Your Taxes: Doing business in Antigua and Barbuda

The jurisdiction offers generous investment opportunities on the bedrock of a long tradition of political stability.

By VERLYN FAUSTIN, MELINE ST. HILAIRE, LEON HARRIS
Antigua, Barbuda and Redonda form the independent nation of Antigua and Barbuda, within the British Commonwealth of Nations. Redonda is an uninhabited rocky islet of less than a square mile, located 32 kilometers southwest of Antigua. The islands are located midway between the Leeward Islands, 330 km. southeast of Puerto Rico. Israelis have begun to show interest in Antigua and Barbuda for two reasons - investment in this developing country and investment in other countries via a company or trust formed there. Antigua and Barbuda gained independence on November 1, 1981. It is a member of the Commonwealth of Nations and the 157th member of the United Nations. The state is also a member of the Caribbean Community (Caricom), the Organization of Eastern Caribbean States (OECS), the Organizations of American States (OAS), the World Bank and the International Monetary Fund (IMF). Antigua and Barbuda is a constitutional monarchy with a British-style parliamentary system of government. The reigning British monarch is represented in Antigua by an appointed governor general as the head of state. The government has three branches: legislative, executive and the judiciary. The jurisdiction offers generous investment opportunities on the bedrock of a long tradition of political stability. The economy is small and open; with tourism accounting for more than 50 percent of the GDP. The country's official currency, the Eastern Caribbean dollar, is fixed to the US dollar at a rate of EC$2.70 per US$1.00. Its international telecommunications are good, with direct access into the global stream of financial and business data. While the government intervenes in the economy as a regulator in some instances, the private sector is the dominant force in the economy. Successive governments have upheld the principle of free enterprise, and have respected the agreements and commitments made between previous administrations and investors. The right to the enjoyment of property is a fundamental right under Antigua and Barbuda's Constitution. Property can only be nationalized in exceptional circumstances, and even in such cases fair compensation must be paid promptly. In 2006 Antigua passed the Investment Authority Act. This Act established the Antigua and Barbuda Investment Authority (ABIA), and gives this body the right to set incentives for investment (both local and foreign direct) into Antigua. The authority is charged with providing fiscal incentives to investors wishing to do business in Antigua and Barbuda. An investor may receive the following concessions: • tax exemption on the import of all necessary raw materials, building materials, furniture, appliances, etc.; • duty-free exemption on the purchase or import of new vehicles; • property tax reduction of up to 75%; • income tax exemption of up to 20 years; • loss carried forward for up to six years; • reduction of stamp duties on land transfers and land holding permits of up to 75%; • withholding tax exemption of up to 20 years. In 1982, Parliament enacted the International Business Corporations (IBC) Act. The IBC Act has undergone a series of amendments to strengthen the jurisdiction's position on anti-money laundering, terrorist financing and adherence to international regulatory standards. Among other things, the IBC Act established the Financial Services Regulatory Commission (FSRC) as the regulator for international financial services and non-banking domestic services. The FSRC is a statutory corporation and is managed by a board of directors. All IBCs are fully exempt from direct taxes in respect of any international trading, investment or commercial activity, including corporate, withholding tax and stamp duties. The IBC Act assures confidentiality in client affairs and provides criminal penalties for any disclosure of the business affairs of customers regarding banking and trust matters. The only exception for the disclosure of information relates to sound evidence regarding an alleged criminal offence that is prosecutable in Antigua and Barbuda (or which would have been prosecutable, if it had been committed in Antigua and Barbuda), or pursuant to an order of the High Court of Justice in Antigua. Efforts are ongoing to improve the international financial sector, and where necessary, diversify its product offerings. In particular, the government has been working with key industry and legal experts to develop new and innovative products that will increase the number and types of international businesses registered in Antigua and Barbuda. As a result of this initiative, the government recently passed a series of laws (International Trust Act 2007, International Foundations Act 2007, Limited Liability Companies Act 2007) that will make Antigua and Barbuda a major jurisdiction for asset and wealth management. What about the Israeli tax side? If an Antiguan international business company or trust is used to invest in third countries, there should be no Antiguan tax to worry about. You will need to address your attention to taxes in the other countries concerned, including Israel if you are an Israeli resident. Among other things, consider Israeli anti-avoidance provisions concerning: • control and management/business in Israel; • controlled foreign company; • foreign professional company; • withholding tax on payments or finance sent from Israel; • artificial or fictitious transactions; • transfer pricing of intercompany transactions - should be on arm's-length terms. This need not be daunting. Many multinational groups use countries like Antigua and Barbuda as a hub for tax efficient supply chains - such as technological ownership, purchasing goods and services, and selling them to customers around the world. If done in an appropriate way, this can be a legitimate way of reducing tax and increasing profits. Specialist advice is vital. As always, consult experienced tax advisors in each country at an early stage in specific cases. vfaustin@abifinancial.com leon.harris@il.ey.com Verlyn Faustin manages the wealth management firm of ABI Trust Ltd and is a member of the executive management team of the ABI Financial Group. Meline St. Hilaire is a trust officer at ABI Trust Ltd. Leon Harris is an International Tax Partner at Ernst & Young Israel.