This will be a short one and on a topic that’s not in line with what I usually write about.

Introduction

With many international financial centers having a large Muslim population, the concept of Islamic banking has come up for many who have researched bank account opening in for example Dubai, Ras al-Khaimah, Bahrain, Qatar, Brunei, and so on. Islamic banking also has a history and seeing current growth in countries with a Muslim minority.

Note that Islamic banking is not the same as offshore banking. It is not more secretive than non-Islamic banking. It is also not exclusive to Muslims as it’s simply a Shari’ah compliant financial system, specifically a set of rules called Fiqh al-Muamalat. Anyone can participate.

Opening an Islamic bank account, whether it’s for yourself or your company, and whether you are Muslim or not, is the same as opening any other bank account. Some banks might give you a strange look if you do not fit the usual description of an Islamic banking client, but you would usually have a good reason for picking this type of banking and can simply communicate that to the bank.

Sources as well as definitions vary but somewhere around 0.5% to 2% of the world’s assets are held in Islamic finance.

I am not going to go into every single detail about Islamic banking. Terminology and implementation vary.

In essence, it is very similar to regular banking but some services cannot be offered because they are considered haraam (forbidden).

History

Banking in general has a history going back thousands of years. Records of banking-like activities as old as 2000 BC have been found. The modern banking system is however typically accredited to financial service providers and intermediaries in Venice, Florence, and Genoa in the 13th and 14th century BC.

Islamic banking is both old and new. The concept is as old as Islam (possibly older) but local Islamic banks had been rendered almost completely powerless by western influences in the Middle East and western commercial banks took over.

In the 1950s and 1960s, there was a resurgence of Islamic banking across not only the Middle East but also in the large Muslim communities in South-East Asia. This started in Egypt with the 1963 foundation of Mit Ghamr, the world’s first Islamic bank in modern times.

Mit Ghamr allowed three types of accounts: a savings account that had no interest, an investment account where interest could be earned as return on profit-sharing investment in ethical businesses, and a zakat (زكاة‎) account, which is a mandatory religious tax for charitable purposes.

For geopolitical reasons, the bank did not last very long but paved the way for a modern era of of Islamic banking.

Interest (riba)

This is the most commonly discussed aspect of Islamic banking and since interest lies at the core of banking in general, it is a very important aspect.

Under Islamic banking, a bank cannot earn interest (riba) on money it has lent. Doing so would be haraam. While some interpret this as meaning that any interest in haraam, that is not at all the case. Interest earned in other ways can be permitted.

The reason riba is forbidden is that it is considered unethical to earn money from someone else’s debts.

Mudarabah

The Institute of Islamic Banking and Insurance gives an example of two people, one who has capital and one who has skills but no capital or need capital for a house.

Under the western banking system which is largely based on loans, the capital-owner would lend money to the person with skills and will be paid back the loan amount plus interest. This is irrespective of whether the entrepreneur’s business succeeds.

Under Islamic banking, the two would form a trust-based partnership (Mudarabah) where they agree on ownership ratios and profit sharing. The capital-owner would not be involved in day-to-day operations but can stipulate certain criteria that the entrepreneur would have to honour (within certain limits).

The latter is similar how some Partnership and General Partnership legislations work, with for example one partner investing money (sometimes with full limitation of liability) and one partner uses the money to build a product.

Mudarabah can also apply to investment accounts. While it may appear as if regular interest income is earned, the income is in fact shared between the account holder and the bank.

Conclusion

To recap, Islamic banking is in essence banking under a set of ethical principles.

Contrary to some popular belief, it is neither more secretive than regular banking nor is it limited to Muslims. It is not a zero-interest earning type of banking that can be used to avoid certain exchange of information agreements.

While Islamic banking is based on ethical principles, it is not the same as some ethical investments services offered by banks (western and elsewhere). Ethical investments are simply investments that do not conflict with the investor’s ethical principles, often ruling out trades in weapons, dangerous chemicals, or environmentally harmful goods and services.

For more details on Islamic Banking, head over to the Institute of Islamic Banking and Insurance.

We are going to stay in the Middle East for a little bit longer to today take a look at Qatar, which has a land border with Saudi Arabia and is tucked between Bahrain and UAE (emirate of Abu Dhabi). Across the Persian Gulf is Iran.

While it’s not a commonly used tax haven and it has major reputational disadvantages when it comes to human rights, it’s nonetheless a jurisdiction that keeps popping up in discussions and warrants a look into as a potential international financial services hotspot.

After the fall of the Ottoman Empire, Qatar became a British protectorate until gaining independence in 1971.

This hereditary emirate struggles with a dreadful international reputation on human rights. Countless paragraphs have been written about the awful conditions for many migrant workers. These conditions have been given especial attention after Qatar was awarded the hosting of the FIFA World Cup 2022.

It is one of few sovereign nations where the local citizens are a minority, accounting for circa 15% of the population. Of the remaining 85%, many are migrant workers from mostly India, Nepal, Bangladesh, and the Philippines who are engaged in construction, household services, and other typically lower-income professions. A relatively small part of the expat community is made up of highly-skilled workers.

This is affecting the emirate’s success as a financial services hub. It offers practically no benefits over Ras al-Khaimah, Dubai, Abu Dhabi, or even Bahrain. Its sole saving grace is a strong banking sector that is gradually opening up to international investors.

Geography and Demography

Map from Wikipedia.

Incorporation and Business

Reputation

From a purely financial services point of view, Qatar has a clean reputation.

General Information

Regular incorporations usually require 51% local ownership. To attract foreign ownership, Qatar has set up a more easy-going regulatory environment in the Qatar Financial Center. Here, certain categories of business activities can be set up with full foreign ownership and management.

The permitted categories of non-regulated business are:

• Audit, accounting, tax, or consultancy services.
• Headquarters of a company or a management office, trust, or similar.
• Holding companies.
• Company management services.
• Financial grading or rating services.
• Shipping agencies or brokers.

Regulator

Regular incorporation does not have a specific regulator but companies formed in the Qatar Financial Center are supervised by the QFC and, if they require regulation, are regulated by the QFCRA.

Legal Entities

Most foreign-controlled companies in Qatar are formed as Limited Liability Companies (LLC) but Limited Liability Partnerships (LLP) are also available.

Taxation

Qatar has a territorial taxation system, where only income derived from Qatar is taxable. The tax rate is 10%.

Record Keeping

Required but need not be submitted. Audits are required once a company reaches 100,000 QAR turnover in a year.

Public Records

Companies are subject to public disclosure.

The QRA public records contain registration status, registration number, place of incorporation, date of incorporation, legal form, directors (name), significant shareholders (name), registered address, capital information, and licensing details.

Banking

Qatar has quietly developed a strong and modern banking sector. Foreign deposits are mostly regional but the jurisdiction is trying to attract foreign investment.

This is not an easy-going banking sector such as the ones found in the Caribbean. It’s more akin to UAE and Lebanon, focused on established or quickly-establishing companies and large-scale investments from high-networh individuals and entities.

You’re very unlikely to get accepted at a Qatari bank with an offshore IBC, LLC, or even as a small business incorporated in a reputable jurisdiction.

Open a Bank Account in Qatar

The process is not much different from comparable jurisdictions. It is generally preferred that clients appear in person but as this can be a problem due to the Qatar’s relatively restrictive visa requirements on entries, where nationals of wealthy countries are welcome but others need difficult-to-obtain visas, remote account opening or account opening by visiting a bank representative elsewhere is quite common.

Qatar has not signed the Apostille Convention and as such, document verification can turn into a nightmare if the bank is not satisfied with anything other than verification by an embassy official.

Minimum deposits are not strictly enforced but smaller clients with no other ties to Qatar or the region are unlikely to be accepted.

Banking Secrecy

Banking secrecy in Qatar is generally strong, at least for non-resident foreigners. It’s important to understand how laws work in wealthy totalitarian or semi-totalitarian sovereign nations. Typically, local residents and especially citizens can have no reasonable expectation of privacy. However, the affairs of non-resident foreigners, as long as they do not disturb the nation, are often not given much attention.

With the advent of the US’ FATCA and OECD’s AEOI, repercussions are now being felt for not caring about the money foreigners hold in local banks.

Banks in Qatar

There are in total 18 banks licensed in Qatar. Banks are listed below with year of license being issued and assets as of December 2015.

Seven are national banks:

• AL Ahli Bank (1984, 47.2 billion QAR)
• AL Khalij Bank (2007, 31.5 billion QAR)
• Commercial Bank (1975, 100.8 billion QAR)
• Doha Bank (1979, 69.4 billion QAR)
• International Bank of Qatar (2000, 30.6 billion QAR)
• Qatar Development Bank (1997, 6.9 billion QAR)
• Qatar National Bank (1965, 423.8 billion QAR)

Four are Islamic national banks:

• Barwa Bank (2009, 38.5 billion QAR)
• Masraf AL Rayan (2006, 82.1 billion QAR)
• Qatar International Islamic Bank (1991, 40.1 billion QAR)
• Qatar Islamic Bank (1983, 99.7 billion QAR)

The remaining seven banks are foreign banks:

• Arab Bank (1957, 7.8 billion QAR)
• Bank Saderat Iran (1970, 0.7 billion QAR)
• BNP Paribas (1973, 2.7 billion QAR)
• HSBC (1954, 16.7 billion QAR)
• Mashreq Bank (1971, 6.6 billion QAR)
• United Bank (1970, 0.9 billion QAR)

Living in Qatar

Qatar is very warm and compared to UAE, Oman, and Bahrain much more conservative, although it is not as conservative as Saudi Arabia.

While a large majority of the population is made up of expats, there are relatively few expats (especially from non-Arabic nations) who come here to start businesses or enjoy a tax free life. Many settle down in UAE instead, or somewhere else entirely.

Citizenship

Only possible after 25 years (15 years for Arabic nationals) of residency and speaking Arabic. Very few citizenships are awarded and Qatari passports are not particularly attractive.

Dual citizenship is not permitted.

Taxation

Practically none.

Final words

Qatar being included on lists of tax haven is arguably unfair since it does not have much in common with typical tax havens, other than being a zero-tax jurisdiction.

Few incorporate here, with most entrepreneurs in (or interested in) the region opting for UAE instead.

The banking sector is strong but not yet very welcoming to foreigners other than the very wealthy.

See also

• OECD Peer Review (also has a list of TIEA and DTA)
• FATF documents
• MENAFATF documents

There are a handful of organizations that we talk about a lot in this industry. In this article, I will talk a bit about what they do and how or why they matter.

• OECD
• FATF-GAFI
  • APGML
  • CFATF-GAFIC
  • EAG
  • ESAAMLG
  • GABAC
  • GAFILAT
  • GIABA
  • MENAFATF
  • MONEYVAL
• Egmont Group

OECD

The Organisation for Economic Co-operation and Development (OECD) traces its roots back to 1948, when the Organisation for European Economic Co-operation (OEEC) was formed in the aftermath of the second world war. Its initial purpose was to facilitate the implemention of the Marshall Plan.

In 1961, the organisation was reformed as OECD and membership extended beyond Europe.

Its purpose today is to achieve economic growth, financial stability, and raising standards of living. OECD invests heavily in education.

OECD also publishes a lot of statistics on demographics, which are generally considered trustworthy. The organisation as a whole enjoys an overall strong reputation in anywhere from academic to political circles. It is a very influential organisation.

Since 1998, the OECD has been hunting down jurisdictions which engage in so-called harmful tax practices. The OECD believes that tax havens (offshore jurisdictions) are responsible for tax funds being lost and people and economic growth suffering as a consequence.

The OECD shaped the modern tax treaties, setting up models for Double Taxation Avoidance Treaties (DTA) and Tax Information Exchange Agreements (TIEA). It is also the master behind the Common Reporting Standard (CSR) and the oft-dreaded Automatic Exchange of Information (AEOI). The CSR is the standard which makes AEOI possible.

OECD conducts peer reviews of jurisdiction, in which it assesses jurisdictions based on a set of criteria, to ultimately determine how up to par the jurisdiction is with international standards and recommendations as set out by OECD (and FATF). These reviews carry a fair amount of importance as they affect the reputability of a jurisdiction.

In addition to strong-arming jurisdictions into signing up for AEOI, the OECD also maintains the EOI-Tax website which hosts mostly up to date lists of tax treaties for jurisdictions.

FATF-GAFI

While FATF-GAFI is not the organisations full name, the English name is often hyphenated with the French translation: Financial Action Task Force – Groupe d’Action Financière.

Formed in 1989 by the G7, FATF’s purpose is to set standards for fighting money laundering and perform continuous reviews of jurisdiction.

In 1990, FATF issued its list of forty recommendations for the prevention of money laundering. This has since been amended and is now referred to as the The Forty Recommendations and Special Recommendations on Terrorism Financing.

FATF is seen as tremendously influential. (Most) Banks and governments take FATF seriously. Some flaunt FATF and show arrogance (see for example Turkey). Some don’t have the resources to comply with FATF. But by and large – FATF’s word is law.

While being blacklisted or called out by OECD hurts a jurisdiction reputationally, FATF black lists can have a severe negative impact on a jurisdiction’s ability to engage in financial transactions with other jurisdictions, especially the wealthier jurisdictions that sit at the helm of FATF.

Nine so-called FSRBs (FATF-Style Regional Bodies) have been formed to focus on local and regional implementation of FATF recommendations.

• APGML
• CFATF
• EAG
• ESAAMLG
• GABAC
• GAFILAT (formerly GAFISUD)
• GIABA
• MENAFATF
• Moneyval

While FATF itself only has 34 members, members of FSRBs are effectively under FATF’s direction. Some jurisdictions are members of multiple organisations.

The 34 members are:

• Argentina
• Australia
• Austria
• Belgium
• Brazil
• Canada
• China
• Denmark
• Finland
• France
• Germany
• Greece
• Hong Kong
• Iceland
• India
• Ireland
• Italy
• Japan
• Korea
• Luxembourg
• Mexico
• Netherlands
• New Zealand
• Norway
• Portugal
• Russian Federation
• Singapore
• South Africa
• Spain
• Sweden
• Switzerland
• Turkey
• United Kingdom
• United States

APGML – Asia Pacific Group on Money Laundering

The APGML is the Asia-Pacific was founded in 1987. It is the FSRB for Asia-Pacific region, with 41 members:

• Afghanistan
• Australia
• Bangladesh
• Bhutan
• Brunei Darussalam
• Cambodia
• Canada
• China
• Cook Islands
• Fiji
• Hong Kong
• India
• Indonesia
• Japan
• Laos
• Macao
• Malaysia (including Labuan)
• Maldives
• Marshall Islands
• Mongolia
• Myanmar
• Nauru
• Nepal
• New Zealand
• Niue
• Pakistan
• Palau
• Papua New Guinea
• Philippines
• Samoa
• Singapore
• Solomon Islands
• South Korea
• Sri Lanka
• Taiwan (Chinese Taipei)
• Thailand
• Timor-Leste
• Tonga
• United States of America
• Vanuatu
• Vietnam

CFATF – Caribbean FATF

The CFATF-GAFIC was formed in 1992 and acts as the FSRB for the Caribbean region. Its members 27 members include some of the world’s most high-profile tax havens:

• Anguilla
• Antigua and Barbuda
• Aruba
• Barbados
• Belize
• Bermuda
• British Virgin Islands
• Cayman Islands
• Curaçao
• Dominica
• Dominican Republic
• El Salvador
• Grenada
• Guatemala
• Guyana
• Haiti
• Jamaica
• Montserrat
• Saint Kitts and Nevis
• Saint Lucia
• Saint Vincent and the Grenadines
• Sint Maarten
• Suriname
• The Bahamas
• Trinidad and Tobago
• Turks and Caicos Islands
• Venezuela

With more a majority of its members being tax havens, CFATF’s work is on the one hand considered especially important and on the other hand, it has more than once been accused of failing to be biased and not being critical enough of shortcomings.

EAG – Eurasian Group

EAG was founded in 2004 and has nine members:

• Belarus
• China
• India
• Kazakhstan
• Kyrgyzstan
• Russia
• Tajikistan
• Turkmenistan
• Uzbekistan

With subpar infrastructure, rampant corruption (to varying degrees), and other larger sociopolitical challenges, the region and its members pose significant money laundering risks and EAG is by many not seen as doing a good enough job.

ESAAMLG – Eastern and Southern Africa Anti-Money Laundering Group

As of writing this, the ESAAMLG website has been hacked and defaced. Fortunately, the hackers were kind enough not to erase any data but be cautious when visiting the website.

ESAAMLG was founded in 2000 and among its 16 members, we find both Mauritius and the Seychelles:

• Angola
• Botswana
• Ethiopia
• Kenya
• Lesotho
• Malawi
• Mauritius
• Mozambique
• Namibia
• Seychelles
• South Africa
• Swaziland
• Tanzania
• Uganda
• Zambia
• Zimbabwe

GABAC – Central Africa Anti-Money Laundering Group

GABAC is woefully unequipped to execute its tasks. Money laundering is rampant in this region and while things are getting better, improvement comes slowly. Formed in 2000, its members are:

• Cameroon
• Central African Republic
• Chad
• Equatorial Guinea
• Gabon
• Republic of the Congo

GAFILAT – Latin America Anti-Money Laundering Group

Formed in 2000, GAFILAT is the FSRB for Central and South America, but generally not Caribbean nations as can be seen by Belize having joined CFATF but not GAFILAT. It has 16 members:

• Argentina
• Bolivia
• Brazil
• Chile
• Colombia
• Costa Rica
• Cuba
• Ecuador
• Guatemala
• Honduras
• Mexico
• Nicaragua
• Panama
• Paraguay
• Peru
• Uruguay

GIABA – West Africa Money Laundering Group

GIABA was formed in 1999 and is the FSRB responsible for the western parts of Africa. Its 15 members are:

• Benin
• Burkina Faso
• Cape Verde
• Ivory Coast (Côte d’Ivoire)
• Gambia
• Ghana
• Guinea-Bissau
• Guinea
• Liberia
• Mali
• Niger
• Nigeria
• Senegal
• Sierra Leone
• Togo

The Comoros is an observatory member.

With members such as Ghana, Nigeria, and Ivory Coast, GIABA is an FSRB with some of the most demanding tasks.

MENAFATF – Middle East and North Africa FATF

The youngest FSRB, MENAFATF (also GAFIMOAN) was formed in 2004. There are 19 members of MENAFATF:

• Algeria
• Bahrain
• Egypt
• Iraq
• Jordan
• Kuwait
• Lebanon
• Libya
• Mauritania
• Morocco
• Oman
• Palestinian Authority
• Qatar
• Saudi Arabia
• Sudan
• Syria
• Tunisia
• United Arab Emirates (Abu Dhabi, Dubai, Ras al-Khaimah)
• Yemen

MONEYAL – Council of Europe Anti-Money Laundering Group

Moneyval was established in 1997 under the much-less-pronouncable PC-R-EV, the group renamed in 2002 and expanded its scope to include not only anti-money laundering but also the prevention of financing of terrorism.

Owing to its ties to Council of Europe and close ties with several international bodies, Moneyval is generally considered one of the most prolific FSRBs.

Moneyval has 34 members, many of which are tax havens or otherwise important international financial services centers:

• Albania
• Andorra
• Armenia
• Azerbaijan
• Bosnia and Herzegovina
• Bulgaria
• Croatia
• Cyprus (excluding Northern Cyprus)
• Czech Republic
• Estonia
• Gibraltar
• Georgia
• Guernsey
• Hungary
• Holy See (the Vatican)
• Isle of Man
• Israel
• Jersey
• Latvia
• Liechtenstein
• Lithuania
• Macedonia
• Malta
• Moldova
• Monaco
• Montenegro
• Poland
• Romania
• Russia
• San Marino
• Serbia
• Slovak Republic
• Slovenia
• Ukraine

Egmont Group

While it started before FATF, one of FATF’s recommendations is for jurisdiction to set up a so-called Financial Intelligence Unit (FIU) which is the central point for executive administration of the recommendations. It is the FIUs which collect suspicious activity reports (SAR), collate them, and pass on to law enforcement.

Actual implementation varies across jurisdiction. An FIU is often a supplementary or complementary authority to a jurisdiction’s Financial Services Commission.

The Egmont Group of Financial Intelligence Units sports every FIU in the world as its members.

As a collection of every FIU, the Egmont Group meets to share information, set standards, and formulate overall strategies. Together, the FIUs engage in exchange of information, international cooperation and  coordination between themselves.

Others

There are many other organisations out there, such as organisations for industry practitioners (as opposed to regulators) and certain sectors will have their own organisations which all come together and form the financial services industry.

Today, we return to the Americas and to one of my personal favourites: Uruguay.

The instantly recognizable flag of Uruguay portrays the nine original (now 19) departments of the republic, and in the corner we find a Sol de Mayo (Sun of May), which represents the sun shining upon a new nation.

The sun is a national emblem of both Uruguay and Argentine, the two sharing a very close history.

Overview

While Uruguay has had its fair share of challenges throughout history, it has nonetheless earned the moniker the Switzerland of South America for its comparatively stable finances, stable government (at least since 1984), penchant for secrecy, and relaxed, liberal social attitudes.

I don’t want to paint a picture of Uruguay being some perfect utopia.

It had a bloody, 12-year long civil war 1839 – 1851 after first gaining independence from Spain on the 18th of July 1830. After the war, the military gained in influence and political power. This was a mostly benevolent dictatorship, with the military using its authority to modernise Uruguay.

Towards the end of the 19th century, the military’s might started to diminish and civil politicians started gaining grounds again. Around this time, Uruguay saw large-scale immigration of mostly Spaniards and Italians, but also many other Europeans migrated to Uruguay, which was seen as stable and modern compared to Brazil and Argentina.

In 1903 a brief uprising was struck down by the government.

In 1933, following election of a new president and social dissatisfaction as a consequence of the Great Depression, a new constitutions was enacted which gave the presidency tremendous power. In 1938, an election was held which was won by the brother-in-law of the incumbent president.

Uruguay was neutral and played only a minor part in World War II.

Following a change in economic climate after the war and into the 1950s, the standards of living rapidly declined in Uruguay and social unrest followed.

Guerilla soldiers called Tupamaros grew in the late 1950s and 1960s. The organization robbed banks and conducted kidnappings and assassinations, in addition to trying to overthrow the government.

In 1968, a state of emergency was declared and in the years that followed, civil liberties were increasingly disregarded, culminating in the 1973 shift of power to a part-civilian, part-military totalitarian regime. While Uruguay was spared from the utter atrocities seen in similar regimes in the region, it is nonetheless a very dark time Uruguay’s history.

Uruguay returned to democracy in 1984 and has since been a very liberal and easy-going jurisdiction. The government managed to attract enormous increases in foreign investment in the 1980s and 1990s, which again raised the standards of living and financial well-being of the republic

The economy was hit hard in 1999 – 2002 due to Uruguay’s strong economic ties with the fiscally dysfunctional Argentina. Through it all, Uruguay remained stronger than most of its regional counterparts. China has since overtaken Argentina as Uruguay’s most important trading partner (after Brazil).

Geography and Demography

Map from Wikipedia.

Incorporation and Business

Reputation

Practically squeaky clean.

Uruguay used to have a controversial, secretive legal entity that was used for significant tax evasion and possibly money laundering. Since the riddance of this entity, Uruguay has maintained a perfectly good reputation.

It is known to be a tax haven, but not an as egregious one as for example Panama.

Regulator

Unlike for example IBC jurisdiction or more highly-specialized tax havens, there is no specific regulator for corporations in Uruguay.

SAFI

From being enacted in 1948 until being removed in 2007, SAFI (Sociedad Anonima Financiera de Iversion) was a popular entity type in Uruguay. For this entity, mobile bearer shares were permitted.

The entity was technically tax free but was required to pay a license of 0.1% to 0.3% on its profits. To assess this number, each SAFI was required to file an annual and public statement.

SAFZ

In 1923, Uruguay enacted its first Free Zone legislations. The law was heavily revised in 1987 and again in 1988.

A SAFZ is a Sociedad Anonima (comparable to a Private Limited Company) incorporated in one of Uruguay’s free zones.

SAFZs are often exempt from tax (corporate tax, sales tax, concession tax, social security contributions) and need in such cases not need to file an annual financial statement, although this depends on free zone.

One director and one shareholder are required and there are no residency requirements. Corporate bodies are permitted.

The minimum share capital is 50,000 USD of which at least 5% (2,500 USD) must be paid up.

Incorporation is a slow process, often taking several months to complete. Plan ahead if you want an SAFZ.

An annual meeting must be held in Uruguay.

SA and SRL

A regular Sociedad Anonima is of course also available along with an SRL (Sociedad de Responsabilidad Limitada). It is very similar to other legislations in the region:

• Public record of directors, members, and shareholders.
• Annual meeting can be held anywhere.
• Can undertake any lawful activity (i.e. permits are only required for specifically designated fields).

Incorporation even of regular companies used to take weeks if not months but recent government efforts has sped up the process tremendously.

Taxation

Companies can be exempt from tax by being formed and operating in a Free Zone or otherwise enjoy a territorial taxation system.

Record Keeping

Record keeping is required by law and financial statements must be submitted along with an annual report.

There are various audit exemptions.

Public Records

Companies are subject to public disclosure although some details about shareholders can be kept confidential.

Banking

This is the real allure of Uruguay for most people, especially people from Argentina. More than half of all non-resident deposits in Uruguay are estimated to belong to Argentinians. Many are drawn to Uruguay for its strict banking secrecy but also for its financial stability and ease of transacting compared to the situation in Argentina.

The drawback of this is that banking in Uruguay is very dominated by Spanish, far more than for example Panama which despite being a Spanish-speaking country has a banking sector with so much foreign capital and foreign business that English is well supported.

That said, banks in Uruguay are generally pleasant to work with and fairly sophisticated in their service offerings.

Open a Bank Account in Uruguay

It’s typically not a particularly arduous task to open a bank account in Uruguay. The banks are generally welcoming to foreigners and non-residents.

Due diligence is the same as in most places, although remote account opening is rare unless using an introducer (intermediary).

Banking Secrecy

Very tight and the government is hesitant to make any concession. Uruguay is able to get away with this because once Argentinian deposits are excluded, there is very little wealth in any significant proportions from other jurisdiction.

This is in stark contrast to for example Switzerland, which was and continues to be under pressure from a wide range of nations.

While Uruguay has committed to AEOI, it has shown no signs of actually implementing it in any meaningful way. Requests for information under TIEAs are routinely rejected or answered in an incomplete manner, especially ones that come from Argentina.

Uruguay has signed up for FATCA and is compliant.

Banks in Uruguay

While Uruguay has a relatively large financial services sector, many international companies do not go through the hassle of obtaining a banking license and instead operate as payments institutes, wealth managers, or other non-bank institutes. Crèdit Andorrà and UBS are for example present in Uruguay as a representative office. The actual banking services are then carried out in another jurisdiction.

As for banks licensed in Uruguay, there are two state-owned banks:

• Banco de La Republica Oriental (BROU)
• Banco Hipotecario del Uruguay (BHU)

Then remaining banks are nine privately-owned banks, predominantly foreign.

• Banco Bandes (Uruguay)
• Banco Bilbao-Vizcaya Argentaria BBVA (Spain)
• Banco de La Nacion Argentina (Argentina)
• Banco Itaú (Brazil)
• Banco Santander (Spain)
• Banque Heritage (Switzerland)
• Citibank (USA)
• HSBC (UK)
• Scotiabank (Canada)

Living in Uruguay

While standards of living are lower than in for example much of Europe and North America, life in Uruguay can nonetheless be very comfortable and convenient.

It has a culture very similar to Argentina and is generally very welcoming to foreigners.

Costs of living a relatively low, although going up in and around Montevideo. Infrastructure is generally good. There is a big difference between rural and metropolitan Uruguay. Compared to the region, mobile coverage and broadband need a lot of improvement to compete with for example Brazil, Argentina, and – especially – Panama and Costa Rica.

This is in no small part compensated for by Uruguay offering some of the most beautiful scenery on the planet, all with relative ease reachable from Montevideo.

While Spanish is the official language and one anyone aiming to settle down here should learn, it is possible to get by in Montevideo on English.

Citizenship

Citizenship can be obtained after between three years of residency for married couples or to five years of residency for singles or unmarried couples.

During these years, you are expected to spend significant time in Uruguay (at least six months a year; the more the better) and make a real effort to integrate, which is contrary to for example Panama where the definition of residency is much looser.

Taxation

Personal taxation in Uruguay is largely territorial although there are a number of exceptions to be aware of such as income from movable assets being taxable even in abroad.

It is generally pretty easy to pay very low taxes in Uruguay or even live tax-free, if you have passive, foreign incomes or earn your living from services rendered abroad.

After spending 183 days in Uruguay in a 360-day period, you become tax resident in Uruguay. With this, you can apply for total tax exemption for the first five years.

Final words

While it doesn’t quite compare to Panama and Costa Rica in terms of ease of forming and running a business, its free zones can be a very interesting alternative to the international entrepreneur.

Living and banking in Uruguay are of generally high quality, although both are best enjoyed with a large helping of Spanish language skills.

See also

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

What is AEOI?

In very simple terms: jurisdiction sign the Common Reporting Standard (CRS) which dictate what information is to be shared and the MCAA (Mutual Competent Authority Agreement) which sets out the authority or authorities that will be responsible for handling the information. Ultimately, this leads to AEOI.

Automatic Exchange of Information is an initiative led by OECD, whereby jurisdictions enter into agreements to automatically (i.e. not upon request as was the case with TIEAs) exchange information between each other about bank accounts held by people who are resident in any of the other signatories.

To make this at all possible, a common reporting standard has been set up which dictates how the information should be shared so that all parties can streamline the processing of all received information. Previously under TIEAs, information received could be in different formats and this led to a lot of time lost trying to decipher the information.

The MCAA determines which authority should collect, send, and be the recipient of information to be shared.

What about companies, trusts, and foundations?

Corporate ownership, trust deeds, and foundation charters are not in scope for AEOI, meaning that jurisdictions are not obligated to send other jurisdictions automatic information about corporate ownership.

Governments have realized that the shortest path between a tax evader and his or her money is the bank account. As such, company ownership is only shared by financial institutions.

This means that forming a company in an AEOI jurisdiction while banking in a non-AEOI jurisdiction would keep you out of scope for AEOI.

Trusts are specifically mentioned in the Common Reporting Standards. Under the CSR, trusts should be reportable to where they are resident which typically is the jurisdiction of the trustee (which in most cases is in a tax haven). However, there are provisions for reporting taxable income or income deemed taxable to the jurisdiction of residence of recipients of such income (which can include beneficiaries).

If you look at for example Seychelles IBC, Costa Rica SA, or Marshall Islands LLC, there are no provisions in the CSR that would compel the registered agent in the Seychelles, the law or accounting firm in Costa Rica, or the corporate registry of the Marshall Islands to report anything. Reporting duty falls on Reporting Financial Institutions, which does not include those types of service providers or authorities (Section VIII: Defined Terms).

A Reporting Financial Institution is an institution, which is not:
”
a)     a Governmental Entity, International Organisation or Central
Bank, other than with respect to a payment that is derived
from an obligation held in connection with a commercial
financial activity of a type engaged in by a Specified Insurance
Company, Custodial Institution, or Depository Institution;
b)     a Broad Participation Retirement Fund; a Narrow Participation
Retirement Fund; a Pension Fund of a Governmental Entity,
International Organisation or Central Bank; or a Qualified
Credit Card Issuer;
c)     any other Entity that presents a low risk of being used to
evade tax, has substantially similar characteristics to any of
the Entities described in subparagraphs B(1)(a) and (b), and
is defined in domestic law as a Non-Reporting Financial
Institution, provided that the status of such Entity as a
Non-Reporting Financial Institution does not frustrate the
purposes of the Common Reporting Standard;
d)     an Exempt Collective Investment Vehicle; or
e)     a trust to the extent that the trustee of the trust is a Reporting
Financial Institution and reports all information required
to be reported pursuant to Section I with respect to all
Reportable Accounts of the trust.
”

What and who gets reported?

Suppose you open or have a bank account in an AEOI jurisdiction. In general terms, this jurisdiction will automatically report information about the bank account to the jurisdiction in which the account holders are resident.

You may have read about a number of thresholds. There are several that have been tossed around: 50,000 USD, 250,000 USD, one million USD, or millions of USD.

You may also have read about schemes whereby an account holder would set up a paper-only residence in some tax haven.

The reality is that the thresholds are mostly in place to alleviate banks which are unable to gather data automatically and these limits will likely decrease and eventually go away. But for the time being, banks are given the option to under certain circumstances not report on accounts under the limit.

Which banks do not report low-balance accounts?

The kind of banks you probably don’t want to bank with anyway because they are unable to gather information about customers in a timely manner.

Look to Africa and the lesser developed parts of Asia and Latin America, where few foreigners bank anyway.

To whom is it reported?

The reported data is sent to the competent authority of the recipient jurisdiction.

The recipient jurisdiction should under normal circumstances be the jurisdiction of residence of the account holders.

However, in cases of doubt or simply over-compliance, banks may report to multiple jurisdiction. For example, if you show up with a Norwegian passport but a sketchy-looking residence in Panama, a diligent bank may determine that your residence is not reliable enough and report to both Panama and Norway.

Multi-jurisdictional reporting is not yet fully understood and the reality thereof remains to be seen, but blatant abuse of easy-going residency schemes and intra-EU relocation to dodge reporting are concerns banks struggle with and one solution is to report to all involved jurisdictions.

Why would a (secretive) jurisdiction sign up for CSR, MCAA, and AEOI?

For the time being, the repercussions are reputational. As I mentioned two weeks ago when I discussed FATF and OECD, OECD does not carry the same degree of influence as FATF.

However, reputation is becoming more and more important in financial services.

What about the US and FATCA?

FATCA is separate and the US has not signed up for AEOI, nor does it intend to. The US has decided that FATCA is good enough.

As mentioned in my article Offshore, USA, the US does usually not live up to its obligations under FATCA, which means that the US is in fact not up to OECD standards but the OECD lacks the influence to strong-arm the US into committing to AEOI.

So the US is more secretive than Switzerland, Singapore, and the Cayman Islands?

Yes, it certainly can be. Hiding money in the US has quickly become very attractive to non-resident non-citizens of the US. It is politically stable, wealthy, and has sophisticated financial services to offer.

What can I do to avoid or prevent AEOI?

There are complex schemes available, but what they all come down is one or both of the following:

1. Relocate to a tax haven.
2. Surrender ownership of the assets.
3. Use non-AEOI jurisdictions.

Relocate to a Tax Haven

This is easier said than done, since most tax havens have very tough immigration regulations.

EU citizens are quite fortunate in that there are numerous tax havens with free movement or relatively easy movement, such as Malta, Cyprus, Gibraltar, and Switzerland.

However, as noted above, with multi-jurisdictional reporting being conducted, relocating may not be enough. It does however alleviate the tax burden in most cases (notably not for US citizens).

Surrender Ownership of the Assets

If you don’t own the assets and you aren’t the UBO of the assets, then you are not in scope for reporting.

This commonly means settling the assets in a trust, establishing a foundation, or similar non-ownership arrangement. You might be able to maintain a degree of control, but not ownership.

This is not something done easily and on a whim. It can also cost a lot of money.

Non-AEOI Jurisdictions

You have by now probably read every pixel of the PDF linked above with the signatories and tried to figure out which jurisdictions aren’t on there, hoping to find one where you can open a bank account and stash your cash.

Before you jump on a flight to Lebanon or Azerbaijan, even though those jurisdictions might not have signed up right now, they may in the future. In a long-term perspective, it’s unlikely many jurisdictions worth talking about and looking into will remain outside of AEOI.

It might be many years – if not decades – before the AEOI initiative succeeds in line with OECD’s vision. The question is if you want to spend those years jumping from jurisdiction to jurisdiction, moving into ever more irreputable territory with each jump. Hours if not entire days per year will be spent setting up bank accounts and making sure only the barest minimum paper trail is left behind.

It’s your time and your dime, but it’s a cat and mouse chase that can end up being very tiring.

Conclusion

AEOI is here and it’s here to stay. It will continue to spread across the globe.

A tax haven that has fallen from its previous prime and glory, Grenada today is a husk of what it once was: a free-for-all for tax evaders and money launderers.

Grenada is a former French (1649 – 1763) and British (1763 – 1974) colony.

The young nation started its independence with a series of coups which in 1983 culminated in the US invading Grenada together with the Caribbean Peace Force (CPF), largely to prevent it from becoming another communist, USSR-puppet state like Cuba.

The CPF was a peacekeeping force from 1983 to 1985, formed by troops from several Caribbean nations and territories.

The invasion lasted from the 25th of October to the 15th of December 1983, whereafter most of the US troops left and the CPF stayed behind to ensure stability.

Since then, Grenada has enjoyed relative political stability and a relatively stable economy has been established. The economy consists of spice production, ecotourism, tourism, and services. St. George’s University is a growing educational institute in the Caribbean, which recently saw a 750 million USD investment from Asian and Canadian investors.

Geography and Demography

Map from Wikipedia.

Incorporation and Business

Reputation

Falling somewhere between moderately irreputable and unknown, Grenada is comparable to Dominica and Samoa, albeit with the bitter aftertaste that comes with being on the receiving end of a military invasion to restore stability. Many years have passed and Grenada today is far more reputable than it once was, although partly because its financial services sector has diminished.

In June 2015, Grenada was added to a list of 30 blacklisted tax haven by the EU.

Grenada had previously been blacklisted by the FATF for being uncooperative.

Nonetheless, OECD has concluded that Grenada is Largely Compliant with current international standards. Its main complaint is that although legislation is in place, enforcement is extremely lacking.

Grenada has almost completely vanished, having gone from almost 4,000 IBCs in 2002 to under 66 remaining in 2014 (although that was an increase of 4 IBCs from the 62 the previous year). It is not entirely unlikely that the upkeep of the offshore regime costs more to run than the revenue it generates and similar to for example Niue, Grenada might in the future shut down its international tax sector completely.

Regulator

They say you cannot judge a book by its covers, but I often find it fair to judge a jurisdiction’s financial services authority by its website.

GARFIN – the Grenada Authority for the Regulation of Financial Insitutions – is sporting a distinct early-2000s style design, coupled with broken links, “Under Construction” notices, and an absence of updates for years.

Interacting with Garfin is difficult. This is a grossly underfunded authority that’s supposed to look after an industry that brings in a significant portion of the country’s revenue.

General

It’s a rather cookie-cutter jurisdiction with an IBC act enacted in 1990s based on the old BVI model. Significant changes were made in 2002 in a hurried effort to reach post-9/11 standards, the most noticeable change being that bearer shares were no longer permitted.

Incorporation costs are relatively low, often costing less than most other jurisdictions. Costs vary greatly, with local law firms typically only charging 800 – 1,200 USD but more international firms charge a tremendous mark-up.

IBC

It’s the usual deal:

• Minimum one director. Can be corporate.
• Minimum one shareholder. Can be corporated.
• Usually 50,000 USD share capital of which 1 USD must be paid up.
• Registered office in Grenada required.

Time to incorporate is one or two business days from submission of all necessary documents.

Taxation

IBCs are tax exempt for 20 years from incorporation.

Record Keeping

Required but there are practically no controls in place.

Public Records

None for offshore companies.

Trust

A trust law exists but is not being used.

Banking

Grenadian banking is like most of the Caribbean: limited services, expensive for international clients, and typically more hassle than they are worth.

Grenada was for a while on a FATF blacklist but it was removed fairly quickly, after Grenada cleaned up its thitherto almost lawless banking sector.

Today, there are no banks in Grenada licensed under the offshore banking licenses that do exist (and some old-looking websites promise to still sell). The government is instead reassessing the situation. It will likely be scrapped.

Open a Bank Account in Grenada

While it is possible to open a bank account in Grenada, doing so offers no clear advantage over most other jurisdictions.

Grenadian IBCs (all 66 of them) usually don’t bank or bank elsewhere.

Banking Secrecy

The old ironclad banking secrecy that Grenada once had and its barely-regulated licensees used to refuse sharing information is long gone.

Today, it’s a relatively weak banking secrecy law.

Banks in Grenada

What used to be around 50 banks have now shrunk to five banks:

• First Caribbean International Bank
• Grenada Co-Operative Bank
• RBTT Republic Bank
• Republic Bank
• Scotiabank

Living in Grenada

Grenada is relatively well-off, stable, and well-developed. It has risen as a strong economy from the hardships following its independence. It is in tremendous debt but has performed generally well financially.

The economy is fairly diverse but extremely sensitive to the outside.

Life in Grenada can be very enjoyable, but most foreigners keep all but spending money in foreign currencies, and in foreign banks. Crime is relatively low.

The Maurice Bishop International Airport is quite well-connected to Europe, USA, Canada, and even other Caribbean islands.

Citizenship

Grenada operates a Citizenship by Investment programme.

Starting at 200,000 USD, the Grenada CBI programme offers a citizenship with visa-free travel to over 120 jurisdiction, including the Schengen area as of 2016, and a moderately good reputation.

The programme is still very young but promising.

Taxation

Grenada operates a semi-territorial taxation system for natural persons, where residents are only taxed on locally-sourced income.

There is no capital gains tax.

Final words

A former highly secretive tax haven with dozens of money laundering entities “regulated” offshore banks and thousands IBCs, it is now left with 66 IBCs and not a single offshore bank.

For citizenship and residence, it can be a jurisdiction worth comparing to for example Dominica, Saint Kitts and Nevis, and Antigua and Barbuda.

See also

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

This is going to be one of those articles that I start with a disclaimer about how irresponsible you would be to take my word as gospel. I talk about complex subjects on a high level, sweeping manner.  As always when discussing legal concepts across jurisdictions and even legal systems, oversimplifications will occur and can be misleading or confusing.

Territorial Taxation (TT) is one of the key components that have led to jurisdictions such as Hong Kong, Panama, and Costa Rica to flourish as tax havens.

The principle is simple: tax residents and tax non-residents are only taxed on locally-sourced income.

This is different from what is otherwise the norm: residents are taxed on their worldwide income and non-residents are taxed on locally-sourced income.

There is a third and far less common taxation system, which is remittance-based taxation. It is most famously applied in Malta and the UK, and will get its own article in the future.

Corporations

Incorporating in a territorial taxation jurisdiction as a non-resident creates an essentially tax free entity very easily, except it’s probably not actually tax free where you live.

Remember Tax Residence? That will trip things up for you. Even thought your Hong Kong company might not owe tax in Hong Kong, you are likely still liable for tax where the company is effectively controlled and managed (which can be multiple jurisdictions).

The advantages are most apparent to companies actually run from these jurisdictions, as foreign-sourced income can be earned with zero tax burden.

Natural Persons

As a natural person, the only way to make use of TT is by living in the jurisdiction.

How does territorial taxation actually work?

A lot can be said about territorial taxation. Below are some questions I see come up frequently.

How useful is it really?

This is the real question, isn’t it? What good can territorial taxation do for you?

First of all, when we get down to the nitty-gritty, variances between jurisdictions start to emerge.

Second, it really is only useful if you are present in the jurisdiction. In order to take advantage of territorial taxation, an entity needs to be tax resident in that jurisdiction (and only that jurisdiction).

What about pass-through entities?

How are for example LLCs and other pass-through entities treated under TT?

As a non-taxable or disregarded entity, it is simply not at all in scope for corporate taxation, whether it’s a territorial, remittance, or worldwide taxation system.

The income is instead in scope for personal taxation.

Can you move to Costa Rica and run a business there without paying corporate tax as long as you don’t trade with locals?

In most cases, yes.

Can you do the same in Hong Kong?

Well, it’s not so clear cut. There is a lot more nuance in Hong Kong.

Can I incorporate in Panama and not pay tax where I live?

Not unless you live in another tax haven, and oftentimes not even then.

See above regarding Tax Residence.

Can you move to a TT jurisdiction and and live tax free?

Depends on how you earn your money.

If it’s doing freelance or remote work for a foreign business, different regulations will apply across different jurisdictions. Some will consider it as income generated locally and thereby taxable, whereas others will not consider it in scope.

You’re not helping! How can I know for sure?

Go find yourself a tax adviser.

Friends don’t give friends tax advice.

TT Jurisdictions

Lists out there vary. Below is a fairly conservative gathering of jurisdictions with territorial taxation systems (for corporations, natural persons, or both).

• Algeria
• Angola
• Botswana
• Costa Rica
• Cuba
• Democratic Republic of the Congo
• Djibouti
• Dominican Republic
• El Salvador
• Georgia
• Guatemala
• Hong Kong
• Lebanon
• Libya
• Macau
• Malawi
• Malaysia
• Marshall Islands
• Mauritania
• Morocco
• Namibia
• Nicaragua
• Panama
• Paraguay
• Seychelles
• Uruguay
• Zambia

Some will argue whether for example Singapore fits the bill. It often would but I’m trying to take a very cautious approach to this list. There are special circumstances, which I will save for another day, under which even Denmark and France would qualify.

Guatemala has most of everything one has come to expect from a Spanish-speaking tax haven in South America: territorial taxation, low taxation, secretive banking, and a very comfortable lifestyle. Guatemala has however suffered a problematic past which has left the country lagging behind its peer in many regards.

If you can suffer working with underdeveloped banks and somehow make it out successfully on the end of the long tunnel that is international bank account opening in Guatemala, this is one of those few jurisdictions where you can hide money and there’s no sign of any realistic improvement any time soon.

Corrupt, war-torn, and poor – Guatemala has quite a bit in common with for example Liberia. Life in Guatemala is however generally safer and more peaceful. Once you pick up Spanish, it’s easy to get settled in and comfortable in Guatemala as a foreigner. Most, however, opt for Panama or Costa Rica (or even Uruguay) instead.

Geography and Demography

Map from Wikipedia.

Incorporation and Business

Reputation

Guatemala is not generally regarded as a tax haven, let a lone a problematic one. It does not come with anywhere near the stigma of Panama or Costa Rica when it comes to tax evasion.

However, to many, Guatemala is still synonymous with war, sociopolitical instability, and more or less rampant corruption coupled with crime and money laundering. This reputation is in parts well deserved and in parts an unfair remnant of a troubled past.

General

Incorporation in Guatemala can take a long time.

While time to incorporate is in theory just a couple of days,it usually ends up taking several weeks to complete. Incorporation cost is usually very high compared to Panama and even Uruguay. The high costs are largely due to complexity in paperwork and lack of competition.

Sociedad de Responsibilitad Limtada (SRL)

To form an SRL company in Guatemala, the following requirements must be met:

• Minimum one director. Can be corporate.
• Minimum two shareholders. Can be corporate.
• No residency requirements on directors and shareholders.
• A local legal representative must be appointed.
• Minimum 2,000 GTQ paid-up share capital.
• Registered office in Guatemala.

Sociedad Anonima (SA)

There is an SA legislation available and frequently used. Requirements are very similar to SRL:

• Minimum one director. Can be corporate.
• Minimum two shareholders. Can be corporate.
• No residency requirements on directors and shareholders.
• A local legal representative must be appointed.
• Minimum 5,000 GTQ paid-up share capital.
• Registered office in Guatemala.

The shareholders of an SA are not subject to public disclosre.

Taxation

Territorial taxation, whereby only locally-sourced income is taxable.

The tax rate on locally-sourced income is 25%.

Record Keeping

In line with international standards but because it has to be done in Spanish, most people outsource the whole procedure.

Public Records

Names of directors and shareholders (except for SAs) are subject to public disclosure in the Registro Mercantil.

Banking

Banking with local banks in Guatemala is generally underdeveloped and does not compare favourably with Panama in terms of service sophistication and quality, whereas larger international banks ride on the rails set up by their international infrastructure.

Foreigners and non-residents typically bank with Banco Internacional, Banco Industrial, Banco Azteca, and Citibank Guatemala.

Banking Secrecy

The Guatemalan professional and banking secrecy laws come together to form a banking secrecy that is currently impenetrable without account holder’s consent.

Guatemala is not able to honour requests for information and has not signed up for AEOI. Foreign court orders are rejected, even when there is suspicion of severe crimes.

While there is some pressure on Guatemala to improve on this, the authorities have hitherto not shown any signs of taking this pressure seriously. The Guatemalan authorities are able to penetrate banking secrecy for local tax matters, and that’s well enough for them.

Guatemala does not have any significant amount of foreign wealth, hence the pressure not being particularly strong. The jurisdiction does however struggle with being on various grey and black lists due to its banking secrecy and non-cooperation.

Open a Bank Account in Guatemala

“Great, so how do I open a bank account in Guatemala?”

It is a mixed bag and it’s all about connections.

Call up a bank in Guatemala and don’t expect the conversation to go very far. It’s not that they don’t want you as a client. It’s just that the person picking up the phone very often has no idea how to handle non-residents and terminate the call.

Opening a bank account in Guatemala as a non-resident foreigner (and sometimes even as a resident foreigners) is practically synonymous with using an intermediary.

With an intermediary, though, practically anything is possible. The account opening procedure is about as painful as in the rest of this region, spearheaded by the compliance officers at Panama. If you’re opening a company and bank account in Guatemala, try to start the account opening procedure as early as possible because you might end up waiting two to four months from day one to having company and bank account set up.

Minimum deposits are usually low and banking fees are for the most part reasonable, but international wire transfers are expensive.

International banks present in Guatemala often allow remote account opening for pre-existing clients.

Banks in Guatemala

Banks are supervised by the Superintenda de Bancos de Guatemala while the economy as a whole is supervised by the Banco de Guatemala.

There are 17 banks licensed in Guatemala:

• Banco Agromercantil de Guatemala
• Banco Azteca de Guatemala
• Banco Citibank de Guatemala
• Banco de América Central
• Banco de Antigua
• Banco de Crédito
• Banco de Desarrollo Rural
• Banco de los Trabajadores
• Banco Ficohsa Guatemala
• Banco G&T Continental
• Banco Industrial
• Banco Inmobiliario
• Banco Internacional
• Banco Promerica
• Citibank, N.A., Sucursal Guatemala (branch office)
• El Crédito Hipotecario Nacional de Guatemala
• Vivibanco

Living in Guatemala

Some see it as a country seething with opportunities. Some see it as a scarier version of Costa Rica.

It’s not as well-developed as Panama or Uruguay nor is it as accessible as Costa Rica, but Guatemala can still be very charming and comfortable to live in.

You’ll definitely need to pick up Spanish — and quickly. This is a country where English will not get you very far outside of the main tourist areas.

Citizenship

Citizenship is something foreigners settling in Guatemala rarely go for. The republic is not a big fan of dual citizenship, although it’s technically allowed under some circumstances.

Obtaining citizenship requires a minimum of five years of uninterrupted residence.

Taxation

The territorial taxation system can become very attractive to those with foreign-sourced income as it can very often be enjoyed free of tax in Guatemala.

Taxation in Guatemala is generally low. Personal income is taxed at a mere 5% to 7%. Capital gains are subject to a tax rate of 10%.

Final words

Guatemala is a very interesting jurisdiction and one that often is forgotten about – more so than even Uruguay.

The republic can offer tax free companies formed under territorial taxation, and with an impenetrable banking secrecy to boot.

The downside is that the country is still recovering from war. While most of the wounds have healed, the country still has many challenges to overcome.

For the adventurous, Guatemala has some very impressive rainforest to explore.

See also

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

Click here to see other posts in the Jurisdiction Spotlight series.

At this point, you might have heard about the Philippines as an unusual but not necessarily offshore banking jurisdiction.

I have contemplated doing a Jurisdiction Spotlight about the Philippines and while there may be enough to say about incorporation and residence in the Philippines, I thought banking deserves its own article to begin with, especially since it’s such a large topic to go through. At some point in the future, I may return to this jurisdiction and explore its other aspects.

History

This is important because it sets the scene for the famous banking laws.

Although possibly inhabited as early as 65,000 BC, the Philippines enters recorded history around the 8th century with the arrival of Chinese explorers. Regional trade grew quickly and by the 14th century, the first Arabs started reached the Philippines

In 1521, Magellan arrived to the Philippines. Spanish conquistadors shortly thereafter claimed the islands as their own and became a part of Vicerolyalty of New Spain (Virreynato de Nueva España), which today is Mexico and large amounts of surrounding areas in the US and Central America.

In the late 1800s, disdain for its Spanish rulers grew among the Philippine population and in 1896, a revolution broke out. This joined by the Spanish-American war of 1898 and then the American-Philippine war of 1899-1902 (although fighting continued for another decade) led to the the Philippines’ independence from Spain and move towards extremely close ties with the US.

The Philippines became a part of the US Commonwealth until the end of the second world war when the Philippines gained full independence. After three centuries of Spanish rule followed by half a century of various forms of unrest or semi-subservience, what followed was the Third Republic of the Philippines.

The regime of the third republic struggled to keep the internally conflicted islands nation calm. Corruption and bribery ran rampant. The government passed a very convenient law: Republic Act No. 1405, “An Act Prohibiting Disclosure of or Inquiry Into Deposits, with any Banking Institution, and Providing Penalty Therefor”.

In a largely unbanked country, this law provided exceptional secrecy to the corrupt politicians.

In 1965, the Philippines voted for Ferdinand Marcos as their new president and a military dictatorship was born.

The context for the Philippine banking system starts with this era. Ferdinand Marcos had just been elected president of the Philippines. He took immediate rapid actions against corruption, bribery, and embezzlement.

Toward the end of his term, Marcos enacted martial law to remain in power. His regime became brutal and human rights and freedom of speech were severely hampered.

In 1983, Marcos had his opposition assassinated which triggered tremendous civil unrest, ultimately leading to an election in 1986 which Marcos won. The election was seen as fraudulent and the dictator and his allies fled to Hawaii.

Since 1986, the Philippines has been a moderately stable country. It struggles with severe weather, extreme poverty in some areas, enormous inequality and income gap, and an Islamic guerilla called Moro Islamic Liberation Front in Mindanao in the south.

The population is still largely unbanked and wast amount of Filipinos leave the country to work elsewhere. To send money back home, they mostly do not use banking since their friends and family back home often do not have bank accounts or simply don’t trust the banks. Money remittance services account for the vast majority of transfers coming into the Philippines.

Republic Act No. 1405

An Act Prohibiting Disclosure of or Inquiry Into Deposits, with any Banking Institution, and Providing Penalty Therefor.

The act reads:

REPUBLIC ACT No. 1405

AN ACT PROHIBITING DISCLOSURE OF OR INQUIRY INTO, DEPOSITS WITH ANY BANKING INSTITUTION AND PROVIDING PENALTY THEREFOR.

Section 1. It is hereby declared to be the policy of the Government to give encouragement to the people to deposit their money in banking institutions and to discourage private hoarding so that the same may be properly utilized by banks in authorized loans to assist in the economic development of the country.

Section 2. ¹ All deposits of whatever nature with banks or banking institutions in the Philippines including investments in bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities, are hereby considered as of an absolutely confidential nature and may not be examined, inquired or looked into by any person, government official, bureau or office, except upon written permission of the depositor, or in cases of impeachment, or upon order of a competent court in cases of bribery or dereliction of duty of public officials, or in cases where the money deposited or invested is the subject matter of the litigation.

Section 3. It shall be unlawful for any official or employee of a banking institution to disclose to any person other than those mentioned in Section two hereof any information concerning said deposits.

Section 4. All Acts or parts of Acts, Special Charters, Executive Orders, Rules and Regulations which are inconsistent with the provisions of this Act are hereby repealed.

Section 5. Any violation of this law will subject offender upon conviction, to an imprisonment of not more than five years or a fine of not more than twenty thousand pesos or both, in the discretion of the court.

Section 6. This Act shall take effect upon its approval.

Approved: September 9, 1955

Implications

I’m not a substitute for a Philippine lawyer but in essence, what it comes down to is this.

Section 1 lays out the (stated/alleged) purpose of the law, which is to encourage the Philippine population to bank more.

Section 2 assures secrecy for anyone except for cases of impeachment or by court order for cases of bribery, embezzlement, or local law litigation. (Money laundering has since been added to this list as an exception, but the application of this exception has been spotty at best.)

Section 3 prohibits unauthorised disclosure.

Section 4 is interesting in that this law takes priority over practically every other law.

Section 5 stipulates the penalties for violating the law: up to five years in prison or a fine of 25,000 PHP.

Republic Act No. 6426

This law is also very important for this context. It was created by the Marcos regime to ensure (to this day) absolute secrecy of their foreign-currency deposits.

It reads:

Section 1. Title.– This act shall be known as the “Foreign Currency Deposit Act of the Philippines.”

Section 2. Authority to deposit foreign currencies. – Any person, natural or juridical, may, in accordance with the provisions of this Act, deposit with such Philippine banks in good standing, as may, upon application, be designated by the Central Bank for the purpose, foreign currencies which are acceptable as part of the international reserve, except those which are required by the Central Bank to be surrendered in accordance with the provisions of Republic Act Numbered two hundred sixty-five (Now Rep. Act No. 7653).

Section 3. Authority of banks to accept foreign currency deposits. – The banks designated by the Central Bank under Section two hereof shall have the authority:

 

(1) To accept deposits and to accept foreign currencies in trust Provided, That numbered accounts for recording and servicing of said deposits shall be allowed;

(2) To issue certificates to evidence such deposits;

(3) To discount said certificates;

(4) To accept said deposits as collateral for loans subject to such rules and regulations as may be promulgated by the Central Bank from time to time; and

(5) To pay interest in foreign currency on such deposits.

 

Section 4. Foreign currency cover requirements. – Except as the Monetary Board may otherwise prescribe or allow, the depository banks shall maintain at all times a one hundred percent foreign currency cover for their liabilities, of which cover at least fifteen percent shall be in the form of foreign currency deposit with the Central Bank, and the balance in the form of foreign currency loans or securities, which loans or securities shall be of short term maturities and readily marketable. Such foreign currency loans may include loans to domestic enterprises which are export-oriented or registered with the Board of Investments, subject to the limitations to be prescribed by the Monetary Board on such loans. Except as the Monetary Board may otherwise prescribe or allow, the foreign currency cover shall be in the same currency as that of the corresponding foreign currency deposit liability. The Central Bank may pay interest on the foreign currency deposit, and if requested shall exchange the foreign currency notes and coins into foreign currency instruments drawn on its depository banks. (As amended by PD No. 1453, June 11, 1978.)

Depository banks which, on account of networth, resources, past performance, or other pertinent criteria, have been qualified by the Monetary Board to function under an expanded foreign currency deposit system, shall be exempt from the requirements in the preceding paragraph of maintaining fifteen percent (15%) of the cover in the form of foreign currency deposit with the Central Bank. Subject to prior Central Bank approval when required by Central Bank regulations, said depository banks may extend foreign currency loans to any domestic enterprise, without the limitations prescribed in the preceding paragraph regarding maturity and marketability, and such loans shall be eligible for purposes of the 100% foreign currency cover prescribed in the preceding paragraph. (As added by PD No. 1035.)

Section 5. Withdrawability and transferability of deposits. – There shall be no restriction on the withdrawal by the depositor of his deposit or on the transferability of the same abroad except those arising from the contract between the depositor and the bank.

Section 6. Tax exemption. – All foreign currency deposits made under this Act, as amended by PD No. 1035, as well as foreign currency deposits authorized under PD No. 1034, including interest and all other income or earnings of such deposits, are hereby exempted from any and all taxes whatsoever irrespective of whether or not these deposits are made by residents or nonresidents so long as the deposits are eligible or allowed under aforementioned laws and, in the case of nonresidents, irrespective of whether or not they are engaged in trade or business in the Philippines. (As amended by PD No. 1246, prom. Nov. 21, 1977.)

Section 7. Rules and regulations. – The Monetary Board of the Central Bank shall promulgate such rules and regulations as may be necessary to carry out the provisions of this Act which shall take effect after the publications in the Official Gazette and in a newspaper of national circulation for at least once a week for three consecutive weeks. In case the Central Bank promulgates new rules and regulations decreasing the rights of depositors, rules and regulations at the time the deposit was made shall govern.

Section 8. Secrecy of foreign currency deposits. – All foreign currency deposits authorized under this Act, as amended by PD No. 1035, as well as foreign currency deposits authorized under PD No. 1034, are hereby declared as and considered of an absolutely confidential nature and, except upon the written permission of the depositor, in no instance shall foreign currency deposits be examined, inquired or looked into by any person, government official, bureau or office whether judicial or administrative or legislative, or any other entity whether public or private; Provided, however, That said foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever. (As amended by PD No. 1035, and further amended by PD No. 1246, prom. Nov. 21, 1977.)

Section 9. Deposit insurance coverage. – The deposits under this Act shall be insured under the provisions of Republic Act No. 3591, as amended (Philippine Deposit Insurance Corporation), as well as its implementing rules and regulations: Provided, That insurance payment shall be in the same currency in which the insured deposits are denominated.

Section 10. Penal provisions. – Any willful violation of this Act or any regulation duly promulgated by the Monetary Board pursuant hereto shall subject the offender upon conviction to an imprisonment of not less than one year nor more than five years or a fine of not less than five thousand pesos nor more than twenty-five thousand pesos, or both such fine and imprisonment at the discretion of the court.

Section 11. Separability clause. – The provisions of this Act are hereby declared to be separable and in the event one or more of such provisions are held unconstitutional, the validity of other provisions shall not be affected thereby.

Section 12. Repealing clause. – All acts, executive orders, rules and regulations, or parts thereof, which are inconsistent with any provisions of this Act are hereby repealed, amended or modified accordingly, without prejudice, however, to deposits made thereunder.

Section 12-A. Amendatory enactments and regulations. – In the event a new enactment or regulation is issued decreasing the rights hereunder granted, such new enactment or regulation shall not apply to foreign currency deposits already made or existing at the time of issuance of such new enactment or regulation, but such new enactment or regulation shall apply only to foreign currency deposits made after its issuance. (As added by PD No. 1246, prom. Nov. 21, 1977.)

Section 13. Effectivity. – This Act shall take effect upon its approval.

Approved, April 4, 1974

Implications

This law coupled with Republic Act of 1405 create an essentially impenetrable banking secrecy for foreign currency deposits held in the Philippines.

Foreign currency deposits are practically out of jurisdiction of local courts, unless the Anti-Money Laundering Council steps.

AML and Compliance

The Philippines have an anti-money laundering (AML) legislation with tremendous gaps, one being that it does not cover the nation’s casinos.

This oversight combined with the ironclad banking secrecy and generally lax paperwork for opening a bank account, the Philippines have been criticized for its nonchalance to financial crimes.

There’s a very good reason why the recent attempted and partly successful heist of foreign currency against the Bangladesh Central Bank used destination accounts in the Philippines. Once in the Philippines, the money would be very, very difficult to trace, let alone freeze or identify the owners of.

Although for a case of this particular magnitude, international and political prestige may take over and force the government to use one of few merchanisms in place to place to pierce the banking secrecy.

FATF has issued criticism against the Philippines, as has the OECD which has given the Philippines a rating of  Largely Compliant for being overly secretive for corporations but nonetheless voiced some concern surrounding banking. However, OECD notes that the Philippines were able to respond to all 12 EOIs it received during a three-year period.

On November 28, 2010, the organization WikiLeaks published diplomatic cables (private and secret diplomatic messages) to and from US embassies and consulates. In some of these cables, the Philippine banking secrecy is criticized for hindering investigations into, amongst others, corrupt politicians.

Nonetheless, the Philippines is not a top priority on anyone’s financial crimes to-do list at the moment. While large-scale money laundering likely takes place, investigating is practically pointless. The aforementioned 81 million dollar theft has again ignited discussions in the Philippines about weakening the banking secrecy and strengthening the anti-money laundering law.

What actually comes from it remains to be seen.

Opening a Bank Account in The Philippines

So you want to open a bank account in the Philippines to stash your stolen and/or untaxed money life savings and Ebay income?

First of all – set all your usual expectations aside. This is a very different experience.

It can be very difficult to open a bank account in The Philippines.

The paperwork part isn’t all that hard. Most are happy with just a passport to open a personal account and basic corporate documents for foreign companies. Asian companies are preferred because of familiarity, with British overseas territories also being tolerated.

Minimum deposit usually stands at a few hundred thousand to a million PHP equivalent, where as of writing 1 million PHP is about 1,900 EUR, 2,150 USD, or 1,500 GBP. Not exactly an insurmountable sum of money.

What’s difficult is establishing a personal relationship and repertoire with a bank for them to trust you. Not a lot of foreigners come to the Philippines to bank. Remember, over 15% of Filipinos don’t bank in the Philippines. Foreigners banking here is a bit of an oddity.

The best way to successfully to about applying for a bank account in The Philippines is to reach out to as many banks as possible prior to going to the Philippines (this isn’t going to happen remotely) and exchange a couple of emails or phone calls.

Banks in the Philippines

Few jurisdictions have as many banks and bank-like financial institutions as the Philippines. The Bangko Sentral ng Pilipinas (BSP) lists hundreds of institutes. Most of them are so-called thrift banks, cooperative banks, or rural banks. These banks often have very little (if any) online presence and serve mostly local and rural clients. Their licenses are very limited.
The main banks are instead called universal and commercial banks. A commercial bank is what most readers will expect a bank to be and be able to do, whereas a universal bank can offer all the same services and engage in some more strictly regulated investments.There is also an OBU (Offshore Banking Unit), which is subject to on the one hand more lenient regulations to establish themselves but far more stringent rules on how and with whom they can trade. There are three banks in this category. They most likely are not relevant for this context but are listed below anyway.

Below is a list of all the universal and commercial in the Philippines. All in all, there are 41 including branches of foreign banks (plus the three OBU banks). Ones marked in bold are banks which based on experience or reliable second-hand information have opened accounts for visiting non-resident foreigners.

Universal Banks

• Al-Amanah Islamic Investment Bank of the Philippines
• ANZ Banking Group Ltd.
• Asia United Bank Corporation
• Bank of the Philippine Islands
• BDO Unibank, Inc.
• China Banking Corporation
• Deutsche Bank AG
• Development Bank of the Philippines
• East West Banking Corporation
• ING Bank N.V.
• Land Bank of the Philippines
• Metropolitan Bank & Trust Company
• Mizuho Bank, Ltd. – Manila Branch
• Philippine National Bank
• Philippine Trust Company
• Rizal Commercial Banking Corporation
• Security Bank Corporation
• Standard Chartered Bank
• The Hongkong & Shanghai Banking Corporation (HSBC)
• Union Bank of the Philippines
• United Coconut Planters Bank

Commercial Banks

• Bangkok Bank Public Co. Ltd.
• Bank of America, N.A.
• Bank of China Limited-Manila Branch
• Bank of Commerce
• BDO Private Bank, Inc.
• Cathay United Bank Co., LTD. – Manila Branch
• Citibank, N.A.
• CTBC Bank (Philippines) Corporation
• Industrial Bank of Korea Manila Branch
• JP Morgan Chase Bank, N.A.
• Korea Exchange Bank
• Maybank Philippines, Inc.
• Mega International Commercial Bank Co., Ltd.
• Philippine Bank of Communications
• Shinhan Bank – Manila Branch
• Sumitomo Mitsui Banking Corporation-Manila Branch
• Philippine Veterans Bank
• Robinsons Bank Corporation
• The Bank of Tokyo-Mitsubishi UFJ, Ltd.
• United Overseas Bank Limited, Manila Branch

Offshore Unit Banks

• BNP Paribas
• J.P. Morgan International Finance, Limited
• Taiwan Cooperative Bank

Banking Services

With a population that only recently has started to embrace banking fully, banking services are lagging behind more banking-centric nations.

Those seeking to invest in the Philippines may very likely find it is easier to do through a bank or broker elsewhere.

However, the people who are moving away towards banks are expecting services in line with what money remittance companies such as Transfast, Xoom, and Remitly, and others are offering in terms of mobile apps. A tremendous amount of Filipinos work abroad and send money back using these services, with the recipient either picking the money up in cash or having it deposited into their bank account.

USD and even EUR accounts can be opened with many banks and some – such as BDO – are offering cards denominated in USD.

Conclusion

One of the financial criminal’s finest choices today, the Philippines offers an outdated and outmoded banking secrecy law that – from time to time – gets put into question but not much is done about it other than the bare minimum to be in line with global compliance standards, at least on paper.

Opening a bank account can be challenging and time consuming, especially considering that a visit is required in 99.99% of all cases. The banking services are not up to par with banks in jurisdictions with more well-developed banking sectors, i.e. Hong Kong, Singapore, and most of Europe.

Tucked away up in the Apennine Mountains of Italy, which fully surrounds the tiny nation, San Marino is the longest surviving sovereign state and republic, tracing its origins to the 3rd of September in the year 301 when it gained independence from the Roman Empire.

Since then, not much has happened in San Marino. Nations have come and nations fallen, but San Marino has remained – independent and peaceful.

The republic was briefly threatened by Napoleon but after a senior official of San Marino made friends with Napoleon, the country was left alone and at one point Napoleon allegedly offered to expand San Marino’s territory; an offer which the Sammarinese declined, stating that they are content with their mediocrity and fear that adding more territory could threaten the republic’s sovereignty in the future.

For a long time, San Marino was wealthy Italians’ own little tax haven, to a degree similar to how Cayman Islands were for the US. Vast amounts of untaxed money (not rarely originating from illicit activities) were deposited in Sammarinese banks and there was nothing Italy could do about it. Until about 10 years ago, when the climate in the international financial services were rapidly changing.

After a series of incidents, black lists, and regulatory changes, San Marino is currently a tax haven in desperate transformation. No longer able to sustain on just Italian deposits, the Sammarinese bankers and fiduciaries are taking English-classes and looking across the globe to try to compete with the likes of Andorra and Monaco.

San Marino is not a member of the EU or EEA, which can complicate running a business.

The jurisdiction has committed to CSR AEOI by 2017.

Geography and Demography

Incorporation and Business

Reputation

San Marino has no history of any significant amount of foreign-controlled companies, especially trading. Those who can place San Marino on a map usually know it’s a tax haven and if they are Italian or familiar with Italian affairs, they might have a negative associations with it.

Otherwise, it has a mostly clean reputation for doing business.

Regulator

No specific regulator. Companies are answerable to the courts.

General

In the unlikely case that you do want to form a company in San Marino, finding someone to do it for you can be very difficult. KPMG is the only Big Four with a significant establishment in this ancient republic. And KPMG charges Big Four prices.

Smaller law firms or accountants may be a cheaper option but you might be surprised by how limited their English is.

A handful of incorporation mills offer San Marino, often at outrageous cost and extremely misleading information as a result of rampant copy-paste and complete disregard for accuracy.

Incorporation usually takes two to three months.

All incorporation documents are in Italian.

Companies owned and managed entirely by non-residents must submit background checks proving no criminal wrongdoings.

SRL (Società a Responsabilità Limitata)

This is the most popular company type in San Marino. It is comparable to GmbH under German law, SRL under Spanish law, and – to a lesser extent – the LLC.

• Minimum 25,500 EUR share capital of which 12,500 EUR must be paid up.
• Minimum one director. Cannot be corporate.
• Minimum one shareholder. Can be corporate.
• Can be single-member.
• No residency requirements.
• Audits are optional unless share capital exceeds 77,000 EUR or revenue exceeds 2 million EUR.
• Ownership divided by quotas (must be registered).
• Must have registered office in San Marino.

SpA (Società per Azioni)

A lot less popular than the SRL. Akin to AG under German law, SA under Spanish law, and share companies/corporations under English and American law.

• Minimum 77,000 EUR share capital, of which 50% must be paid up (usually 100% is paid up).
• Minimum one director. Cannot be corporate.
• Minimum one shareholder. Can be corporate.
• Cannot be single-member.
• No residency requirements.
• Audits are mandatory.
• Ownership divided by shares (must be registered, i.e. no bearer shares).
• Must have registered office in San Marino.

Taxation

Companies are taxed at 17% on their worldwide income, although there are numerous deductions and incentives available to reduce this tax rate significantly (to well under 10%).

Additionally, there is a 1,000 EUR per year minimum trading license fee for trading businesses.

Record Keeping

Required and returns must be filed.

Public Records

Members and company details appear on public records.

Trust

There are a number of laws which dictate how trusts function in San Marino, with the most important piece being the International Trust Law of 2012.

The law is almost entirely based on the English model and Hague convention, and is an attempt by San Marino to draw in new clients with a new product. It has so far seen moderate success.

It is not a very strong trust law. Forced heirship is possible under certain circumstances.

Banking

Banking is the strongest pillar of San Marino’s international financial service sector. It has suffered tremendously from the withdrawal of (sketchy) Italian wealth and the banks are scurrying to rebrand themselves as international and English-speaking-friendly.

Banking is of generally pretty high quality, if you are OK with Italian and/or broken English.

It can be hard to open accounts other than EUR sometimes and card products are often unimpressive.

From speaking to Sammarinese banks, though, they all seem to have plans to modernize and improve their services in the coming years. This is similar to what Andorran banks started doing a few years ago and of which we are starting to see the result today.

Open a Bank Account in San Marino

It’s difficult but can often be done remotely, sometimes directly but usually via an intermediary of some kind.

The compliance and paperwork is not significantly different from elsewhere, falling within European standards.

It used to be that banks insisted on Italian translations of all documents but requirement is often waived nowadays.

Banking Secrecy

The Sammarinese banking secrecy was once on par with Switzerland, Liechtenstein, and even Lebanon. Following a couple of embarrassments and criticism by Italy, EU, and OECD, it has since been eroded to the point of being strict but in line with international standards, including the CSR AEOI.

Banks in San Marino

Banks in San Marino are under supervision of the Banco Centrale della San Marino (BCSM). It is a perhaps surprisingly well-functioning and modern institution.

There are seven banks in San Marino:

• Asset Banca (AB)
• Banca Agricola Commerciale (BAC)
• Banca CIS – Credito Industriale Sammarinese
• Banca di San Marino (BSM)
• Banca Impresa di San Marino (part of BSM)
• Banca Sammarinese di Investimento (BSI)
• Cassa di Risparmio della Repubblica di San Marino (Carisp)

Living in San Marino

If you ever wanted to live up in the mountains surrounded by stunning Italian scenery without the tax and bureaucratic nightmare of Italy, San Marino might be just what you want — although you might want to consider the south of Switzerland or even Campione d’Italia (more on that another day).

Costs of living are generally quite low.

Residency

It used to be a lot easier to set up a company in San Marino and move settle down there. However, after being strong-armed into signing a tax deal with the EU, this is no longer as popular as it was before.

It’s still possible and can turn out to render significant tax savings, but it’s debatable if it’s any better than other European tax havens or low-tax jurisdictions.

Citizenship

A huge hassle that’s not worth it.

Requires 30 years of residency and renunciation of other citizenships prior to application (statelessness).

Taxation

San Marino is not a zero-tax jurisdiction.

There are in fact a lot of different taxes in San Marino, although many of them are low and rendering an overall tax pressure that is comparable to the rest of western Europe.

Regular income tax can reach brackets of 50% (income over 230,000 EUR), whereas dividends, royalties, and capital gains incomes can be enjoyed at a much lower tax rate in many cases.

An income of 100,000 EUR would render an effective income tax in the vicinity of 30%.

Final words

A tax haven fallen from (dis-)grace. Superficially attractive for certain for business, San Marino’s most attractive aspect is its banking system and a relatively attractive tax climate for natural persons.

Not much else to say about this tiny, ancient, proud, and most serene republic.

See also

• OECD Peer Review (also has a list of TIEA and DTA)
• Moneyval
• Financial Secrecy Index

This is a companion article to my recent article on Automatic Exchange of Information (AEOI). It spurred from a discussions over at the forum about Real Jurisdiction secrecy and AEOI (among other threads on the subject).

With banking secrecy being eroded over the last decades and corporate secrecy penetrated by TIEAs, what is the reality of secrecy today?

In this article, I will explore the actual and cultural aspects of secrecy. Let’s start by looking at banking, trusts, and corporations.

Banking Secrecy

As I mentioned in my article about AEOI and the Common Reporting Standard, authorities have come to the conclusion that the shortest path between a tax evader and his or her money is the bank account – not the unwinding of convoluted corporate structures.

What started with the US FATCA requiring banks to disclose accounts held by US persons, this has turned into a global phenomenon. This has had a tremendous impact on banking secrecy.

In that article, I try to explain that banking secrecy is more than just hiding assets from the police. Claiming that banking secrecy is dead is sensationalist and fundamentally wrong.

Banking secrecy is the guarantee that your coworkers, friends, family, or journalists cannot just call up a bank and ask how much money you have there. Financial matters are a private affair.

Some jurisdictions – notably Switzerland, Lebanon, and the Philippines – took the privacy of banking and turned it into confidentiality even from the government. Each jurisdiction is unique and has its own history, and I will return to culture later on.

For decades, these high-secrecy jurisdictions operated mostly undisturbed but as financial crimes such as fraud, embezzlement, bribery, and money laundering, become a higher and higher priority (with 9/11 being a major catalyst), erosion of banking secrecy as a means to hide money from law enforcement and governments has eroded and in most jurisdictions vanished (at least in the presence of a exchange of information agreement).

Now, most of the world’s money laundering very likely takes place in jurisdictions like US, UK, and Germany, but that doesn’t stop those very jurisdictions from harassing other jurisdictions, whose secrecy does pose a problem in fighting global money laundering.

To achieve banking secrecy strong enough to ensure confidentiality from governments, you would today need to find a jurisdiction out of scope for AEOI, TIEA, and other information-sharing mechanisms.

Arguably, a TIEA only would be tolerable since information is not divulged automatically and since so-called fishing expeditions aren’t allowed, information is only disclosed when for example your local tax authority knows that you have a bank account in that jurisdiction.

But what if you surrender ownership of funds into a trust?

Trusts

Well, the OECD has you covered there, to a degree. There are provisions in the AEOI CRS for disclosure of persons involved in trusts under certain conditions. The OECD is treating trusts like entities, which they technically are not but for reporting purposes can possibly be seen as such.

Here are some relevant excerpts from the Common Reporting Standard.

The term “Controlling Persons” means the natural persons
who exercise control over an Entity. In the case of a trust, such
term means the settlor(s), the trustee(s), the protector(s) (if
any), the beneficiary(ies) or class(es) of beneficiaries, and any
other natural person(s) exercising ultimate effective control
over the trust, and in the case of a legal arrangement other
than a trust, such term means persons in equivalent or similar
positions. The term “Controlling Persons” must be interpreted
in a manner consistent with the Financial Action Task Force
Recommendations

— Section VIII “Defined Terms”, paragraph D-6.

And:

2. The information to be exchanged is, in the case of [Jurisdiction A]
with respect to each [Jurisdiction B] Reportable Account, and in the case of
[Jurisdiction B] with respect to each [Jurisdiction A] Reportable Account:
a) the name, address, TIN(s) and date and place of birth (in the case of
an individual) of each Reportable Person that is an Account Holder of
the account and, in the case of any Entity that is an Account Holder
and that, after application of due diligence procedures consistent with
the Common Reporting Standard, is identified as having one or more
Controlling Persons that is a Reportable Person, the name, address,
and TIN(s) of the Entity and the name, address, TIN(s) and date and
place of birth of each Reportable Person;

— Section 2 “Exchange of Information with Respect to Reportable Accounts”, paragraph 2 and 2-a.

The Standard For Automatic Exchange of Financial Information Implementation Handbook states that information about accounts held in trust by a trustee should generally be reported to the trustees’ jurisdictions of residence, which typically is a tax haven unassociated with the settlor and/or beneficiaries.

However, the are circumstances under which information should be reported to the jurisdictions of residence of the settlor(s), protector(s), beneficiary(ies), and so on. These events are mainly linked to payouts or income-generating activities that benefit the beneficiaries.

It’s complex and as with most things related to the CRS and AEOI, time will tell what actually happens.

Aside from CRS and AEOI, trusts are currently practically impenetrable. Trusts that do not involve bank accounts are still very much confidential in jurisdictions that specialize in it.

A trust registered in an AEOI jurisdiction can avoid AEOI by banking in a non-AEOI jurisdiction or by structuring the trust in such a way that the true settlor or beneficiaries are never subject to reportable events. This is something that requires careful set-up and maintenance by a skilled trustee.

Corporate Secrecy

Corporate secrecy is not in scope for AEOI insofar as that share holding, members, board of directors, company financials, and other company data is only disclosed for such entities that hold bank accounts and then only for the reportable controlling persons.

What this essentially means is that your Seychelles IBC is going to remain secret in and of itself but if it banks in an AEOI jurisdiction, information about the company that the bank knows will be shared with the jurisdictions of residence of the controlling persons.

Information about secretive companies can also be obtained through using other exchange of information mechanisms, such as TIEAs.Some of the more reputable jurisdictions (such as BVI and Anguilla) are currently reviewing forming central registries of beneficiaries for companies. This registry would in all likelihood be confidential to the public but would mean that these jurisdictions would move from a system where company ownership is only known to service providers to a system where the government knows the company ownership.

Foundations are in much the same situation as corporations, although ownership is not as clearly defined.

Culture of Secrecy and Privacy

Google Street View was not a big success in privacy-conscious Germany or Austria.

Privacy as a social norm is deeply rooted in some cultures in for example central to northern Europe. Switzerland, Germany, Austria, Luxembourg, and – to a lesser but still significant degree – Netherlands, Denmark, Sweden, Norway, Finland, and Iceland value privacy very highly.

Southern Europe does not have quite the same penchant for privacy, although with a three fortunate exceptions: Andorra, San Marino, and Monaco.

This goes well beyond banking secrecy. Data protection in for example Germany and Austria are extremely rigorous. While some of thiVs is learnings and surrounding countries have gained from having secret polices wire-tapping and tracking citizens, it is a tradition that goes further back in history.

I won’t go into length about anthropological and sociological theories, but a strong culture of keeping to oneself and minding one’s own business can be found throughout Europe. The founders of what today is the USA brought with them similar ideals and it can be seen to this day in American culture. (Although looking at data protection, the US is a lot more easy-going than its European counterparts.)

In the CIS nations (former USSR nations), corruption is in many cases a rampant problem and secrecy from the local governments (and Russia) is unheard of, but these nations do not like being pushed around by other nations and will sometimes do the absolute bare minimum to reach international standards on cooperation (if even that).

But if we go to different cultures, secrecy is no longer as guaranteed as it is elsewhere.

Let’s take the Caribbean, for example. Excluding British overseas territories, most of these island nations typically do not have the strong social norms of secrecy and privacy that dominate in Europe. Still, people deposit money in Belize thinking it’s safer than Switzerland because they read a headline saying that Swiss banking secrecy is dead.

While the Swiss have had privacy in their culture for hundreds of years and outright banking secrecy for close to 100 years and while , most tax havens do not have the same deeply rooted sense of confidentiality.

While I don’t mean to imply that banking secrecy isn’t respected in Belize, Dominica, Seychelles, and so on, in a thorough, all-encompassing risk analysis, this is a factor to be considered.

Service Provider Secrecy

As of writing this, the Mossack & Fonseca leak (the Panama Papers) has just started.

This is an often overlooked link in the chain. What good are a Panamanian private interest foundation, Panamanian company, and Panamanian bank accounts when all the messages your service provider has handled for the last 40 years suddenly becomes public knowledge.

Unfortunately, practically no service providers are using email encryption technologies of any kind, neither message encryption such as PGP/GPG or out-of-bounds solutions such as Voltage. Very often, emails and documents are stored in plain text on unencrypted servers.

IT security has not been a high priority for this industry.

I have worked hands on with some service providers to tighten their ships but even when they decide to do it, it’s a hassle to migrate the old messages to the new environment. And that often doesn’t take care of the biggest risk anyway: emails to and from clients.

Educating clients is costly and most service providers fail to see the benefit of encrypted messaging. Many clients will be annoyed if they can’t just use their normal email client to send messages without having to log in to an additional service or bother with importing certificates.

Conclusion

It’s easy to get a confused or inaccurate view of secrecy today if not taking the time to critically look at all aspects of it.

Banking secrecy as a means to hide money from governments is indeed on its death bed. Some jurisdictions are either holding out or simply too far behind to catch up in a timely manner, but it’s unlikely that things like AEOI will ever be revoked and repealed.

It’s still possible to attain banking secrecy, though; either by utilizing jurisdictions that have not or cannot engage in AEOI or other exchanges of information, or by structuring one’s funds in such a way that they are legally not in scope for reporting to any automatic reporting.

Trusts, companies, and foundations are – in and of themselves – largely still as secretive as before. Financial institutions are the weakest link in a secretive structure.

OECD is pushing for improvements in record keeping and ownership registrations (not necessarily central, but available to governments for inspection on demand).

Know your enemy and plan accordingly.

That’s actually not the Curaçao flag, but good eye!

The butt of many jokes in the financial services sector, Nauru is a husk of what it once was.

And thank goodness for that.

When people think about offshore jurisdictions like Cayman Islands, Bermuda, and even the less upstanding ones like Panama, they think that what’s going on there is as bad and as utterly reckless as they used to be in Nauru. For that reason, it is good that Nauru has all but shut down.

While some jurisdictions are known as international financial services centres (a fancy way of saying tax havens, really), Nauru was a money laundering centre.

History and Today

Nauru was populated as early as 3000 BC. The name comes from a Naurean word meaning “I go to the beach”. Allegedly. If you’ve ever seen a Naurean beach, you would understand my skepticism.

Would you name an island after that?

Europeans

The first Europeans to arrive in Nauru was a British whale hunter in 1798, who dubbed the island Pleasant Island. (He probably looked up to Erik the Red, who gave Greenland its name.)

By 1830, relations were established with whale hunters, primarily British. Over the following years, these British sailors (or in many cases, ex-sailors) settled down in Nauru. These new arrivals inadvertently armed some of the local tribes which in 1878 lead to a bloody civil war between tribes.

This was quelled in 1888 when Germany took over the island. (Some readers will remember that Samoa belonged to Germany for a while.)

However, with World War I, Germany lost Nauru to Australia. It was around this time that Nauru’s phosphate riches were discovered and mined. Nauru effectively became a quasi-independent vassal state of the British Crown. Almost full autonomy was granted as long as the crown could pilfer all of the phosphate.

In 1923, Australia was assigned primary caretaker (trustee) of Nauru, with UK and New Zealand being co-trustees.

In 1942, the Japanese took Nauru and held it until liberated in 1945 by American troops. After World War II, a new trustee agreement was set up between Australia, New Zealand, and the UK.

Nauru became fully autonomous in 1966 and fully independent in 1968, after in 1967 having purchased all the phosphate mines from the British crown and instead established the Nauru Phosphate Corporation.

This made Nauru one of the wealthiest and financially strongest nations in the entire Pacific region. Employment was essentially 100%. Those who could but didn’t work, did so entirely by choice.

The phosphate resources were being rapidly depleted (for a while around 2005, it looked to be completely empty), and desperate for cash, Nauru found a stellar solution: institutionalised money laundering and tax evasion.

Nauru Offshore

The laws were passed in the late 1990s and early 2000s. Many were carbon copies of laws in other respectable jurisdictions, but with entire paragraphs removed to make things as easy as possible. Up until 2005, it was possible to form a bank in Nauru with no physical presence at all.

When this was finally changed, over 400 banks’ licenses were revoked.

Many of these banks had strong ties to Russia, with over 70 billion USD belonging to Russian criminals being held in Nauru.

In return for the strong ties and Russian aid, Nauru has been kind enough to recognize Abkhazia and South Ossetia, being the fourth sovereign nation to do so. Tiny Nauru’s interest in far-eastern European politics is curious, to say the least.

Nauru Today

As if the razor sharp, inhospitable rocky beaches weren’t enough — today, Nauru is mostly known as being that little island off the cost of Australia used by Australia as a detention centre for immigrants and asylum seekers. This practice has been highly criticized with reports – scant though they are – of misery among the people in the detention centre.

Several high-profile cases have emerged of abuse, violence, and suicides in the Nauru Regional Processing Centre, as it’s called. Australia typically claims it isn’t aware of the issue but in all likelihood is using Nauru as a deterrent. Detainees with serious medical problems have the right to treatment in Australia but are usually sent back once treated.

Geography and Demography

Map from Wikipedia.

Incorporation and Business

Reputation

Terrible.

Regulator

There is a Financial Intelligence Unit, allegedly. From what it seems, they gather only when the OECD or FATF comes knocking on the door.

Aside from that, the Nauru Agency Corporation (NAC) acts as the sole registered agent and corporate service provider in Nauru.

General

The NAC, which the New York Times in 2000 called The Billion-Dollar Shack, is effectively shut down and not taking on new incorporations any more. Incorporating is practically impossible.

IBC

I don’t remember the exact details but it’s as loose as you could possibly imagine.

Taxation

None.

Record Keeping

Requirements exist but are not being enforced. Ever wanted to run a business without being legally required to know whether you’re making a profit or a loss? Congratulations. Welcome to Nauru.

Public Records

None.

Trust

Who would trust Nauru?

Banking

Let me tell you a story about 500 banks that lost their license.

Once upon a time, following depletion of its main source of income, the island of Nauru decided to follow the footsteps of successful offshore jurisdictions and enact a bare-minimums banking regime. The dream was short-lived.

At peak, there were over 500 banks licensed in Nauru. Practically all of them had zero connection to Nauru and were mostly money laundering vehicles set up by organized criminals. These were back in simpler times, when due diligence and KYC were nothing like it is today.

However, following massive international criticism, including a blanket blacklisting by the US, the legislation was effectively shut down.

In 2013, the government started a project to create a new banking system. The government was then in talks with Bendigo & Adelaide Bank but these talks fell through. By 2015, there was a semblance of a banking system in place but not in any traditional sense.

In 2016, Westpac stopped doing business with the Nauru government due to money laundering concerns.

Open a Bank Account in Nauru

You can’t, because there are no banks in Nauru. At least not in the traditional sense.

Banking Secrecy

There is no bank in Nauru to keep your data confidential.

Theoretically very strict, even though the jurisdiction has signed up for AEOI. Probably could not live up to AEOI even if it tried.

Banks in Nauru

N/A.

Living in Nauru

You can’t and probably don’t want to. If you want to settle down in this region, just go for Fiji or Samoa, or New Zealand.

Citizenship

Used to be for sale but no longer available.

Taxation

Low if any.

Final words

Nauru is often put in the same bucket as Comoros as the two worst offshore jurisdictions in terms of reputability. This might be unfair since Nauru hasn’t had any civil wars in recent memory and is by and large a vassal state of Australia.

While incorporating here might seem attractive due to the rigorous secrecy, most people prefer the greater stability offered in nearby Vanuatu, Samoa, Cook Islands, and Marshall Islands.

See also

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

Ahoy, skipper!

Unless you are looking for brief, general information about which tax haven to register your freight ship or yacht in and how flags of convenience work, this probably isn’t going to be an interesting article to you.

What is a Flag of Convenience?

A flag of convenience (FOC) is to a ship what a tax haven often is to a corporation: a cozy place to call home, far far from where it actually is located. The term FOC is sometimes considered pejorative and the term open registry or open ship registry is instead used.

Jurisdiction over maritime vessels is a complicated matter that dates back hundreds of years. It is to this day one of the least transparent industries and freight ships and yachts account for billions of value in pure assets as well as goods shipped across the globe.

The concept of FOCs has been around for a long time, but it started its modern history in the 1920s when American ship owners grew weary of increased regulations and started registering their ships in Panama.

Advantages of FOCs

A ship registered under a FOC is subject to far more lenient regulations than common flags when it comes to things like taxation, ownership disclosure, and workers’ rights. This can lead to access to cheaper labour and less money spent on insurances and liabilities.

Flying a FOC can save a lot of money for a shipping company and enable transport of goods otherwise not possible.

It can also be associated with significant tax savings. By claiming that a ship is domiciled in a tax haven, it can sometimes bypass certain import and export duties or other taxation. Things like tax residence work a lot differently at sea.

Ships owned through FOCs often have almost impenetrably secretive ownership.

Disadvantages of FOCs

To the shrewd ship owner, there aren’t a lot of disadvantages to flying a FOC aside from reputational disadvantages, which in and of themselves can be a problem.

The disadvantages are mostly to the seafarers, for whom fewer securities are guaranteed by law when working on board a ship that’s registered in a FOC jurisdiction.

Workers’ protection laws and regulations are rarely enforced in open registries. Screening of workers is also more relaxed, which can affect shipowners as well as workers in that less qualified staff can be certified.

Criticism of FOCs

The International Transport Workers’ Federation is a global union with over 4.5 million members. It has a division just for maritime called ITF Seafarers.

The ITF Seafarers campaigns against FOCs because they see them as hurtful to the industry and safety of workers.

Another organisation, the Paris Memorandum of Understanding (Paris MoU) has criticized open registries, for example going so far as to blacklisting Panama. This blacklisting was removed after Panama took steps to improve conditions.

Jurisdictions

The ITF has identified 34 open registered or Flags of Convenience. In brackets, number of ships registered followed by how many of those ships are foreign-owned. These numbers only refer to larger vessels and should be seen as indicative only, since they rely on aged sources (via CIA Factbook) and fail to take into account the full scope of open registries. The real numbers are higher.

The most recent member to the international financial centers, The Gambia threw its hat in the mix only a few years ago by enacting a couple of new laws and setting up a superficially very impressive regulatory environment with strong technology focus.

A lot of effort was spent on copy-pasting the legal framework of Mauritius while also borrowing from the UK and a few others.

But how has it gone?

And what about banking?

While The Gambia has a rich and interesting history that anyone curious about African history and slavery would do well to read into, it is not relevant to its current situation as a tax haven and, because I’m short on time, I will skip.

Very briefly, it was under numerous indigenous rulers until the British arrived in the 1600s. While the British and French fought over The Gambia, it retained British rule for the most part.

It gained independence from the British in 1965. It quickly fell into chaos and disarray, fighting a war with Senegal. Since the early 2000s, it has enjoyed political stability and socioeconomic development. It has a growing tourism sector to supplement its fishing and agricultural sectors (mostly peanuts).

Owing to early Arabic influences, the country is an Islamic republic. Its official language is English, which has served as a great advantage in ever since the political climate stabilized.

Geography and Demography

Map from Wikipedia.

Incorporation and Business

Generally

The Gambia launched its offshore sector in 2013, becoming the youngest offshore jurisdiction. While many of its efforts are admirable and its corporate solutions are delightfully diverse, the initiative generally seen as untimely and unfitting.

The jurisdiction went to great lengths to come up with an electronic apostille system, which in theory is years ahead of its time but in reality simply falls flat on that The Gambia offers no real advantage over other jurisdictions and as such has seen very little use.

A mere few thousand entities have been formed thus far, mostly the GBC 2 type. Formation costs are fairly low, often well under 2,000 USD for incorporation and 1,000 USD for renewal.

Reputation

Unknown. Neither good nor bad.

Regulator

While the iCommerce Registry acts as the nexus point for the Gambian offshore sector, regulatory responsibilities fall on a number of different authorities, all of which are gruesomely underfunded, understaffed, and suffering from rampant corruption. Transparency International ranks The Gambia has the 123 out of 167 in terms of transparency.

The iCommerce Registry often blurs the line between registry and agent, offering a number of services directly to end-users.

GBC 1

Essentially, an exact replica of the Mauritius’ law. GBC 1s are supposed to be resident or semi-resident companies paying a miniscule, symbolic tax in order to make use of tax treaties. One of the key differences is that The Gambia has signed an entirety of five DTAs, compared to the 56 Mauritius has signed.

A GBC 1 pays no tax on income earned outside of The Gambia, which is where most Gambian offshore companies are formed anyway, thus reducing the usefulness of a Gambian GBC 1 from small to none.

• Minimum one director (can be corporate, but not if the only one).
• Minimum one shareholder (can be corporate, but not if the only one).
• Minimum one resident, natural-person member.
• Registerd office in The Gambia.

Public Record

None.

Tax

1.5% of turnover or 32% on profits.

GBC 2

Again, by and large a carbon copy of the Mauritius’ law, which in turn is largely based on the BVI model IBC but with a number of tweaks. They even go so far as to call them IBC and offshore companies on their website.

• Minimum one director (can be corporate).
• Minimum one shareholder (can be corporate).
• Registered office in The Gambia.
• Must be operated from the Enterprise Zone or outside of The Gambia.

Public Record

None.

Taxation

None.

LLP

This one is actually potentially interesting. It’s borrowing heavily from the UK LLP legislation, which in and of itself is very attractive.

• Minimum two members (at least two need to be designated members, comparable to managers or officers or directors).
• Registered address in The Gambia.
  • List of designated members.

Public Record

None.

Taxation

None. LLPs are pass-through entities.

PLC

OK, fine. There is a PLC as well; a Public Limited Company.

That’s right, your dreams of being listed on the Gambian stock exchange has finally come true.

• Minimum two directors (can be corporate).
• Minimum two shareholders (can be corporate).
• Minimum authorised share capital of 50,000 USD.
• Company secretary required.

Public Record

Yes.

Taxation

A semi-territorial taxation system is used.

Record Keeping

Requirements exist but are not being enforced.

Licenses

Desperate for any sort of income, The Gambia has enacted a couple of licenses that they may issue:

• Banking license
• Brokerage
• Education
• Financial services
• Funds
• Gaming license (gambling)
• Insurance

So far, I have heard of no one actually applying or obtaining any of these licenses. Those seeking such licenses are instead drawn to far more established jurisdictions.

Trust

Yep, a trust law exists. It has however not been tested yet and the cautious settlors and trustees of the world are keeping an eye on The Gambia, while continuing to use far more established jurisdictions.

Foundations

They threw a foundations framework into the mix as well, hoping to compete with all jurisdictions out there.

Practically zero usage so far.

Banking

It’s currently very difficult to open bank accounts in The Gambia or even for Gambian entities.

There are nonetheless several pretty good banks in The Gambia. Its banking sector has a bright future, if the regulators are able to cope with the increased demand relative to the increase of illicit funds and money laundering. While by no means as bad as Djibouti, Ghana, or Ivory Coast just yet, The Gambia is at major risk of becoming a money laundering nest.

FATF and its underling GIABA have been lenient on The Gambia so far, despite failing to reach the FATF’s recommendations, in no small part because of the jurisdiction’s relatively small size but also because the young republic is still very much a developing nation.

While major deficiencies have been discovered, they are not seen as egregious because there is relatively little money being passed around.

Open a Bank Account in The Gambia

Generally difficult remotely but personal accounts can be opened without too much trouble in person. The bank might ask for some vague justification as to why you are opening a bank account and it’s usually enough to say you plan to invest in the local or regional economy.

Corporate accounts are a lot more difficult, especially for the local offshore companies. Most GBC 2s in The Gambia bank in Mauritius or outside of Africa.

Banking Secrecy

Effectively, because The Gambia’s laws are outdated and the new-found secrecy laws are a lot more recent than the old banking confidentiality laws, the banking secrecy here is rigorous. It’s practically impossible for a foreign agency to get anything out of a Gambian bank.

Unless they approach the bank in another jurisdiction and attempt to pressure them there.

The Gambia has not signed up for CRS/AEOI and, in fact, hasn’t signed a single EOI treaty as of yet.

Banks in The Gambia

There are banks but hardly any will engage with offshore companies.

Unless, of course, you’re here to launder money.

Living in The Gambia

While one of Africa’s most developed nations, the harsh reality is that competition isn’t exactly fierce. Those seeking to settle down in the African mainland are likely to enjoy South Africa, Equatorial Guinea, Namibia, or Botswana more, but The Gambia can be very attractive.

It’s generally stable and its economic situation continues to improve.

Costs of living are low, the weather is generally fine, and English is perfectly fine to get you by and live comfortably in The Gambia, although you will forever be a foreigner.

Citizenship

Not particularly attractive.

Dual citizenship is only allowed for Gambian citizens who obtain another citizenship through marriage.

Taxation

Average to above average.

Final words

Worth keeping an eye on, but that’s about it at this point.

Don’t be the guinea pig, unless you really want to.

See also

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

When I scheduled this post, many months if not a year ago, Myanmar was not at all in the news the way it has been in recent times following the election. I aim to keep this blog apolitical, and I will not be going in-depth. Those expecting a treatise on the current political situation and future for Myanmar are going to be disappointing.

The Myanmar I first set foot in many years ago is very different from the Myanmar of today. It is not exactly a tax haven, nor is it a place most people would be comfortable opening bank accounts and storing large sums of money. Although it has many of the necessary attributes for precisely that.

Often touted as the next Asian economic giant, investors and advisers alike talk promisingly about Myanmar.

About Myanmar

Myanmar is a country which shares border with Bangladesh, India, China, Laos, and Thailand. Until 1948, it was a British territory under the name British Burma.

Before becoming British, Myanmar was a regional powerhouse under various monarchies, tracing its history back to ancient times. The first humans arrived in Myanmar around 11,000 BC. Modern-type civilizations were formed around 1500 BC, with statehood popping up about 1,000 years later.

I know it’s a bit of a cop out, but while the history of Myanmar is very interesting, it isn’t actually very relevant for this particular context.

Since independence from the British, the nation has undergone wars and a military dictatorship that lasted almost 50 years, during which the country was very closed off from the outside world. In 1991, democratic elections were allowed although these were generally not considered fair and open elections.

Human rights have been routinely disregarded in Myanmar. The government has killed hundreds of thousands in skirmishes and when clamping down insurgencies, the most notable perhaps being the Rohingya.

In 2008, the military junta enacted a new constitution which would lead Myanmar on the path towards democracy or at least a variant of democracy that they saw fit.

The results of elections held in 2010 tipped the ice berg after rigging accusations and a fed-up and empowered population rose up, toppling the military junta by 2011. The results of the election were generally seen as favourable internationally, with diplomatic relations warming up after years or decades of silence or caution.

The first free elections in Myanmar were held in November 2015 and a new parliament convened in February 2016. Foreign relations have improved dramatically and foreign investment has started to pour in like never before.

Population is somewhere north of 51 million, most of which live in rural areas.

The economy is almost entirely dependent on petroleum gases and agriculture. The country has been subject to numerous sanctions, which has crippled its economic growth.

It is one of the poorest nations in Asia, suffering from decades of neglect and corruption. Infrastructure is largely bad if not almost entirely lacking. When I say that most of the 51 million inhabitants live in rural areas, I don’t mean quaint little villages just off the highway. These are villages where you would almost believe time has stood still.

Attempts at stimulating the economy through tourism were for long unsuccessful. However, this is one area that is improving. With much of the population being able to converse almost fluently in English, it is in many ways a more welcoming country than some of its regional neighbours. Since 2012, the visa requirements have been easing up for both tourists and business travellers.

The largest cities are Yangon (also known as Rangoon) with 5.2 million inhabitants, Mandalay with 1.2 million, and the cpital city of Naypyidaw with 1.1 million.

The currency is called Burmese kyat. It is one of the least valuable currencies in the world.

While the top-level domain .bu was created, it was never put into use. Instead, .mm is used.

Banking Sector

Banks popped up shortly after independence and a central bank was enacted in 1952. With the military junta, all banks were nationalised and the government actively broke down the young banking sector.

The military junta made most of the old bank notes invalid, causing a deeply rooted lack of trust in government and in banking among the population.

The infamous Asia Wealth Bank (AWB) was formed in 1994 and was the first bank to issue credit cards. The bank initially received a warm welcome internationally but after it became clear the bank had no idea how or just no intention to follow international standards of compliance (such as they were back then), the bank was eventually shut down after it was declared a primary money laundering concern.

This all came about during the 2003 banking crisis in Myanmar, which was triggered by distrust and several smaller banks and unauthorized banks or semi-banks folding after their Ponzi-scheme-like, unsustainable lending strategies started to crumble.

This also caused a bank run at AWB.

By the end of the crisis, Mayflower Bank and Myanmar Universal Bank had also folded. Mayflower was also designated a primary money laundering concern, while Myanmar Universal Bank was nationalized.

Today, Myanmar is one of the least banked countries in the world, with some 95% of the population not using banks.

Tight government regulations are in place to control the flow of capital and issuance credit and interest rates, which on the one hand may be further holding back growth of financial services in Myanmar while on the other helps keep the fragile economy in check.

Today, the Myanmar banking sector is working hard to make amend for previous lapses in judgment and compliance. Eager to get into the enormous potential of Myanmar, banks are eager to let go off the past and give the banks a new chance.

While right in this moment banking in Myanmar is fairly lackluster, it will likely be one of the best of any developing country in a few years. Trying to get an unbanked population to bank has historically proven best by making banking simple, which includes taking a reasonable approach to compliance while embracing modern technology.

Banking in Myanmar

Opening a bank account is doable for non-residents. Remote account opening isn’t the norm but it does happen.

Personal and corporate accounts are accepted. Keeping a few thousand EUR/USD equivalent in the local currency will satisfy most banks, as long as your profile is overall not too suspicious.

Now, before you drop 1,000 USD on a Seychelles IBC and 2,000 USD on flight tickets to Yangon,

Interest rates of up to 10% (or even higher) for savings in the local currency can be opened with relative ease in person.

While foreign currency (including various Asian currencies) accounts can be opened with relative ease, transfer times can currently be very long. It is likely that every intermediary on the way performs a manual review of transactions to and from Myanmar, due to the jurisdiction’s spotty past.

Some banks are connected directly to money remittance companies such as Western Union and MoneyGram.

The leading banks are Kanbawza Bank, AGD Bank, AYA Bank, and Myanma Apex Bank.

Secrecy

Effectively very strict and probably completely impenetrable right now. This is not by choice but rather by omission and a side-effect of prolonged isolation.

While a degree of secrecy is likely to remain intact to foster trust in banking amongst the population, it is unclear how long Myanmar can afford to stay away from CRS/AEOI and – especially – FATCA. Not a single exchange of information treaty is in place.

Business

This isn’t an investment blog or even an investment article. Suffice it to say, though, that I the number of clients looking to enter Myanmar has never been higher and more companies are being formed in Myanmar than in the last 50 years combined.

This isn’t a jurisdiction like Hong Kong where you form a non-resident company and call it a day. Companies formed in Myanmar engage in business in Myanmar.

And they are subject to some pretty tough rules on what is and what is not allowed to import and export. Coupled with restrictions on currency exchanges, this can be  tough jurisdiction to break into even for the most seasoned business owner.

A number of special economic zones (SEZ) and foreign investment incentives exist to attract new business.

The MFIL (Myanmar Foreign Investment Law) sets out a number of advantageous and familiar regulations foreign investors can avail themselves of to set up shop in Myanmar. These include five-year tax exemption (can be extended indefinitely by approval) and other tax incentives. It is quite easy to obtain zero or very low effective corporate tax in Myanmar. The normal rate is 25%.

Incorporation fee is 1 million MMK (circa 750 EUR or 850 USD). Minimum two members are required. The minimum share capital required is 50,000 for a service company and 150,000 USD for a manufacturing company.

Record keeping requirements are strict but not onerous.

Since March 2016, Myanmar has a stock exchange; the Yangon Stock Exchange. Activity has been modest thus far with a whooping two listed companies so far: First Myanmar Investment and Myanmar Thilawa SEZ Holdings Public Ltd.

Costs of labour are low but rising.

With improved infrastructure, Myanmar is likely to continue becoming even more competitive to Indonesia and Vietnam for manufacturing jobs.

Living in Myanmar

As many back packers and an increasing number of business travelers can attest to, Myanmar can be extremely charming and inviting.

Obtaining permanent residence is no easy task at the moment. Efforts are being made to ease up on this, but the republic relatively young, if you remove the 50 or so years during which it did not see many foreigners.

While I enjoy every visit to Myanmar, it is not yet a country I would see many foreigners settle down in for any long period of time.

It is however a jurisdiction with tremendous potential for the near future, in almost every regard.

Further Reading

• The Banking & Financial Services Sector in Myanmar by KPMG.
• Myanmar Tax Highlights by Deloitte.
• Myanmar Business Guide by PwC.

We’re back in Europe, today taking a look at one of the least tax-haven-like tax havens: Luxembourg.

Or, if you ask a local: Luxembourg (French), Luxemburg (in German), or Lëtzebuerg (Luxembourgish).

Somewhere between Belgium, France, and Germany is this tiny nation of many languages, businesses, EU institutions, international organizations, and the lowest VAT (sales tax) in the EU.

Geography and Demography

Map from Wikipedia.

Incorporation and Business

Generally

It is costly to form a company in Luxembourg and often takes quite a long time.

Luxembourgish companies are subject to a fairly high tax-rate on their worldwide income and diligent accounting records need to be kept.

So what exactly is the allure with forming a business in Luxembourg?

It used to be the low VAT, but due to changes in EU law for cross-border transactions whereby VAT is charged based on the consumer’s jurisdiction of residence as opposed to where the business is located, this is no longer so much the case.

Another big factor is that the corporate tax in Luxemboug – similar to Switzerland – is not necessarily written in stone. It’s negotiable, if you have tremendous amounts of money to negotiate with. The authorities in Luxembourg have decided it’s better to earn 1 million EUR in tax than 0 million EUR.

Companies that manage to negotiate favourable tax rates can then avail themselves of Luxembourg’s rich network of double taxation treaties to reach an overall low tax burden.

Another major drawing point of Luxembourg is it’s holding companies regime, which I will get to later.

Reputation

Generally very good. Some particularly grumpy compliance officers might find the jurisdiction’s reputation as a former banking-secrecy haven to be problematic, but that’s rare.

Regulator

No specific regulator. Companies are subject to the local courts. Financial services operators are generally answerable to the CSSF.

Business Types

Being a well-developed incorporation jurisdiction, Luxembourg has almost all business types one could ask for. The only type missing would be an LLC entity of the American variety.

In addition to sole proprietorships, Luxembourg offers:

• SARL (société à responsabilité limitée): comparable to the German-law GmbH, which was the inspiration to the American LLC. Single-member SARLs are permitted. This is the most popular type in Luxembourg. Taxable entity.
• SECS (société en commandite simple): similar to Limited Partnerships, in that it has at least two partners of which one has limited liability and the other does not. Tax transparent (pass-through).
• SA (société anonyme): comparable to private limited companies and corporations. Popular with larger corporations. Can issue bearer shares. Taxable entity.
• SECA (société en commandite par actions): a hybrid between SECS and SA, a SECA is essentially a limited partnership with shares instead of a partnership agreement. Taxable entity.
• SPF (sociétés de gestionde patrimoine familial): a special type of holding company for family wealth management. Essentially a subcategory of other company types.
• Soparfi (Société de Participations Financières): a special type of holding company subject to normal corporate tax. Essentially a subcategory of other company types.

The Luxembourg government offers the following comparison with German, UK, and US company types.

Taxation

There is no easy way to tackle Luxembourg corporate tax. But that doesn’t mean I won’t try. Just bear in mind that it’s a lot more complex.

Luxembourg is one of those jurisdictions you can go to, sit down with the government, and negotiate a tax rate. Doing this requires enormous capital and turnover, measuring in the hundreds of millions of EUR (at the very least).

Additionally, Luxembourg exercises a form of quasi-territorial taxation. Tax residence of a company in Luxembourg is determined by where its legal seat and where its central place of management is. Non-residents are only taxed on Luxembourg-sourced income.

This means that an entity formed in Luxembourg is, if not operated from Luxembourg, exempt from tax in Luxembourg.

This is by no means unique for Luxembourg, but I see a lot of confusion on this topic.

The tax rate for a resident company is often just under 30%, depending on local taxes.

Luxembourg Holding Company

The infamous 1929 law ceased to be in December 2010.

As mentioned earlier, two types of holding companies exist now.

The SPF is a passive investment vehicle that can only engage in acquisition, holding, and sale of financial assets. The shareholders of an SPF can only be family members and trustees. Corporate shareholders are not permitted for an SPF.

SPFs are exempt from corporate tax but are subject to a 0.25% subscription tax on the deposited share capital, minimum 100 EUR and maximum 125,000 EUR.

A Soparfi is a regular company which is taxed normally on commercial activities. However, on holding activities, it can be subject to an effectively low tax rate that’s especially suitable for international tax planning. That’s as in-depth as I will go here. If I take the plunge and start talking about the different dividends rules, this would quickly turn into a tax essay, which is not my intention.

Record Keeping

Required and enforced.

Public Records

Varies but ownership is generally protected.

Banking

Luxembourg has never quite held a candle to Switzerland, but it has one of the best banking sectors in the world when looking at things like quality, sophistication, and innovation. I cannot comment on the financial stability of banks, though.

Open a Bank Account in Luxembourg

It’s a mixed bag, but generally leaning towards being difficult and snobbish.

There are attempts being made to modernize and streamline the process. No longer able to rely on secrecy, banks in Luxembourg have taken to investment management (i.e. private banking, often with a minimum of 1 million EUR) but you can find banks such as ING and BIL which (from time to time and with varying degrees of success) accept non-residents quite openly. At least as long as they live in the EU/EEA or carefully selected countries.

Luxembourg desperately wants to position itself as a fintech hub. The current financial services climate is not terribly conducive to this, with an outmoded approach to risk of remote account openings.

Banking Secrecy

Formerly very strict but nowadays in-line with EU standards. You can’t really hide money here unless you are EU non-resident and even then, Luxembourg has signed up for CRS/AEOI.

Banks in Luxembourg

There are 98 banks licensed in Luxembourg. This doesn’t include the 11 branches of non-EU banks and 30 branches of EU banks. Additionally, there are 13 rural banks.

The CSSF maintains a list of all banks in Luxembourg.

Living in Luxembourg

It’s surprisingly beautiful and charming. Good connections to neighbouring countries and European hubs via plane and train.

Politically stable and with high standards of living, foreigners who come to Luxembourg often stay for a long time, especially if they learn Luxembourg (and French and/or German).

The infrastructure is among the best in the world. Healthcare and education are highly regarded.

Costs of living are high.

Citizenship

Citizenship is attractive but, lacking any provable connections to Luxembourg, takes seven years of residence and passing an exam in Luxembourgish.

Taxation

As a full-time resident in Luxembourg, taxes are quite high.

Luxembourg uses the concept of domicile and customary place of residence, which doesn’t necessarily count number of days spent in the country. The tax authorities in Luxembourg are generally lenient. A part-time resident in Luxembourg can easily qualify for very low if not zero tax.

Final words

Tremendously more costly than forming a company in for example Cyprus, Luxembourg offers similar tax benefits for non-resident companies.

Banking is of high quality in Luxembourg but opening an account can be a hassle and downright hostile. It’s getting better and that trend needs to continue for Luxembourg to remain an important banking jurisdiction long-term.

Incorporation and Business

Reputation

San Marino has no history of any significant amount of foreign-controlled companies, especially trading. Those who can place San Marino on a map usually know it’s a tax haven and if they are Italian or familiar with Italian affairs, they might have a negative associations with it.

Otherwise, it has a mostly clean reputation for doing business.

Regulator

No specific regulator. Companies are answerable to the courts.

General

In the unlikely case that you do want to form a company in San Marino, finding someone to do it for you can be very difficult. KPMG is the only Big Four with a significant establishment in this ancient republic. And KPMG charges Big Four prices.

Smaller law firms or accountants may be a cheaper option but you might be surprised by how limited their English is.

A handful of incorporation mills offer San Marino, often at outrageous cost and extremely misleading information as a result of rampant copy-paste and complete disregard for accuracy.

Incorporation usually takes two to three months.

All incorporation documents are in Italian.

Companies owned and managed entirely by non-residents must submit background checks proving no criminal wrongdoings.

SRL (Società a Responsabilità Limitata)

This is the most popular company type in San Marino. It is comparable to GmbH under German law, SRL under Spanish law, and – to a lesser extent – the LLC.

• Minimum 25,500 EUR share capital of which 12,500 EUR must be paid up.
• Minimum one director. Cannot be corporate.
• Minimum one shareholder. Can be corporate.
• Can be single-member.
• No residency requirements.
• Audits are optional unless share capital exceeds 77,000 EUR or revenue exceeds 2 million EUR.
• Ownership divided by quotas (must be registered).
• Must have registered office in San Marino.

SpA (Società per Azioni)

A lot less popular than the SRL. Akin to AG under German law, SA under Spanish law, and share companies/corporations under English and American law.

• Minimum 77,000 EUR share capital, of which 50% must be paid up (usually 100% is paid up).
• Minimum one director. Cannot be corporate.
• Minimum one shareholder. Can be corporate.
• Cannot be single-member.
• No residency requirements.
• Audits are mandatory.
• Ownership divided by shares (must be registered, i.e. no bearer shares).
• Must have registered office in San Marino.

Taxation

Companies are taxed at 17% on their worldwide income, although there are numerous deductions and incentives available to reduce this tax rate significantly (to well under 10%).

Additionally, there is a 1,000 EUR per year minimum trading license fee for trading businesses.

Record Keeping

Required and returns must be filed.

Public Records

Members and company details appear on public records.

Trust

There are a number of laws which dictate how trusts function in San Marino, with the most important piece being the International Trust Law of 2012.

The law is almost entirely based on the English model and Hague convention, and is an attempt by San Marino to draw in new clients with a new product. It has so far seen moderate success.

It is not a very strong trust law. Forced heirship is possible under certain circumstances.

Banking

Banking is the strongest pillar of San Marino’s international financial service sector. It has suffered tremendously from the withdrawal of (sketchy) Italian wealth and the banks are scurrying to rebrand themselves as international and English-speaking-friendly.

Banking is of generally pretty high quality, if you are OK with Italian and/or broken English.

It can be hard to open accounts other than EUR sometimes and card products are often unimpressive.

From speaking to Sammarinese banks, though, they all seem to have plans to modernize and improve their services in the coming years. This is similar to what Andorran banks started doing a few years ago and of which we are starting to see the result today.

Open a Bank Account in San Marino

It’s difficult but can often be done remotely, sometimes directly but usually via an intermediary of some kind.

The compliance and paperwork is not significantly different from elsewhere, falling within European standards.

It used to be that banks insisted on Italian translations of all documents but requirement is often waived nowadays.

Banking Secrecy

The Sammarinese banking secrecy was once on par with Switzerland, Liechtenstein, and even Lebanon. Following a couple of embarrassments and criticism by Italy, EU, and OECD, it has since been eroded to the point of being strict but in line with international standards, including the CRS AEOI.

Banks in San Marino

Banks in San Marino are under supervision of the Banco Centrale della San Marino (BCSM). It is a perhaps surprisingly well-functioning and modern institution.

There are seven banks in San Marino:

• Asset Banca (AB)
• Banca Agricola Commerciale (BAC)
• Banca CIS – Credito Industriale Sammarinese
• Banca di San Marino (BSM)
• Banca Impresa di San Marino (part of BSM)
• Banca Sammarinese di Investimento (BSI)
• Cassa di Risparmio della Repubblica di San Marino (Carisp)

Living in San Marino

If you ever wanted to live up in the mountains surrounded by stunning Italian scenery without the tax and bureaucratic nightmare of Italy, San Marino might be just what you want — although you might want to consider the south of Switzerland or even Campione d’Italia (more on that another day).

Costs of living are generally quite low.

Residency

It used to be a lot easier to set up a company in San Marino and move settle down there. However, after being strong-armed into signing a tax deal with the EU, this is no longer as popular as it was before.

It’s still possible and can turn out to render significant tax savings, but it’s debatable if it’s any better than other European tax havens or low-tax jurisdictions.

Citizenship

A huge hassle that’s not worth it.

Requires 30 years of residency and renunciation of other citizenships prior to application (statelessness).

Taxation

San Marino is not a zero-tax jurisdiction.

There are in fact a lot of different taxes in San Marino, although many of them are low and rendering an overall tax pressure that is comparable to the rest of western Europe.

Regular income tax can reach brackets of 50% (income over 230,000 EUR), whereas dividends, royalties, and capital gains incomes can be enjoyed at a much lower tax rate in many cases.

An income of 100,000 EUR would render an effective income tax in the vicinity of 30%.

Final words

A tax haven fallen from (dis-)grace. Superficially attractive for certain for business, San Marino’s most attractive aspect is its banking system and a relatively attractive tax climate for natural persons.

Not much else to say about this tiny, ancient, proud, and most serene republic.

See also

• OECD Peer Review (also has a list of TIEA and DTA)
• Moneyval
• Financial Secrecy Index

That’s actually not the Curaçao flag, but good eye!

The butt of many jokes in the financial services sector, Nauru is a husk of what it once was.

And thank goodness for that.

When people think about offshore jurisdictions like Cayman Islands, Bermuda, and even the less upstanding ones like Panama, they think that what’s going on there is as bad and as utterly reckless as they used to be in Nauru. For that reason, it is good that Nauru has all but shut down.

While some jurisdictions are known as international financial services centres (a fancy way of saying tax havens, really), Nauru was a money laundering centre.

History and Today

Nauru was populated as early as 3000 BC. The name comes from a Naurean word meaning “I go to the beach”. Allegedly. If you’ve ever seen a Naurean beach, you would understand my skepticism.

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Would you name an island after that?

Europeans

The first Europeans to arrive in Nauru was a British whale hunter in 1798, who dubbed the island Pleasant Island. (He probably looked up to Erik the Red, who gave Greenland its name.)

By 1830, relations were established with whale hunters, primarily British. Over the following years, these British sailors (or in many cases, ex-sailors) settled down in Nauru. These new arrivals inadvertently armed some of the local tribes which in 1878 lead to a bloody civil war between tribes.

This was quelled in 1888 when Germany took over the island. (Some readers will remember that Samoa belonged to Germany for a while.)

However, with World War I, Germany lost Nauru to Australia. It was around this time that Nauru’s phosphate riches were discovered and mined. Nauru effectively became a quasi-independent vassal state of the British Crown. Almost full autonomy was granted as long as the crown could pilfer all of the phosphate.

In 1923, Australia was assigned primary caretaker (trustee) of Nauru, with UK and New Zealand being co-trustees.

In 1942, the Japanese took Nauru and held it until liberated in 1945 by American troops. After World War II, a new trustee agreement was set up between Australia, New Zealand, and the UK.

Nauru became fully autonomous in 1966 and fully independent in 1968, after in 1967 having purchased all the phosphate mines from the British crown and instead established the Nauru Phosphate Corporation.

This made Nauru one of the wealthiest and financially strongest nations in the entire Pacific region. Employment was essentially 100%. Those who could but didn’t work, did so entirely by choice.

The phosphate resources were being rapidly depleted (for a while around 2005, it looked to be completely empty), and desperate for cash, Nauru found a stellar solution: institutionalised money laundering and tax evasion.

Nauru Offshore

The laws were passed in the late 1990s and early 2000s. Many were carbon copies of laws in other respectable jurisdictions, but with entire paragraphs removed to make things as easy as possible. Up until 2005, it was possible to form a bank in Nauru with no physical presence at all.

When this was finally changed, over 400 banks’ licenses were revoked.

Many of these banks had strong ties to Russia, with over 70 billion USD belonging to Russian criminals being held in Nauru.

In return for the strong ties and Russian aid, Nauru has been kind enough to recognize Abkhazia and South Ossetia, being the fourth sovereign nation to do so. Tiny Nauru’s interest in far-eastern European politics is curious, to say the least.

Nauru Today

As if the razor sharp, inhospitable rocky beaches weren’t enough — today, Nauru is mostly known as being that little island off the cost of Australia used by Australia as a detention centre for immigrants and asylum seekers. This practice has been highly criticized with reports – scant though they are – of misery among the people in the detention centre.

Several high-profile cases have emerged of abuse, violence, and suicides in the Nauru Regional Processing Centre, as it’s called. Australia typically claims it isn’t aware of the issue but in all likelihood is using Nauru as a deterrent. Detainees with serious medical problems have the right to treatment in Australia but are usually sent back once treated.

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Geography and Demography

Map from Wikipedia.

Incorporation and Business

Reputation

Terrible.

Regulator

There is a Financial Intelligence Unit, allegedly. From what it seems, they gather only when the OECD or FATF comes knocking on the door.

Aside from that, the Nauru Agency Corporation (NAC) acts as the sole registered agent and corporate service provider in Nauru.

General

The NAC, which the New York Times in 2000 called The Billion-Dollar Shack, is effectively shut down and not taking on new incorporations any more. Incorporating is practically impossible.

IBC

I don’t remember the exact details but it’s as loose as you could possibly imagine.

Taxation

None.

Record Keeping

Requirements exist but are not being enforced. Ever wanted to run a business without being legally required to know whether you’re making a profit or a loss? Congratulations. Welcome to Nauru.

Public Records

None.

Trust

Who would trust Nauru?

Banking

Let me tell you a story about 500 banks that lost their license.

Once upon a time, following depletion of its main source of income, the island of Nauru decided to follow the footsteps of successful offshore jurisdictions and enact a bare-minimums banking regime. The dream was short-lived.

At peak, there were over 500 banks licensed in Nauru. Practically all of them had zero connection to Nauru and were mostly money laundering vehicles set up by organized criminals. These were back in simpler times, when due diligence and KYC were nothing like it is today.

However, following massive international criticism, including a blanket blacklisting by the US, the legislation was effectively shut down.

In 2013, the government started a project to create a new banking system. The government was then in talks with Bendigo & Adelaide Bank but these talks fell through. By 2015, there was a semblance of a banking system in place but not in any traditional sense.

In 2016, Westpac stopped doing business with the Nauru government due to money laundering concerns.

Open a Bank Account in Nauru

You can’t, because there are no banks in Nauru. At least not in the traditional sense.

Banking Secrecy

There is no bank in Nauru to keep your data confidential.

Theoretically very strict, even though the jurisdiction has signed up for AEOI. Probably could not live up to AEOI even if it tried.

Banks in Nauru

N/A.

Living in Nauru

You can’t and probably don’t want to. If you want to settle down in this region, just go for Fiji or Samoa, or New Zealand.

Citizenship

Used to be for sale but no longer available.

Taxation

Low if any.

Final words

Nauru is often put in the same bucket as Comoros as the two worst offshore jurisdictions in terms of reputability. This might be unfair since Nauru hasn’t had any civil wars in recent memory and is by and large a vassal state of Australia.

While incorporating here might seem attractive due to the rigorous secrecy, most people prefer the greater stability offered in nearby Vanuatu, Samoa, Cook Islands, and Marshall Islands.

See also

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