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by the InvestorsOffshore Editorial Team, August 2012, 17 August, 2012
In common with many of its Caribbean neighbours, Antigua & Barbuda, the subject of this Investors Offshore jurisdiction focus, is a location more synonymous with the upmarket end of the tourist trade than as a place in which to invest. Whilst tourism is indeed an important part of the nation's economy, a notable offshore financial industry has in fact been developed by government over the last two decades, helped along by some generous business and personal tax incentives, the major aspects of which we will attempt to cover here.
As the name suggests, Antigua & Barbuda is two separate islands forming one country, located in the Eastern Caribbean. The larger of the islands, Antigua, covers approximately 108 square miles, whilst its smaller sister, Barbuda, (located about 30 miles north) is a mere 68 square miles in area. Both enjoy clement weather conditions, with average temperatures of around 75F (24C) in the winter and 85F in the summer. Visitors arriving outside of the traditional tourist season (January to June) however, should be wary of the hurricane season, which usually lasts from June to September.
The total resident population numbers around 89,000 (July 2012 est) and as a former British colony English is the predominant language. Although the country has been independent since 1981, Queen Elizabeth II remains the official head of state and strong British influences have survived; the legal system is based on English common law, and evidence of Britain's legacy can be seen in the islands' cultural and sporting life. As a popular destination for British tourists, the country is well served by direct air links to the UK: British Airways operates a frequent service whilst other major carriers from the UK, Europe and the US also fly direct into Antigua's V C Bird International Airport, which is located in the north east of the island.
The currency unit of Antigua & Barbuda is the Eastern Caribbean dollar (shared by several neighbouring islands) which is pegged to the US dollar at a fixed rate of 2.70 to 1; but US dollars are widely accepted within the islands, and other major currencies are readily exchanged.
Antigua was quite badly hit by the global downturn in 2009, with GDP dropping 7%, and government finances are under strain. The IMF is assisting with stand-by financing, and the jurisdiction is implementing wide-ranging fiscal reforms intended to return the government's budget to balance by 2012. The government has taken action to consolidate the nation's finances, including by increasing petroleum product prices, and cutting the public sector. Tax measures were announced in the 2010 Budget worth 4.5% of Gross Domestic Product. These included an expansion in the value-added tax base, an increases in import duties and excise taxes on alcohol and tobacco, together with steps to improve tax administration and compliance. The deficit had narrowed to 1% of GDP by 2011.
On June 1, 2012, the IMF said following completion of fourth, fifth and sixth reviews under the stand-by arrangement that despite a pick-up in tourist arrivals, growth prospects remain well below their pre-crisis level. The collapse of a major bank in 2011 has presented an additional challenge to the banking system, and its resolution will add to the public debt. However, the Fund noted that the government continued to make progress in fiscal consolidation particularly through expenditure control and revenue-enhancing reforms. "Advances in debt restructuring helped reduce the public debt and debt service burden. Continued fiscal consolidation will be necessary to ensure fiscal and debt sustainability," the IMF said. "Timely implementation of structural reforms in revenue administration and public financial management will be particularly important."
Antigua belongs to the Organisation of Eastern Caribbean States (OECS), along with Dominica, Grenada, Montserrat, Saint Kitts and Nevis, Saint Lucia, and Saint Vincent and the Grenadines. The grouping has signed a treaty establishing an economic union in the Caribbean and providing for the removal of trade barriers between member states.
On December 30, 2010, Antigua and Barbuda became the first signatory to ratify the Revised OECS Treaty of Basseterre, a first step toward establishing the OECS Economic Union. An agreement signed by OECS governments in January 2011 committed them to the free movement of nationals within the sub-region by August 1, 2011. The establishment of an European-style regional parliament was agreed. The regional parliament, part of the new OECS governance structure, was inaugurated on August 10, 2012 in Antigua and includes representations from Prime Ministers and opposition leaders in member countries. The assembly has legislative authority in eight areas ranging from finance and trade to immigration.
International Business Companies
As previously mentioned, besides the important economic pillar of tourism, Antigua & Barbuda has sought to attract investment through the development of an offshore financial services industry, which it set about doing with the passing of the International Business Corporations Act in 1982 soon after gaining independence from the UK. The offshore industry is regulated by the Financial Services Regulatory Commission (FSRC). Here are some of the major benefits provided to IBCs under the 1982 Act, (as amended):
The annual government fee for registration of an Antiguan IBC, which can be carried out by a locally registered trust company, an accountant or attorney, is US$300 (EC$810).
Additionally, an IBC with an international insurance licence is permitted to engage in any insurance business other than domestic insurance. Demonstrated capital of at least US$250,000 must be maintained at all times. The fee for an insurance IBC licence is US$10,000.
There are also significant tax advantages to be gained through the formation of a locally administered trust company. Antiguan trusts are not subject to any taxes on inheritance, profits, income, dividends, or on any capital assets or gains.
The government has also sought via legislation to facilitate the development of an offshore banking industry. Within 15 years of the IBC Act, some 70 offshore banking institutions had established in the jurisdiction. However, some sacrifices have had to be made in the wake of international pressure, forcing an emphasis on quality rather than quantity as new money laundering regulations were introduced between 1999 and 2001, and by 2008 the number of licensed international banks was steady at around 20.
There are currently three categories of banking licence in Antigua and Barbuda, as follows:
Annual licence fees for banking insititutions are as follows: Class I USD25,000; Class II USD15,000; Class III USD35,000.
Banks are supervized by the Eastern Caribbean Central Bank. The reputation of Antigua's banking sector was hit though in 2008 when the financial empire of Allen Stanford collapsed. He stood trial in the US in January 2012 over a USD8bn Ponzi scheme and was sentenced to 110 years in jail in June. The former head of the islands' financial regulator, Leroy King, is accused of accepting bribes from Stanford and is fighting extradition to the US. An appeal against his extradition was turned down by the Eastern Caribbean Supreme Court of Appeal in March 2012.
Following the arrests of Stanford and King in 2009, Verlyn Faustin, head of the International Financial Services Providers Association of Antigua and Barbuda, defended the jurisdiction as a reputable well-regulated jurisdiction:
“In light of the recent US indictments of Stanford International Bank’s Allen Stanford and Leroy King, former head of the Antigua and Barbuda Financial Services Regulatory Commission, we must emphasize that the international financial services regulated in our country are operated with integrity and in accordance with the highest standards of fiduciary practice. The jurisdiction is comprised of many hard-working professionals who do not tolerate fraud, fiscal wrong doing and other financial crimes, and who continue to honor best practices with respect to international banking standards and prudent self-regulatory controls,” he stated.
In its own statement in July, the FSRC announced that:
“The Commission takes this opportunity as the regulator of international banks and other international financial institutions in Antigua and Barbuda to reaffirm its unequivocal commitment to the protection of depositors and the public as well as the preservation of Antigua and Barbuda’s reputation as an offshore banking jurisdiction. We will continue to pursue excellence and to address issues in an ongoing effort to better serve the public.”
Besides this framework of offshore business structures, Antigua & Barbuda also provides a series of separate tax incentives for qualifying investors, as laid down in the Fiscal Incentives Act. Depending on the type of business involved, these give investors potentially long tax holidays. Typical investor concessions may include:
Antigua reintroduced Personal Income Tax from 2005. There is an annual personal allowance of ECD36,000, and the first ECD60,000 of pension income is exempt. There is a graduated scale of tax rates from 10% to 25%. To become a resident of the jurisdiction for tax purposes, individuals must either have their permanent place of abode in the islands, or reside there for a minimum of 183 days in a year. Here are some other key tax rules applying to domestic businesses (but not, of course, to IBCs):
In July 2011, Antigua and Barbuda's Finance Minister Harold Lovell unveiled a stimulus package containing a series of temporary business incentives and tax concessions targetting manufacturers, small- and medium-sized businesses and the tourism industry.
The manufacturing sector benefited from three measures. Effective August 1, 2011 import duty was waived on all raw materials, packaging material and machinery in respect of manufacturers. The recovery charge on such items was also waived. A 'bonded warehouse regime' was also introduced, which allowing manufacturers to defer payment of the Antigua Barbuda Sales Tax (ABST) while materials are warehoused. Lovell said that the government will continue to work with stakeholders to produce a new strategy for sustainable growth and development, fiscal incentives, trade policy measures and infrastructure development.
For SMEs, a Credit Guarantee Scheme was made available from August 1, 2012, enabling authorized businesses to access credit facilities from authorized financial institutions. Up to ECD2.5m has been guaranteed by the Antigua Barbuda Development bank for the project. In addition, the scheme targets a series of priority areas, namely agro-processing and related services; health and wellness (indigenous spas and alternative therapies); indigenous craft; art and cultural activities; tourism related services (tours and new attractions); software development, and manufacturing.
The tourism sector benefited from the extension of a set of incentives first introduced in 2008. These provide for certain customs duties exemptions for items relating to the refurbishment and furnishing of hotels. The sales tax for hotels was increased from 10.5% to 12.5%, but Lovell insisted that this was agreed in cooperation with industry representatives, and the revenue will be used solely for marketing and promotion.
The government has also launched the Construct Antigua Barbuda Initiative. This offers duty free concessions on locally purchased construction materials, reduced mortgage rates and discounts from contractors and suppliers who register under the scheme.
To encourage a limited number of high net worth individuals to establish tax residency tax in Antigua and Barbuda, in June 1995, the government introduced a permanent residence scheme. To obtain a permanent residence certificate under this scheme, the applicant must:
There is also a residential property tax, which is based upon the current reconstruction cost of a property, in addition to a surcharge.
Another interesting facet of Antigua & Barbuda's offshore economy is its development as an internet gaming hub. More than 530 e-gaming websites were based in Antigua and Barbuda by 2007.
However, just as the jurisdiction was becoming one of the world's most reputable offshore gaming centres, it had the rug pulled from under its feet when the US Congress criminalized offshore gambling by US citizens. This led US credit card providers and payment services to refuse to process betting transactions between US citizens and offshore casinos and gaming sites.
The loss of such a large market prompted the Antiguan government to challenge the US law. Led by Antigua's redoubtable foreign affairs representative Sir Ronald Saunders, Antigua took its complaint to the WTO, which eventually found in favour of the tiny Caribbean nation.
However, the passage in October 2006 of the Unlawful Internet Gambling Enforcement Act dealt yet another blow to Antigua's online gaming market.
Following the passage of the legislation, Antigua and Barbuda's Minister of Finance, Dr Errol Cort, just back from a visit to the US to persuade officials to accept the WTO's anti-US ruling on Internet gambling, expressed shock and dismay.
Dr Cort observed that: "It is remarkable that on the heels of our visit, during the course of which we highlighted the desire of Antigua to amicably work together with the United States Government in ensuring the safe delivery of these services to consumers in America, the Congress should choose to further protect their remote domestic industry at the cost of countries such as Antigua and Barbuda, where these services are highly regulated."
While expanding domestic opportunities for legal gaming, the US legislation effectively bans all international and inter-state online gaming, by making it illegal for banks and credit card firms to make payments to such internet operations. The provisions were tacked by then Senate Majority Leader, Bill Frist (R-Tenn) onto an unrelated bill on port security.
The US unsuccessfully challenged the WTO's ruling, and then withdrew from its WTO obligations with regard to free trade in the gambling area. The WTO allowed Antigua and Barbuda to impose USD21m worth of retaliatory measures against the US, although this is considered to be a drop in the ocean compared to the billions in revenue the island may lose as a result of the US legislation. Antigua had initially asked for USD3.4bn in damages.
In its desperation to resolve the dispute, the government of Antigua and Barbuda has approached the Director General of the WTO, Pascal Lamy, in the hope that his considerable influence will convince the Americans to reopen talks. The government reported in the summer of 2012 that Lamy had responded cautiously to the proposal as the United States would have to agree to the process before the mediation effort could begin. Lamy said he was awaiting a substantive response from the United States on the matter.
Encouragingly however, Ambassador Colin Murdoch, the permanent secretary in Antigua and Barbuda's Department of Trade, Industry and Commerce reported that he had came away from meetings with Lamy with the view that the office of the WTO Director-General was engaged in a genuine effort to help resolve a difficult case that had pitted the world’s largest economy against one of the world’s smallest.
"Lamy appeared keen to preserve the legitimacy of the WTO dispute settlement system and to have the WTO play a positive role in the outcome," Murdoch said. "It remains to be seen whether the US will agree that an impartial voice in the room, not beholden to either side, can bring value-added to the process."
Meanwhile, Antigua's gaming sector has continued to do business in other parts of the world, notably in the UK, where it is 'white-listed', ie Antiguan firms can advertise and offer Internet gaming services by virtue of their Antiguan licences. However, proposals by the coalition government in the UK to tighten up the licensing regime for gambling operators is another worrying development for the jurisdiction.
The new proposal, announced by Department of Culture Media and Sports (DCMS) Minister, John Penrose on July 21, 2011 will require overseas operators to obtain a license from the UK Gambling Commission in order to transact with British consumers and advertise in the UK. The DCMS anticipates that the pending changes will not come into force until primary legislation has been amended in late 2012. Accordingly, until such time, the new policy will not impact Antiguan licensees, and the current 'white-list' status system will be upheld.
The development prompted the government of Antigua and Barbuda to issue a statement, which said that Finance Minister Harold Lovell "is confident that the UK Government and British Gambling Commission will continue to work with Antigua and Barbuda and other white-listed jurisdictions to maintain their confidence in our respective regulatory regimes, as Antigua cooperates with other jurisdictions consistent with recommendations of the Financial Action Task Force (FATF)."
"Minister Lovell anticipates that the Financial Services Regulatory Commission, particularly the Director of Gaming, Ms. Kaye McDonald will continue efforts with UK counterparts and others in the International Association of Gaming Regulators technical working group in pursuit of a harmonized approach enshrined in international best practices," the statement added.
Offshore gambling firms were also dealt a blow in the United Kingdom's 2012 Budget, which amends the tax rules applicable to the supply of gambling services to the UK market. Wagers will now be taxed on a point-of-consumption basis, bringing offshore operators under the UK tax net. The change will mean that any wagers taken in the United Kingdom, whether supplied by an overseas operator or not, will be subject to UK gambling levies.
Internet gaming facilities are deemed to be financial institutions under the law. They are regulated by the financial regulator, IFSRA and are subject to the following rules:
License applicants must pay an up-front, non-refundable fee of USD15,000 to cover due diligence.
The Antiguan Directorate of Offshore Gaming currently lists eleven active licensees.
Despite its financial travails in recent years, Antigua & Barbuda at present remains a favourable environment for the high-net-worth expat or investor with a light tax burden, a well-regulated offshore sector allowing the establishment of tax-efficient IBCs or trusts, a banking system that conforms to international standards, and relative political and economic stability. And it's a beautiful place.