St Vincent & The Grenadines

by Investors Offshore Editorial, July 2012, 06 July, 2012

Whilst the Caribbean state of St Vincent and the Grenadines is probably best known as a tourist destination and hideaway for the well-heeled, the former British colony is also emerging as a well governed and regulated financial jurisdiction to rival the more prominent offshore finance centres in the region.

The state of St. Vincent and the Grenadines (commonly shortened to SVG) is located approximately 1,600 miles southeast of Miami and 100 miles west of Barbados, forming part of the Windward Islands at the southern end of the Lesser Antilles chain. In a typically Caribbean setting, the country itself consists of a group of 18 small islands, with a total population of just under 104,000 (2011). The largest of these islands is St Vincent, a lush volcanic island just 18 miles north to south and 11 miles wide. Its capital, Kingstown, has a natural deep-water harbour and the island is dominated by the 3,000ft (950m) volcano, Soufriere which last erupted in 1979.

The tropical climate of the south-eastern Caribbean ensures that the temperature in the area varies little the year round. Rainfall however, is a different matter. July is the wettest month when there is measurable rainfall for an average of 26 days, while April, the driest month, averages six days of rain. January to May tend to be the driest and most popular months with tourists. Generally, the Grenadines have a drier climate than St Vincent.

From 1763 until independence, St. Vincent passed through various stages of colonial status under the British. Following a referendum in 1979, the territory became the last of the Windward Islands to gain independence and SVG is now a self-governing parliamentary democracy, with a common law system based on the British model. The currency is the Eastern Caribbean Dollar (ECD) which is linked to the USD at an exchange rate of 2.7 ECD to 1 USD, and is managed by the Eastern Caribbean Central Bank, which has its headquarters in St. Kitts. However, in addition to the US dollar, the British pound and the Canadian dollar are widely used in the islands, although major credit cards are not as widely accepted in SVG as they are on other Caribbean islands. Nevertheless, plastic can be used at most hotels, car rental agencies and dive shops.

The Economy

In the past, the country's economy was based on income from sugar and more latterly bananas, although tourism has since superseded agriculture as SVG's biggest earner. The rate of economic growth, which had averaged 4% percent a year during 1997-99, declined to zero in 2001 and 2002, then picking up until it was a strong 7% in 2007, although it moderated to 2.8% in 2008 before plunging to -6.5% in 2009, hit by weak US tourism demand. Growth in St. Vincent and the Grenadines continues to be affected by the global slowdown through its impact on tourism and Foreign Direct Investment (FDI). In addition, the two recent natural disasters—hurricane Tomas in October 2010 and torrential rains and floods in April 2011—have also taken a toll. After a contraction of 1.8% in 2010, growth in 2011 remained negative, moderated by reconstruction activity after Hurricane Tomas. Growth is expected to recover in 2012 and reach its potential level of 3.5% over the medium-term, provided recovery in advanced economies does not stall

Debt is high, and the country has a budget deficit; the IMF has been giving support. The reductions in domestic income tax rates are being financed by receipts from VAT, which was introduced in 2007 at 15% to replace a number of sales taxes.

Like other such International Offshore Financial Centres (IOFCs) SVG's economic growth has been restricted somewhat by a combination of events such as climatic problems, September 11 and the need to remodel the financial services sector to appease the OECD and FATF (Financial Action Task Force). Accordingly, an ambitious programme of policy reforms designed to strengthen the public finances, achieve higher growth, lower unemployment and reduce poverty is underway.

The Offshore Finance Authority (later the International Financial Services Authority (IFSA)) was created by Parliament to institute a new system to manage and supervise the financial services industry. After a certain amount of pruning in the financial services sector in 2001, SVG was given a clean bill of health by the FATF in June 2003, putting its offshore economy on a more stable footing and enabling steady growth in the industry.

Tax and Transparency

St. Vincent and the Grenadines operates a favourable taxation regime for international entities, which are not subject to tax under the country's laws. Furthermore, under the domestic tax regime there is no capital gains tax, no inheritance tax, and no tax on dividends. 'Onshore' business income, that is, income derived from trading within the jurisdiction, is subject to corporate income tax at a rate of 32.5%. However, under the Fiscal Incentives Act 1982 (as amended by Act No.16 of 1991), tax holidays of up to 15 years are available for companies which export their products, or which add value to goods in the SVG. In particular, the government encourages investment in light manufacturing, agro-industries, tourism-related projects, financial services and information & communication technologies.

From 2009, income tax is levied on all persons whose chargeable income is more than ECD18,000 per annum whilst National Insurance (social security) Contributions are payable from salary up to ECD51,996 per annum at rates of 3% for the employer and 2.5% for the employee. Capital and profits may be freely repatriated up to a limit of USD100,000 whilst amounts exceeding this sum require approval before repatriation. Also there are no exchange controls on current transactions under USD100,000.

Withholding Tax is payable on income due to non-residents: rentals attract 10% and all other payments 20%.

Non-payment of property tax has been a problem for the jurisdiction's government. But in the 2011 budget, delivered in February 2011, Prime Minister and Finance Minister Ralph Gonsalves set in motion an overhaul to the islands’ property tax system with a market value-based assessment system replacing the previous annual rental value-based system. The reforms are to be accompanied by a compliance drive to crack down on those with outstanding property tax balances from previous years, and tackle non-compliance by property owners failing to pay the levy. Gonsalves said of 40,700 properties listed during the assessment, tax is being paid for just 25,940.

The tax is currently levied at a flat rate of 5% on all real property except rural land, which is taxed at a specific rate per acre. A reduced rate of 2.5% applies to hotels and agricultural property, and a rate of 1.5% applies to tourism related development. However, rental values are administratively difficult to determine, especially in areas where almost all the properties are owner-occupied, and his 2012 budget speech, Gonsalves said that the new tax will instead be imposed at a rate of 0.08% on the market value of a property. This is expected to increase the average property tax bill by 15%, but the government intends to introduce a cap so that no property owner will face a tax increase of more than 25%.

Gonsalves also proposed to grant a Tourism Development Incentive Credit to investors who are developing tourism related properties for sale. This credit will be limited to the equivalent of five percent (5%) of the selling price of each property and will only be used for settlement of the stamp duty payable by the developer on initial sale of the property. Any subsequent re-sale of the property will be liable to the stamp duty in full. To qualify for this incentive credit the project must include a minimum of twenty units and an initial investment of not less than USD10m.

In 2009, SVG responded speedily to the international community's demand for IOFCs to conclude Tax Information Exchange Agreement (TIEAs), and on June 22, 2010, concluded its 20th such agreement, with Canada. “We are not opposed to signing tax agreements; we are a responsible country and want to see cooperation particularly where there may be instances of the use of the proceeds of crime and the facilitation of money laundering,” Gonsalves stated at the time.

SVG was placed on the OECD white list on March 24, 2010, and in April 2012, the OECD confirmed that the territory has adequate frameworks in place to meet international standards on tax transparency and information exchange. This followed the successful completion of the first Phase of the Global Forum's Peer Review Process, which assesses nations' frameworks for exchanging tax information, including agreements signed with other nations to facilitate such exchanges.

As part of efforts to meet the requirements of Phase 1, the government passed the International Co-operation (Tax Information Exchange Agreements) Act, 2011, to ensure effective information exchange. To date, SVG has signed 31 agreements, 10 under double tax agreements, and 21 under dedicated tax information exchange agreements.

Completion of the first phase will allow SVG to proceed to the second phase, where the Global Forum will assess the territory's framework for the exchange of information in practice. This is scheduled to take place in the second half of 2013, and the government said that it remains committed to implementing standards that will contribute towards greater transparency and international cooperation in tax matters.

The Financial Centre

Banking, trusts, insurance and mutual funds form the cornerstone of the finance industry, although the registration of International Business Companies has also become a strong growth area for SVG.

In the offshore banking sector, the regulator has concentrated its efforts on ensuring that only well managed and adequately staffed banks with a physical presence are licensed in the jurisdiction, and therefore, no shell banks will be found in SVG. At present there are only a handful of banks licensed to conduct international banking business, all of which are subject to on-site examinations by the authorities every 12-18 months.

The IFSA collaborates with the Saint Kitts-based Eastern Caribbean Central Bank in the licensing and supervision of offshore banks, and SVG banking firms must adhere to strict staffing requirements. Under the International Banks Act, 1996 institutions must have local employees and a minimum of one IFSA-approved director.

Whilst SVG in the past afforded a high degree of confidentiality to account holders, the exchange of information legislation passed in 2002 and 2011 in order to bring the jurisdiction in line with international anti-money laundering and tax transparency standards has of necessity compromised this to a certain extent.

As mentioned above, the SVG offshore sector also caters to the mutual fund industry, which is governed by the Mutual Funds Act 1997 (as amended in 1998). The act provides for the licensing of both domestic and offshore mutual funds and licenses can be granted either for private and accredited funds or public funds. There are no capital adequacy requirements or minimum subscription limits placed on public funds although they must maintain accounting records and financial statements as well as publish a prospectus and file it with the IFSA.

The legal structure that can form the basis of a St. Vincent mutual fund includes an incorporated company, a partnership or a unit trust. It can include an umbrella type fund. Open ended, closed ended and integral funds are allowed.

A Public Fund means a mutual fund which offers any shares it issues for subscription or purchase to any interested member of the general public. All public funds registered must publish a prospectus and file it with the IFSA. There are no capital adequacy requirements or minimum subscription limits placed on public funds. Also they must maintain accounting records and financial statements. Public funds that intend to do business with residents must also submit an offering document synopsis to the IFSA.

A private or accredited fund is a mutual fund that either has no more than fifty investors or issues shares on a private basis. An accredited fund issues shares only to accredited investors, with an initial investment of not less than USD25,000. An accredited investor is one who has a net worth in excess of USD1m.

Fund administrators and managers are required to apply to the Authority for a license. The Act provides that a natural person, any mutual fund, company, trusts or trustee may apply for a license to carry on business as administrators or managers. Applicants must show evidence that they have or have available to them expertise and resources necessary to carry out the business proposed. The applicant must meet standard fit and proper requirements.

The international insurance sector has also been identified by the government as an additional growth area for SVG. The sector is currently governed by two Acts passed in 1998 and 1999 which attempt to create a high quality legal and regulatory framework designed to attract market participation and offer flexibility to insurers wishing to conduct international insurance business.

Under this regime insurers have a choice of five classes of international insurance companies, designed to accommodate both the largest and the smallest insurance enterprises and allowing for a diverse range of activity, as follows:

The IFSA is soon expected to fall under the umbrella of the Financial Services Authority (FSA), a new single regulatory organisation, in an effort to enhance and strengthen the regulatory and supervisory capacity of the jurisdiction. The FSA will have responsibility for the regulation of the international and domestic financial services sector, except for domestic banks which are regulated by the Eastern Caribbean Central Bank. The domestic entities that will be regulated at the FSA include, money remitters, building societies, insurers and insurance intermediaries, and credit unions. The international financial entities currently regulated by IFSA will also fall under the FSA.

In his 2012 budget speech, Gonsalves announced that the FSA will review all existing legislation under its jurisdiction, and propose relevant amendments "to ensure that all the laws and regulations meet the required standard for the promotion of a safe and sound financial environment". Gonsalves proposed that the Building Societies Act, the Insurance Act and the Mutual Fund Act would be the first statutes to be reviewed, in 2012.

The FSA will also focus on improving the image and awareness of the jurisdiction on the international market, Gonsalves revealed. "The aim is to ensure that St. Vincent and the Grenadines is viewed as an attractive alternative jurisdiction where sound and positive financial service products and top quality services are offered," he said. "To achieve this objective the FSA will forge strategic partnerships with stakeholders including ISVG and the FIU (Financial Intelligence Unit). This will help to create an effective network to better enhance the technological, business and economic capacity of the International Finance Services Sector. The FSA will work closely with the international agencies to ensure the soundness and integrity of the sector and ultimately the reputation of St. Vincent and the Grenadines as a secure financial centre."

Entry And Buying Land

All visitors to SVG must have valid passports and a return or ongoing ticket. However, nationals of Canada, UK and the USA need only proof of citizenship (a valid or expired passport, certified birth certificate or Certificate of Naturalization and photo identification) along with an onward/return ticket and/or proof of sufficient funds.

The acquisition of land by non-residents is governed by the Aliens Holding Ordinance, and all foreign nationals wishing to obtain land in the state must apply to the government for a license. Applications fall into two categories: those involving an acre of land or less; and those involving more than one acre of land. For an acre of land, the application must contain an approved plan for development and an execution of conveyance. However, for more than one acre of land, the process is a lot more involved and one is required to submit a development plan for the entire area.


In terms of communications within the jurisdiction, UK telecommunications firm Cable and Wireless (now known as LIME in the Caribbean region) provided most of the telephone services in the country until recently, with fax, cable and internet services also in wide use. The government has nominally liberalized the telecommunications market, but in July 2007, Digicel Group Ltd, a fast growing wireless telecommunications operator in the Caribbean and Central America, issued a claim in the English High Court against Cable and Wireless plc and various of its subsidiaries, alleging that it had been the victim of a co-ordinated effort on C&W’s part to prevent and delay Digicel launching competing mobile telephone networks in St Lucia, St Vincent & the Grenadines, Grenada, Barbados, the Cayman Islands, Trinidad & Tobago and the Turks and Caicos Islands.

Fixed line telephone services are currently provided by three operators: LIME, Digicel and Karib Cable. Mobile services are provided by LIME and Digicel while internet services are available from LIME and Karib Cable.

Getting to and from the country itself is not straightforward: there are no direct long-haul flights to St Vincent's E.T. Joshua Airport and visitors must first fly to neighbouring islands such as Barbados or Trinidad before taking a connecting flight with a regional carrier such as LIAT, Mustique Airways or Air Martinique. Work on the construction of a much needed USD200m international airport began in mid-2008, but, after a series of delays, it is not due for completion until mid-2013.

Nevertheless, the country is well served by maritime links and Kingstown's harbour can accommodate two ocean-going cruise ships. The islands are also particularly suited to exploration by yacht. Indeed many of SVG's beaches, scattered around the many islands, are inaccessible by any other means.


So, with its location somewhat off the beaten track and its miles of unspoilt sandy beaches, SVG may be an attractive proposition to those wishing to buy or build a holiday home in the Caribbean away from the tourist throng of more popular destinations, or acquire a Robinson Crusoe existence on one of the untouched islands. And besides the excellent schnorkelling and laid back lifestyle, the country is also an interesting and nowadays well-regulated base for the expatriate or international investor.


Tags: Economy | Tax | Communications | Insurance | Saint Vincent and the Grenadines | Organisation for Economic Co-operation and Development (OECD) |


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