, debt obligations or other securities of a business company.
The following are exempt from stamp duty:
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Any instrument relating to a transfer of property other than real property situate in the State to or by a business company
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Any instrument relating to transactions in respect of the shares, debt obligations or other securities of a company incorporated under this Act
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Any instrument relating in any way to the assets or activities of a business company and
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Any instrument relating to the legalization of any document pertaining to a business company.
Regarding customs duties, a business company is exempt from import duties pertaining to the importation into the State of any office furniture or equipment necessary for conducting its business.
A business company shall upon incorporation receive a certificate indicating that it is exempt from such import duties.
Nothing in this Act exempts a business company in relation to taxes arising from owing real property in the state.
Section 180(1), which allowed IBCs to be exempt from the provisions of the Income Tax Act, was deleted, which now brings business companies into the realm whereby they are subject to local corporate tax, income tax etc.
Transitional Provisions
All companies (IBCs) incorporated before the commencement of the amendment (prior to January 1, 2019) shall continue as if the Act has not been amended, up until 30th June 2021.
Accordingly all IBCS in existence prior to Jan 1, 2019 shall continue to be tax free until 30th June 2021, similarly they will not be subject to the new requirements of the Amendment until that time.