Many companies in Jamaica and other territories have found it convenient to register as an international business company (IBC) in St Lucia because of taxation and other benefits which exceed those in their home country.

Benefits under the Eastern Caribbean country’s IBC law previously included tax-free status, including no payment of corporate, income, or capital gains taxes. There was no requirement for a minimum authorised capital or paid up share capital and none of the shareholders and directors names are included in the public records.

IBC’s electing to be tax free were not required to file accounting records or financial statements. No audits were also required.

Among Jamaican companies which tapped the benefits are Proven Investments Limited (PIL) which also bought the Bank of St Lucia International. In December 2016, PIL entered into an agreement to purchase 100 per cent of the Bank of St Lucia International Ltd (BOSLIL), a wholly owned subsidiary of the East Caribbean Financial Holding Company Ltd (ECFH), a publicly traded company listed on the East Caribbean Securities Exchange.

St Lucia, which is a member of the Organisation for Economic Co-operation and Development’s (OECD), has elected to make some changes to increase government revenue collections and improve challenges affecting the country as a tax haven. Changes will take effect on July 1, 2021.

Caribbean Business Report ( CBR) reached out to taxation expert and group head of accounting firm Dawgen Global, Executive Chairman Dawkins Brown, to clarify how changes will affect companies which are registered as IBCs in St Lucia.

Dawkins Brown stated that some of the confusion is unfounded and is due to lack of professional advice.

The new territorial tax system for all companies originated from the Organisation for Economic Co-operation and Development’s (OECD) Harmful Tax Practices – 2018 Progress Report on Preferential Regimes publication on January 24, 2019.

This report ushered in a new territorial system under which non-resident companies are taxed on Saint Lucia-source income only.

The gross amount of such income is liable to 25 per cent withholding tax (WHT), while WHT of 15 per cent applies to interest. Associations of underwriters are taxed at 30 per cent on 10 per cent of the gross premium arising in Saint Lucia, and life insurance companies are taxed at 30 per cent on 10 per cent of the gross investment income arising in St Lucia.

Dawkins Brown stated, “It is my view that the majority of the Jamaican companies who are registered in St Lucia does not earn income from St Lucia and hence will not be affected by the resident tax in accordance with the new territorial tax system.

“Most Jamaican companies are controlled through a permanent establishment (PE) in Saint Lucia. However, they will be affected by the resident tax on income earned from St Lucia.”

Brown outlined, “Proper tax planning enables companies and individuals to legally AVOID unnecessary tax expenses. The IBC structure worked as an effective planning tool in the past and will evolve overtime and hence planners will need to become agile and make changes in keeping with regulatory tax changes in St Lucia.”

Brown added that it is important to note that the changes in St Lucia will have more effect on individual shareholdings than the companies themselves.

Any dividend paid by an international business company, which does no business in Saint Lucia, to another international business company, or to persons, trusts or other entities which are not residents, shall be exempt from any tax.

But withholding tax is levied on certain payments of an income nature to non-residents eg royalties, management charges, commissions, fees. The rate is 25 per cent. Double tax agreements will apply. IBCs themselves are exempt from withholding tax.

The following changes will apply to IBCs incorporated after January 1, 2019:

• They will no longer be able to elect to be exempt from income tax or to be liable to income tax on chargeable income at one per cent.

• IBCs are now deemed resident and subject to the provisions of the Income Tax Act.

• Filing of annual tax returns is required.

• Provisions of the Act relating to stamp duties, withholding tax and income tax have been amended.

• Payment of income tax, stamp duties and withholding taxes will apply with some limited exceptions.

• Will be subject to the Aliens (Licensing) Act.

• Will not be restricted from doing business with residents and may own immovable property.

• IBCs registered prior to 2019 will continue to benefit from the pre-amendment provisions of the Act until June 30, 2021.

• IBCs which elected to pay tax at one per cent will continue to file an annual tax return.

• All IBCs are required to file annual returns (Shareholders, Directors and Beneficial Owners) and unaudited financial statements but only with the Registered Agent.

• Registers of shareholders, directors and beneficial owners are required to be kept at the registered office.

• The registered agent is required to report by providing a list of companies in default of any of the filing requirements.

• There are penalties for failure to supply the returns to the registered agent.

In conclusion, the taxation expert outlined, “the new rule enables Saint Lucia to reset its international financial services sector framework by moving to a territorial tax system where all companies incorporated in Saint Lucia can now operate both domestically and internationally and where foreign sourced income earned by Saint Lucian companies is not liable to taxation, provided the companies meet approved economic substance requirements.”

Dawkins Brown stated, “It is worthy to note the action of the G7 countries that recently reached an agreement to set a ‘global minimum’ tax rate for multinational corporations. The nations agreed to push for a minimum tax rate of 15 per cent — a move aimed at curbing the use of tax havens. As global tax planners we will need to monitor the actions of tax authorities over the next few years and adjust accordingly.”