One famous author wrote in the late 1970’s that the Turks & Caicos Islands were a tax haven waiting to be discovered. Recent reports show there are about 10,000 exempted companies in this British crown colony a few hundred miles southeast of Nassau Bahamas. It appears the Turks & Caicos Islands have finally arrived.

 

Drafting legislation unmistakenly similar to that earlier enacted in the Cayman Islands, the Turks & Caicos Islands look to capture their share of the offshore tax haven business by offering lower incorporation fees than in Cayman. Both exempted and ordinary companies can be formed in the TCI for about ½ what you would spend for the same company in the Cayman Islands. Government registration fees are $275 for ordinary companies and $325 for exempted companies. Annual fees are $300.

 

Total costs (including lawyers, trust companies, agents and a registered office) are right about $1,000. Note, this is slightly higher than in the Bahamas. Further, none of the major airlines have direct flights to the Turks & Caicos Islands, and air fare is substantially higher than a flight to Nassau.

 

Currently there are some 10,000 exempted companies in the TCI. In addition, 1,100 captive insurance companies have been registered since the enactment of the Insurance Ordinance 1989.

 

The Companies Ordinance 1981 was introduced to cater to the needs of the international financial community which comprise a diverse range of end-users, including attorneys, tax-advisers and private investment banking institutions. Some of the advantages under the new Ordinance include:

 

-          Political stability, with a history of peace and a low crime rate.

-          Geographically well positioned in the same time zone as New York City.

-          The official currency is the U.S. dollar; there are no exchange controls.

-          Registration fees are lower than in most competing jurisdictions, and professional fees competitive.

-          The Registry itself is extremely efficient. As  a matter of course, a company is incorporated on the incorporation documents usually being completed and available within twenty-four hours.

-          A flexible and workable companies law giving rise to highly streamlined procedures of statutory administration.

-          Official recognition of the importance of the Islands’ economy for the development of a financial service industry and outgoing support at high levels of Government.

 

Ordinary and Exempted Companies

 

There are two main types of companies, the ordinary and the exempted company. There is also a third category of foreign company of which there are few in number.

 

The procedure for registering both ordinary and exempted companies are basically the same. Three copies of the Memorandum and Articles of Association are lodged together with the prescribed fee. Forms of Memorandum an Articles of Association are prescribed in schedules to the Companies Ordinance for both ordinary and exempted companies, and may be adopted in whole or in part. The subscriber(s) to the Memorandum of Association of an exempted company must file a declaration that the operations of the company will be carried on mainly outside the Islands. Agents lodging an application for registration must hold appropriate license issued pursuant to the business Licensing Ordinance.

 

There is a legal requirement for a minimum of only one shareholder who may be an individual or a corporation. The liability of members may be limited to guarantee or to the amount unpaid on their shares. Shares may be of no par value, and the Articles of Association may include the power to issue shares in bearer form.

 

All companies must have a registered office within the Islands and exempted companies must also nominate a representative resident in the Islands for the purpose of service of process.

 

Special Privileges for Exempted Companies

 

-          Confidentially. No requirement to file details of shareholders or directors.

-          Authorized capital may be in any currency with no requirement that the word “Limited” or “Ltd.” Be part of the name.

-          Objects may be unrestricted.

-          No requirement for annual general meeting of shareholders. Directors hold office until replaced.

-          Availability of Governor’s Undertaking conferring exoneration from future direct taxation and any increases in annual filing fees.

 

Confidentiality

 

As well as Part VIII of the Companies Ordinance, which applies specifically to business affairs of exempted companies, the Confidential Relationships Ordinance of 1979 imposes duty of confidentiality upon banks, professional advisers, and other persons holding positions of trust. Both these laws impose criminal sanctions for unauthorized disclosures. The Islands have no double taxation agreements with any antion, thus no exchange of tax information is provided by the Turk government.

 

Transfer to and from the Jurisdiction is Unrestricted, Fast and Easy

 

Part IX of the Companies Ordinance makes provision for the transfer into the islands of companies incorporated in other jurisdictions. The law of the country of incorporation must not prohibit such transfers, and there are safeguards to protect the interests of creditors and shareholders. The company, on being transferred, becomes registered as if it was incorporated as an exempted company and registration fee is determined accordingly.

 

A company wishing to be in the position to transfer in the future at short notice may obtain a “standby” permit which can be activated without delay at a later date.

 

There are corresponding provisions in the Ordinance for transfers out of the jurisdiction by exempted companies registered in the Islands.

 

Government Fee

 

According to the Turk government, fees are unlikely to be increased in the immediate future. Currently, the fee to register an ordinary company with a nominal capital of up to $50,000 is $275. There is a sliding scale up to a nominal capital exceeding $2,000,000 at which level the fee reaches a maximum of $2,050. The fee to register an exempted company with a nominal capital not exceeding $5,000 is $325. Above $5,000 there is a sliding scale which, at the point where the nominal capital exceeds $100,000, reaches its maximum of $1025, plus 1/10^th of 1% of the amount by which the nominal capital exceeds $100,000.

 

The annual fee, which is unaffected by capitalization, is $250 for ordinary companies and $300 for exempted companies. Exempted companies upon application to his Excellency the Governor, obtain exoneration from both increases in fees and the future imposition of direct taxation for a period of up to twenty years. The fee for this concession is $500 and the annual fee is $150.

 

Trusts

 

An important example of an area of law as yet unaltered by statue is that of trust. This allows for a great deal of flexibility in the creation of trust, but insofar as the applicable law is in some cases as it was in England prior to the Trustees Act of 1925, there are certain areas which could benefit from statutory interference. These is already in force a Trusts (Special Provision) Ordinance, which gives persons using approved trustees the ability to invoke certain provisions of the U.K. Trustee Act and to abrogate certain rules of equity such as the rule against perpetuities and the rule requiring certainty of objects. However, this law does not seem to be widely utilized, and a New Jersey-style law of trusts will be legislated as part of the overall package of legislation expected to be passed by Legislative Council in early 1989.

 

Island of Providenciales

 

The island of Providenciales has been the site of some major investment in recent years. It seems twenty-five years ago a rich American names Fritz Ludington, en route by plane from the Bahamas to Haiti, was attracted by the pristine white beaches and the exceptional color of the ocean, and so landed on Providenciales to check it out. Further enthused by the friendliness of the inhabitants, Ludington returned home and was successful in engendering a group of friends from the old-monied Roosevelt and DuPont Nemours families. Together they established a development company named Provident Limited, which in turn negotiated the right to purchase 4,000 acres of Crown Land for 1c per acre. Work then began on the cutting of a road, the building of an airstrip, and the construction of the first hotel and marina. This was the beginning of the tourist industry and development of real estate on Providenciales.

 

More recent Providenciales developments include the site for a 700-bed Club Med Village, and an international airport financed by the British Government to the tune of $12,000,000. Club Med opened in December, 1984 and saw an additional $25,000,000 in new investment. As tourism increased, the island began to grow competitive with the other better known tax havens of Cayman, Bahamas and Bermuda. The surfacing of many roads and a modern telecommunications system have made the island even more attractive to visitors.

 

While land prices have doubled in the seven years since 1985, today’s prices are still five to six times lower than those better known Caribbean islands such as the Caymans and St. Barthelemy. One has to wonder how much longer this will last. Already there is a Ramada Inn. And French builder Pierre Gely has completed at least one condominium and a marina for pleasure yachts in Leeward, on the eastern tip of Providenciales.

 

Further development is expected on the rest of the islands. The accessibility of the islands of North, Middle and East Caicos will be improved by a road system similar to that which serves the Florida Keys. Grand Turk, Salt Cay, Pine Cay and Parrot Cay are also expected to see new developments in the future.

 

Turks Attract Two Giant U.S. Firms

 

In August 1995, the Turks & Caicos Islands (TCI) Government amended its exempt companies legislation to allow the registration of a “limited life company” (LLC). A limited life company can be incorporated without the usual corporate characteristics of perpetual life, free transferability of ownership interests and centralized management while retaining the principal liability for members. Entities such as LLCs will be treated as partnerships by the IRS, where expenses and incomes are passed through to the partners.

There has been a growing demand in the United States for the LLC following its recognition by the Inland Revenue Services as a “transparent” entity similar to a trust or partnership. This means that its profits and losses are regarded as attributable to the partners rather than to the company itself.

 

Texaco, Inc. and Enron Corp. have both taken advantage of the new legislation to set up TCI LLCs, and have used them to issue preferred shares with cumulative fixed rates of dividends. The whole of the proceeds raised by the issue are on loan to the parent companies, so that dividends paid on the preferred shares are deductible as if they were interest payments. Since the Turks & Caicos Islands have no taxes whatsoever, no withholding taxes will be made on the dividend pay-out. Had the same issue been offered out of New York or London, a 30% withholding tax would have applied to the dividend pay-out (absent a lower treaty rate).

 

Texaco Capital LLC announced the issue of US$350 million of Cumulative Guaranteed Monthly Income Preferred shares (MIPS) on 27 October, as US$25 per share, with an annual dividend rate of 6.9%, callable at par after 5 years. The payment of dividends and payment on liquidation or redemption of preferred shares are guaranteed by the parent company – Texaco Inc.

 

Enron Corp. a US company engaged in exploration, transportation, and marketing of natural gas, registered Enron Capital LLC in October and issued US$200 million of MIPS in a public offering through the new company in November at an annual dividend rate of 8%.

 

The public offerings were underwritten by international investment houses including Goldman Sachs & Co. which were responsible for the development of the MIPS. The MIPS of both Texaco and Enron will be listed on the New York Stock Exchange.