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by the Investors Offshore Editorial Team, Augsut 2011, 26 August, 2011
In common with many of its
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 105,000 (July 2010 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 five-day-per-week 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 plan includes widening the scope of sales tax and a new 10% 'Recovery Charge' on all non-oil imports and domestic production.
In March 2011, following the second and third reviews of the local economy by the IMF under the 36-month stand-by arrangement, John Lipsky, IMF First Deputy Managing Director said that there were signs of a recovery. However, despite the government having made good progress in achieving structural reforms, levels of investment are still below pre-crisis levels.
"Recent indicators point to moderate positive growth in 2011 based on some improvement in the tourism sector," Lipsky said. "However, private and foreign direct investment, remittance flows, and construction spending are still below pre-crisis level. All end-December quantitative targets under the Fund-supported program were met, despite the continued weak economic performance in 2010 and revenue shortfalls relative to initial program projections. The overall fiscal balance improved significantly as result of expenditure restraint, interest savings from debt restructuring and, to some extent, enhanced revenue efforts. Continued vigilance is necessary as risks remain high, including those related to increasing global food and fuel prices and the domestic banking sector."
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-styled regional parliament has also been agreed. The regional parliament, part of the new OECS governance structure, is likely to be headquartered in Antigua and would include representations from Prime Ministers and opposition leaders in member countries. The assembly will have 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 International Financial Sector Regulatory Authority (IFSRA). 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. An IBC licence to carry on international banking attracts a fee of US$15,000 (EC$40,500).
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 is to stand trial in the US in September 2011 over a USD8bn Ponzi scheme, while the head of the islands' financial regulator, Leroy King is being extradited to the US accused of accepting bribes from Stanford.
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 (FSRC), 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, Antigua and Barbuda's Financial Services Regulatory Commission (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 which will provide a series of business incentives and tax concessions targetting manufacturers, small- and medium-sized businesses and the tourism industry.
The manufacturing sector will benefit from three measures. Effective August 1, import duty will be waived on all raw materials, packaging material and machinery in respect of manufacturers. The recovery charge on such items will also be waived. These incentives will be reviewed after six months. A 'bonded warehouse regime' will also be introduced, which will allow 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 will be available from August 1, which will enable authorized businesses to access credit facilities from authorized financial institutions. The guarantee will be 80% of the approved loans, up to a maximum of ECD20,000 (USD7,400), with the guarantee period covering the life of the loan, from the first drawdown date. Up to ECD2.5m has been guaranteed by the Antigua Barbuda Development bank for the project. In addition, the scheme will target 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 will benefit 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 will be increased from 10.5% to 12.5%, but Lovell insisted that this has been 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 will offer 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 in 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 passed the Leach Act 2001, criminalising 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.
As of 2011 the jurisdiction continues to hope for a negotiated settlement with the US and hesitates to apply the sanctions it has been permitted.
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 Penrosetheon July 21, 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 Actions 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.
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.