News: Island offshores: The dawn of a new era?

Under the EU’s influence and in the attempts to get rid of their status as “bad” jurisdictions, longestablished island offshores are starting to adopt laws to introduce requirements on the actual business operations of companies-tax residents in these offshores. The changes may render it unfavourable or even make it impossible to hold money and assets in these offshores (e.g. the British Virgin Islands [BVI]) through companies without adequate business activities. Since the intricacies of the new laws are still under analysis, we will give you a broader picture of what is currently happening.

Which offshores will be affected?

Bermuda, BVI, the Cayman Islands, Guernsey, Jersey, the Isle of Man, Mauritius, Bahamas and Seychelles have already adopted the respective legislation. It is expected that the UAE and other low-tax jurisdictions will follow their example. In the appendix hereto, you can find reference links to the respective laws in each offshore for your own information.

What is meant under actual business activities?

All these laws generally look alike because they follow the requirements set by the EU. To summarise, the core requirements for local companies include:

• the employment of qualified personnel in the jurisdiction. Headcount and employee qualifications must be in line with the company’s operations;
• an equipped office in the jurisdiction. The office area and other features must be in line with the company’s operations;
• proper and reasonable costs incurred in the jurisdiction for providing support to the company.

These new laws have yet to formulate particular criteria. Professional advisors from some of the jurisdictions (including BVI) expect to receive clarifications from state regulators.

Let us highlight the key aspects of this new legislation in BVI as an example.

• The new legislation will cover not only new companies founded after the legislation’s enactment but all local companies as well. That being said, the requirements will not affect those companies that are tax residents in other jurisdictions.
• The first period subject to the new requirements should start no later than 30 June 2019.
• Violations of statutory requirements (e.g. the non-provision of information) will result in heavy fines (at least USD 5,000 for the first violation). In some cases, the offenders may be subject to criminal liability or offending companies may be stricken off from the register of legal entities.
• The limitation period for these violations will be six years (unless the violation was deliberate).

Practical questions now

Before state regulators launch compliance audits, local service providers and banks can start to introduce additional KYC acceptance procedures and obtain information for state reporting.

What are the next steps?

If you have any offshore companies or structures, it may be reasonable to start considering whether the laws will affect them and to consider possible strategies (e.g. liquidation, restructuring, increasing presence in the jurisdiction or moving to other jurisdictions [e.g. Russia] etc.).

Appendix