Introduction
As the world tentatively emerges from an economic downturn which left few, if any unscathed, it is important to reflect upon the changes in landscape in order to map the road ahead. The 2010 Offshore Investment Company Formation Survey reveals interesting patterns which indicate significant developments in the International Financial Arena.
Company Formations – down but not out!
Unsurprisingly, company registrations are down from those reported in our 2009 survey which revealed 356,420 new registrations across 23 jurisdictions, for which figures were provided. A direct comparison reveals 256,536 registrations in the 2010 survey, representing a 99,884 drop across the board and an average drop of 4,343. Some jurisdictions felt this more than others with New Zealand experiencing a considerable reduction of more than 30,000. Aruba, the Cook Islands and Vanuatu all observed increased registrations. Hong Kong saw a staggering increase in registrations with 109,424 new companies formed in 2009, representing an increase of 10,779 from 2008 figures, and driving home the message that China is fast emerging as a world superpower which cannot be ignored; Hong Kong serving as a gateway into China. Offshore Investment has identified the need for more focused attention to be placed on this rapidly developing sector and the inaugural Offshore Investment Conference Shanghai will take place on the 9th & 10th of June 2010. This event is already attracting unprecedented interest (see page 5 for more information.)
Innovative Developments
Despite a drop in registrations, the signs for future development are evident and it is clear that international financial centres are moving forward and preparing for an upsurge in interest in what is emerging as a highly competitive environment. Economic downturn acts as a catalyst for the development of new and innovative products; many of the world's most successful and enduring, multibillion-dollar corporations, from Disney to Microsoft, were founded during economic downturns. International Financial Centres are no exception to this trend with many jurisdictions introducing new and improved legislation and adding new innovative products to their repertoire. Private Foundations have received much attention with jurisdictions such as Jersey, Seychelles and Labuan promulgating legislation to include these structures in their product portfolios and Mauritius expecting to pass legislation enabling Private Foundations in 2010. Liechtenstein, the pioneer of the concept of “the Private Interest Foundation”, not to be left behind, completed a far reaching reform of the laws governing Foundations on 1 April 2010, correcting mistakes which had surfaced in the 80 years since the inception of the innovative structure. Foundations were catapulted into the spotlight when Panama enacted legislation in 1995 and the continued popularity of the product is evident with 32,388 Private Foundations registered in the jurisdiction at the end of 2009, averaging 2,313 per year with a significantly higher than average level of registrations at 6301 for 2009.
The Survey also uncovers a growing trend towards protected cell companies and incorporated cell companies, with the Isle of Man expecting to pass legislation enabling the formation of incorporated cell companies in 2010. The new, all encompassing legislation, recently promulgated in Labuan, enables the creation of protected cell companies as well as limited liability partnerships and private foundations (as above). It also covers shipping operations, Labuan special trusts and financial planning activities. Other additions to financial product portfolios include the introduction of companies limited by guarantee and hybrid companies in the Seychelles.
Islamic Finance
Islamic finance has gained increased attention with the underlying risk-sharing principles proving attractive. 2009 saw a plethora of jurisdictions overhauling their legislation to facilitate Islamic financial products. France introduced tax neutrality laws in an attempt to go head to head with the UK for the title of European hub for Islamic finance, Labuan introduced an omnibus Islamic Financial Services and Securities Act as part of its legislative overhaul in February 2010. Hong Kong and South Korea have also taken measures to develop their Islamic finance sectors.
A New Era of Transparency and Information Exchange
A key theme of 2009 was the mounting pressure on all jurisdictions to conform to international standards of transparency and information exchange. The assertation by the G20 in April 2009 that “the era of bank secrecy is over” and an agreement to take action against “non-cooperative jurisdictions, including tax havens” prompted jurisdictions to come forth, and declare a willingness to acquiesce to international standards of transparency and information exchange set by the OECD, fuelled by the support of the high-tax, developed nations, under the guise of clawing back the billions in unpaid taxes purported to be sheltered offshore. A progress report assigning financial centres to “blacklists, grey lists and white lists” spurred an unprecedented reaction with a staggering total of 199 Tax Information Exchange Agreements signed in 2009. Since publication of the progress report on 2 April 2009, not one jurisdiction remains on the blacklist with 25 being elevated to “white list” status. 22 jurisdictions remain on the “grey list” and many of these are close to achieving the 12 TIEA threshold for promotion to the “white list”. Tax amnesties and high profile cases such as UBS and the IRS are proving catalytic to the death of bank secrecy and many believe that it is only a matter of time before the nails are in the coffin. To reflect this new era of transparency, we included additional questions in the Survey to establish the jurisdictions in which regulators are empowered to request information on the identity and background of beneficial owners, and accounting information on companies. We then asked whether this information could be exchanged with other jurisdictions. International Financial Centres are clearly embracing this new era of transparency with the majority answering yes, albeit subject to certain conditions being met and to Tax Information Exchange Agreements, Double Tax Agreements or the European Savings Directive in most cases. Panama and Turks and Caicos are the only jurisdictions not to exchange information; Panama having no exchange treaties in place.
Major Legislative Changes in 2009
Other major amendments uncovered in the Survey include the promulgation of: The Companies Amendment Act 2009 in Bermuda; The Companies (Amendments) Act 2009 in the Isle of Man; The Insolvency Act 2009 in Mauritius; The Insurance (Amendment) Act in Vanuatu; and The Trustee Companies Amendment Act 2009 in Samoa. Nevis amended its Business Corporation Ordinance and The Limited Liability Company Ordinance 1995. Cyprus introduced the Auditors and Statutory audits of Annual and Consolidated Accounts Law 2009 regarding the preparation of accounts and it is likely we will see similar changes in other jurisdictions as the preparation of accounts and reporting standards become increasingly important.
Developments Predicted for 2010
2010 is shaping up to be an equally lively year on the legislative front with Cyrpus expecting the passage of The Regulation of Fiduciaries, Company Directors and Corporate Service Consultants Bill; The Bahamas anticipating promulgation of The International Business Companies (IBC) Act; Samoa envisaging amendments to the International Trusts Act 1987; and the United Arab Emirates, significantly, predicting the 51% local shareholder requirement for an LLC will be abolished permitting 100% foreign ownership in LLCs.
Conclusion
2009 was a busy year in the International Financial Arena and the Survey reveals encouraging signs that jurisdictions are adapting to the ever changing demands, with an expansion of product portfolios and an acceptance of transparency and information exchange standards. However, care must be taken with new products. The popularity of the new foundation, hailed as an alternative to a trust, does not mean the trust, with its centuries of case law and tried and tested usage, should be flippantly discarded; the Private Foundation is a relatively new product which must be treated with care and individually tailored to meet each client’s needs. In a competitive environment it is often better to excel in one area than be mediocre across the board.
The world is changing rapidly; wealth is shifting; China, Russia, Brazil, India, the Middle East are all emerging as major players on a world scale, transparency and information exchange can no longer be avoided, tax competition is very much alive and well, the distinction between offshore and onshore is ever decreasing, clients are becoming more demanding, seeking high level advice from reputable sources and increased regulation and compliance is inevitable.
As confidence returns and wealth begins to filter back into the system, exciting opportunities exist for forward thinking Financial Centres that are willing to embrace these changes. |
