So, you haven’t given up on your idea to start a casino on your own. Good! Initiative and ambition are key to succeeding with an endeavour like this.

And you want to get your own license/operation? Are you sure you don’t want a whitelabel solution? Really? All right, then…

Over the years, I have formed, worked at, consulted for, or otherwise been engaged in gambling operators from most corners of the world. A lot of people see forming a casino as a get-rich-quick scheme, when in reality it’s not. Starting an online gambling operation requires time, money, knowledge, marketing experience, banking connections, and – again – money. If you lack knowledge, marketing experience, and banking connections, give money to the right people and they will do it for you.

In this post, I will be going through some of the major as well as a couple of minor online gambling (igaming) jurisdictions. This will not be in-depth. Instead, more in-depth articles on the most interesting jurisdictions will come in the future. While this post uses terminology indicating what is or isn’t legal or regulated, this is as always not legal advice and you’d be a very special kind of fool to use this post as a reliable source. There are legal professionals out there who can help you and give you legal advice.

In many cases of high cost of operation, it’s possible to operate from elsewhere. For example, you can hold an Italian gambling license without operating in the nightmare that is Italian business climate. Instead, several Italian igaming license holders operate from Malta. It is often sufficient to have a legal entity which holds the license, but which is owned and operated by a foreign company.

You’re going to need an atlas for this one.

• Åland Islands
• Albania
• Andorra
• Antigua and Barbuda
• Argentina
• Aruba
• Austria
• Australia
• Belgium
• Belize
• Bolivia
• Bosnia and Herzegovina (Republika Srpska)
• Bulgaria
• Canada (Kahnawake)
• China
• Colombia
• Comoros (Anjouan)
• Costa Rica
• Croatia
• Curaçao
• Cyprus
• Czech Republic
• Denmark
• Dominica
• Dominican Republic
• Ecuador
• Egypt
• Estonia
• France
• Georgia
• Germany
• Ghana
• Gibraltar
• Grenada
• Guernsey (Alderney)
• Hungary
• India (Sikkim)
• Ireland
• Isle of Man
• Italy
• Jamaica
• Jersey
• Latvia
• Kazakhstan
• Kenya
• Macau
• Malta
• Moldova
• Montenegro
• Netherlands
• Nigeria
• Panama
• Paraguay
• Peru
• Philippines (Cagaya)
• Poland
• Romania
• Saint Kitts and Nevis
• Saint Vincent and The Grenadines
• Sark
• Serbia
• Seychelles
• Slovakia
• South Africa
• Spain
• Tanzania
• Turkmenistan
• United Kingdom
• Vanuatu

Åland Islands

• Finnish territory.
• Effectively limited to a state-run monopoly.
• Does not issue new licenses.

Albania

• Does not issue licenses, but permits foreign license-holders to operate from within Albania.
• Likely to change law in near future to kick out foreign license-holders.
• Unlikely to start issuing its own licenses.

Andorra

• Not yet live but is considering it.
• See also Jurisdiction Spotlight: Andorra.

Antigua and Barbuda

• One of the Caribbean’s finest.
• Low tax. Low cost.
• Pretty good reputation for gambling.

Argentina

• Fickle, unreliable regulator and authorities.
• Medium tax.
• Medium costs of operation.

Aruba

• Quite poor reputation, due to lacking oversight.
• Easy-going; probably too easy-going. That is, if you can even find them.
• Low tax and low license costs.
• Low costs.

Austria

• Strict limitations on bet amounts.
• Highly reputable.
• High costs of operation.
• Medium to high tax.

Australia

• Gambling operations restricted to certain territories (Tasmania, Norfolk Island, Victoria).
• Only useful for Australia.
• Moderate to low tax.
• Moderate license costs.

Belgium

• Regulated market.
• High costs.
• Only useful for Belgium.

Belize

• Medium tax. Belize gambling license holders are not your usual zero-tax IBCs.
• Quite low license costs.
• Low costs of operation.
• Little-known jurisdiction.

Bolivia

• Legal vacuum. Not entirely unlike Costa Rica.
• Should probably not target Bolivian players.
• High tax.

Bosnia and Herzegovina (Republika Srpska)

• Licenses issued by Republica Srpska.
• Dubious legality.
• Not yet recognized by Bosnia and Herzegovina itself, but not clamped down on either.

Bulgaria

• Very few licensees so far, due to previously very high tax.
• Medium to low tax.
• Low costs.
• Regulated market.
• Only good for Bulgaria.

Canada (Kahnawake)

• Mohawk territory – outside of any Canadian control.
• Low tax.
• Medium high costs of operation.
• Home to several well-known brands.
• Good reputation.

China

• A handful of foreign companies have been licensed.
• Barely any license law. All done on case-by-case basis.
• High tax.

Colombia

• Likely to enact gambling friendly laws in the near future.

Comoros (Anjouan)

• Has seen civil war in the last decade.
• Quite possibly the igaming jurisdiction with the worst reputation in the world.
• Not taken seriously.

Costa Rica

• Legal vacuum: it’s legal because it’s not illegal.
• No license requirements at all, which also means no player protection, which damages the reputation.
• Low tax. No tax.
• Low costs.

Croatia

• Igaming licenses only available to land-based casino present in Croatia.

Curaçao

• One of the Caribbean’s finest.
• Easy-going, lax regulation.
• Low license costs.
• Low tax.
• Low costs of operation.
• Has a fairly clever legislation of master and sub licenses.
• See also Jurisdiction Spotlight: Curaçao.

Cyprus

• Was unregulated for a long time but suddenly threw out gambling operators.
• Currently only licenses sportsbettings (fixed odds) and lotteries.
• Low to medium tax.
• Low costs of operation.
• Poor reputation in the igaming sector.

Czech Republic

• Tried and failed (due to lack of interest) a licensing legislation.
• Likely to try again in 2015/2016.
• Low costs of operation.
• Decent reputation.

Denmark

• Regulated market.
• Only suitable for Denmark.
• Requires integration into national ID database.
• Medium tax; surprisingly low for being one of the highest tax countries in the world.

Dominica

• Another Caribbean try-hard.
• Very few licenses issued.
• Low tax.
• Decent potential, with plenty of low-cost English-speaking staff available.

Dominican Republic

• Flip-flopping legislators.
• High tax, maybe.
• Unclear if issuing licenses for online gambling.

Ecuador

• Legal vacuum. Similar to Bolivia above.
• High tax.

Egypt

• Probably the only gambling-positive Muslim jurisdiction.
• Laws written before Arab Spring.
• Unclear if new government will continue to issue licenses.
• Medium taxes.
• Low costs.

Estonia

• Regulated market.
• Only suitable for Estonia.
• Low tax.
• Low costs.

France

• Only Italy has a less competent gambling authority, though the cluelessness competition is fierce.
• Quite high tax.
• High costs.
• Regulated market.
• Only suitable for France and French overseas departments and territories.

Georgia

• While completely legal, effectively only used for terminals at resorts.
• Very few igaming licenses issued and actually used.
• Medium tax.

Germany

• Grossly incompetent and business-hostile legislators.
• The wealthy state of Schleswig-Holstein made an attempt to legislate online gambling but later stopped.
• High tax.
• High costs.

Ghana

• Very, very limited international exposure.
• Medium taxes.
• Low costs of operation.
• Very few licenses issued.

Gibraltar

• Excellent jurisdiction.
• Low tax.
• Medium costs of operations.
• Highly reputable jurisdiction.
• Excellent gambling authority.
• Strong player protection.
• See also Jurisdiction Spotlight: Gibraltar.

Grenada

• Caribbean try-hard.
• No big names are licensed here.
• Less than 10 licensees in total.
• Low tax.
• Low costs of operation.

Guernsey (Alderney)

• Reputable, well-regulated market.
• Low tax.
• Medium to high costs.
• Home to several large operators as well as gambling software suppliers.
• Sark – also a part of the Bailiwick of Guernsey – also issues online gambling licenses.
• See also Jurisdiction Spotlight: Guernsey.

Hungary

• High license costs.
• Unattractive.

India (Sikkim)

• The government flip-flops on the gambling regulation more than a fresh fish in a frying pan with salt.
• High tax.
• Low costs.
• Underdeveloped region and country.
• Extremely remote. If you thought your flight was long, just wait for the even longer ride by car up the mountains. Buy travel insurance. And life insurance.

Ireland

• Tolerates supporting operations of gambling but not direct offer of online gambling from Ireland.
• Online gambling licenses expected by 2015/2016.

Isle of Man

• Reputable, well-regulated market.
• Low tax.
• Quite high costs of operation.
• Home to several large software suppliers and skins and whitelabels operated through the suppliers.
• Some of the largest operators are licensed here.
• See also Jurisdiction Spotlight: Isle of Man.

Italy

• World champion in gross incompetence.
• Unattractive tax.
• Italian bureaucracy.
• Regulated market.
• Only suitable for Italy.

Jamaica

• Only once license issued.
• Very little is known.
• Unresponsive regulator.

Jersey

• Overall small and quite insignificant.
• Has not yet issued any gambling license to operators.
• Has issued two licenses for provision of remote gambling web hosting as well as three independent software testing providers.
• Low tax.
• High costs.
• Reputable.
• See also Jurisdiction Spotlight: Jersey.

Latvia

• High license costs (1 million LVL minimum).
• Medium to low tax.
• Low costs of operation.
• Ownership majority must be within EU.
• Decent reputation, although mainly as a hub for software providers and live dealers.

Kazakhstan

• Very uncertain market.
• Only a handful of licenses given out. Bribes probably involved.
• Casino games are disallowed, whereas all other types of games are allowed.
• Corrupt and quite high tax.

Kenya

• Has only issued one license so far.
• Low costs.
• Unknown tax rates; probably medium to high.

Macau

• The premier gambling jurisdiction in Asia but does not presently issue online licenses.
• Quite reputable internationally; most reputable in Asia.
• Low tax.
• Lost costs of operations.
• Somewhat overwhelming bureaucracy but it’s getting better.
• See also Jurisdiction Spotlight: Hong Kong and Macau.

Malta

• Excellent jurisdiction. My personal favourite.
• Responsive and cooperative gambling authority.
• Low tax.
• Low costs for hiring staff, setting up office, server hosting, et cetera.
• Reasonable license costs and application fees.
• Strong player protection.
• Home to hundreds of licensed operators and thousands of brands, skins, and white labels.
• See also Jurisdiction Spotlight: Malta.

Moldova

• Legal vacuum; probably legal to offer gambling from Moldova without a license.
• Government is moving towards licensing online gambling. Slowly.
• Corrupt. Bad reputation.
• Low to medium tax.
• Low costs.

Montenegro

• Fairly young (2011) igaming jurisdiction, trying hard to be recognized.
• Relatively cheap license.
• Poor international reputation, but steadily improving.
• Low tax.
• Low costs of operation.
• Gambling-friendly banks.

Netherlands

• Regulated market.
• Only useful for the Netherlands.
• Decent tax.
• High costs of operation.

Nigeria

• Only a handful of licenses issued.
• Unclear license costs.
• Bad reputation.

Panama

• Quite reputable, well-regulated igaming.
• Low tax.
• Quite low costs of operation.
• Relatively low license costs.

Paraguay

• Legal vacuum. Similar to Costa Rica but without the friendly mindset.
• Government is skeptical, even hostile, and likely to regulate the market.

Peru

• Only one license issued.
• Medium tax.
• Low costs of operation.
• Virtually unheard of.
• Highly intrusive government control.

Philippines (Cagayan Special Economic Zone)

• Unclear if recognized by the Philippine national government.
• Bad reputation in the west for its lawless beginnings; OK reputation across Asia-Pacific.
• Over 80 licenses issued.
• Low tax.
• Low license costs.
• Medium costs of operation.

Poland

• Only licenses sportsbetting operators.
• Likely to monopolize casino, poker, and other forms of gambling.
• High tax.
• Low costs.

Romania

• Known as a place that will license anything for the right amount of money.
• Poor reputation.
• Medium tax.
• Relatively high license costs.
• Untested of the license regime is compliant with EU law.
• Low costs of operation.

Saint Kitts and Nevis

• Issues blanket licenses, which do not differentiate between online gambling and brick-and-mortar casinos.
• Low tax.
• Low costs of operation.
• Easy-going regulation.
• License costs are moderate.
• Mediocre reputation.

Saint Vincent and The Grenadines

• Caribbean try-hard.
• Has not issued a single license.
• Low tax.
• Probably low costs of operation.

Serbia

• Regulated market.
• Medium to low costs.
• Only useful for Serbia.
• Poor reputation.

Seychelles

• Has not issued a single license, despite laws being in place since 2003.
• Likely to start issuing licenses in the near future. No one likely to respect them, barring major legislative changes.

Slovakia

• Has license legislation but only one license issued so far.
• Government not particularly gambling positive.

Spain

• Incompetent authority.
• Regulated market.
• High tax.
• Only useful for Spain.

Tanzania

• So far, only once license issued.
• Low costs of operation.
• Moderate license costs.
• Relatively low tax.

Turkmenistan

• While legal, no one has dared apply for a license (or paid the necessary bribes).
• Corrupt.
• International eye-sore.

United Kingdom

• Highly reputable.
• Responsive and relatively easy-going regulator and authorities.
• Very strong player protection.
• Medium taxes.
• High costs of operation.

Vanuatu

• Very little usage; only a handful of licenses issued to date.
• Low tax.
• Quite low license costs.
• Low costs.
• See also Jurisdiction Spotlight: Vanuatu.

Often compared to Panama, Costa Rica is next in line for a closer inspection.

Not exactly a major player in the international financial services sector, what is it that makes this jurisdiction so attractive?

And what is the deal with offshore online gambling in Costa Rica?

Geography and Demography

Map from Wikipedia.

Overview

Costa Rica can best be summed up in a two-worded French phrase: laissez-fare, literally let do. This is a country where asking forgiveness is more common than asking for permission. This stems from a small, corrupt, and underfunded government.

Gambling? Unregulated.

Financial services? Barely regulated.

Regulators and authorities in Costa Rica are famous for taking a hands-off approach to nearly everything. There are things going on in the jungles and cities alike of Costa Rica that would (and often do) make even the most seasoned veteran in financial services, gambling, entertainment, and many other industries blush.

Incorporation and Business

General Information

On the surface, there are a lot of similarities between forming a company in Panama and forming a company in Costa Rica.

Much like with Panama – contrary to popular belief, there is no such thing as IBC in Costa Rica. I cannot make this clear enough. A lot of service providers are marketing Panamanian IBC. No such thing exists.

Instead, there are two primary types of companies: the Sociedad Anónima and the Sociedad de Responsabilidad Limitada.

Reputation

Costa Rica’s reputation is all over the spectrum.

There are many who view it favourably or its business-friendliness, lack of regulation, and general easygoingness.

Then there are many who view it as a place for criminals to hide in plain view, obtaining Costa Rican citizenship to avoid extradition.

It is a tax haven but it is not a problematic one. Secrecy is not high on the agenda – never has been.

Regulator

Regulator? In Costa Rica? Surely, you jest.

SA – Sociedad Anónima

This is the most popular type of company in Costa Rica. It is very similar to its Panamanian counterpart.

Requirements:

• Three directors.
• One shareholder (corporate shareholders are permitted). No maximum.
• No restrictions on residence and nationality of directors and shareholders.
• No minimum share capital is required but 25% must be paid up.
• Registered address in Costa Rica.

Contrary to Panama, bearer shares are not permitted in Costa Rica.

Taxation

Territorial taxation applies. Income earned from outside of Costa Rica are not subject to tax in Costa Rica. Comparable to Panama and Hong Kong.

SRL – Sociedad de Responsabilidad Limitada

The SRL is comparable to LLC, although it is a taxable entity (not a tax neutral or pass-through entity).

Requirements:

• Two members (corporate members are permitted).
• No minimum (or maximum) capital required. Normally 10,000 USD.
• Registered address in Costa Rica.

Taxation

Territorial taxation applies. Income earned from outside of Costa Rica are not subject to tax in Costa Rica. Comparable to Panama and Hong Kong.

Public Records

The Registro Nacional has full records of companies, including names and addresses of directors and shareholders.

Nominees are often used.

Record Keeping (Bookkeeping)

Both SAs and SRLs must keep financial records but need not prepare financial statements. Filing is only required for companies that carry on activities within Costa Rica.

Companies must also keep records of member or shareholder meetings, member or director registries, and shareholder registries.

Noteworthy Service Providers

As always, this is not a recommendation.

• Arias & Muñoz
• ERP Lawyers
• Facio & Cañas
• GLC Abogados
• LLM Abogados
• Mossack and Fonseca
• Pacheco Coto

Banking

Banking in general in Costa Rica is quite lackluster.

There are two types of banks: national (owned by the government) and private.

Government banks are backed by the government, which some perceive as making them more financially stable. They also have a far greater reach with virtually any and all cities, towns, and small villages having at least one of these banks physically present.

Private banks are smaller in outreach but are often part of international banks with more sophisticated services, greater English-language coverage, and being easier to open accounts with as a non-resident (natural person or company).

There is no deposit insurance for private banks.

Regulation and enforcement of the banking sector, securities market, and economic policies falls unto SUGEF (Superintendencia General de Entidades Financieras), SUGEVAL (Superintendencia General de Valores), and the Banco Central de Costa Rica. Interaction with these regulators is generally slow and much of the staff does not speak English.

Opening a bank account in Costa Rica is not as difficult as in Panama but can still be challenging.

Personal bank accounts for non-residents in Costa Rica are relatively easy to open, provided that you appear in person with the bank. It is extremely difficult to mention banks that accept non-resident account opening in Costa Rica. Having a local lawyer is usually beneficial and can in some cases even mean you don’t actually have to visit Costa Rica. The same bank can say no to you one day and yes the other.

Corporate bank accounts for Costa Rican entities are relatively easy to open. Most banks will consider your application even if the company is owned and operated outside of Costa Rica. Non-Costa Rican companies will have a much harder time unless it is for trade in Costa Rican. Panamanian and some other local companies are usually accepted, but subject to lots of scrutiny.

Once opened, expect the bank to ask questions for high amounts (high amount can start as low as 2,500 USD to 10,000 USD) initially and invoices for corporate transactions. However, once the bank has a good understanding of how you use your account and you stick to that, they will almost never bother you.

Fees are generally cheap except for international wire transfers which can be pricey. Private international banks are sometimes cheaper for this, at least for intra-bank transfers.

Banking Secrecy

Costa Rica enjoys a fairly tight banking secrecy.  While authorities are able to compel banks to disclose information and respond to EOI requests under TIEA/DTA, the scope is narrow and SUGEF routinely turns down requests.

While you cannot hide money in Costa Rica like you can in places like Lebanon and Vanuatu and with laws against severe crimes being enforced strictly, its banking secrecy is comparable to Panama – with the added bonus of being lower-profile.

Banks in Costa Rica

There are five state-owned banks:

• Banco de Costa Rica
• Banco Nacional de Costa Rica
• Banco Popular y de Desarrollo Comunal
• Banco Crédito Agrícola de Cartago
• Banco Hipotecario de la Vivienda

The last two are banks created under special laws.

There are 12 private banks.

• Banco BAC San José S.A.
• Banco BCT S.A.
• Banco Cathay de Costa Rica S.A.
• Banco Citibank de Costa Rica S.A.
• Banco CMB (Costa Rica) S.A.
• Banco Davivienda (Costa Rica) S.A
• Banco de Soluciones Bansol de Costa Rica S.A.
• Banco General (Costa Rica) S.A.
• Banco Improsa S.A.
• Banco Lafise S.A.
• Banco Promérica de Costa Rica S.A.
• Scotiabank de Costa Rica S.A.

Costa Rica Gambling Company

So you still want to start a gambling company and you have compared offshore igaming jurisdictions and decided on Costa Rica?

Congratulations, you are in for quite an adventure.

First of all – no, you cannot just form a Costa Rican company, stay in your comfy apartment in Europe, and legally run a gambling company. I know that might be what the friendly sales representative from that offshore service provider you spoke to said, but he or she is wrong.

To oversimplify – your gambling company is going to be resident wherever its management and operations take place, and or wherever the gambling services are offered from. No, renting servers in Panama or Latvia won’t be enough.

A Costa Rica gambling company is going to need a presence in Costa Rica, many opting to set up a small office to leverage the low cost of labour for things like customer service and IT infrastructure.

When it comes to a gambling license, Costa Rica does not offer any. Online gambling is completely legal and unregulated. While the government has made some indications about possibly starting a licensing system, Costa Rica has hitherto not faced any significant international pressure for its laissez-faire attitude towards igaming. (The reaction from EU and EEA has instead been to put restrictions on gambling operators not licensed in the EU/EEA and a handful of approved jurisdictions.)

However, a type of license is required if you set up shop in Costa Rica. This is a simple business license and is very easy to obtain for just a few hundred dollars from whatever municipality your office is in.

Taxation is the same as for other companies: none on income accrued from outside of Costa Rica.

Living in Costa Rica

Quality of Life

It’s not for everyone but for those who like it, it’s fantastic.

Many last only a few months to a year in Costa Rica, around the second time they catch a large snake taking a nap on their balcony. Violent crime is a problem but it’s easily avoidable by taking precautions and using common sense.

While it is possible to survive on just English, learning Spanish is essential if you want to fully assimilate.

The population is often described as one of the friendliest in the world, and I am in full agreement.

Bureaucracy and interaction with institutions can be extremely drawn-out and tedious procedures.

The climate is warm and humid. There is stunning scenery around every corner once you are outside of San José or any other bigger city.

Infrastructure is second only to Panama in the region.

Taxation

Resident in Costa Rica pay income tax on locally sourced income only, meaning that income from abroad is not in scope for tax.

There is generally no capital gains tax (except for certain transactions involving real estate or other special cases). Costa Rica does not have any capital duty, stamp duty, inheritance tax, or wealth tax. Sales tax stands at 13%.

Immigration and Residence

Many nationals are granted 90 days visa free entries as tourists.

Contrary to popular belief, permanent residence in Costa Rica is not as easy as Panama.

Retirees who can show an income of at least 600 USD per month can be granted permanent residence for retirement. Persons under this residency scheme can work in a limited capacity and may not compete with locals.

Excluding this, there are five types of residences in Costa Rica:

Pensionado: for pensioners (retirees) with an income of at least 1,000 USD per month but cannot work in Costa Rica, although they can receive income from foreign companies (which they may or may not own). The annual amount of 12,000 USD must be converted to Costa Rican colónes.

Rentista: for persons with an income of at least 2,500 USD per month. This income must be backed up with bank statements and/or bank letters which prove the stability of the income for at least 24 months. Cannot work in Costa Rica but can own and run companies. Income cannot come from work but should rather be from investments or other passive income.

Again, the minimum amount must be converted to Costa Rican colónes.

Inversionista: requires a deposit of 200,000 USD as investment, either in a government-approved fund or in a local company.

Representante: some company senior managers; must earn at least 25% of the Costa Rican minimum wage. Limited in scope, meaning not anyone can qualify.

Permanent: requires relation to Costa Rica either by marriage or bloodline. Free to work. Full list of requirements can be found on the Dirección de Migración y Extranjería de Costa Rica website (Spanish(.

Citizenship

Costa Rican citizenship can be acquired by residence or by marriage to a Costa Rican national. Marriages are often scrutinized by authorities, as it is often used for a way for criminals to evade extradition since Costa Rica does not extradite its own citizens.

Final words

I have heard Costa Rica described as the wild west in the jungle, and while that fails to account for the full spectrum of everything from the busy San José to the less so towns and villages in the mountains, it is pretty accurate.

Life in Costa Rica is never boring. It somehow manages be the most peaceful and then the most hectic place on earth.

For financial services, Costa Rica offers an alternative to Panama but without any clear advantages.

See also

• OECD Peer Review of Costa Rica (also has a list of TIEA and DTA)
• Financial Secrecy Index Costa Rica
• FATF documents on Costa Rica (none)

“What’s up in X?” will be a series of more casual looks at jurisdictions that might not be proper, full-on offshore jurisdictions but are nonetheless interesting. The previous one was Djibouti.

This article will not touch on Northern Cyprus. I am saving that for another day.

Türkiye

O Turkey.

To anyone with even a semblance of interest in history, I strongly recommend reading about the rise and fall of the Ottoman Empire and the rise of the Republic of Turkey. It tells a story of Europe rarely taught in western education and it offers an interesting glimpse into Middle Eastern history.

In the eyes of many Europeans, not European enough to be European but also not quite Middle Eastern. In the eyes of many Middle Eastern people, not Middle Eastern enough to be Middle Eastern but also not quite European.

There is only one Turkey in this world.

Map from Wikipedia.

It is a country that keeps on giving. While most foreign visitors are content to stay at one of the many warm beaches, Turkey is best experienced in cities such as Istanbul, Ankara, Izmir, Bursa, and Samsun, and by travelling the vast steppes and up into the mountains to see the small villages.

It is a nation of proud, friendly people.

It is also a nation divided. Traditionally secular, it has time and time again seen rises of religious (Muslim) groups. The very popular and through-and-through (well, almost) secular military has repeatedly deposed governments it has considered too religious.

Despite harsh scepticism from many EU members and repeated criticisms for failing to reach even the basic requirements for EU membership (including human rights issues), Turkey enjoys good relations with Europe, most Arabic nations, Russia, China, and Israel, one of few Muslim-dominated nations to recognize Israel. The purpose of this blog is not to discuss politics, but this is worth pointing out simply to illustrate the context in which we find present-day Turkey.

Turkey is not all roses, though. 2013 and 2014 saw several uprisings against current president Erdoğan. Some of the secular population of Turkey feels wary of what they perceive to be an increase in religiousity. There are also problems in the far eastern corner of Turkey where Kurds claim a strip of land covering several nations.

Banking in Turkey

This is probably what you came here for, so let’s get right into it.

The Turkish banking sector puts several western countries to shame. It is a fast-moving, innovative sector which is leading the way in terms of mobile banking and ease of use. While the user interfaces may look old and clunky, all the bells and whistles are there when you log in to your Turkish internet bank. There is usually an English-language version available, at least with the larger banks.

Fees are low. The banks are easy to deal with.

Opening a Bank Account in Turkey

Personal bank accounts are very easy to open in Turkey. If you show up in person, it can all be done during a vacation to Turkey if you stay for a couple of days. Often a day is enough. Remotely, it’s a longer process (two – three weeks).

You will need a Turkish tax identification number (Vergi Kimlik Numarası) to prove that you are a non-resident. This can easily be obtained by walking into the nearest tax office (Vergi Dairesi) with just your passport. If you are in a major city or a tourist city, you can usually find someone who speaks English but bringing someone who speaks Turkish along is helpful.

Banks are more than happy to help out either by sending a representative with you or by filling in all the forms in advance for you.

When you have your Vergi Kimlik Numarası, you can walk into just about any bank in Turkey and open an account. The account-opening process shouldn’t take more than half an hour, often just a few minutes. You’ll be back on the beach in no-time.

It’s easy to open accounts in foreign currencies and getting debit cards. Credit cards are also possible but will usually require a security in the range of 50% to 100% depending on your profile and financial situation. Minimum deposit requirements, if any, are low.

Documents required to open a Turkish bank account:

• Passport.
• Turkish tax identification number (Vergi Kimlik Numarası).
• One (sometimes two) proof of address such as a utility bill or bank statement. Not always required but good to have.

Corporate Bank Account in Turkey

This is a different beast but still very much doable. As long as you have your tax identification number, all corporate documents duly certified, and a solid business plan, it doesn’t seem to matter at all where you are incorporated. I have personally placed and know of others who have been able to open corporate accounts in Turkey with everything from Maltese companies to Mauritius GBC to Liberian LLC to various IBCs.

There are limitations on business activities, though. Businesses which engage in immoral activities (typically adult entertainment, gambling, and other) are not at all as readily welcome. Affiliates and marketing of immoral activities are sometimes tolerated. In these cases, it helps if the company or companies for which you are an affiliate do not offer their services in Turkey.

With regards to certification, notarized is usually enough but sometimes banks ask for apostille so make sure to check in advance with your chosen banking partner(s). Turkey signed the 1961 Hague Convention on Apostille in 1985.

Banking Secrecy

The right to privacy is guaranteed under Article 20 of the 1982 Constitution of Turkey.

Everyone has the right to demand respect for his or her private and family life. Privacy of an individual or family life cannot be violated.

Unless there exists a decision duly passed by a judge on one or several of the grounds of national security, public order, prevention of crime commitment, protection of public health and public morals, or protection of the rights and freedoms of others, or unless there exists a written order of an agency authorised by law in cases where delay is prejudicial, again on the above-mentioned grounds, neither the person nor the private papers, nor belongings, of an individual shall be searched nor shall they be seized. The decision of the authorized agency shall be submitted for the approval of the judge having jurisdiction within 24 hours. The judge shall announce his decision within 48 hours from the time of seizure; otherwise, seizure shall automatically be lifted.

Article 73 of the banking law specifies further secrecy clauses for banking information.

Turkey is a independent (at times defiant) but not reckless country. It cooperates internationally on matters related to serious crimes. Although laws are in place which empower Turkish tax authorities to force banks to disclose customer information, it is far less clear if any information can be exchanged.

Legal provisions enabling tax authorities to gather information for exchange of information purposes are not clearly provided in Turkish Law

OECD

In reality, Turkish banks very rarely give out information. In the rare case that they do, it is up to the relevant Turkish authority to determine if they are legally permitted to share the information with a foreign government. In the even more rare cases where information is shared, it is often incomplete with generous usage of redaction markers.

There are no signs of this changing any time soon.

Thus, Turkey has created strict banking secrecy without passing laws as strict and controversial as those in for example Switzerland and Lebanon.

Banks in Turkey

Turkish banks have been featured on my last two Best Offshore Banks lists (2013 and 2014). There are a lot of banks in Turkey, a full list of which can be found on the Türkiye Bankalar Birliği (Turkish Banks Association) website: http://www.tbb.org.tr/en/banks-and-banking-sector-information/member-banks/list-of-banks/34.

Using the latest financial data (September 2014 as of writing), I have put together the below table which lists all banks in Turkey with assets of more than one million TRY.

To preempt the question, these are some of the Turkish banks that I consider noteworthy:

• Akbank
• Citibank
• Denizbank
• Finans Bank
• GarantiBank
• Habib Bank
• HSBC
• ING
• Türkiye İş Bankası
• Yapı Kredi Bankası
• Ziraat

Turkey, FATF, and money laundering

Turkey, not a country to give in to international pressure lightly, has a troubled relationship with FATF.

Over the years, FATF has had a lot to say about Turkey.

It started in 2007 with FATF calling Turkey out for lax money laundering legislation and even more lax enforcement. Turkey set to work to implement new laws but in 2010, FATF scorned Turkey:

Turkey has demonstrated progress in improving its AML/CFT regime; however, the FATF has determined that certain strategic AML/CFT deficiencies remain. Turkey has made a high-level political commitment to work with the FATF to address these deficiencies, including by: (1) adequately criminalising terrorist financing (Special Recommendation II); and (2) implementing an adequate legal framework for identifying and freezing terrorist assets (Special Recommendation III).

FATF, Paris, 18th of February 2010

This implied that Turkey was turning a blind eye to financing of terrorism, which was a controversial accusation. Turkey responded almost immediately and by June FATF concluded that:

In February 2010, Turkey made a high-level political commitment work with the FATF to address its strategic AML/CFT deficiencies. Since that time, Turkey has demonstrated progress in improving its AML/CFT regime, including by drafting CFT legislation. However, the FATF has determined that certain strategic AML/CFT deficiencies remain. Turkey should continue to work on implementing its action plan to address these deficiencies, including by: (1) adequately criminalising terrorist financing (Special Recommendation II); and (2) implementing an adequate legal framework for identifying and freezing terrorist assets (Special Recommendation III). The FATF encourages Turkey to address its remaining deficiencies and continue the process of implementing its action plan.

FATF, Paris, 25th of June 2010

A similar statement was released again in October 2010.

One year after the initial statement, FATF clamped down on Turkey again:

Despite Turkey’s high-level political commitment to work with the FATF to address its strategic AML/CFT deficiencies, the FATF is not yet satisfied that Turkey has made sufficient progress in implementing its action plan, and certain strategic AML/CFT deficiencies remain. Turkey should work on addressing these deficiencies, including by: (1) adequately criminalising terrorist financing (Special Recommendation II); and (2) implementing an adequate legal framework for identifying and freezing terrorist assets (Special Recommendation III). The FATF encourages Turkey to address its remaining deficiencies and continue the process of implementing its action plan.

FATF, Paris, 25th of February 2011

The criticism continued in June of 2011 with Turkey being put on a list of Jurisdictions with strategic AML/CFT deficiencies that have not made sufficient progress together with the likes of Cuba, Myanmar, and Syria. This was repeated in October 2011 and February 2012.

Although Turkey was taking steps to reach international levels of compliance, the criticism from FATF was regarding the slow parliamentary procedures. In Turkey, there was no real sense of emergency until the June 2012 notice which added that Turkey was one of a handful of jurisdictions marked as:

These jurisdictions have not made sufficient progress since being identified in the Public Statement of June 2011. If these jurisdictions do not take significant actions by October 2012, the FATF will call upon its members to apply countermeasures proportionate to the risks associated with the jurisdiction.

FATF, Paris, 22nd of June 2012

Turkey’s FATF membership was brought into play:

As a member of the FATF, Turkey has committed to implement the FATF standards.  Since its mutual evaluation report in February 2007, Turkey has taken a number of steps toward improving its AML/CFT regime.  However, thus far, Turkey has failed to do so in two important areas, namely criminalisation of terrorist financing and establishing a legal framework for identifying and freezing terrorist assets.  A delegation led by the FATF President travelled to Turkey in May 2012 to convey the concerns of the FATF to relevant Ministers, representatives of the Turkish Grand National Assembly and other officials.  The FATF now calls on Turkey to fulfil its FATF membership commitment by enacting counter terrorist financing legislation that adequately addresses these shortcomings.  If adequate counter terrorist financing legislation has not been enacted by October 2012, the FATF will initiate discussions on Turkey’s membership in the FATF.

FATF, Rome, 22nd of June 2012

October 2012 came and Turkey had still not satisfied FATF, which brought out the big guns.

Given Turkey’s continued lack of progress in these two areas, as a counter-measure, the FATF has decided to suspend Turkey’s membership on 22 February 2013 unless the following conditions are met before that date: (1) Turkey adopts legislation to adequately remedy deficiencies in its terrorist financing offence; and (2) Turkey establishes an adequate legal framework for identifying and freezing terrorist assets consistent with the FATF Recommendations. FATF calls upon countries to take additional steps as necessary proportionate to the risks arising from the deficiencies associated with Turkey.

FATF, Paris, 19th of October 2012

A long statement was issued as a part of the Outcomes of the Plenary meeting of the FATF, Paris, 17-19 October 2012.

This would mean that on the 22nd of February 2013, Turkey would risk becoming a blacklisted country together with (and only with) Iran and North Korea. Sanctions would be around the corner, crippling Turkey’s growing but sensitive economy.

So what ended up happening?

By February 2013, Turkey had passed the bare minimum laws to avoid suspension of membership and risk blacklisting. However, FATF noted that that:

In spite of this positive step, there still remain a number of ongoing shortcomings in the Turkish counter-terrorist financing regime. Turkey must address these shortcomings in order to reach a satisfactory level of compliance with the FATF standards. Turkey has committed to addressing these deficiencies and will submit, prior to the next FATF meeting in June 2013, a report on how these deficiencies are being addressed.

FATF, Paris, 22nd of February 2013

By June 2013, a new report from FATF continued praising Turkey for its continued actions (as opposed to just promises in previous years).

The October 2013 statement was positive but urged improvement on implementations of UN recommendations for identifying and freezing assets in cases of terrorist financing, which was repeated in February 2014 with Turkey “largely complying” but still not being quite there.

In June 2014, FATF sounded almost optimistic about Turkey. By then, several other countries which had followed a similar journey were finally approved by FATF (including for example Tanzania). An on-site visit was scheduled to inspect the new laws in greater detail.

Finally, in October 2014, Turkey was given green light by the FATF. It was now compliant enough with all FATF recommendations to pass the bar.

Turkey Today: AML, CFT, ABC

Anti Money Laundering. Counter Financing of Terrorism. Anti Bribery/Corruption. The shining lights of any compliance officer’s daily routine.

So what did FATF actually accomplish?

Money laundering is still a problem in Turkey – probably. Enforcement of the new laws has been lackluster. While banks have strengthened their application procedures significantly, there are still problems with international cooperation and disclosure of information.

Turkey is heavily used to smuggle narcotics and unlicensed weapons to and from Europe. Trafficking is a major problem as well. The government is working to address these issues, but being far from politically stable and with wars raging in the region, change comes slowly.

Significant amounts of money going into Turkey end up in the hands of terrorist organizations in Syria and neighbouring countries.

In addition to banks, criminals use money remittance services, unregulated money services (hawala), and couriers carrying cash or gold to fund their activities. Hawala is regulated in Turkey but there is still an estimated 15 to 20% of all hawala transactions that are unrecorded. These pose an enormous money laundering risk.
Turkey’s economy is one watched very closely by international investors. It has seen relatively stable growth and may well continue to grow. Rankings vary but the Turkish economy is usually well within the top-20 of the world today, ahead of all countries in its region, beating even Saudi Arabia.

An economy of such magnitude is a lot less exposed to the risks of money laundering, compared to the smaller economies with oversized banking sectors. This is one of many reasons why Turkish banks are so much more easy-going than less reputable banking sectors in for example the Caribbean and Africa.

Bribery and corruption are rampant throughout government and financial institutions. It’s not something the average foreign investors or non-resident bank account holder notices, but it does cause Turkey some disrepute.

Taxation in Turkey

On a global scale, the tax rates in Turkey are average or slightly below average. A company formed in Turkey is only liable for tax on income earned in Turkey which could make it attractive to non-residents from a tax point of view. In reality, the paperwork and compliance exercise to form and maintain a Turkish company make it unattractive.

For those seeking to invest or start a business locally, Turkey has signed over 80 tax treaties which with Turkey’s 20% corporate tax rate (lower for certain sectors) can become quite attractive.

Non-residents need not worry about taxes on their Turkish deposits, as there are no applicable taxes.

Conclusion

Doing business in Turkey is hard work. It is a country of negotiations. Anything can be questioned. You won’t always get what you want but you won’t know until you try.

Come for the banking. Stay for the culture and landscapes. Have some rakı with your meze.

See also

• What’s Up In Djibouti?

Remember all those months ago when we looked at Turks and Caicos Islands? What a journey it’s been since then. Incidentally, this is the 100th post my little blog.

And this is the end of that journey. We are back on mainland: the United Kingdom.

Now, the UK both is and at the same time is not a tax haven.

How can a country that taxes non-resident companies on world-wide income be a tax haven? Let’s find out.

Geography and Demography

UK and EU. Map from Wikipedia.

Overview

The UK is Europe’s second largest economy after Germany. The country is known for being business-friendly, ranking 8th in the world according to the latest World Bank’s Ease of Doing Business rankings.

It is the undisputed leader in Europe for incorporations including formation of non-resident UK companies, being many freelancers’ go-to location for incorporations.

With low costs, ample tax treaties, English common law, excellent e-government facilities, and one of the best reputations a jurisdiction can have, it’s easy to understand why the UK is so popular for start-ups, established businesses, and financial service providers of all sizes.

UK Incorporation

UK in this section only refers to England and Wales. I will cover Scotland later. Northern Ireland will not be discussed.

Why not Great Britain? Let’s not go there. This is already convoluted enough.

General Information

Only the US with its LLCs can compete with the UK when it comes to ease of incorporation for a non-resident. It is fast, it is easy, and it is cheap.

The cheapest providers out there can form a UK company for you for little more than 20 GBP. For a non-resident, you are looking at typically no less than 100 GBP for company and registered office.

Of course, you can’t expect a lot of help at that price point. If you need professional advicement, expect to pay closer to 1,000 GBP.

Timeframe for forming a UK company can be as little as a few hours but often a couple of days for non-residents.

Reputation

Stellar. It is an onshore jurisdiction, not seen as a tax haven.

Some criticism has been raised against UK authorities for taking a long time to respond to foreign requests, with the OECD stating that “on average takes 12 months to complete before information is provided to the requesting jurisdiction.”

This means that the UK is able to and does engage in exchange information but it can take extremely long.

However, its overseas territories and other dependencies at times tarnish the UK’s overall reputation. The UK has been criticised for being heavy-handed against tax havens, while touting no less than ten tax havens of its own; eleven including the UK itself.

Private Limited Company

This is the most popular type of company. The laws governing UK private limited companies go back to the incorporation laws in the 1600s that laid the foundation for the modern corporate entity.

As of October 2015, corporate directors are no longer permitted unless a special exception is granted. However, even then,

Requirements

• One director (as of October 2015, corporate directors are no longer permitted unless an exception is granted).
• One shareholder (corporate shareholders are permitted).
• No restrictions or requirements on residence or nationality of directors and shareholders.
• No minimum share capital need be paid up.
• Registered address in UK (but not Scotland).

Taxation

20% as of April 2015. This eliminates the previously existing small companies rate, also of 20%, which was in place as an incentive for smaller businesses while the corporate tax rate for larger companies has dropped from 30% in 2008.

Companies resident in the UK are taxed on worldwide income (profits and gains). A company is resident in the UK if it is incorporated there, or if it’s operated and controlled from the UK.

A UK non-resident company is a company which is not incorporated in the UK and which is not run from the UK.

This is where tax treaties become attractive. Because a UK company is considered resident in the UK simply be being incorporated there, tax treaties should permit for tax credit on taxes paid in the UK. This isn’t always entirely that straight-forward. If you don’t seek professional advice about your current situation, you are not being responsible about your company and personal finance and – absolute worst case – liberty.

And as always, there are numerous ways to reduce the effective tax burden by making deductions and setting up different ownership structures. But unless you are a very large corporation, forming a private limited company in the UK means paying 20% tax on profits net of deductions. The UK has strong anti-avoidance laws and is hard on tax dodgers.

LLP – Limited Liability Partnership

This is the premier tax planning vehicle in the UK. LLPs are largely comparable to LLCs.

Requirements:

• Two members (corporate members are permitted).
• No residence or nationality restrictions or requirements on members.
• No minimum (or maximum) capital required.
• Registered address in the UK (but not Scotland).

Taxation

Comparable to LLC in that the entity is not liable for corporate tax. Instead, members are taxed on personal income or, if they are corporate entities, profits or revenue as determined in their country of tax residence.

Public Records

All members, directors, and shareholders of companies are listed on public records, as are annual returns and financial statements.

UK is a very transparent jurisdiction.

Record Keeping (Bookkeeping)

Required by law. Annual filings must be made.

Scottish Limited Partnership

There has been an increased interest in Scotland and its LP (Limited Partnership). They are very similar to UK LLPs without any significant advantages.

A Scotish LP, unlike a UK LP (which is different from UK LLP and which I did not cover earlier since it is a rarely used type of company), is a legal person.

Formation costs are generally much higher than UK (England and Wales) companies.

Requirements

• Two members (corporate members are permitted).
• No residence or nationality restrictions or requirements on members.
• No minimum (or maximum) capital required.
• Registered address in Scotland.

Taxation

Same as UK LLP.

Banking

The UK banking sector is among the most well-developed in the world and offers generally great quality at a typically fair price — if you are a resident in the UK.

Non-resident banking in the UK is challenging. While a lot of UK banks take on non-residents, those clients’ accounts usually end up being domiciled in Isle of Man, Jersey, Gibraltar, or – rarely – Guernsey.

Private banking is a fairly big branch within the UK banking sector but, again, non-residents typically end up having their accounts domiciled elsewhere: Switzerland, Liechtenstein, Monaco, Luxembourg, or the aforementioned islands and peninsula.

Non-Resident UK Company Bank Account

So what exactly are your options when it comes to banking for a UK company with non-resident shareholders and directors?

There are agencies that claim they can place such UK companies with local banks in the UK. While this is true, it’s not entirely as simple as making an introductiong. Unless your company has a large turnover (in the vicinity of 1 million GBP), it will take some sort of nominee solution to secure a bank account.

Nominee bank account signatories

UK banks often require more than 50% of the directors or members to be UK resident natural persons, meaning that 1 out of 2 (50%) isn’t enough. At minimum, it would have to be 2 out of 3 directors.

What other options are there?

Quite simply – bank somewhere else. UK being a reputable jurisdiction is relatively easy to open bank accounts across the world, especially EU and territories with good relations with UK such as Hong Kong and Singapore, and of course British territories.

Banking Secrecy

One of few jurisdictions that lack a banking secrecy law. There are professional confidentiality laws and data protection laws in place to ensure that financial information doesn’t seep out to the public.

Banks in UK

In terms of turnover and assets, the UK banking sector is greatly dominated by five banks. This includes Standard Chartered, which although headquartered in the UK has most of its operations and assets abroad.

• Barclays
• HSBC
• Lloyds, includes Bank of Scotland
• Royal Bank of Scotland (RBS), includes NatWest and Ulster Bank
• Standard Chartered

Other noteworthy banks in the UK include:

• Adam & Company (RBS)
• AIB
• Arbuthnot Latham
• Brown Shipley
• Butterfield Bank
• Citibank
• Close Brothers
• Clydesdale
• Coutts (RBS)
• Europe Arab Bank (Arab Bank)
• Jordan International Bank
• Raphaels Bank
• Rothschild
• Santander
• Schroders

A full list can be found on the Bank of England website.

UK Gambling Company

A UK license is required to (legally) offer gambling to UK residents. Many EU-based operators are honouring this due to the value of the UK gambling market.

License requirements are among the most stringent in the EU and with the high costs of running a gambling company out of the UK, many opt only for the license while keeping operations (and primary license) in for example Malta.

Taxes are favourable but not as favourable as other jurisdictions, even within the EU.

Living in UK

Quality of Life

Standards of living in the UK are among the highest in the world – whether it’s central London or a smaller city or a picturesque village.

Taxation

Those who qualify as non-domiciled residents (non-dom res) can enjoy a very favourable tax regime.

Otherwise, taxes in the UK are typically average to slightly below average. Watch our for council tax when deciding where to live.

How to Become Non-Domiciled Resident in the UK

The UK Government states that:

UK residents who have their permanent home (‘domicile’) outside the UK may not have to pay UK tax on foreign income.

What does this mean in reality?

Persons who have a domicile outside of the UK, although resident in the UK, can claim non-domiciled resident status and thereby only pay income tax on foreign income. Since 2008, this has been made much more difficult with a minimum tax of 30,000 GBP per year to keep the status long-term.

There are some 120,000 non-dom residents in the UK.

Immigration and Residence

EU and EEA nationals – at least as of writing – have right to free movement in the UK, although UK is not a member of the Schengen area.

The UK government website is an excellent source of information and it would be superfluous of me to go into greater detail. Simply start at Visas and Immigration to learn more.

Citizenship

It it possible to apply for British citizenship by naturalisation if you are 18 or older, have no criminal history, speak English, live in the UK legally, and intend on continuing to live in the UK. Additionally, you must have lived in the UK for five years prior to applying, during which you cannot have been outside of the UK for more than 450 days and no more than 90 days in the last 12 months.

Final words

The UK is a phenomenal jurisdiction for incorporation, offering the easiest means to form a zero tax company for non-residents – the UK LLP.

Banking in the UK is excellent but effectively limited to residents.

The UK has one of the best reputations of all jurisdictions in the world today, thanks to high transparency, strong but fair regulatory bodies, and a business-friendly environment.

But if you want something traditionally offshore, you are better off with one its overseas territories and dependencies:

• Anguilla
• Bermuda
• British Virgin Islands
• Cayman Islands
• Gibraltar
• Guernsey
• Isle of Man
• Jersey
• Montserrat
• Turks and Caicos Islands

See also

• Becoming a British citizen (also has a list of TIEA and DTA)
• Financial Secrecy Index United Kingdom
• FATF documents on United Kingdom

This article, like much of what I write, does not apply to American and Eritrean citizens. In this particular case, it is because  these jurisdictions are unique in that they (may) tax non-resident citizens, according to a 2011 report by E&Y.

This is a subject that is as popular as it is broad. It is unlikely that I will manage to cover everything here. This article will just be an introduction to the concept. I know many of you were expecting a deep dive, but we have to cater to the new-comers first.

Your feedback is especially important in deciding how follow-up articles turn out.

Tax Residence

Tax residence is the jurisdiction – or jurisdictions – in which you owe tax on a particular source of income.

For the vast majority of people in the world, this is simply the jurisdiction in which they live. The conditions under which tax residency is determined varies between jurisdictions.

As a general rule, if you are resident in a country for more than 183 days in a year, you are tax resident there. However, there are plenty of jurisdictions with shorter residence or other requirements to become a taxable person there.

I am not going to dig deeply into specific jurisdictions in this article, but for a quick overview of what the definitions of tax residency for personal income tax are, refer to the Deloitte’s tax guides. In the Highlights documents, look under Personal Taxation and Basis and Residence.

What is a Permanent Traveller?

On my glossary page, I have written the following definition of a Permanent Traveller: “A natural person who does not reside in any jurisdiction for a long enough period to be deemed tax resident, thus avoiding tax liability.”

As the name implies, a permanent traveller (PT for short) is someone who travels, permanently — or at least permanently enough so that they are not tax resident anywhere, or only in jurisdictions that lack income tax or only tax local income.

A typical PT runs a location-independent business or has income from investments. They will travel from one country to the next, often using just tourist visas or, in the case of EU nationals and comparable international agreements, travelling across country borders completely unhindered.

Legalities

While being a permanent traveller in and of itself is legal, most PTs technically break laws.

They break laws by working in a country whilst on a tourist visa and or by failing to file tax return (even if they owe zero tax) for these activities.

Virtually zero PTs end up facing consequences and there are no real efforts being made to go after them. A PT is not a migrant workers with no papers; it’s someone with every intent to move on.

For example, suppose that a PT arrives on a sunny islands somewhere and has a citizenship that gives them 90 days visa free. During those 90 days, the PT works on their (often internet-based) business from a hotel or AirBNB apartment wifi. They then leave the sunny island not to return again, at least not until after 366 days since last arrival.

In many cases, the PT was not allowed to conduct business whilst on a tourist visa. This typically includes businesses that aren’t even operating or trading in the jurisdiction.

Now, you may think – but I visited a sunny island on a tourist visa recently and answered a couple of emails from my phone whilst on the beach. Am I going to jail?

No, you’re not. The primary purpose of your stay was tourism and you entered the jurisdiction with the intention to be a tourist. You may have to explain yourself to your spouse who’s upset because you spent all day at the hotel answering emails, but that’s a completely different topic.

But a PT who enters a country with intent to work is in many cases technically violating the law.

Second, even if you are a non-resident (for tax purposes), any income earned from work that took place in a jurisdiction should generally be submitted on a tax return. Failing to do so may be a crime. However, chances are no one is going to go after you for failing to submit a tax return that states you owe no tax.

Banking

This is one of the most common questions about being a PT.

Although I realize not everyone is well versed in how the international financial services sector works, I continue to be surprised when people ask why a bank insists on clients providing a residence address when opening an account. For various reasons, mainly related to tax and prevention of money laundering and other financial crimes, banks need to know where you live.

What if you don’t live anywhere?

You still need an address. If you cannot provide an address, do not expect any bank to take you on as a client.

Residence vs. Domicile

Here we enter unchartered territories because the words mean different things in different contexts and across different languages.

Greatly simplified:

• Residence is where you live.
• Domicile is where you belong.

In the absence of a true residence, a domicile is sought. This can be the country where the PT spends most of their time, even if they don’t qualify as resident there, or a country to which they have the strongest ties. For some, this ends up being their country of citizenship.

Others seek to establish a domicile in a tax-favourable jurisdiction. In many cases, a domicile is set up by obtaining a permanent residence visa with minimal requirements on physical presence, such as Panama, UAE, Costa Rica, Paraguay, Cyprus, Malta, and a handful other jurisdictions.

A permanent residence permit is obtained and an address is established, either by the PT renting an apartment, buying property as an investment, sharing a residence, or using a law or accounting firm’s office or other property.

This address can then be used for opening bank accounts, form companies, and so on.

Taxation and Costs

A PT with correctly structured finances pays zero or extremely little tax. They may break laws but doing so at essentially zero risk, provided no abusive activities take place.

Costs, however, can be significant. Aside from costs related to travel and temporary accomodation, the costs of private health insurance (PTs rarely qualify for universal healthcare anywhere, except possibly country of citizenship), foreign currency exchange related costs, and the cost of a domicile quickly ramp up.

Africa has three well-established tax havens: Seychelles, Mauritius, and Liberia. (Time will tell if The Gambia manages to get anywhere with its recent endeavours.)

I have covered Mauritius in the past and while the Seychelles is the most popular, I have decided to take on Liberia today as it relates to recent topics about Limited Liability Companies.

Geography and Demography

Map from Wikipedia.

Overview

Liberia is an American creation – founded by and for freed slaves from the United States. Independence was granted in 1847 and thanks to strong American influence, it survived the so-called Scramble for Africa, where European nations divided Africa amongst themselves. This makes it Africa’s oldest uninterruptedly independent countries.

The country was led by a small minority until a bloody coup d’etat in 1980. Nine years later, the first civil war broke out, lasting until 1996. Peace was shortlived with another civil war breaking out in 1997 and lasting until 2003. The 2003 peace is largely attributed to a peace movement by war-weary women. A stable government was formed in 2005.

Suffering from the aftermath of the two wars, Liberia today is an underdeveloped economy with enormous social challenges. Poverty is rampant and infrastructure is bad or in many places entirely lacking.

Being the world’s second largest flag of convenience jurisdiction, Liberia’s maritime (shipping) registry is the country’s by far largest source of income, accounting for well over 50% of government revenues.

An offshore companies sector has grown as an off-shoot of this shipping registry. With over 50 years of experience, Liberia is one of the oldest offshore jurisdictions in the world.

Incorporation and Business

Reputation

Liberia is known for civil war, war lords (such as a certain infamous general), blood diamonds, child soldiers, drug smuggling, money laundering, corruption, and a near-total lack of oversight of its international financial services sector.

While no longer on any OECD (or FATF) blacklists or watch lists and despite having on paper done what is required to be up to par with international standards, things are very different in practice. Liberia is an irreputable jurisdiction. Secrecy is tight. Questions are kept to a bare minimum.

In all likelihood, Liberian companies are major money laundering vehicles. But with an underdeveloped banking sector, Liberia itself is at little risk of this money laundering. It merely provides the shell corporations necessary to create thick veils of secrecy.

Regulator

Using a very generous definition of the word regulator, Liberian companies are regulated by LISCR.

It is a competent, responsive, and by comparison modern regulator.

General Information

Perhaps most famous for its non-resident LLCs, Liberia also offers a number of other business types.

Liberia is a veritable smörgåsbord of business entities.

LLC

Liberia enacted a new legislation for companies in 1977, titled Associations Law, which created the Liberian LLC (and most other business types). It is based on the US model.

Requirements:

• One member (single-member LLC is possible).
• Company secretary required.
• No paid-up capital minimum. Usually 50,000 USD authorised and 1 USD paid-up.

Noteworthy features:

• Members can be corporate entities.
• No limitation on residency or nationality of members.
• Beneficial owner need not be declared to the authorities.

Taxation

LLCs are pass-through entities and if controlled by non-residents entirely out of scope for tax in Liberia.

According to the regulator website, Liberian LLCs are eligible for check the box to elect for treatment not as a corporate body. Your mileage may vary. Greatly.

Corporations

Typically called non-resident domestic corporations; Liberia also has corporations, similar to private limited companies but more towards the US corporation business type.

Requirements:

• One director.
• One shareholder.
• Company secretary required.
• No paid-up capital minimum. Usually 50,000 USD authorised and 1 USD paid-up.

Noteworthy features:

• Directors and shareholders can be corporate entities.
• No limitation on residency or nationality of members.
• Beneficial owner need not be declared to the authorities.

It is extremely easy and quick to form a Liberian LLC. Same-day incorporation is common practice. Costs are low (rarely exceeding 1,000 USD for incorporation, without bank account) but because of the jurisdiction’s poor reputation and subsequent bank-account opening challenges, it is not commonly offered.

Many service providers intentionally stay clear of Liberia so as to not tarnish their overall image.

Taxation

Tax rates vary depending on industry but non-resident companies are only taxed on income derived from Liberia.

Income derived from sources outside Liberia is exempt from taxation, if the majority of the voting power of a domestic Corporation is held by foreigners or nonresidents. Also exempt from taxation are earnings from the operation of vessels, unless derived exclusively from coastwise operation by resident Corporations.

General Partnership

A business type almost exclusively used as investment vehicles. Requires two members: one general partner and limited partner.

Registered Business Company

Superficially similar to corporations with the main difference being that names of directors and shareholders appear on public records and that RBCs must file annual returns.

They can be limited by shares, guarantees, or a hybrid thereof.

A law for RBCs was enacted in 2002 following demand for a more UK-like entity. They are much more transparent business entities than LLCs and Corporations.

Although not very popular, Liberian RBCs are arguably the most easily accessible transparent business entity in Africa available to non-residents. While Mauritius and Seychelles have made attempts to create something similar, it hasn’t quite reached the level of Liberia. Unfortunately, Liberia’s overall reputation is still an impediment.

Private Foundations

You didn’t think Liberia would forget to enact a foundation law, did you?

Although essentially unused, Liberia in 2002 passed a private foundations law. It is based on the Austrian Privatstifung law of 1993.

A Liberian private foundation must be formed with at least 10,000 USD in capital.

Public Records

LLCs are not subject to public records.

Corporations can opt in to appear in public records.

General Partnerships are not subject to public records.

Registered Business Companies are required to appear in public records.

Private Foundations do not appear in public records.

Record Keeping (Bookkeeping)

According to OECD, there is a legal loophole whereby only entities which are taxable in Liberia are required to keep records. Offshore or non-resident companies do not fulfil this requirement and are as such not required under Liberian law to keep records.

The Liberian authorities have a different view and it is generally wise to keep records and prepare (abbreviated) annual financial statements, if for no other reason than as good business practice.

Banking

Banks in Liberia are regulated under the Financial Institutions Act of 1999.

The banking sector is developing but at the moment poor.

Many banks in Liberia say they won’t accept non-resident clients. This policy is easily set aside when deposits are about halfway to 100,000 USD.

Offshore companies in Liberia usually bank elsewhere. This can be very problematic due to the jurisdiction’s poor reputation but it’s not impossible but may require an introducer.

Banking Secrecy

There is no noteworthy banking secrecy legislation in Liberia.

Banks in Liberia

There are nine banks in Liberia.

Living in Liberia

To put it bluntly – You probably don’t want to.

Liberia is the kind of country foreigners move to for one of two reasons: to be with family or to hide. Several criminals (including war criminals) are believed to be hiding in Liberia, with the authorities being too poor, too corrupt, and probably lacking the legal empowerment to seize people.

Taxation is average to low for residents.

Final words

Although Liberia plays an important role in international financial services, it is understated and its usage is

I was once told that If you want a dirty little secret, a Liberian LLC might be just what you need. I think there is truth to this statement.

With increased political stability and continued work towards compliance with international standards, Liberia’s reputation should improve over time although it is unlikely to be a quick process. A fully reputable Liberia could become a major player in international financial services with its modern non-resident company registry and easy-going regulations, all whilst being fully English-speaking.

For the immediate future, unless you are a shipping company, there is little advantage Liberia can offer over other African tax havens or other regions.

See also

• OECD Peer Review of Liberia (also has a list of TIEA and DTA)
• Financial Secrecy Index Liberia
• FATF documents on Liberia

By now, I feel that it’s clear enough that I advocate for compliance with laws and regulations, and transparency in accordance with international standards. I therefore think it’s time to dedicate a couple of posts to the “dark side” of the international financial services industry – the things that make it a challenging sector to work in and which give it such a poor reputation.

In this first article, we’ll talk about tax evasion: what it is, how it’s done, what the risks are, and what the consequences can be.

What we will not talk about is how to use money obtained through tax evasion. I’m saving money laundering for next time.

As Opposed To Tax Avoidance

It is an almost universally accepted standard that tax avoidance refers to the legal reduction of tax liability through using tax credits, tax agreements, and specific laws in specific jurisdictions that are usable to that specific situation. See an earlier post about Double Taxation Avoidance Agreements. A common example is the Double Irish or the Double Irish with Dutch Sandwich.

Those are legal ways of reduce tax, which are often unattainable by non-wealthy persons and small businesses. Setting up a complex structure costs money, often far more than those persons or businesses would pay in tax.

Tax evasion, on the other hand, is the unlawful evasion from tax.

I have touched on this several times in the past but it bears repeating: your offshore company is in most cases going to be technically tax resident where you live. That Seychelles IBC you are running from your Stockholm apartment? You better declare its incomes to the Swedish tax authorities. Failure to do so is tax evasion.

Tax Evasion Opportunities

Before we get to methods, it’s important to recognize the opportunities (possibilities) there are for tax evasion techniques to work, which primarily are the following the two.

Non-Enforcement

Despite how powerful and scary tax authorities may seem, most of them lack the ability to go after petty tax evaders. While things will change with AEOI (Automatic Exchange of Information), we are quite a ways from AEOI being implemented and even further away from AEOI being efficiently and effectively used.

I have voiced support for AEOI in the past, but I recognise that there are major problems with the current implementation. Although information will be shared, it is very uncertain how actionable it will be. Full scale implementation will take many years in countries – often the ones that need the tax revenue the most.

Lack of enforcement or lack of capability of enforcement are a big factor in enabling tax evasion. If tax authorities were as good hunters as they claim to be, the international financial services sector would look quite different.

Secrecy

Banking secrecy, corporate secrecy, nominees, numbered accounts, trusts, foundations, and so on are all pieces which on their own may not be enough but put together in the right way can – and often does – create an impenetrable veil against which not even TIEAs or AEOI stand a chance.

But it’s also about the tax evader’s own ability to keep things under wraps. Having read numerous court cases and police investigation reports on the topic, it is baffling how many tax evaders are caught by failing to be discreet – and discrete.

Tax Evasion Methods

The probably most common means of tax evasion is to form an IBC, open a bank account in some semi-sketchy jurisdiction, and call it a day. Keep it to yourself and take reasonable precautions to not create a link between yourself and the company and bank account (sometimes called association avoidance) and chances are you won’t be caught.

Association avoidance is the act of segregating yourself from your company on easily obtainable documents and records, such as your onshore bank’s ledgers or your social media profiles. For example, wiring funds from your personal savings account to your offshore company’s bank account is not a great idea. Shell companies with bank accounts in reputable jurisdictions are often used to obfuscate the destination of funds. You also shouldn’t list your Belize IBC on your LinkedIn or Xing profile. Might sound obvious, but it isn’t to a lot of people.

A wire transfer from your savings account with Deutsche Bank in Germany to a brokerage account in Hong Kong owned by a shell corporation (for example in Hong Kong using nominees) adds a layer of obfuscation as opposed to wiring the funds directly to your Singapore bank account held by your Brunei IBC.

Other slightly more sophisticated methods – which aren’t even tax evasion in some jurisdictions (check with your lawyer) – is to surrender assets into a trust or foundation, either directly or through a shell corporation. The downside is that in order to not jeopardize the integrity of the trust or foundation, you shouldn’t have access to the funds.

If you are reading this and someone set you up with some run-of-the-mill IBC and Trust or LLC and Trust structure wherein you can access the funds at all times, chances are very high that your structure would not hold up in court and you pay for a worthless structure. I will get back to this in a future post.

However, even so, the secrecy provided may be enough to make investigations futile and your funds can accumulate without you declaring it and being caught.

Tax Evasion Risks

You risk getting caught which, depending on the severity and on where you live (or are sentenced), can cost you enormous financial penalties and jail time. Don’t be surprised if the prosecutor tries to add money laundering to the list of charges.

– But what is the risk this will happen?
– Well, how long is a piece of string?

It’s extremely hard to quantify the likelihood of being caught evading taxes. What I can tell you is that tax evasion, enforcement of laws, and ability, capability, and resources to penetrate secrecy through EOI vary enormously between countries.

Some noteworthy examples include the US, Norway, Finland, Sweden, Denmark, France, and Germany. It is fascinating to listen to representatives from those countries’ financial crime enforcement units at conferences. They are extremely aggressive and creative, but they also acknowledge weaknesses with current and future systems. Sometimes an investigation takes so long that the statute of limitations is reached for the sums being investigated. This is especially common with petty tax evasion which doesn’t qualify as severe tax evasion.

Although some jurisdictions apply reverse burden of proof, the usage of reverse burden of proof is sometimes legally unclear and may not hold up if the case gets appealed.

Not even the best catch everyone, although the US is probably the closest to it of all countries.

Service Providers

So how do you find someone willing to help you set up a tax evasion structure?

As service providers, we definitely help clients set up tax evasion structures. I realize that not all structure I or my teams have set up are compliant, because the client ultimately isn’t reporting what he or she should. This is out of our hands but it still hurts the industry when these people are caught, especially if media gets wind of it. We protect ourselves with liability waivers and documenting every attempt at informing the customer about the risks and liabilities involved.

This doesn’t mean you can call up a reputable service provider and ask for the latest scoop on how to dodge taxes in your country of residence. They will hang up on you because service providers cannot knowingly engage with clients who will perform criminal activities.

And consider carefully what you are getting yourself into.

Be smart. Don’t be stupid.

See Also

What You Can and Cannot Do With an Offshore Company and Bank Account

Moving Funds Offshore

New Zealand isn’t exactly a tax haven nor is it a secrecy jurisdiction, but it is nonetheless an interesting player in the international financial services sector.

Comparable to its former owner, whose queen it still hails, New Zealand has found a way to enter this industry with an almost spotless reputation.

Although New Zealand has very close ties to Cook Islands, I am saving that jurisdiction for another post.

Geography and Demography

Map from Wikipedia.

Incorporation and Business

Reputation

Squeaky clean. New Zealand is a transparent and compliant jurisdiction, having earned the rarely-issued Compliant rating from OECD. Although there are lapses, they are minor. FATF criticized New Zealand in a 2009 evaluation but was content with improvements in AML/KYC laws and policies by the next review in 2013. It never tarnished New Zealand’s reputation although it was a brief embarrasment.

New Zealand is not a secretive jurisdiction.

Despite this, though, the remoteness of New Zealand can make it appear strange in some cases, such as opening accoutns with especially inquisitive banks. It is not a major financial center in the sense of many other jurisdictions I have discussed int he past. This obviously doesn’t apply to those in the Asia-Pacific region.

General Information

New Zealand continuously rank as #1 in the world in ease of incorporation on the World Bank’s Doing Business rankings. Unfortunately, this doesn’t apply to non-residents. Registered agents are far from economic. Until prices start to decrease, incorporating in New Zealand is unlikely to become as attractive as other jurisdictions in the region – mainly Hong Kong and Singapore.

Look-Through Company (LTC)

LTC is not a company form in and of itself. LTC is merely a status assigned to a company by electing for it and being approved by the Inland Revenue Department (IRD). Companies can elect for LTC status as early as at the time of incorporation. The LTC status only expires upon election thereof or when a company seizes to be compliant to the requirements.

Most LTCs however are private limited liability companies formed pursuant to the Companies Act 1993.

LTC is a relatively new concept, entering into law in April 2011 when it replaced the previously popular Loss Attributing Qualifying Companies (LAQC). LAQCs were popular for holding property and this practice has carried over into LTCs.

An LTC is a company which opts in for look-through tax treatment, whereby shareholders become liable for tax similar to how members are taxed in an LLC. But an LTC is not quite an LLC since it has a board of directors and shareholders.

Residency

Only companies which are resident in New Zealand may qualify for LTC status. Although New Zealand considers companies resident if they are incorporated in New Zealand (similar to UK), tax treaties may complicate matters.

There is no requirement for directors to be resident but if there is a tax treaty between New Zealand and the jurisdiction of effective control and management, the so-called tiebreaker conditions in most double taxation treaties will make the company resident in the other jurisdiction (not New Zealand) and therefore not qualify for LTC status.

LTCs incorporated by New Zealand non-residents who are resident in a jurisdiction with a tax treaty with New Zealand will therefore need a New Zealand resident director to avoid tiebreaker problems. Nominees are often enough unless the New Zealand IRD suspects unlawful tax avoidance.

Conversely, LTCs incorporate by New Zealand non-residents who are resident in a jurisdiction which does not have a tax treaty with New Zealand often does not need a resident director.

For a list of tax treaties, visit the IRD website. As of writing, New Zealand has tax treaties with the following jurisdictions:

• Australia
• Austria
• Belgium
• Canada
• Chile
• China
• Czech Republic
• Denmark
• Fiji
• Finland
• France
• Germany
• Hong Kong
• India
• Indonesia
• Ireland
• Italy
• Japan
• Korea
• Malaysia
• Mexico
• Netherlands
• Norway
• Papua New Guinea
• Philippines
• Poland
• Russia
• Singapore
• South Africa
• Spain
• Sweden
• Switzerland
• Taiwan
• Thailand
• Turkey
• United Arab Emirates
• United Kingdom
• United States of America
• Vietnam

Requirements

• One to five shareholders (must be natural persons, trustees, or another LTC). Related owners (family members) are or can be treated as one which can allow for technically more than five shareholders.
• Registered address in New Zealand.
• The company must be resident in New Zealand. See above under Residency.
• At least one director must be resident in New Zealand.
• Must submit annual returns.

Noteworthy Features

• Tax neutral, members are taxed on personal income on funds received from the company which is in relation to their ownership share.
• Despite shareholders being taxed (as opposed to the corporate entity), limitation of liability remains intact.
• No limitations on nationality and residency of shareholders or directors, although it is often wise to have at least one director resident in New Zealand (can affect double taxation treaties usage).
• LTCs may still be subject to other taxation than corporate tax, such as GST (sales tax), payroll tax, and withholding taxes.
• Offers superficial similarities with LLC but is a company type which banks are used to, in a reputable jurisdiction.
• No need for Memorandum or Articles of Incorporation.
• No minimum share capital requirements. Companies are usually formed using one to 1,000 shares valued at 1 NZD each.

Portfolio Investment Entities (PIE)

PIE is an entity created in 2007 in response to some unfavourable tax problems New Zealand had when it came to investments.

They have virtually no practical use outside of investment, acting as faux managed investment funds.

Limited Partnership (LP)

A common vehicle for private equity and investments, the Limited Partnership was created by the Limited Partnerships Act 2008. It is based on LPs in other jurisdictions.

LPs are tax transparent and separate legal person. Partners’ liability is limited. There must be one general and one limited partner.

At least one partner must be a New Zealand resident, often a trustee or nominee. Non-resident partners are out of scope for taxation in New Zealand.

Public Records

Full details about directors, shareholders, and company financials appear on public record.

New Zealand Trust

A savvy jurisdiction like New Zealand of course has a trust law in place. As expected, the legislators in New Zealand have created a one-of-a-kind legislation.

Based on UK laws, the New Zealand trust law goes back to times of British rule in the late 1800s. The current law was adopted in 1956. Being a jurisdiction that has never had a problematic reputation, in a world where compliance and transparency are becoming hip, New Zealand is an increasingly popular jurisdiction for trusts. Primary uses are wealth and succession planning. Asset protection is not a key feature of New Zealand trusts. Notably, there is for example no specific anti-forced-heirship law in New Zealand. Many other safeguards that are associated with offshore trusts (such as only recognizing local court orders) are also missing.

Trusts formed by non-residents carry significant tax advantages. Under condition that the neither settlor nor beneficiaries are New Zealand residents and all income from the trust is derived from non-New Zealand sources, a New Zealand is exempt from taxation. These types of trusts are often called foreign trusts.

Settlors and beneficiaries have a greater say in New Zealand trust than many other jurisdictions. They are enabled to make certain appointments otherwise typically reserved for the trustee, such as demanding that trustee or trustees be or not be New Zealand residents.

Trusts name and trustee details must be disclosed to tax authorities. Financial statements must be prepared but need not be filed. Settlor need only be declared they are a resident of Australia.

Noteworth Service Providers

As always, this is not a recommendation.

• Asiaciti Trust
• Mossack & Fonseca
• Southpac Trust
• Trident Trust

Banking

Considering it is not a major international financial center, banking in New Zealand is of a generally high quality. Fees are on the lower end compared internationally, yet the banks offer sophisticated services.

Non-resident banking is fairly common but typically requires a personal visit. There are occasional cases of banks permitting remote account opening – either directly or through an intermediary – but those are more exception than norm.

Large international banks may permit international bank account opening by visiting a branch in another location. Westpac and ANZ are especially accommodating for this.

Offshore banking in New Zealand in the context of opening bank accounts for IBCs and other offshore companies is a rare sight. That said, it is usually not a problem to open bank accounts for non-resident LTCs and foreign trusts with the help of a good trustee.

Credit cards are almost never issued to non-residents but debit cards are readily available in NZD. Some banks offer prepaid cards in other currencies, issued under the Cash Passport umbrella.

Interest rates up to 4.60% are available with term deposits in NZD. Higher rates can be negotiated for larger deposits.

Banking Secrecy

There is no noteworthy banking secrecy legislation in New Zealand.

Banks in New Zealand

There are 25 banks in New Zealand, of which 10 are branches of overseas banks.

• ANZ Bank New Zealand Ltd
• ASB Bank Limited
• Australia and New Zealand Banking Group Limited (B)
• Bank of Baroda (New Zealand) Limited
• Bank of China (New Zealand) Limited
• Bank of India (New Zealand) Limited
• Bank of New Zealand
• China Construction Bank (New Zealand) Limited
• Citibank N A (B)
• Commonwealth Bank of Australia (B)
• Deutsche Bank A G (B)
• Heartland Bank Limited
• Industrial and Commercial Bank of China (New Zealand) Limited
• JPMorgan Chase Bank NA (B)
• Kiwibank Limited
• Kookmin Bank (B)
• COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A. trading as Rabobank Nederland (B)
• Rabobank New Zealand Limited
• Southland Building Society
• The Bank of Tokyo-Mitsubishi UFJ Limited (B)
• The Co-operative Bank Limited
• The Hongkong and Shanghai Banking Corporation Limited (B)
• TSB Bank Limited
• Westpac Banking Corporation (B)
• Westpac New Zealand Limited

New Zealand FSP

In 2008, New Zealand passed the Financial Service Provider Act. This opened the doors to one of the world’s most exciting financial services provider companies regulations, regulated by the responsive and responsible Financial Markets Authority.

A number of shortcomings were addressed quickly, primarily one which now requires FSPs to have their own offices and operations that must take place in New Zealand. Before that amendment was made, firms and agencies were setting up multiple FSP companies on the same address, similar to how a registered agent forms companies under the same address.

This was contrary to the spirit of the law and after a number of amendments and large-scale license revocations.

Acquiring an FSP license is still very attractive and the heavy-handed enforcement by the regulator and law makers has only served to strengthen the reputation. Unlike comparable entities in more surreptitious jurisdictions, a New Zealand FSP is a mostly reputable entity.

LTCs can hold FSP licenses.

Operating under an FSP license may cost more than offshore alternatives but the benefits are that it is easier to operate when it comes to entering into agreements with business partners, such as correspondent banks, insurance companies, and other financial services providers.

An office in New Zealand is required and the office needs to have substantial activities, being responsible for the majority of the FSP’s operations. The office cannot be shared with another FSP holder. FMA is very strict about enforcing this, so as to prevent the FSP legislation to be used as a way to form bronze plaque companies (shell companies with no substantial local activities).

Any New Zealand registered entity can apply for an FSP license. An NZ Registered Entity is defined as “any legal entity that is registered with the New Zealand Companies Office.  This includes, for example, limited liability companies, overseas companies carrying on business in New Zealand, building societies, credit unions, and limited partnerships.” This means it’s technically possible for an overseas company to get an FSP license in New Zealand but for practical reasons, forming a local company is preferred.

Owners and directors must pass a criminal history check and other background checks.

License fees are low. Although there are no statutory capital requirements, although FMA is empowered to put requirements on individual license holders.

All in all, it is expected that acquiring an FSP license, incorporation of a New Zealand registered entity, license and application fees, and sundry costs all in all amount to  anywhere from 20 to 30,000 NZD and up for the first year. Annual costs are significantly lower, but note that these figures don’t include cost of renting an office and hiring staff.

A financial service is defined under article 5 of the act as:

Living in New Zealand

Yes, it is beautiful as you think it is – if not more so.

Quality of Life

New Zealand boasts a robust infrastructure and some of the highest standards of living in the world, consistently ranking well into the top-10 in Human Development Index (HDI).

Taxation

Personal taxation is medium to low.

Residents are taxed on worldwide income but tax credits are generally given to foreign-sourced income.

New Zealand has a concept called transitional resident, wherein a first-time resident or a former resident returning after 10 years of non-residency may qualify for exemption for taxation on foreign income for up to 48 months.

There is no capital gains tax, inheritance tax, or wealth tax in New Zealand.

Immigration and Residence

Permanent residence is relatively difficult to obtain for those without any ties to New Zealand, as it first requires the applicant to have held a less permissive visa – residence visa – for two to three years. The applicant must also show significant commitment to New Zealand, such as paying tax, start a business, owning property, or starting a family.

Getting a highly-skilled job in New Zealand is generally the most common start on the path towards permanent residency.

Final words

LTCs offer one of the most attractive tax transparent entities on the market today, but costs often get in the way for entrepreneurs on a budget.

New Zealand trusts offer an interesting, reputable alternative to offshore trusts.

See also

• OECD Peer Review of New Zealand (also has a list of TIEA and DTA)
• Financial Secrecy Index New Zealand
• FATF documents on New Zealand

So you have evaded some taxes. Not exactly a cool crime, is it? Time to take it up a notch and move into money laundering.

Have your tailor sew you a black-and-white striped body suit and start streching and warming up your ankle for some ball-dragging because you, my friend, are going to jail.

And let me tell you why.

What is Money Laundering?

Good question. Most industry experts, regulators, and law makers agree that money laundering is a three-step process:

1. Placement
2. Layering (sometimes called Structuring)
3. Integration

1. Placement

In this step, the funds are placed into the financial system. Common methods include:

• Bank deposits: this is usually the end goal and many (try to) start here.
• Blending: combining legitimate cash with criminal proceeds.
• Gambling: buy and sell chips. This is why a lot of casinos have stopped giving out receipts or only give out receipts for winnings.
• Paying back loans: pay back loans with illegitimate funds.
• Currency exchanges: change illegitimate USD into less-obviously-illegitimate CAD.
• Money remittance: for example Western Union cash to bank or hawala (long document but well worth reading).
• Purchase of financial instruments: prepaid cards, checks, money orders, cryptocurrencies, et cetera.
• Purchase of assets: real estate and other assets which do not decrease in value over time or decreases to a tolerable degree.

2. Layering

Once in the financial system, layering is when the placement is obfuscated. This is also called concealing the origin.

This can be done a number of different ways, such as:

• Repeated purchase and sale of assets.
• Transfer of funds to and from secretive jurisdictions.
• Transfer of funds between bank accounts, e-wallets, cryptocurrencies, foreign currencies, and so on.

The goal here is that the origin of funds is practically or truly impossible to trace. Criminals get especially creative here.

3. Integration

Integration means the return of clean money to the criminal. The illegitimate funds have now been converted into funds which are so clean that they will never be questioned. Many still get caught after integration but only because it can take a long time to unwind what went on during Placement or Layering.

This is the most difficult part. While it is fairly easy to place and layer funds, integration is trickier. The criminal needs to find a reasonable explanation for why they are receiving so much money, either in one big transfer or multiple small ones.

Common techniques include:

• Real estate: it’s not quite enough to just buy and sell properties, but done right the last sale should look legitimate and funds be clean.
• Fronting: you know what I’m talking about. Waste management or laundromats or dry cleaners or car washes. The criminal’s choice for creating a legitimate business whose coffers are padded with illegitimate funds. Becoming more difficult with societies moving towards cashlessness but clever criminals are already finding ways around it.
• False invoices: this goes hand in hand with fronting – sometimes. Sometimes it’s just complete bogus. Import and export of high-value or high-volume goods.
• Corruption and Threats: this is often overlooked. You’d be surprised what bank managers and even regulators in less reputable jurisdictions are willing to overlook if you pay (or threaten) them.

Diagram from UNODC.

Predicate Crimes

Now that we know what money laundering is, it’s time to define what constitutes money laundering.

A predicate crime is generally an illegal activity from which a financial gain is made. However, not all crimes are considered predicate crimes to money laundering. While nearly all jurisdictions consider drug trafficking, theft, terrorism, bribery, corruption, and sale of illegal goods or services (unlicensed firearms, bombs, exotic pets, and so on) to be predicate crimes, tax evasion is not always included.

FATF (Financial Action Task Force) is an international organization that oversees money laundering regulation and enforcement across the world. They are famous for issuing recommendations that most jurisdictions take to heart and incorporate into their laws.

Those who read my article on Turkey will remember the back and forth between Turkey and FATF.

In February 2012, FATF issued new recommendations which include tax evasion as a predicate crime.

While it is not in the scope of this blog to go into specific jurisdictions’ laws, tax evasion is increasingly being added as a predicate crime among tax aggressive jurisdictions. Likely, jurisdictions that fall behind will face the wrath of FATF (and OECD).

Note that in many jurisdictions, it is not necessary to be convicted of the predicate crime in order to be convicted of money laundering. The mere suspicion can be enough.

Additionally, some jurisdictions even apply so-called reverse burden of proof (reverse onus) for money laundering (and in some cases tax evasion), whereby you are presumed guilty until proven innocent.

This makes money laundering one of the most aggressively prosecuted crimes in the world.

Enforcement

Enforcement of AML (Anti-Money Laundering) laws typically falls on financial crimes divisions of police departments, but they often work very closely with financial intelligence units (FIUs), which are largely a FATF invention.

Tax authorities rarely get involved in pure money laundering cases but will notify the FIU or law enforcement if a tax investigation turns out to involve suspicious activities.

SAR / STR

Initially called STR, for Suspicious Transaction Report, it is increasingly going by the name SAR, for Suspicious Activity Report.

This is a report any financial service provider is required to file with its jurisdiction’s FIU or, lacking that, financial crimes police department.

Any activity which is suspicious should be reported, such as depositing large sums of undeclared of money (placement), suspicious transactions (layering), and unusual invoicing or purchases (integration).

The FIU receives the SAR and must quickly decide whether to act on it or file it for future reference. SARs must not be destroyed.

Example of things that may lead to an SAR:

• Asking a bank intrusive questions about secrecy and reporting.
• Asking a service provider about structures that they reasonably suspect involve criminal activities.
• Sending or receiving wire transfers that are out of the ordinary, especially if high-risk jurisdictions are involved (more on those later).
• Splitting a large cash deposit into several smaller deposits.
• Purchasing and selling real estate, cars, or other high-value items in a short period of time.

The Risks

While historically, running an undeclared offshore company was seen a petty tax evasion (and still is), getting caught is starting to have ramifications that go above and beyond a mere slap on the wrist and some penalties from your tax authority.

If proceeds from tax evasion are used in a manner which a prosecutor thinks is money laundering, you are suddenly in a whole new ball game.

The risks of detection for a petty money launderer are about the same as for a petty tax evader. Most never get caught. However, the repercussions are far worse than tax evasion.

Large scale operations can take years to unwind and by the time they are unwound, the top people are already gone without a trace.

Jurisdictions

The Basel Index is a meta-index which looks at vast range of factors to score how risky jurisdictions are in terms of risk of money laundering. They publish a basic ranking for free on their website, with a more in-depth version being available for a fee (or free for educational purposes): http://index.baselgovernance.org/index/Index.html.

The top 10 highest money laundering risk jurisdictions as of writing are:

1. Iran
2. Afghanistan
3. Cambodia
4. Tajikistan
5. Guinea-Bissau
6. Iraq
7. Mali
8. Swaziland
9. Mozambique
10. Myanmar

Other noteworthy listings under 100 include:

• Liberia (16)
• Panama (25)
• Comoros (36)
• Ivory Coast (46)
• Seychelles (51)
• Costa Rica (58)
• United Arab Emirates (60)
• Vanuatu (65)
• Turkey (69)
• Bahamas (72)
• Ghana (77)
• Brunei (82)
• Samoa (84)
• Mauritius (85)
• Hong Kong (90)
• Switzerland (96)
• Djibouti (98)

The top 10 lowest money laundering risk jurisdictions as of writing, all with an overall score of under 4.00, are:

• Finland
• Estonia
• Slovenia
• Lithuania
• Bulgaria
• New Zealand
• Belgium
• Poland
• Malta
• Jamaica
• Hungary

Does Jurisdiction X Consider Tax Evasion a Predicate Crime?

Ask a lawyer.

Service Providers

While tax evasion is still a fairly mild crime – one for which service providers generally are not held accountable – money laundering is a different beast.

That said, there are plenty of service providers out there which knowingly engage in illegitimate funds and helps launder them. The going rate is around 10 to 30% depending on volume and how well connected you are.

Banks in the Middle East and Central Asia are notorious for doing this. Place the right phone call and meet with the right introducer, and the bank will take your money, and return it to you in a bank account with them less a fee. The process usually takes three to six months.

Africa is also a problematic region for this but its banking sector is generally grossly underdeveloped and unsuitable for this type of money laundering activity.

Similar arrangements were made elsewhere in the world (Europe, the Americas) but improvements in AML laws and KYC policies have nearly eradicated the issue. While banks are still involved in money laundering, it is mostly as a passive part.

See Also

Blog Posts

• Tax Evasion
• Tax Information Exchange Agreements
• Double Taxation Agreements
• “Zero Tax Anonymous Bearer-Shares Offshore Company with Secret Bank Account”

International and Regional Organizations

• FATF-GAFI
• APGML – Asia / Pacific Group on Money Laundering
• CFATF – Caribbean Financial Action Task Force
• Eurasian Group – Belarus, India, Kazakhstan, China, Kyrgyzstan, Russia, Tajikistan, Turkmenistan and Uzbekistan.
• ESAAMLG – Eastern and Southern Africa Anti-Money Laundering Group.
• GAFILAT – Grupo de Acción Financiera de Latinoamérica.
• GIABA – Inter Governmental Action Group Against Money Laundering West Africa.
• MENAFATF – Middle East North Africa Financial Action Task Force.
• Moneyval – Council of Europe.
• Egmont Group

There are three sovereign, recognized principalities in the world.

All three are in Europe.

All three are tax havens.

One is by the coast. The other two are tucked up in the mountains: Andorra and, today’s subject: Liechtenstein. (Monaco is coming; don’t worry.)

Let’s find out what’s going on up in the Alps.

Geography and Demography

Map from Wikipedia.

Incorporation and Business

Reputation

Liechtenstein has a virtually non-existent reputation when it comes to business. This is down to cost and what (perhaps surprisingly) isn’t a terribly attractive tax environment for trading companies.

It has a stellar reputation for asset protection, though. Its laws are carefully crafted for this purpose.

General Information

If you are forming an entity in Liechtenstein, 99.9 out of 100 times it will be for some sort of holding, asset protection, or wealth management structure.

Extremely little business is performed under Liechtenstein entities outside of the local economy (a handful of which may sell to Switzerland, Austria, and Germany).

Aktiengesellschaft (AG)

Superficially similar to their Swiss counterpart.

Liechtenstein AGs are usually set up as holding companies or private asset structures (PAS). As mentioned, they are very rarely used for trading.

Requirements

• 50,000 CHF, EUR, or USD share capital (100% paid up).
• One director (at least one director must be an EEA or Swiss national or resident).
• One shareholder.
• Registered office in Liechtenstein.
• A local company secretary or other legal representative.

Noteworthy Features

• Bearer shares are permitted.
• Corporate directors are permitted.
• Corporate shareholders are permitted.

Taxation

There is a 12.5% corporate tax rate which applies to trading companies. Companies which qualify as PAS are limited to a cap of 1,200 CHF per year.

Holding companies pay zero tax in Liechtenstein on their investment gains, since capital gains and dividends are not taxed.

Gesellschaft mit beschränkter Haftung (GmbH)

Again, superficially similar to their Swiss counterpart, GmbH is an LLC-like entity.

And again, they are very rarely used for trading.

Requirements

• 30,000 CHF, EUR, or USD share capital (100% paid up).
• Minimum one member.
• Registered office in Liechtenstein.
• A local company secretary or other legal representative.

Noteworthy Features

• Corporate directors are permitted.
• Corporate shareholders are permitted.

Taxation

Same as AG.

Anstalt (Establishment)

The Anstalt is a legal form unique to Liechtenstein created shortly after World War I to attract foreign capital. It is defined as akin to a company but much, much more flexible.

The popularity of the Anstalt comes from it being recognised as a separate legal person and, depending on how it is structured, can be used as a stock company, single-member LLC, or foundation.

As a stock company, the Anstalt is formed by a group of people and ownership is determined by share ownership. This structure is unpopular as it offers nearly no benefits over simply forming an AG or GmbH.

Formation is simple in terms of paperwork but most providers take you through a thorough KYC and vetting procedure and the bill even for a basic set up rapidly approaches and exceeds 10,000 CHF. A reason for this high cost is the need for a legal representative of some kind in Liechtenstein.

A minimum capital of 30,000 CHF is required of which all must be paid up.

Anstalts have so-called Gründerrechte (Founders’ Rights) which stipulate what powers the founders of an Anstalt have. These rights are usually purely administrative to as to not risk compromising the integrity of the Anstalt in case the founders are also the beneficiaries, if any beneficiaries were stipulated when the Anstalt was formed. The founders make up the supreme body of an Anstalt, which can appoint and adjust a board of directors.

Other bodies within the Anstalt can also be set up, such as a supervisory board separate from both the founders and the board of directors.

Taxation

Taxed as an AG if structured like a corporation. Otherwise, typically only subject to 1,200 CHF annual tax.

Stiftung (Foundation)

Based on laws passed in 1926, Liechtenstein is the world leader and pioneer in foundations. This Alpine principality together with Panama are the big two jurisdictions for foundations.

There are about 40,000 Stiftungs in Liechtenstein, of which circa 1,500 are registered Stiftungs and 600 are run for public services. There is a reported 100 billion CHF sitting in Stiftungs, most of which are in private Stiftungs.

This high number comes from some of the world’s largest companies using Liechtenstein Stiftung as a component in their tax planning structures.

Stiftungs aren’t just popular with large corporations looking to reduce their tax bill. They are also used (sometimes along with an Anstalt) for wealth management. Many royal families and other HNWIs utilise Liechtenstein for their wealth management needs.

The Stiftung law was changed significantly after FATF and OECD criticism in the early 2000s. There were significant money laundering risks in the thitherto very easy-going legislation. The changes were fairly trivial but enough to cause a decrease in number of foundations being formed and some being terminated.

A Stiftung has one or more founders and it must have beneficiaries which are either known (determined) or can be known (determinable). A board acts as the supreme governing body of the Stiftung, although a protector can be appointed.

A foundation must have assets worth at least 30,000 CHF at the time of foundation. The assets need not be cash.

Stiftungs can be used for management of third-party assets if it is duly licensed.

Taxation

Typically only subject to 1,200 CHF annual tax.

Public Records

Names of directors of AG companies appear on public record, but shareholders are not. Members of GmbHs appear on public record.

The name and details of directors of Anstalts appear on public records.

Family foundations are not subject to public disclosure.

Liechtenstein Trust

Attractive for being one of few civil law jurisdictions to have adopted the Anglo-Saxon (and thereby common law) concept of trust. The other two are Curaçao and Sint Maarten.

Liechtenstein trusts can be perpetual. At least one trustee must be a Liechtenstein resident. There is no minimum capital mandate although for cost reasons, Liechtenstein trusts are rarely used for smaller amounts.

Liechtenstein permits trusts to be formed under another jurisdiction’s laws, making it an excellent means to form trusts under a legal system familiar to the trustee but with the benefits of being a foreign trust.

Trusts are subject to a tax rate of 0.1% with a minimum of 1,000 CHF on net assets.

Banking

Lacking the chocolate and watches of its western neighbour, Liechtenstein has had time to dedicate nearly all of its resources to perfecting banking (to the point where a third of the contents of the principality’s tax coffers come from banking and corporate services).

It is what most people come to Liechtenstein for. Long criticized for secrecy, Liechtenstein has developed one of the world’s best private banking and wealth management traditions.

Non-resident personal and corporate banking in Liechtenstein are very rare. Transactional banking isn’t really what these banks are about. Many have low or no fees for incoming wires, making them suitable for receiving payments but not making any large amount of outward payments.

There are service providers that claim to be able to land clients with Liechtenstein banks for low deposits (often 1,000, 5,000, or 10,000 CHF). While this is possible, it neglects to mention that the bank requires the deposit to reach 100,000 CHF or higher within a year or the account will be closed.

It’s safe to say that each Liechtenstein bank has at least a dozen royal families, other wealthy families, or large holding companies/Anstalts/Stiftungs on their client roster. This requires staff to be impeccable. Liechtenstein banks will often boast about only hiring the best of the local expertise or hand-picking the best from the Swiss banking sector.

This drives up salaries and costs of operation. It is simply not profitable to take on a client that isn’t going to deposit 250,000 to 1 million CHF, which is the usual minimum deposit range required in Liechtenstein.

This, interestingly, has the side-effect of Liechtenstein banks not really caring whatsoever about jurisdiction. It is equally easy (or difficult) to open a bank account for a sketchy Liberian LLC as it is for a more-reputable Gibraltar company in Liechtenstein.

Banking Secrecy

To cut it short: it’s comparable to Switzerland.

There is still strict banking secrecy in Liechtenstein but it has been eroded and will continue to be eroded until it is in line with international compliance levels.

As far as OECD is concerned, Liechtenstein is fully compliant when it comes to banking and whether information is available to competent authorities.

Banks in Liechtenstein

As of writing, there are 16 licensed banks in Liechtenstein:

• Alpe Adria Privatbank AG (under liquidation)
• Bank Alpinum AG
• Bank Frick & Co. AG
• Bank Vontobel (Liechtenstein) AG
• Banque Havilland (Liechtenstein) AG
• EFG Bank von Ernst AG
• Kaiser Partner Privatbank AG
• LGT Bank AG – owned by the Liechtenstein royal family
• Liechtensteinische Landesbank Aktiengesellschaft – majority-owned by the Liechtenstein government
• Neue Bank AG
• Raiffeisen Privatbank Liechtenstein AG
• SIGMA Kreditbank AG
• Union Bank AG
• Valartis Bank (Liechtenstein) AG
• Volksbank AG
• VP Bank AG

Living in Liechtenstein

In short: forget it. There are extremely few residence permits issued. Most people with interests in Liechtenstein live in Switzerland, Austria, or Germany. Most workers for example live in Switzerland, Austria, or Germany.

Although an EEA member, Liechtenstein’s arrangement with the EEA is that it needs only permit 28 EEA nationals and those 28 slots are filled very quickly for highly skilled workers.

Final words

Due to the high costs, Liechtenstein is a tax haven reserved for the wealthy.

If you have significant capital to deposit and seek a jurisdiction that has a well-deserved reputation for being rock solid, Liechtenstein should probably be on your short list.

If what you seek is an easy-going business-friendly jurisdiction, head west to the Swiss border. Or somewhere else entirely.

See also

• OECD Peer Review of Liechtenstein (also has a list of TIEA and DTA)
• Financial Secrecy Index Liechtenstein
• FATF documents on Liechtenstein

Today, I will touch on a number of concerns you may face if you are thinking about running an ecommerce business through an offshore company. Ecommerce here refers to the sale of goods and consumer services. Freelancing, consulting, and affiliate marketing comparable services (typically B2B) are not specifically included here.

I will not solve any problems here; merely point them out. Let this serve as a good starting point for your own research.

Intangible Goods

If you are selling web hosting, software, ebooks, and other virtual or digital goods and services, it’s a fairly trivial thing to offshore your ecommerce business.

On paper, it would really just be about forming the offshore company and open an offshore bank account. Then you simply change the terms and conditions on your website to refer to Example Software Limited, your class II GBC in Mauritius and transfer assets to your new bank account, for example with MCB in Mauritius.

While that may simple, a question should appear – why are you even doing this?

As I have touched on in the past, you cannot in 99% of all cases expect any form of tax benefits in doing this. Tax evasion is of course always an option but breaking the law doesn’t require an offshore company (although it makes it easier). This is an especially important aspect to consider for VAT (sales tax) within the European Union. Dodging VAT with an offshore company won’t work (legally), unless you also take steps to leave the EU.

Why would you invest upwards of 2 – 3,000 EUR to create an offshore company for your intangible-goods online shop?

What benefits do you seek? How are they fulfilled by forming an offshore company? Are they really?

Consider also the challenges you will face when it comes to accepting payments. See Accepting Online Payments as an Offshore Company.

You may lose PayPal or be required to use PayPal through an intermediary. An intermediary will usually cost 1 – 2% more than going directly with PayPal and they might hit you badly on foreign exchange rates. Are the offshore benefits worth this to you? Why?

Tangible Goods

In addition to the challenges above, you also face the challenge of having to maintain a stock somewhere of whatever it is you are selling.

If your operations are large enough and you can justify the costs, it might be worth looking at setting up a warehouse in a free trade zone (FTZ) or free port that doesn’t tax you (let alone ask questions) as long as nothing is imported into the jurisdiction. There are many out there, with some popular options being Hong Kong, Macau, Singapore, UAE, Shanghai, Liberia, Malta, Bahamas, and Panama.

There is no easy answer to what is suitable in a particular situation. No two FTZs or free ports are precisely same.

But how do you get your items there? If you are manufacturing things yourself, it will probably be an impractical amount of work to ship your goods to the offshore warehouse and from there disperse to customers. The costs will simply be astronomical, not to mention import (and export) taxes as applicable.

In reality, this is almost only feasible if you import from an overseas supplier and have the goods delivered to a warehouse in an FTZ. For example, your supplier in Indonesia manufactures 1,000 bamboo garden chairs for you. These are then shipped and stored in an overseas warehouse, from which you distribute to your clients.

What are you trying to achieve, exactly?

Taxes

So why can’t you just set up an offshore company and magically reduce your taxes? The company is its own entity and as long as funds stay within the company it’s fine, right?

No.

Tax residence is something we have discussed extensively over on the forum. I will dedicate an entire article to it at some point but the gist is that your company is in most cases going to be considered resident and therefore liable for tax wherever you live. Incorporation has virtually zero bearing on taxation other than to classify you as tax resident in that jurisdiction, as I mentioned in my article on the United Kingdom. A typical IBC is not resident where it is incorporated.

Worst case, the company is considered resident where you live and where it is incorporated (or more jurisdictions). This is where a double taxation avoidance treaty can help you.

OK, but what if I don’t want to pay tax?

Then you might want to read two articles I published recently:

• Dark Side Part 1: Tax Evasion
• Dark Side Part 2: Money Laundering

Reputability

I have mentioned this several times. The reputation of the jurisdiction in which you incorporate can have a significant impact on how your customers and business partners perceive you.

Reputability is basically an attempt to quantify the risk you pose; risk of you committing fraud, tax evasion, money laundering, or other crimes or unethical activities.

Secrecy by definition lessens transparency which makes it difficult (usually impossible) for a customer or business partner to fully and truly know who’s behind a company and how to reach the company in case of a dispute.

As an example: selling Indonesian-made bamboo garden chairs from a Vanuatu IBC will be an eye-sore to many. Your payment service provider will be even more suspicious when you request settlements sent to a bank account in Seychelles.

Does reputability matter to you?

Can you lessen the damage by incorporating in a more reputable jurisdiction?

Conclusion

Moving your ecommerce endeavour offshore can be done and many do it. Your biggest challenges are going to be to justify the cost (unless you are already well-established) and how the change in company jurisdiction may affect your relationship with your tax authority, your business partners, your payment service provider, and most importantly your customers.

If you merely seek privacy from public records, nominee or corporate directors and or shareholders may be a much more efficient solution.

Among the most remote jurisdictions I will cover, Cook Islands are one of the Pacific tax havens along with such noteworthy neighbours as Samoa and Vanuatu.

Cook Islands consist of 15 stunningly beautiful islands spread out in the warm waters of the south Pacific. This tax haven is an associated state of New Zealand, meaning it is all but an independent country. New Zealand acts on behalf of Cook Islands when requested to do so. Nonetheless, Cook Islands maintain some diplomatic relations of its own.

Cook Islands nationals are New Zealand nationals but the reverse is not true.

But we’re not here for that. Let’s get down to business.

Geography and Demography

Map from Wikipedia.

Incorporation and Business

Reputation

Cook Islands are not very well known for business and incorporation. IBCs and LLCs formed here are most often used in asset protection structures that usually also include a trust. They are seldom used for trading or even holding outside of asset protection.

However, for those inclined to seek out these Pacific islands for setting up a trading or holding business, Asian and Pacific banks and business partners are familiar with the Cook Islands for trusts and may be accommodating to business entities. It can be a lot more challenging when it comes to other regions.

The jurisdiction as a whole enjoys an overall reputation. Despite this, secrecy is very tight. It is quite possibly the tightest run ship of all IBC jurisdictions.

General Information

There are two key aspects about the Cook Islands that make them stand. One is the requirement for companies to submit an annual financial statement. This need not show the entire books of the company; just the financial standing at the end of the fiscal year. The second is a non-public government registry of directors (IBC) or managers (LLC).

Other than that, it’s the usual IBC and LLC jurisdiction.

The jurisdiction’s lack of popularity stems from high costs, usually far higher than most other IBC jurisdictions.

Regulator

The Financial Supervisory Commission of the Cook Islands is the supervisor and FIU of the Cook Islands.

International Company (IC)

ICs are formed under the International Companies Act 1981-82. As of 2014, 1,090 ICs were registered and still active.

• One director required.
• One shareholder required.
• No paid up share capital required (usually 5,000 USD authorized).
• Registered address and secretary in Cook Islands required.
• Bearer shares are permitted but must be deposited with a custodian.

Taxation

None.

Limited Liability Company (LLC)

LLCs are formed under the Limited Liability Companies 2008 law. As of 2014, 383 LLCs were registered and still active.

Cook Islands LLCs offer the full flexibilities expected under an LLC. They are very commonly either wholly or partly owned by a trust in asset protection structures.

• One member required.
• Registered address and secretary in Cook Islands required.
• Bearer shares are permitted but must be deposited with a custodian.

Taxation

None. Pass-through entity.

Public Records

Directors and managers only.

Cook Islands Trust

Often touted as the strongest asset protection trust legislation in the world and described by the New York Times as a Paradise of Untouchable Assets, what is it really that makes Cook Islands so special?

For one, it’s tried and tested. A lot of jurisdictions out there may have laws similar to Cook Islands but don’t have high-profile cases to fall back on. As an indication to the strength of Cook Islands trust, even the powerful US authorities have failed to penetrate Cook Islands trusts that were correctly structured.

Trusts are regulated under the Trust Acts 1984 law. After changes made in 1989 (No23 and No33), the Cook Islands claimed it is the world’s first genuinely asset protection specific legislation.

While many jurisdictions have statute of limitations on fraudulent conveyance (fraudulent transfer) for four to five years, the Cook Islands have set their limit to two years.

The Cook Islands recognize court orders from two jurisdictions: itself and New Zealand. In reality, New Zealand has no interest in strong-arming Cook Islands and instead treat it as the sovereign state it is. It has so far looked the other way and deferred to Cook Islands for most matters.

Additionally, Cook Islands trustees are forbidden to act on instructions given to them by a settlor under duress.

As mentioned earlier, LLCs are often used together with a trust. A typical set up would be a trust owned by an LLC, for which the settlor and beneficiary of the trust is the manager. This empowers the settlor/beneficiary to manage the funds but only for the benefit of the trust. Should duress occur, the trust assumes management of the LLC until such time the duress has passed – for example when a court case has been abandoned or a creditor has given up.

What about the bank accounts? Don’t worry. The strict due diligence requirements and background checks placed on Cook Islands trustees enable the trust’s and LLC’s bank(s) to be content with the trustee becoming the new signatory on the bank account if the settlor/beneficiary is under duress.

Because it is not a banking center, criticism has been rather mild in Cook Islands’ tight secrecy and security surrounding trusts.

As of 2014, there were 2,620 trusts registered and active in the Cook Islands.

What about taxes? Good question. Asset protection and taxes are separate. Although exempt from taxation in the Cook Islands, assets placed in a Cook Islands trust are not automatically exempt from tax, especially if the settlor is also the beneficiary.

Service Providers

As always, this is not a recommendation.

There are six trustee companies (service providers) licensed in the Cook Islands, all of which are noteworthy:

• Asiaciti Trust
• Cook Islands Trust Corporation
• HSBC
• Ora Fiduciary
• Portcullis TrustNet
• Southpac Trust

Banking

Money held by the trusts are virtually never actually in Cook Islands. They usually bank elsewhere, in for example Singapore, Hong Kong, Switzerland, Lebanon, Panama, Liechtenstein, UAE, and so on.

In the grand scheme of things, there is virtually no international banking taking place in the Cook Islands.

Do not expect a bank in the Cook Islands to be particularly interested in you. Likewise, do not expect a bank in the Cook Islands to be particularly interesting to you.

Banking Secrecy

The law as such is fairly strict but does permit exchange of information for tax information as well as serious crimes.

Banks in Cook Islands

There are five banks in the Cook Islands, of which four hold both a domestic banking license and an international banking license.

• ANZ
• Bank of the Cook Islands (domestic only)
• Bank of South Pacific
• Capital Security Bank
• Westpac (sold its operations to Bank of South Pacific in July 2015)

Living in Cook Islands

As beautiful as these islands are, it is very difficult to settle down here.

Residency is available for investors willing to invest between 500,000 to 1,000,000 NZD in local real estate. However, there can at any given time not be more than 650 permanent residence permits issued.

Citizenship is impossible. To quote the Foreign Affairs and Immigration department: The Cook Islands does not have any laws pertaining to the grant of Cook Islands citizenship or nationality, and does not issue passports.

Final words

A very interesting jurisdiction which could be a very interesting and mostly-reputable alternative to IBC and offshore LLC jurisdictions.

However, trusts and asset protection are the key strengths of the Cook Islands. They are what make the international financial services sector the second biggest industry, after tourism.

See also

• OECD Peer Review of Cook Islands (also has a list of TIEA and DTA)
• Financial Secrecy Index Cook Islands
• FATF documents on Cook Islands

The time has come to take a look at the three Caucasus republics and what banking there is like.

Azerbaijan

What do you get when you mix friendly relations with Russia, Iran, Turkey with oil, a totalitarian regime, a growing economy that seeks foreign investment, and one-time Eurovision winner?

You get the Republic of Azerbaijan.

Born from the ashes of the Ottoman Empire, the Russian Empire, the Soviet Union, Azerbaijan is a fiercely independent and proud country. While it has its flaws (some of which are really bad), it is a country of exciting (if risky) opportunities interspersed with stunning scenery and the unique Azerbaijani culture – and cuisine.

Every visit to Azerbaijan is a pleasure and even familiar parts of Baku surprise. The people are increasingly comfortable speaking English, in addition to Azerbaijani and Russian. More and more tourists are coming to Azerbaijan, including western Europeans.

FATF and Moneyval have criticized  harshly Azerbaijan for lapses in AML (Anti Money Laundering) regulation and enforcement.

Azerbaijan is seen as being at tremendous risk of being used for drug smuggling, trafficking, and arms smuggling. It acts as origin, destination, and transit point for all these activities. Money laundering is likely rampant but corruption and lax government enforcement make it difficult to know for sure. Petty money laundering may not even be illegal and there is very little precedent for what constitutes significant money laundering, which is the legal definition.

Feigning ignorance is also a valid and usable defense to prevent confiscation of assets.

Curiously, juridical persons (legal persons, i.e. companies) cannot be held liable for money laundering which makes money laundering involving companies – especially secretive offshore companies – virtually impossible to prosecute in Azerbaijan.

But before you open a bank account for Drugs & Guns LLC in Azerbaijan, remember that you can still be prosecuted elsewhere.

Out of the 48 tax treaties Azerbaijan has signed, 45 are DTAs and 3 are TIEAs.

Banking

As one would expect from the above, bank account opening in Azerbaijan is a very relaxed procedure in general. It’s easy to open accounts here without actually disclosing the UBO (Ultimate Beneficial Owner). The banks fall into two camps: those who don’t understand what they are doing and those who understand exactly what they are doing but know that there is very little risk for them.

Owing to its almost universally friendly relations (less Armenia), Azerbaijan is a significant transit point for money to and from sanctioned countries such as Iran, Syria, Pakistan, and Afghanistan.

This makes banking in Azerbaijan considerably risky. All of these legal loopholes, easy-going enforcement, and general disinterested in CDD (Customer Due Diligence) and EDD (Enhanced Due Diligence), coupled with very loose definitions of PEP (Politically Exposed Person), makes it likely that actions similar to what we have seen in recent times against for example Multibanka, Loyal Bank, FBME, and BPA may hit Azerbaijani banks.

Yes, you can find high interest rates here, including rates of over 5% on EUR and USD currency deposits and over 15% on the local AZN (Azerbaijani new manat). These interest rates are dependent on Azerbaijan’s economy continuing to grow and the banks making more than 5% on your EUR and USD deposits. Unsustainable interest rates can cause significant damage.

This could all come to a grinding halt if FinCEN and European authorities turn off the faucet and blacklist Azerbaijan from transacting in USD and EUR and other European currencies.

That all said, banking as such is of generally high quality in Azerbaijan. The banks are fairly modern, although there is a distinct post-Soviet lingering in the air when it comes to some bureaucracy. Stick to the bigger banks and you won’t feel as much of it, though.

Non-residents are welcome with open arms: companies, persons, foundations, organized criminal networks, come one – come all! Remote account opening is possible with all banks – sometimes. They change their policies irritatingly often.

Apostille is almost always required for copies of documents. Azerbaijani banks will usually not be satisfied with certified or notarized copies.

Opening an account requires all the usual documents required to open an offshore account. EU citizens rarely need to show more than a passport to open a personal account if appearing in persons.

Credit cards are fairly easy to obtain and while most banks demand a 100% security deposit, this is often waived after only a couple of months to a year. Building credit in Azerbaijan is remarkably easy.

Fees are quite low but perhaps not as low as one might think. Azerbaijan is a wealthier country than many foreigners may realize.

Secrecy

Banking secrecy is very strong in Azerbaijan. While Azerbaijan authorities swore up and down that they can access information at will when Moneyval last paid a visit, the reality is very different. It is unclear which law takes precedent (the AML law or the banking secrecy law) and a bank that is duly motivated can challenge and delay the process for a long time.

However, the authorities are not completely irresponsible nor are they (not all of them at least) criminals. They will find ways to honour requests for information for sufficiently damaging and damning cases.

Banking secrecy can seemingly not be penetrated for tax matters for accounts held by non-residents and non-nationals, except for when the account holder files for taxes in Azerbaijan. This would normally not be the case for a typical non-resident.

Banks

Banks are supervised by the Central Bank of Azerbaijan (Azərbaycan Mərkəzi Bankı), founded in 1992 shortly after present-day Azerbaijan gained independence.

There are all in all 45 banks licensed in Azerbaijan, many of which are Turkish.

• Accessbank
• AFB BANK
• AGBank
• Amrahbank
• AtaBank
• Atrabank
• Azer-Turk Bank
• Azerbaijan Credit Bank
• Azerbaijan Industrial Bank
• Bank BTB
• Bank of Azerbaijan
• Bank of Baku
• Bank Respublika
• Bank Silk Way
• Bank Standard
• Bank Technique
• Bank VTB (Azerbaijan)
• Caspian Development Bank
• Caucasus Development Bank
• Dekabank
• Demirbank
• EuroAsia Bank
• EuroBank
• Expressbank
• Ganja Bank
• GunayBank
• International Bank of Azerbaijan
• Kapital Bank
• Kredobank
• Milli Iran Bank
• Muganbank
• Nakhchivanbank
• NBCBank
• Nikoil
• Pakistan National Bank
• Parabank
• Pasha Bank
• Rabitabank
• Turanbank
• Unibank
• Xalq Bank
• Yapi Kredit Bank Azerbaijan
• Yunayted Kredit Bank
• Zaminbank

It’s safe to assume that if a bank’s website is available in English, it’s open to non-residents and may even accept remote account opening.

International Bank of Azerbaijan (IBAR) is, as its name implies, a bank very much focused on international clients. It is the bank with the most comprehensive card products on the Azerbaijani banking market.

Georgia

The middle child of the three, Georgia is on amicable terms with both Armenia and Azerbaijan. Its relationship with Russia is difficult, to say the least.

Georgia is trying to establish close ties with western Europe and the EU. It is already on good terms with US, having provided military support to various missions and maintaining strong relations.

Georgia, unlike it’s rowdy eastern neighbour, is doing a lot to prevent from becoming a money laundering nest. There are still significant gaps but they are being worked on.

Moneyval criticized Georgia in 2007 but issued a mostly-content statement in 2012 saying that satisfactory laws have been passed but that, owing to the laws only recently being passed, enforcement is not assessed. In particular, Moneyval identified issues with resources and capabilities of the relevant competent authorities.

Furthermore, Georgia is seen as being at risk due to its rapidly increasing non-resident deposits, often held by offshore companies for which UBO has not been determined.

Because of its location, underfunded government authorities, and pervasive (although decreasing) corruption, Georgia is also at significant risk of being an origin, a destination, or a transit point for drug smuggilng, trafficking, arms smuggling, and other criminal activities.

With a rather low corporate tax of 15% and several regulatory relaxations such as permitting gambling, Georgia is trying to position itself as a business friendly jurisdiction. Consequently, there is a small but growing expat community in Tbilisi.

Georgia has signed 49 tax treaties, all of which are DTAs.

Banking

Banking in Georgia is of generally high quality and the banks welcoming to foreigners. However, remote bank account opening in Georgia is very rare.

Unlike Azerbaijan, the Georgians take CDD and EDD recommendations from FATF seriously and will insist on either meeting you in person or having a lawyer or certified accountant appear in person with a power of attorney. Apostille will be required in nearly all cases; certification or notarization won’t cut it.

Fortunately, flights between Tbilisi and Europe are common and quite cheap.

Just like Azerbaijan, opening an account requires all the usual documents required to open an international bank account. EU citizens rarely need to show more than a passport to open an account if appearing in persons. The difference here is that your application will be reviewed more diligently in Georgia.

High interests rates on deposits, including foreign currencies, are available.

Secrecy

Whether intentional or not, current Georgian banking secrecy law does not permit for exchange of information on tax matters. This will likely be remedied in the future but for now isn’t a big concern since there is no evidence of any significant amounts of money being stashed in Georgia for tax dodging purposes.

Banking secrecy can however be penetrated for more severe crimes such as money laundering.

Banks

Supervision of banks in Georgia befalls the National Bank of Georgia (საქართველოს ეროვნული ბანკი). Banks in Georgia are a mix of local and international (mostly Russian, Azerbaijani, and Turkish).

As of writing, there are 19 banks (including branches of foreign banks) in Georgia:

• Bank of Georgia
• Bank Republic
• Basisbank
• Capital Bank
• Cartu Bank
• CDB
• Finca Bank
• Halyk Bank
• International Bank of Azerbaijan-Georgia
• İşbank Georgia
• KSB
• Liberty Bank
• Pasha Bank
• ProCredit Bank
• Progressbank
• Silk Road Bank
• TBC Bank
• VTB
• Ziraat Bank

International Bank of Azerbaijan-Georgia (IBAG) is a subsidiary of International Bank of Azerbaijan and maintains most of the the simplicity of the parent.

Together with Liberty Banks, they are the two banks most popular with foreigners and non-residents. However, all banks in Georgia will entertain applications from non-residents.

Armenia

Two out of three neighbours being hostile, Armenia is in a difficult position.

Its relation with its western neighbour Turkey is extremely bitter following the Armenian genocide which Turkey has not officially recognized.

A war with Azerbaijan has left the region shattered. Despite over a decade of peace, the two combatants have still not reconciled and relations instead remain hostile. This is exacerbated by Azerbaijan’s politically and culturally close ties to Turkey.

But at least Georgia and Armenia get along. Or, to be precise, it’s been cooperative although not necessarily amicable. While Armenia has strong relations with Russia, which Georgia does not, Georgia has strong relations with Azerbaijan, which Armenia does not.

And I’m only scratching the surface here. You need to keep your wits about you if the a dinner conversation in the Caucasus turns political. Remember where you are, whom you are with, and see if maybe you shouldn’t order another round of oghi to ease the mood.

Now, as for financial services, Armenia is the least developed of the three.

After an initial evaluation in 2009, Moneyval issued a progress report on Armenia in 2014 and found it was mostly compliant with FATF recommendations.

Banking

Thanks largely to innovation driven by Russian banks, the Armenian banking sector is stronger than one would expect from a country of 4 million people and a relatively low GDP.

Banking in Armenia is cheap. Some banks have started charging higher fees to non-resident clients but those are far below what comparable services would cost in major financial centers.

Ease of account opening typically falls somewhere between the bare-minim-questions-asked attitude of Azerbaijan and the internationally-compliant attitude of Georgia. Documents required to open a non-resident bank account in Armenia are the usual. Armenian banks are not entirely as adamant about apostille but will often ask for it when opening bank accounts for IBCs and comparable offshore companies.

Banks are occasionally open to remote account opening directly with the account holder; usually for larger deposits that go into term deposits or private banking, the latter being a fairly new product on the market.

High interest rates are available on term deposits. I have seen upwards of 20% for the local currency but recently it seems to have stabilized around 15%.

Secrecy

In 1996, Armenia passed the Law on Banking Secrecy. It passed in a tumultuous time for the region and did not receive much international scrutiny, despite being a surprisingly strict banking secrecy act in a time when financial crimes were being given increased attention internationally.

In essence, under the Armenian banking secrecy law, a court order is required for any form of disclosure.

An amendment in 1997 enabled disclosure of information to the tax authority, but again subject to a court order.

This makes it very unlikely that Armenia can honour requests for exchange of information for tax.

However, the Armenian banking secrecy is virtually untested. While the influence of western powers may be limited, it would very likely honour requests for information from Russia or even Georgia.

Banks

Banks in Armenia are supervised by the Central Bank of Armenia (Հայաստանի Հանրապետության Կենտրոնական Բանկ).

There are currently 22 banks and two representative offices in Armenia:

• ACBA Credit Agricole Bank
• Ameriabank
• Anelik Bank
• Araratbank
• Ardshinbank
• AreximBank-Gazprombank
• ArmBusinessBank
• ArmEconomBank
• Armenian Development Bank
• ArmSwissBank
• ArtsakhBank
• BTA Bank
• Byblos Bank Armenia
• Converse Bank
• HSBC
• InecoBank
• Mellat Bank
• Panarmenian Bank
• ProCredit Bank
• Prometey Bank
• Rietumu Banka (representative office)
• Russian Agricultural Bank (representative office)
• UniBank
• VTB

If a bank’s website is available in English, they are receptive to non-residents. Others might as well but do you really want to manage your finances through Google Translate? Consider privacy and accuracy.

Notably, ArmSwissBank has a web interface for taking online bank account opening applications.

Deposit Insurance

Azerbaijan’s Deposit Insurance Fund covers 30,000 AZN (circa 25,000 EUR and 28,500 USD) per person per bank for participating banks; currently 43.

Deposits held in foreign currencies are also protected but insurance can only be paid out in EUR or USD.

Georgia does not have a deposit insurance.

The coverage of the Armenian Deposit Guarantee Fund depends on the currency of the deposits. Presently, AMD deposits are covered up to 4,000,000 AMD (circa 7,500 EUR and 8,300 USD) per person per bank while foreign currency deposits are covered only half of that (in AMD equivalent).

A law recently passed which will raise the Armenian deposit insurance to 10,000,000 AMD and 5,000,000 AMD for local and foreign currency deposits.

Risks

Banking in this region is very sophisticated, overall affordable, and generally secretive. So what’s the catch?

For Azerbaijan, the catch is that there is a non-negligible risk of massive money laundering scandals waiting around the corner. This can have a negative impact on legitimate clients if a bank’s operations are suspended. There are significant human rights concerns in Azerbaijan which continues to tarnish the country’s reputation. However, despite its totalitarian regime, out of the three Caucasus republic, it is arguably the most politically stable.

For Georgia, the risk of money laundering scandals is there but probably less so than in Azerbaijan. However, it has fought a proxy war with Russia in recent times and the South Ossetia situation continues to be fragile. Furthermore, Georgia lacks a deposit insurance.

For Armenia, there is the Nagorno-Karabakh issue as well as Abkhazia which cause geopolitical uncertainty in the region. It is also bordered by two hostile countries, with both of which Armenia has been at war in one way or another.

Conclusion

Time to wrap this up. WordPress is telling me this is already over 2,500 words. Good on you for reading this far!

If you are going to the Caucasus to open a bank account, you are going there for one of two reasons: to invest in the local or regional economies, or to hide money. As it happens, these countries are apt for both. None of the three republics has signed up for the EU Savings Directive (EUSD, withholding tax) or any OECD-led multilateral agreement.

If you are planning on opening accounts in all three countries (what some people call the Caucasus Triathlon), just remember that you can’t fly from Baku to Yerevan. There are no flights between Azerbaijan and Armenia. Don’t bother trying the land route either. Just go via Georgia. — That is if they aren’t at war.

Carefully consider the risks versus the benefits of banking here.

With Andorra and Liechtenstein already written about, it’s time for the third and final principality: Monaco.

Situated on the beautiful French riviera, Monaco is one of the most harshly criticised tax havens, for long having turned a blind eye to everything but the worst of crimes.

While no coverage of tax havens would be complete without Monaco, this article will not be particularly in-depth simply because there isn’t a lot to say about Monaco.

Sometimes confused for being a part of France, Monaco is a sovereign nation, having been so since 1861.

Geography and Demography

Map from Wikipedia.

Incorporation and Business

Reputation

Monaco is not known as being an international business center of any note.

General Information

Setting up a company is a lengthy process and wholly unattractive for a non-resident. Few governments are as intrusive and cumbersome to deal with as the Monegasque when it comes to starting a business. Companies will almost always require a permit.

This is not a business-friendly jurisdiction.

Despite this, the Monegasque authorities have taken the time to create a rather complex system of different legal forms, mainly:

• Société à Responsabilité Limitée  (SARL)
• Société en Nom Collectif (SNC)
• Société en Commandite Simple (SCS)
• Société Anonyme Monégasque (SAM)

For a comparison of the different entities, I will refer to the government website.

Taxation

Irrespective of type of legal entity, the corporate tax rate in Monaco is 33% if the company generates more than 25% of its income outside of Monaco.

Companies are exempt from tax for the first two years. From the third year, 25% of the company’s profits are taxable. This goes up to 50%, 75%, and finally 100% for the next three years and on.

This leads to an effective tax rate as follows:

• Year 1: 0%
• Year 2: 0%
• Year 3: 8.3325%
• Year 4: 16.665%
• Year 5: 24.9975%
• Year 6 and on: 33.33%

While this may make Monaco appear attractive for the first two (if not three or even four) years, the costs of setting up a non-resident Monegasque company as astronomical. It offers no apparent advantage over other low-tax jurisdictions.

Public Records

Directors and members appear in government records.

Monaco Trust

Governed by Law 214, Monaco only recently recognizes international trusts and now allow trusts to be managed from within Monaco.

Foreign judgements, including ones for forced heirship, can be honoured.

Monegasque courts are eratic and unreliable in rulings related to trusts.

Depending on the number of beneficiaries, trusts are subject to a registration duty between 1.3% and 1.7%, unless the trust is established by a will in which case inheritance tax (see below) applies.

Monaco Foundations

Monaco recognizes international foundations.

While foundations can be set up in Monaco, they can only be set up for public or charitable purposes.

Banking

This is the sole significant contributor to Monaco’s tax haven status. Long famed for no-questions-asked type banking, Monaco is often associated with wealthy tax-dodgers, often celebrities such as famous athletes and entertainers.

Why the association? Because hardly a month goes by without some sports star or sports related higher-up getting busted in Monaco. It’s not the banks’ fault. It’s often a case of poor financial advisement and poor personal discretion.

The lavish lifestyle of Monaco blends poorly with the discretion necessary to keep finances private, it seems.

Banks in Monaco are often of high calibre. It’s all about private banking and it starts at 250,000 EUR minimum (often 1 million EUR).

Account opening is usually done remotely by visiting the bank in another country or through an intermediary.

Banking Secrecy

Banking secrecy in Monaco used to be a selling point but today it has eroded significantly after harsh criticism in the 2000s. The authorities are empowered to compel banks to disclose information under TIEAs.

Unfortunately, this relaxation in banking secrecy has not done much to improve on Monaco’s reputation.

Monaco still lacks treaties for exchange of information with many jurisdictions that are interested. With only 23 TIEAs and 8 DTAs signed, Monaco’s tax treaties are low in number for such a high-profile and heavily scrutinized tax haven.

Banks in Monaco

There are 18 banks incorporated in Monaco, the vast majority of which are foreign:

• Andbanc (Andorra)
• Bank Julius Bär (Switzerland)
• Banque Européenne du Crédit Mutuel (France)
• Banque Havilland (Luxembourg)
• Banque J. Safra Sarasin (Brazil, Switzerland)
• BNP Paribas (France)
• BSI (Switzerland)
• CFM (Monaco)
• Compagnie Monégasque de Banque (Monaco)
• Crédit Mobilier de Monaco (Monaco)
• Credit Suisse (Switzerland)
• Edmond de Rothschild (Switzerland)
• EFG Bank (Switzerland)
• HSBC (UK)
• KBL (Luxembourg)
• Martin Maurel Sella Banque Privée (France)
• Société Générale (France)
• UBS (Switzerland)

Additionally, there are 17 branches of foreign banks:

• Banca Popolare di Sondrio (Switzerland, Italy)
• Banque Martin Maurel (France)
• Banque Populaire Côte d’Azur (France)
• Barclays Bank (UK)
• BNP Paribas (France)
• CIC (France)
• Crédit Agricole Provence Côte d’Azur (France)
• Caisse d’Epargne Côte d’Azur (France)
• Coutts & Co (UK)
• Crédit Foncier de France (France)
• Crédit du Nord (France)
• LCL (France)
• La Banque Postale (France)
• Société Générale (France)
• Société Marseillaise de Crédit (France)
• Société de Paiements PASS (France)
• UBP (Switzerland)

There is also a plethora of asset management companies.

Living in Monaco

EU and EEA nationals can settle in Monaco freely. Despite being nearly completely tax free, Monaco is not worried about being overrun by tax savvy EU and EEA citizens seeking fortune. The costs of living in Monaco are very high and it’s difficult to find a place to live.

However, living in Monaco is as enjoyable as it is expensive.

If an exuberant life of luxury and decadence is what you are after and have the financial means for, Monaco just might be the place you want to call home.

Monaco offers great tax incentives to residents, except for French nationals who are subject to French taxation even when resident in Monaco.

There is no income tax, capital gains tax, or wealth tax.

Gift and inheritance tax may apply, depending on the relation between the parties. Exemptions are generally made for gifts or inheritances to spouses or various charitable activities or public services. Otherwise, the tax rate varies from 8% to 16%.

Monaco has signed the EUSD, meaning that EU withholding tax is levied on non-residents residing in the EU.

VAT is the same as in France.

There are number of registration duty taxes, such as real estate transfer (4.5% or 7.5%) and transfer of shares (1% or 4.5%).

Final words

I told you it would be short.

Come here to bank if you for some reason don’t want to bank in Switzerland, Liechtenstein, Andorra, or outside of Europe.

If you are looking for a jurisdiction suitable for business activities or asset protection, keep looking.

See also

• OECD Peer Review of Monaco (also has a list of TIEA and DTA)
• Financial Secrecy Index Monaco
• FATF documents on Monaco

Welcome to Offshore, USA!

Population: trillions of dollars.

After a pre-FATCA scare, the gates of the offshore financial world are opening up to Americans again, albeit with tighter controls and regulations.

For people who are neither resident nor citizens of the US, it is arguably one of the most attractive tax havens around.

Incorporation costs are often lower than UK, and the laws far more flexible and business friendly.

This will be a wade through the shallow and easily-understood parts of the murky waters that make up the role of the US in the international financial services sector.

USD

To understand how the US fits in this context, it’s important to recognize just how important it and its currency are.

The US dollar is the world’s most traded and transacted currency, and the world’s largest reserve currency. Estimates by the ECB and IMF indicate USD accounts for over 60% of all foreign currency reserves. The second is EUR at just over 20%. Third place is held either by JPY or GBP, both at just under 4%.

While the USD has decreased since the early 2000s and some countries are seeking to reduce their reliance on USD, it remains the de facto international currency.

In addition to the US, it is the or an official currency in the following countries and territories:

• American Samoa
• British Virgin Islands
• Caribbean Netherlands (Bonaire, Sint Eustatius, Saba)
• East Timor
• Ecuador
• El Salvador
• Guam
• Marshall Islands
• Micronesia
• Northern Mariana Islands
• Palau
• Panama
• Puerto Rico
• United States Virgin Islands
• United States Minor Outlying Islands
• Zimbabwe

It is a currency of major circulation in 15 additional countries and four territories:

• Afghanistan
• Bahamas
• Barbados
• Bermuda
• British Indian Ocean Territory
• Cambodia
• Cayman Islands
• Guatemala
• Haiti
• Iraq
• Jamaica
• Lebanon
• Liberia
• Maldives
• Nicaragua
• Peru
• Turks and Caicos Islands
• Uruguay
• Vietnam

Furthermore, several currencies are pegged to the USD:

• Aruba florin (AWG)
• Bahamas dollar (BSD)
• Barbados dollar (BBD)
• Bahrain dollar (BHD)
• Belize dollar (BZD)
• Bermuda dollar (BMD)
• Cayman Islands dollar (KYD)
• Cuban convertible pesos (CUC)
• Djibouti franc (DJF)
• East Caribbean dollar (XCD)
• Eritrea nakfa (ERN)
• Hong Kong dollar (HKD)
• Jordan dinar (JOD)
• Lebanon pound (LBP)
• Netherlands Antillean guilder (ANG)
• Oman rial (OMR)
• Panama balboa (PAB)
• Qatar riyal (QAR)
• Saudi Arabia riyal (SAR)
• United Arab Emirates dirham (AED)
• Venezuela bolivar (VEB)

FATCA

FATCA – the Foreign Account Tax Compliance Act – is a law which at its most basic constituents requires the following:

• That US persons report their offshore financial accounts (bank account, broker account, treasury account) worth more than 50,000 USD;
• That Foreign Financial Institutions (FFIs) report the assets and identities of US persons that have accounts or an interest in accounts.

FFI reporting is done either by individual FFIs signing up for FATCA or with a so-called IGA (Inter-Governmental Agreement).

US persons who fail to comply risk repercussions set out under regular tax crimes. Senate has discussed refusing renewal or issuance of passports for persons with a certain tax debt but this has yet to pass.

FFIs which fail to comply with the reporting requirements risk a 30% withholding tax (effectively a haircut or garnishment) on all USD denominated transactions. Given the importance of the USD currency, this would be a devastating blow to any bank, whether it’s a small, local bank that still relies on USD for international clearing or a large international bank.

The US Department of Treasury maintains a list of FATCA agreements here: http://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA-Archive.aspx

Specified US Person

What constitutes a specified US person is not entirely clear cut but FFIs are supposed to look for US person indicia, which include:

• US citizenship or permanent residence (green card);
• Born in the US;
• US residence or correspondence/mailing address;
• US phone number;
• Standing instructions to transfer funds to a US bank;
• Power of attorney with a US address;
• Care-of, hold-mail, or mail-forwarding address in the US;
• Persons of substantial presence in the US;
• Partnerships or corporations created in the US;
• Non-foreign trust or foundation.

Not all factors are enough on their own to be considered a US person and it is very much up to the FFI to assess the situation of each individual customer. It therefore requires a lot of extra work for FFIs to on-board a US entity or US person than other nationalities.

Offshore For Americans

Yes, US persons can open offshore bank accounts.

Yes, US persons can form offshore companies.

While the former has changed in recent years, the latter not so much. Owning a company does not in and of itself constitute a source of income or wealth and therefore does not really interest US authorities. It’s the bank accounts they are interested in.

Americans who formed offshore companies and leveraged long-standing personal relations with US banks have been able to open US bank accounts for offshore companies. This doesn’t work for everyone, though. As I said, long-standing personal relations are usually required – often implying ample capital.

Opening an offshore bank account as a US citizen or US resident today is more difficult than it was five or ten years ago, before FATCA and before a number of tax busts which have involved notorious information leakage from especially Switzerland, but also Cayman Islands and other tax havens.

Things have, mostly, calmed down since then. Americans are welcome again at most banks around the world, but because banks now need to be much more careful and diligent (including filing a lot more reports and paperwork) for US citizens, the minimum deposit is usually higher than before. The amount of extra work that goes into taking on and maintaining a US person will simply cost more than what the bank would earn from a typical lower-value client.

It’s still very difficult to find banks that take on Americans for less than 250,000 – 1 million USD. This may go down in the coming years as banks further optimize the workflow surrounding US persons, as there are still plenty of potentially profitable clients in the 50,000 – 250,000 USD range.

However, Americans can have no reasonable expectation of financial privacy anywhere. While it’s possible that there are jurisdictions which have not caught up yet and haven’t amended their laws, banking secrecy generally does not apply to Americans. Even the ultra-secretive Lebanon has enacted an exception to its coveted banking secrecy law for US persons.

Limited Liability Company (LLC)

Before proceeding, make sure you have read my article Comparison LLC vs. IBC (vs. others) as I in this article will assume you know the basics already.

Originally from the cowboy state of Wyoming , LLC has almost all the bells and whistles of a corporation with all the ease of a sole proprietorship or partnership.

Forming an LLC with a registered agent, including first year registered office, typically costs around $200 to $400. And since the main target audience is Americans, payment can normally be made by debit or credit card – sometimes PayPal and other alternative payment methods.

Many states provide very tight secrecy. Names of members and managers usually only appear on public record in annual filings. Not all states require filings and in those that do, other entities (such as another US LLC or an offshore entity) can appear as members and managers at the time.

Once you have your LLC, you probably want to get an EIN (Employer Identification Number). This is your LLC’s very own tax number and is what you will use when filing for tax in the US or opening a bank account (more on both later). If you have a social security number or the EIN of another company, simply head over to the IRS website and get an EIN instantly. Otherwise, pay your registered agent a few dollars for them to obtain it for you.

Series LLC

A handful of states (notably Delaware, Nevada, Oklahoma, and Texas) permit for so-called Series LLCs. These are LLCs which can be thought of as something akin to protected cell companies, where a single legal entity has multiple subsets of limited liabilities.

A Series LLC needs to keep separate records for each liability.

Close LLC

Crafted in Wyoming in 2000, a Close LLC is another variation of LLC where the ownership is more strictly controlled.

A member must sell his membership share to the remaining members before the share can be sold to someone else. This can be used to ensure that a member does not sell his part to an unknown party.

Close LLCs can also be used as pieces in strong asset protection structures.

(Revised) Uniform Limited Liability Company Act

With each state empowered to write its own LLC laws, an organization called Uniform Law Commission was established in 1892 to promote uniform laws across the USA.

The Uniform Limited Liability Company Act (ULLCA), is an attempt to have the same LLC legislation across as many jurisdictions as possible. As of writing, the ULLCA has been enacted in the following jurisdictions:

• Alabama
• California
• DC
• Florida
• Idaho
• Iowa
• Minnesota
• Nebraska
• New Jersey
• North Dakota
• South Dakota
• Utah
• Vermont
• Washington
• Wyoming

Furthermore, the ULLCA has been introduced but not yet enacted in:

• Illinois
• New Mexico
• South Carolina

Some notable features of the ULLCA include:

• Flexible management structure (LLCs can be run as corporations, partnerships, or anything else members agree on).
• No limitation on activities (as long as they are lawful).
• Empower members to ask a court to dissolve the LLC if managers are oppressive or acting in a harmful way.

S Corp and C Corp

S Corp and C Corp are different classifications of corporations. Both have limitation of liability and have directors and shareholders. Articles of incorporations must be submitted to the state in which they are formed. Annual filings and annual meetings (shareholders’ and directors’) are required.

The main difference is in taxation. C corporations are taxed on corporate income, whereas S corporations are pass-through entities (similar to LLCs). While this may sound like it would be attractive to non-residents, S corporations are limited to US citizens or US residents. There is also a maximum of 100 shareholders permitted for an S corporation, none of whom can be another S corporation or even a C corporation or LLC for that matter.

C corporations can have different types of stock, whereas S corporations can only have one.

These types of entities are far less common with foreigners but are popular vehicles in tax planning structures for US companies or large international conglomerates with a US presence.

US Jurisdictions

While practically every state has LLC, there are some which are more popular than others. The main ones are:

• Delaware
• Florida
• Nevada
• New Mexico
• Oklahoma
• Oregon
• South Dakota
• Texas
• Wyoming

Delaware

Delaware is the most popular nowadays. Start digging through the Delaware state records and you will find that virtually every large corporation (and many smaller ones) have at least one entity there. The ones you can’t find probably just use a different name.

Aside from tax and privacy benefits, another reason for its tremendous popularity is for the Court of Chancery. It is a court of equity rather than justice. The Delaware Court of Chancery exists largely as a living fossil, from old colonial times. It has however matured very well with time and is a highly reputable institution for settling corporate matters.

According to the 2014 tax census, 31.57% of Delaware’s tax revenue comes from company license fees.

Florida

Florida has gained some popularity due to its low state taxes, which it is required to maintain effectively because of its large number of retired residents.

Asset protection laws are problematic in Florida but the weaknesses likely do not apply to non-residents with no financial interests in Florida.

Nevada

Nevada is a bit of a wild child. It has fought a lot with the IRS and many politicians have argued over the legality of collecting federal tax. It and Texas are the only states which do not have an information sharing agreement with the IRS.

Nevada corporations are nigh-on impenetrable. While US government can drop a message to essentially any foreign jurisdiction to get information about members of secretive IBCs, it cannot and does not get anything from Nevada.

Sounds great, right? Yes and no. As long as the company only trades in Nevada or outside of the US, privacy is assured. It does have some reputational disadvantages, though, should you trade within the US outside of Nevada. And just to be clear, the lack of information sharing does not preclude you from having to file for taxes.

Nevada came very close to enacting a corporate tax law not too long ago but instead ended up enacting a commerce tax. This has worried some who fear that a corporate tax may come sooner rather than later.

New Mexico

New Mexico does not require annual filings, which almost makes a New Mexico LLC about as secretive as an IBC from any of the sketchiest IBC jurisdictions, but without all the reputation baggage. Low costs.

Oklahoma

Oklahoma is in the same boat as New Mexico but costs are bit higher. Record keeping requirements are very lax and failure to keep records is very lightly, if at all, punished.

Oregon

There isn’t a lot to say about Oregon. It’s a rather easy-going, business-friendly state. As with many other states, the limitation of liability is not set aside if an LLC fails to perform certain duties often associated with a corporation, such as detailed record keeping and board (managers) meeting.

South Dakota

South Dakota is more known for its ironclad trusts (more on those later), but sees some usage for incorporations.

Texas

Texas, like Nevada, does not share information with the IRS. However, it levies a franchise tax on LLCs (as well as corporations) of 0.25% of taxable capital.

Wyoming

Wyoming is the birthplace of LLC. However, that doesn’t in and of itself give Wyoming an advantage. The advantages Wyoming offers is its very low cost, low tax, and the quite possibly strongest asset protection laws of all LLC jurisdictions.

The annual license fee for a Wyoming LLC is $50, although a higher premium can apply to LLCs with high capitals. This is mostly beneficial for LLCs run with no US basis, as other states’ license fees and taxes may otherwise apply. Similarly, the absence of tax in Wyoming does not mean the LLC can be operated entirely free of tax.

The asset protection aspects comes from creditors only having one remedy available: a charging order, which is a court order from a Wyoming court. A court order is required for funds to pass from the LLC to a creditor instead of the LLC owner. While many other states have similar statutes, Wyoming extends this protection even to single-member LLCs. Whether this holds up in a local court (whether in another US state or on non-US territory) is unknown. As noted above, Wyoming also has Close LLCs.

Picking LLC or Corp Jurisdiction

As a US resident, the choice needs to be carefully considered with local laws in mind. While a Wyoming, Nevada, or Delaware corporation or LLC may seem attractive, it needs to be considered whether any of the benefits are set aside by state and other local laws.

For a non-resident, the choice usually comes down to Wyoming, Nevada, Delaware, and New Mexico.

It’s impossible to say which one is best without carefully considering the full scope of each individual’s unique situation. Delaware is the most popular, but the reason for that seems to be reputation and marketing more than anything. Nevada and Wyoming are close seconds, with New Mexico lagging behind.

All that said, it is very difficult to beat the cost and ease of forming and running a Wyoming LLC. Those seeking even higher privacy may want to look into New Mexico or even Oklahoma but it can be difficult to find a registered agent willing to take on non-residents there. Wyoming registered agents are usually perfectly happy with non-resident foreigners.

Banking in the US

Compared to for example Europe, the US banking system is an absolute mess. Sending money from one personal bank account to another personal bank account has not changed much since colonial times. (For B2B, B2C, and C2B there is ACH, which works quite well.) Checks are far more common here than most other countries. Direct debits can be initiated without account holder’s consent. 3D Secure (Verified by Visa, MasterCard SecureCode) for online shopping is virtually unheard of for a US-issued card and the US has still not rolled out EMV on credit cards (supposed to be mandated from October 2015).

It would be almost impossible to list all banks in the US. There are thousands upon thousands of banks and bank-like financial institutions such as credit unions and credit card companies.

With such a gigantic banking sector, quality will obviously vary from bank to bank. Keeping with the big names, banking services are fairly competent if a bit lacking when it comes to foreign currencies and international wire transfers.

Service fees may appear high upfront but aside from wire transfers to other banks and international wires, it is usually quite cheap to bank in the US once you have a balance of a few thousand dollars to waive all the monthly fees.

Foreign-currency accounts are bothersome to set up, though.

Is it possible to a US bank account for a non-resident-owned LLC or corporation?

No, probably not. At least not without having former ties to the US (citizen or resident alien with a SSN) or being a well-established business setting up an entity in the US.

It is almost unheard of for a US bank to take on a newly formed non-resident company, irrespective of whether it’s incorporated in the US or elsewhere.

There are very few ways for a non-resident foreigner to bank in the US. Placing a large deposit (500,000 USD and up) or showing proof of high turnover (at least 1 million USD) can get your foot through the door.

I have seen a couple of cases where international banks such as HSBC and Citibank have agreed to open accounts for non-US residents who are resident in territories where these banks have a significant presence.

Banking Secrecy

None, although it is debatable how cooperative US authorities really are when it comes to disclosing banking information for non-resident foreigners.

A nation that can bully and pressure practically any other nation to disclose information about US persons (and others), the US is a lot less willing to reciprocate. I have several times heard exchange of information agreements with the US described as one-way streets.

If you can find a bank willing to take you on, you could in theory end up with an almost impenetrably secretive structure by forming a non-resident LLC and bank account in the US – and still enjoy all the reputational advantages.

Non-US Banking for US Company

So you formed a US LLC but now you can’t find a bank in the US to take you on. This happens time and time again. It’s one of the biggest problems people face after they get caught up in the US LLC hype.

Will a non-US bank accept a US company?

Maybe, if you can show significant enough capital. As I mentioned above when talking about FATCA, because of the extra compliance work involved in handling a US client, the minimum deposit tends to be much higher.

It can be very difficult to find a bank willing to take on a US entity. If you for example are resident in Europe and try to approach European banks, the bank will be suspicious as to why you aren’t just operating under a European company.

Small Caribbean banks are terrified of getting something FATCA-related wrong and may say they don’t accept any form of US entities, fearing that a simple slip-up would cost them 30% of their USD transaction, on which they are almost wholly dependent.

Taxation

US citizens and US residents

While tax evasion is a bigger pastime than baseball in the US, the IRS remains the world’s most powerful tax authority. The US tax code is extremely convoluted and while attempts have been made to simplify it, companies like Intuit, which makes tax calculation software TurboTax, and others such as tax advisers lobby for status quo or further complication.

Americans can enjoy tax planning to reduce their tax burden. However, for as long as they remain citizens, Americans are taxed on their worldwide income no matter where they live. The US is joined by Eritrea in being the only two countries to do this.

Non-resident US citizens can use tax treaties to lower or completely void their tax burden in the US.

Non-US citizens and non-US residents

Persons who are neither citizens nor resident of the US may still be subject to US tax on income earned in the US, notably withholding tax. This tax can be mitigated by a tax treaty.

Pass-through companies such as LLCs are however treated a bit differently. Instead, a sort of faux territorial taxation applies where locally-sourced income is taxable in the US on a federal level – and state taxes may or may not apply. Any tax advantage of a trading US LLC is effectively limited to business activities outside of the US, much like Panama and Hong Kong.

What counts as locally-sourced income is not clearly defined. It is generally believed to be income earned by selling to US residents, meaning that if your Delaware LLC earn 1 million USD in a year and half came from sales to US residents, you would have to pay federal tax on the 500,000 USD. However, some make a much bolder assessment of what constitutes taxable income in the US and only count activities that take place in the US, such as selling a physical product from physical premises.

Accidental tax evasion is probably very common with foreign-controlled, foreign-owned, foreign-operated US entities but for smaller amounts, the IRS is unlikely to ever hear about it let alone bother going after someone. But the risk is still there.

Trust

Trusts are regulated under various laws. 32 states in the US have enacted some form of trust law, based on the Uniform Trust Code (UTC).

However, the probably most infamous trust jurisdiction is not one of these 32: South Dakota.

South Dakota

Dynasty trusts in South Dakota enable families to skirt estate taxes indefinitely. The secrecy and asset protection surrounding these trusts match those of offshore jurisdictions.

Others

Nevada, Delaware, Alaska, and Wyoming are also popular trusts states, the latter however not allowing self-settling trusts.

The IRS estimates a loss of tax revenue of at least 150 million USD from wealthy Americans moving funds into trusts in states such as these.

Conclusion

For non-resident non-citizens, the US can be a very attractive tax haven. An LLC can be formed by simply filling in a form on a website and paying the $300 or so by credit card. Then wait a few days and your entity will be up and running.

There are usually no KYC or ID controls in place for incorporation, making it a simple process to form a US entity under completely bogus details. This of course is illegal and can have severe repercussions, but it’s a gaping weakness and one which no one seems particularly interested in fixing.

It is also the (possibly) most secretive of all onshore jurisdictions. KYC checks are entirely optional for registered agents, with most of them not asking for a single document to prove that you are who you said you are when filling out the order form.

Banking in the US is generally good but it’s difficult to get in as a non-resident.

Taxation requires care and diligence, but used correctly, a US LLC can be a very attractive solution for businesses with no activities or sales in the US.

There may be circumstances under which even a non-resident non-citizen could benefit from a US trust but there is generally no advantage over trusts in more established jurisdictions such as Cook Islands or Bermuda.

My favourite among the three Baltics republic, this marks the fourth time I write a post related to Estonia.

See previous articles:

• How to Open an Estonian Bank Account
• Jurist24 (Estonian incorporation agent)
• SEB (Estonia and Sweden)

Culturally closer to Scandinavian than the Baltics or Eastern Europe, Estonia has linguistically close ties to Finland and it was for long ruled by the Swedish Empire (back when such a thing existed) under mostly amicable conditions.

Estonia has even applied for membership on the Nordic Council. While it has not been granted membership yet, it does enjoy excellent relations with Scandinavia.

It joined both the EU and NATO in 2004 and abandoned the Estonian Kroon for the Euro in 2011. Estonia is host to the Cooperative Cyber Defence Centre of Excellence division of NATO, nicknamed Tiigrikaitse (Tiger’s Defence).

Tiigrihüpe

Estonia’s absorption into the Soviet Union was never de jure recognized internationally although de facto the world was resigned to the fact. After the Soviet Union fell, Estonia in 1996 started a project to invest heavily in computer and network infrastructure. This project was called Tiigrihüpe (Tiger’s Jump), from which the aforementioned NATO centre got its nickname.

The project is generally seen as tremendously successful, fostering Estonia into a well-established hotbed for software development and start-ups, such as Skype and TransferWise. Programming classes are mandatory in Estonian schools.

Swedish and Scandinavian investments were vital to the Tiigrihüpe’s success, and helped create the strong post-Soviet relations between across the Baltic Sea.

Geography and Demography

Map from Wikipedia.

Incorporation and Business

Reputation

Due to aggressive marketing by some service providers in Estonia, who do little more than invite Scandinavians (mostly Swedish) to come to Estonia to dodge taxes illegally, Estonia can sometimes sting a bit in the eyes of some Scandinavian regulators or just people in general.

According to the Basel Index, Estonia is the second lowest-risk country in the world when it comes to money laundering. This coupled with a Largely Compliant rating from OECD, Estonia enjoys a superb reputation globally.

Most have no idea it’s a tax haven (of sorts) and those who do know generally do not consider Estonia’s tax practices to be harmful. It is not a secretive jurisdiction.

General Information

Forming a company in Estonia is fairly cheap and can usually be completed in a week or two (often much faster). The cost of formation can usually be as low as a few hundred EUR, while still be dealing with a good service provider.

While other company forms exist, the OÜ (osaühing) form is by far the most popular. It is a limited liability company where ownership is divided by shares.

A minimum of one director and one shareholder is required. Corporate directors are not allowed and at least 50% of the directors must be resident in the EU, EEA, or Switzerland. Corporate shareholders are permitted.

Taxation

Estonian companies are sometimes marketed as tax free. This is misleading.

The corporate tax rate in Estonia is 20% for 2015, which is a little below the European average (20.24%). However, what sets Estonia apart from the rest is that only distributed profits are taxed.

Suppose your Estonian company has a profit of 500,000 EUR at the end of the fiscal year. Now let’s assume that you reinvest 400,000 EUR of that into the company. Only the remaining 100,000 EUR is distributed (paid out as dividends or other) and only that sum is considered taxable income. This would lead to a tax bill of 20,000 EUR on profits of 500,000 EUR, which is an effective tax rate of 4%. If you re-invest all profits into the company, the tax rate becomes 0%.

This clever piece of legislation was created with the intent to make businesses grow, and it’s worked.

It is however unclear how useful this is for an Estonian company operated and managed from another jurisdiction. The only way to benefit from this is if your local tax authority honours the Estonian law and tolerates taxation on distributed profits only. Interestingly, many (European) jurisdictions seem to do this but caution should be exercised to prevent abusive behaviour. Advice is as always highly recommended.

VAT registration is mandatory for businesses with a turnover greater than 16,000 EUR in a year.

Record Keeping

Record keeping is required and must be detailed. Non-resident companies usually outsource the bookkeeping, for a very reasonable rate.

Audits requirements are, to quote the Chamber of Commerce:

• any entity, if the amounts presented in the financial statements of the accounting year exceed at least two of the three following criteria (a consolidating entity applies the criteria to the consolidated numbers):
  • revenue (or income) of EUR 2,000,000;
  • total assets of EUR 1,000,000;
  • average number of employees: 30

• any entity, if the amounts described above exceed at least one of the following criteria:
  • revenue (or income) of EUR 6,000,000;
  • total assets of EUR 3,000,000;
  • average number of employees: 90.

The requirement for a review applies to companies that are not subject to the audit requirement, but exceed either:

• the limits in two or more of the followingcriteria:
  • revenue (or income) of EUR 1,000,000);
  • total assets of EUR 500,000;
  • average number of employees: 15.
• or the limit at least in one of the following criteria: revenue (or income) EUR 3,000,000; total assets EUR 1,500,000; average number of employees 45.

Public Records

Everything goes on public record.

Estonia is on a very short list of jurisdictions which require public disclosure of beneficial owner, and not just directors and shareholders.

Banking

Banking in Estonia is superb. The sector is dominated by the Swedish banks SEB and Swedbank.

It used to be very easy to open non-resident personal accounts in Estonia (especially as an EU national) but it has become more difficult in recent months. The banks – especially SEB and Swedbank – will require a connection to Estonia. Being a frequent traveller to Estonia or wishing to invest in Estonia and the Baltics will satisfy banks in many cases.

LHV, BIGBANK, and Versobank are usually the more easy-going of the banks there.

Forming a business in Estonia seems to satisfy most banks, though, even if it is owned and operated outside of Estonia. It it is a trading company, it helps to offer the services or sell the goods in Estonia.

Foreign companies will face a very hard time with most banks.

Banking Secrecy

Estonia does not have any noteworthy banking secrecy. OECD did criticize Estonian banks in 2011 for not always knowing the UBO of companies. This has mostly been solved by now and banking in Estonia is a lot tighter than before.

Authorities have due access to banking records.

Banks in Estonia

There are nine banks licensed in Estonia. Parenthesis indicate country of origin and year of license being issued.

• BIGBANK (Estonia, 2005)
• DNB (Norway, 2012)
• Inbank (Estonia and Malta, 2015)
• Krediipank (Estonia, 1993), Bank of Moscow is a significant shareholder
• LHV (Estonia, 2009)
• SEB (Sweden, 1993)
• Swedbank (Sweden, 1993)
• Tallinna Äripanga / Tallinn Business Bank (Estonia, 1993)
• Versobank (Ukraine/Latvia/Russia/Cyprus, 1999)

Additionally, there are seven branches of foreign banks:

• Citadele Banka (Latvia)
• Danske Bank (Denmark)
• Folkia (Norway)
• Handelsbanken (Sweden)
• Nordea (Sweden)
• Pohjola (Finland)
• Scania Finans (Sweden)

Lastly, there is one representative office of a foreign bank: Baltikums Bank (Latvia).

Living in Estonia

I have spent considerable time in Estonia and I enjoy every chance I have to visit.

The success of the Tiigrihüpe is evident. The infrastructure is of high quality and short of faded and crackled paint on older buildings, it can sometimes be difficult to tell if you are walking around in a small town in the Nordics or Tallinn.

Costs of living are low and with a flat income tax of 20% (capital gains count towards normal income), Estonia isn’t a tax haven but it is nonetheless attractive.

VAT is set to 20% normal rate with a lowered rate of 9% for certain goods and services. Some specifically designated goods and services are exempt from VAT.

EU, EEA, and Swiss nationals can move to Estonia freely. Other nationals face more stringent requirements.

Estonian e-Residency

Estonia is a world leader in e-government. Estonians very rarely need to visit government authorities in person, instead doing all of their business online with their ID cards and special ID card readers connected to electronic devices. Again, a byproduct of the Tiigrihüpe.

Taking this one step further and as a way to attract even more foreign investment, Estonia has set up an electronic residency programme called e-Residency. It does not grant any special rights in Estonia. The purpose is to simplify due diligence for banks and other financial services providers in Estonia, and to enable an easy way to sign agreements, pay taxes in Estonia, et cetera.

Contrary to some misleading information, e-Residency does not in and of itself enable you to just start a company and open bank accounts in Estonia. It might simplify the process, though.

Anyone living anywhere can apply for e-Residency on the e-Estonia website. Once the application is submitted (which includes paying a fee of about 50 EUR), you will receive a confirmation email stating a deadline by which your application will have been processed (usually 10 working days).

If your application is approved, you need to go to the Estonian embassy you selected in your application process to complete the due diligence process. Some time later, you will be able to collect your ID card.

This means that although your ID card is not exactly a typical ID card (for one, it’s not a photo ID), it is proof that your identity has been verified by an Estonian government official. Banks, incorporation agents, and so on can rely on this trust when entering into an agreement with you, which is supposed to make it easier to establish yourself in Estonia remotely.

Final words

Estonia’s simple tax regime and great e-government coupled with solid banking and relatively good geographic location makes it a fantastic country to live and run a business in.

It’s no surprise that Estonia keeps churning out great start-ups. The government is very business-friendly and shrewd.

See also

• OECD Peer Review of Estonia (also has a list of TIEA and DTA)
• FATF documents on Estonia

This is an especially complex subject and, as the title implies, this post will merely serve as an introduction. I might go more in-depth in future posts.

Asset protection is a term thrown around quite lightly in the financial services industry. Set up an LLC here, establish a trust there, and let’s not forget about a foundation. Great, now your assets are protected.

What assets?

What protection?

Let’s start by analysing the two constituents separately.

Asset

An asset can be anything that is owned by someone – usually something which has a value and can be converted into cash.

It is most commonly referred to money or financial instruments such as equity or contractual right to something.

However, an asset can also be real estate, vehicles, art pieces, musical instruments, collectibles, precious metals, and so on and so forth.

Protection

Protection here quite simply refers to the limitation of risk of seizure or damager to the aforementioned assets.

Actions may occur – either a hostile action or a repercussion of the asset owner’s own actions – which can lead to a seizure order being issued by a court. Loss of funds or other assets as a consequence of unpaid debt, medical malpractice, divorce,

Ethically defensible or not – these are risks people often seek to mitigate.

Terminology

A settlor is someone who establishes a trust. It can be multiple people or even organizations, but for this context it is usually a single person. This person is often the same as the debtor in a dispute, which means someone who owes something (usually money) to someone else, who is known as the creditor.

Then we have what’s called a trustee, which is a person, group of people, company, foundation, another trust, or other which owns the trust and is responsible for management of the funds. Trustees are usually licensed and regulated fiduciaries with offices, residences, and even citizenship of tax havens.

Trusts also have what’s called one or more beneficiaries. This again is a person, group of people, company, foundation, another trust, or other which can or will benefit from the trust. For example, parents may set up a trust for their children and decree that funds be paid out when certain conditions are met (such as the children each turning 18 or upon the birth of the first grandchild).

Trusts can be established in a way where the beneficiary is the same as the settlor. These are called self-settled trusts. In many cases, they do not enjoy the same asset protection benefits as trusts where the beneficiary is a third party.

Protect Your Assets

So how do you protect your assets?

Theory differs greatly from reality here. Asset protection solutions are often sold as simple one-size-fits-all, often including a Saint Kitts and Nevis and/or Cook Islands trust and/or LLC.

In essence, what needs to be done is create a separation between the assets and the event whose consequence can be a seizure of the assets.

A typical example would be an expected divorce. In due time before the divorce (see Fraudulent Conveyance below), one spouse may surrender his or her wealth into an irrevocable trust. Structured correctly, this would create a situation where the spouse no longer owns the funds and the other spouse is – or rather should in theory be – unable to get their hands on the money.

Why? Because what’s in the trust belongs to the trustee. The trustee should be someone who is neither a resident nor a national of the jurisdiction(s) where the dispute is taking place. A court order has no bearing on the trustee.

The debtor has no or very little funds to their name, leaving the creditor with a fraction of the wealth the debtor previously held.

Fraudulent Conveyance

Also called fraudulent transfer, this is the act of placing assets in a trust after the incident has occurred, proceeding has begin, or after a time when the act could be reasonably foreseen.

Laws vary between jurisdiction but it is essentially comes down to the fact that it is illegal to intentionally avoid financial liability for known or reasonably-knowable repercussions of actions taken or actions intended to be taken.

A certain period of time must pass between a transfer (handing over of assets to a trustee, for example) takes place and the time when the assets are under attack.

In most jurisdiction, this time period is between four and ten years. This means that a transfer to a trust can be considered fraudulent up to ten years after being made. What sets some popular trust jurisdictions aside from the rest is their low fraudulent transfer time period. Cook Islands and Saint Kitts and Nevis for example have set theirs to two years.
Duress and Countermeasures

So why can’t a court just compel a settlor to withdraw funds from the trust?

They can but it does nothing.

Suppose a creditor has a court order it can use to satisfy judgement on a debtor. The debtor claims he is unable to pay because all of his former wealth now belongs to a trustee in a strong asset protection jurisdiction.

The creditor can go back to the court and get an order to request the debtor to ask the trustee to release funds, either back to the debtor or to the beneficiary. The trustee will reject this request because they cannot return the funds in an irrevocable trust and it cannot withdraw funds to the beneficiaries since the instructions from the settlor are given under duress.The funds are stuck in a deadlock.

Creditors are left with essentially two countermeasures: they can either attempt to get a court order from the trustee’s jurisdiction or to drag the process out ad infinitum.

Getting a court order is generally considered a hopeless process, especially in the strictest jurisdictions. In Saint Kitts and Nevis, a creditor would even have to purchase a government bond of 25,000 ECB (circa 8,200 EUR / 9,200 USD) before a court will even hear the case.

A creditor with ample funding can however exploit the duress clause and repeatedly attack the trust in such a way that the settlor is unable to give the trustee any instructions at all. This becomes very difficult to continue and if the settlor is in no immediate need of the funds, the continued barrages do no harm.

Theory vs. Reality

The only thing we can say for certain when it comes to asset protection is that it is largely untested. There is very little case law to go on and those which are available aren’t necessarily applicable to other situations.

Most jurisdictions have no experience dealing with these matters.

There is a lot of work that goes into proper asset protection and every detail matters. The jurisdiction of residence of the settlor, trustee, and beneficiaries can all play a role, as can location of bank account and the manner by which the funds are used while in the trust (invested, held in a deposit, spent). In essence, any minute little detail can end up having a dramatic impact on how a court views a trust.

However, it is in general probably possible to protect assets using an asset protection trust or similar structure, but only if it is set up correctly to the settlor’s particular situation to mitigate as many risks as possible.

Conclusion

It all sounds great – so should you drop a few thousand and set up an asset protection trust?

Maybe.

What it comes down to is whether the risks are worth more than the cost establishing and maintaining the trust.

Careful planning is needed. Be wary of service providers that are offering simple packages or easy solutions, because there is nothing easy or simple about asset protection.

The time has finally come to cover one of the most requested jurisdictions: Belize.

This former British territory, previously known as British Honduras, is one of the cheapest and most popular offshore jurisdictions in the world today. Belize is one of the most heavily marketed jurisdictions on message boards, online communities, and social media.

It is also one of the least reputable.

Overview

Belize has major problems and shortcomings when it comes to anti-money laundering and the efforts to combat tax evasion are almost nil.

The US, which is Belize’s most important trading partner and financial supporter, has declared Belize a country of primary concern for money laundering. While the full list of long and takes a rather capricious approach to defining risk of money laundering, Belize is criticized harshly and the criticism is well-deserved.

This puts Belize in the awkward position of being criticized by its biggest benefactor, on whom it is extremely reliant for financial support and trade.

Money laundering is likely rampant in Belize; both physically on Belize soil and remotely through its loosely regulated and barely supervised international banks – many of which struggle to maintain correspondent accounts, being thrown out by large international banks for failing to ensure international standards of due diligence and for failing to provide enough revenue to justify the risk they pose.

Despite being rated Largely Compliant by the OECD, it has a problematic history and present with narcotics, human trafficking, and money laundering. The OECD rating is largely based on the jurisdiction’s eagerness to – on paper at least – be internationally compliant on tax matters.

In its 8th follow-up report published in May 2015, CFATF (the Caribbean offshoot of FATF) recognized Belize’s efforts to improve its AML laws but real enforcement and success of these laws remain to be seen.

Belize borders Mexico and Guatemala. While it enjoys favourable relations with Mexico, the relations with Guatemala are hostile as Guatemala claims Belize as its own territory since 1940. Belize is a major transit point for drugs from Mexican drug cartels and there is small-scale production of narcotics in Belize.

Culturally and politically, Belize is closer to the Caribbean than it is either Mexico or Guatemala, especially the English-speaking Caribbean islands.

Belize is a poor country with underdeveloped infrastructure, relatively high crime rates, rampant corruption, and its economy is in a very shaky state. Although the economy may appear diversified at a glance, this is merely because the economy is so small that even small industries have a big impact. It is however politically and socially mostly stable.

Tourism, specifically eco-tourism, is an important source of income. Belize is popular for being English-speaking and relatively easy to get to.

Geography and Demography

Incorporation and Business

Reputation

As mentioned, Belize has a dreadful reputation. Not so much because of its secrecy but because of the lack of adherence to international standards of compliance.

General Information

Belize is a typical IBC jurisdiction, basing its laws on the old BVI law. Its IBC Act was enacted in 1992 (Subsidiary Law enacted in 2003).

Since 2011, Belize also has an LLC legislation. This effectively replaced the old Limited Duration Company (LDC) law, which was a very LLC-like entity with a limited duration of at most 50 years.

Prices are low. Scraping the bottom of the barrel, it’s possible to set up an LLC for as little as 500 USD and 300 USD renewal. Even higher-quality service providers tend to charge comparatively little for a Belize IBC.

Regulator

Oversight – such as it is – is provided by the International Financial Services Commission of Belize (IFSC).

International Business Company (IBC)

IBCs are formed under the International Companies Act 1981-82. As of 2014, 1,090 ICs were registered and still active.

• One director required. Corporate directors permitted.
• One shareholder required. Corporate shareholders permitted.
• No paid up share capital required (usually 50,000 USD authorized).
• Registered address in Belize required.
• Bearer shares are permitted but must be deposited with a custodian.

Taxation

None.

Limited Liability Company (LLC)

Belize LLCs offer the full flexibilities expected under an LLC.

• One member required. Corporate members are permitted.
• Registered address in Belize required.

Taxation

None. Pass-through entity.

Public Records

Company name only.

Belize Trust

Belize enacted a revised version of Trusts Act in 2007.

There are two types of trusts in Belize: domestic and international (offshore trust).

As expected, Belize offshore trusts are subject to no tax in Belize.

International trusts must be registered. The trusts registrar is to receive the following for all international trusts:

• Trustee name;
• Name of the trust;
• Date of settlement and registration;
• Protector name;
• Trustee registered address.

The trust deed itself need not be filed.

There are 55 licensed trustees in Belize.

Belize Foundations

Grasping at every straw to mimic successful legislation in more reputable jurisdiction, Belize has made an attempt at foundations.

The law was enacted in 2010. It has not seen anywhere near the usage of giants like Liechtenstein and Panama.

Aside from costs, there is nothing noteworthy that sets Belize apart from other jurisdictions when it comes to foundations.

Service Providers

As always, this is not a recommendation.

• Atlantic International Services (L) – an off-shoot of Atlantic Bank
• Belize Corporate Services (L) – an off-shoot of Belize Bank
• Choice Trust (L) – an off-shoot of Choice Bank
• Fidelity International (L)
• Icaza Law (L)
• Morgan & Morgan (L)
• Mossack & Fonseca (L)

There are over 100 registered agents in Belize.

Banking

Banking in Belize is generally of poor quality. The banks are small and provide unimpressive services at a relatively high cost. Because of increased spending on compliance, minimum deposits are going up with most banks.

As mentioned in the introduction, banks in Belize are struggling to maintain correspondent accounts. Large correspondent banks in the US and Europe are putting increasingly tougher requirements on offshore banks and Belize being an irreputable jurisdiction with great AML and KYC/DD challenges, times are tough for banks in Belize.

Bank account opening in Belize with an international bank is easy. It can always be done remotely and there is usually no need for an intermediary.

Domestic banks and credit unions are not interested in non-residents.

Banking Secrecy

It’s the same as all other IBA jurisdictions:

In theory, the secrecy is rigorous.
In reality, Belize lacks any tradition of secrecy and privacy.

Belize authorities are empowered to compel banks to disclose information without a court order, and share this information with foreign authorities.

Banks in Belize

There are two types of banks in Belize: domestic and international.

There are six international banks:

• Atlantic International Bank
• Belize Bank International
• Caye International Bank
• Choice Bank
• Heritage International Bank
• Market Street International (restricted license)

There are six domestic banks:

• Atlantic Bank
• Belize Bank
• First Caribbean International Bank
• Heritage Bank
• National Bank of Belize
• Scotiabank

Living in Belize

You probably don’t want to.

There are no tax advantages to living in Belize, crime in a problem, corruption is pervasive, and short of living out in the jungle somewhere or among the wealthy out on the cayes, Belize is not an attractive jurisdiction for relocation.

Final words

If Belize manages to fix its reputation, it could become an attractive jurisdiction for incorporation and even trusts.

With an improved jurisdiction and heavy investment in its banking sector, it could even become an attractive banking centre again.

However, as it stands, Belize’s only advantage is its low cost. And if you are looking at saving one or a few hundred dollars when forming an offshore company, it is very likely that an offshore company is not the right solution for you.

See also

• OECD Peer Review of Belize (also has a list of TIEA and DTA)
• Financial Secrecy Index Belize
• FATF documents on Belize
• CFATF documents on Belize

It’s been a while since I did one of these. One of Africa’s largest banks and head-quartered in South Africa, Standard Bank has established itself as one of the foremost gateways into Africa.

This review will focus on Standard Bank International, which is the bank’s offshore wing in Isle of Man and Jersey (with a branch in Guernsey) but I will also touch on Standard Bank in Mauritius and other locations.

1. First Impressions
2. Fees
3. Opening An Account
4. Internet Banking
5. Card Products
6. Customer Service
7. Account Management
8. Other Services
9. Final Notes

As usual: Take particular note to that I will not be discussing the financial health of the bank. This is not a bank recommendation post. It’s a retelling of my experiences with a bank.

First Impressions

With Standard Bank, you are dealing with a large bank. It’s not some small wealth management firm and it’s not some shell bank in a Caribbean island completely disconnected from the local market. It’s a bank that deeply rooted in day-to-day economies of South Africa, Nigeria, Ivory Coast, and so on.

The bank is taking an increasingly stern approach to requiring non-resident clients have a connection to Africa. Sometimes it’s enough to be selling your product to Africa but at times the bank will insist on a physical presence in Africa or at least intention to market heavily into Africa.

The reason for this is that non-resident accounts need to be approved by a special committee, which operates on instructions from the board of directors, most of which is based in Africa.

The bank is usually one of the friendliest to interact with when you approach them as a prospective client. Where many other banks can be immediately dismissive, Standard Bank will give almost anyone and anything a chance to impress them.

Response-times can be slow, though. Often several days for simple requests. This is not a bank to approach as a prospective client if you are in a hurry.

Fees

South African banks in general are notorious when it comes to fees. Standard Bank used to be known for having low fees in onshore countries and African core markets, but have raised them in the last decade or so to being one of the highest. The bank relies on its strong reputation and high quality of services to justify the fees.

For the international client, there hasn’t been any such drastic changes. At 20 to 40 GBP per outgoing wire transfer (depending on currency and destination), it is high for Europe as a whole but competitive when looking at financial centers such as Isle of Man and Jersey.

Minimum deposit is a mere 4,000 GBP in order to avoid the 60 GBP monthly fee.

In Mauritius, the fees are about the same as other banks. Outgoing wire transfers are charged at 35 to 70 USD depending on amount, plus 25 USD to cover recipient fees (OUR transfer). There is no minimum deposit (other than for term deposits: 10,000 USD) although the bank expects at least a couple of thousands for non-resident clients.

Opening An Account

To open a bank account with Standard Bank is a fairly simple process.

As mentioned, the bank will often insist on there being a connection to Africa. This is not always enforced and you can get different results by asking at different times during a year.

The bank does not ask for any unusual documents when opening the account. Account opening remotely is the norm although an introducer can make the process much smoother. See Other Services.

Card Products

The bank is happy to issue debit cards (available in GBP, EUR, USD, and AUD) but is lacking when it comes to more sophisticated card products.

Credit cards are not available with Standard Bank in Isle of Man and the Channel Islands.

No cards are issued in Mauritius.

Internet Banking

Standard Bank’s Internet banking is one of – if not the – best in Africa and competes with some of the better in the world when it comes to ease of use and functionality.

Two-factor authentication through security tokens are available.

Standard Bank makes it easy to manage multiple entities’ accounts from one view – something most other banks are still struggling with.

Customer Service

Generally good in Isle of Man, Jersey, and Mauritius. Availability hours could be better.

Staff speaks excellent English, and a range of other languages in certain areas.

Account Management

Some of the best in the industry for larger corporate accounts.

Other Services

Standard Bank is also a licensed trustee in for example Jersey and Isle of Man. They provide full-service solutions for incorporation (with nominees, if requested), banking, and even nominee signatories.

Incorporating with Standard Bank will usually waive the requirement for any significant African connection. It depends on what you are doing and your overall client profile.

Their fees are average for the jurisdictions.

Final notes

In my experience, Standard Bank is an excellent bank.

With a modest minimum deposit, reasonable fees, and an appetite to consider any application, it has relatively low entry requirements. That is, if you can show some kind of connection to Africa.

Today we continue our journey across jurisdictions that are so similar it becomes difficult to tell them apart.

This time, the subject matter is the island of Saint Lucia, a tax haven which sees an overrepresentation of Italian clientèle.

This tiny little island hinges at the extreme of the Caribbean, being one of the most eastern of all Caribbean islands except for Barbados (which technically isn’t in the Caribbean).

Saint Lucia like most Caribbean offshore jurisdictions and some of the Pacific ones are superficially almost indistinguishable from each other – all basing their IBC laws on the BVI original, trust law on UK and British Overseas Territories tradition, and foundation laws on Liechtenstein and Panama.

Differences come down to cost (a few hundred dollars one way or the other), reputation, and tax treaties (Double Taxation and Exchange of Information).

Geography and Demography

Map from Wikipedia.

Incorporation and Business

Reputation

Saint Lucia is a very small and little-known jurisdiction. It does not have a stigma like for example Belize does but neither is it a known and reputable jurisdiction like Hong Kong or Singapore.

At the end of the day, an IBC is an IBC. It’s still a problematic company type in and of itself due to the strict secrecy and lax standards of compliance.

OECD has rated Saint Lucia as Partially Compliant, meaning it still has quite a lot left to achieve. It seems that Saint Lucian registered agents can refuse requests for information. This effectively means it’s up to the registered agent to choose whether they should comply or not. Unlike a handful other jurisdiction where EOI is legally impossible, Saint Lucia is in a position where there is a choice.

If Saint Lucia were to become a bigger, more important jurisdiction, this degree of selective secrecy could potentially wreak havoc to its reputation and place it among the likes of Brunei and Vanuatu. However, because of its relatively small size, this has not yet proven a significant challenge.

General Information

It’s your typical IBC jurisdiction. Not much to say. Saint Lucia enacted its International Business Companies Act in 2000.

Costs of incorporation are mid-range but there is a rather limited supply of registered agents, which hasn’t created a particularly healthy competition.

Regulator

Ultimate responsibility falls on the Ministry of Finance and its Financial Services Regulatory Authority.

Promotion and some degree of oversight is provided by the registry, Pinnacle St. Lucia.

International Business Company (IBC)

• One director required. Corporate directors permitted.
• One shareholder required. Corporate shareholders permitted.
• No paid up share capital required (usually 50,000 USD authorized).
• Registered address in Saint Lucia required.
• No audit or filing required unless the company opts for it or opts for taxation.

Bearer shares are not permitted. Only registered shares are allowed.

Taxation

Optional and in most cases none. Those who opt to pay tax pay a tax rate of 1%.

Public Records

Company name only. Directors and shareholders are not known to the company registry.

Saint Lucia Trust

In 2002, Saint Lucia enacted its International Trusts Act. It has seen very little usage and offers nothing unique.

Service Providers

The Pinnacle registry maintains lists of Overseas Agents and Local Registered Agents.

Banking

Generally unimpressive if not downright bad.

Banking Secrecy

It’s the same as all other IBA jurisdictions:

In theory, the secrecy is rigorous.
In reality, Saint Lucia lacks any tradition of secrecy and privacy.

Saint Lucia authorities are empowered to compel banks to disclose information without a court order, and share this information with foreign authorities. Note that this is different than the selective secrecy surrounding companies.

Banks in Saint Lucia

There are nine banks licensed under the IBA:

• Amerigo Banking Corporation – class B, 2004
• Atlantic Financial Limited – class B, 2008
• Bank of St. Lucia International Limited (BOSLIL) – class A, 2004
• Corom Bank Limited – class A, 2014
• First Citizens St. Lucia Limited – class A, 2004
• First Citizens Financial Services (St. Lucia) Ltd. – class B, 2010
• Hermes Bank Limited – class A, 2012
• Mayberry West Indies Bank Limited – class A, 2014
• Petrus Private Bank Limited – class A, 2015
• PLG Capital Bank Limited – class B, 2014
• Sovereign Bank Inc. – class A, 2012
• StateTrust International Bank & Trust Ltd. – class A, 2007
• Via Bank Ltd. – class A, 2006

Class A license is a license to conduct business with third parties who are neither citizens nor residents of Saint Lucia. Physical presence in Saint Lucia is required, but this in practice only means a dedicated address and an accountant.

Class B licenses are limited to conducting business with a defined group of people, i.e. captive banking. A physical presence in Saint Lucia is not required, beyond a registered address.

Living in Saint Lucia

Although there are some tax advantages to living in Saint Lucia, mainly the lack of a capital gains tax, obtaining residence in Saint Lucia offers no clear advantages over comparable jurisdictions. Permanent residence permit can be acquired after five years of residence, which is usually attained by purchasing real estate or by having a work permit (which is difficult to get).

Crime is a growing problem on the island, which is a relatively poor nation. Some parts of the capital Castries should by avoided.

Infrastructure is poor although strong enough to maintain a fairly large tourism sector.

Final words

Just another IBC/IBA jurisdiction.

No major reputational disadvantages that would set it aside from its peers, except it’s relatively unknown.

Can be more secretive than others.

See also

• OECD Peer Review of Saint Lucia (also has a list of TIEA and DTA)
• Financial Secrecy Index Saint Lucia
• FATF documents on Saint Lucia
• CFATF documents on Saint Lucia