The offshore financial centres have been forced in recent years to review almost every aspect of the ways in which they operate in response to the international anti- money laundering laws and initiatives by major economies such as the E.U. and the U.S.A. to increase co-operation in the areas of preventing tax avoidance and tax evasion. These pressures continue and it is clear that the only way forward is for these centres to eliminate, as a priority, all forms of discrimination between different classes of taxpayer. Some jurisdictions have taken active steps to secure their futures, but some have difficulty in doing so and some are having to give up the struggle.
Gibraltar’s tax haven status to be scrapped
Gibraltar is an example of a territory with a discriminatory tax regime. A non-resident may form a company there, which pays an annual flat tax of between £225 and £300. The same company owned by a local resident may pay tax at 35% on its profits. Gibraltar is a member of the E.U. and a dependent territory of the U.K. It was recently announced that Britain, threatened by Court action, has given into E.U. demands to abolish the special tax regime.
The Gibraltar exempt company regime will accordingly close as from July 2006 and will be abolished altogether in 2010. In the intervening period the number of companies benefiting from the scheme will be capped at 8464 and any company, which changes ownership, will lose the benefit immediately.
Jersey
Jersey is another territory, which may encounter problems. It relies heavily on the financial sector for its revenue, much of which is generated from a flat corporation tax on companies, owned by non residents, but conducting their trading activity elsewhere, in much the same way as Gibraltar.
The Island is considering introducing a goods and services tax and/or a zero rate corporation tax as part of its solution to the problem. In the meanwhile the debate goes on. The local newspaper has reported that some fund managers would like to join the E.U. and a former Economic Advisor to the government has been quoted as saying that any clamp down on its tax haven status would force the Island to consider joining. In more colourful language, one of the members of a local professional body is reported as having said that the jurisdiction would "self-implode within three years" because "it is staggeringly dependent on corporation tax".
Problems Onshore
It is not only the offshore centres, which are feeling the pressure. The E.U. is attacking the Dutch International Financing Activities scheme and the Belgian co-ordination centres scheme. In the U.S. the I.R.S. has forced Mastercard to supply records of transactions of U.S. residents with accounts in Antigua, Barbuda, the Bahamas and the Cayman Islands. The government has entered into exchange of information agreements with these territories and is negotiating agreements with Panama and the British Virgin Islands.
Buying property in Portugal
Portugal has long been a popular choice for people, particularly from the colder climates of Northern Europe, looking to purchase a holiday home or a retirement home. Traditionally they have done so using offshore companies, mainly to avoid estate taxes. Unfortunately Portugal, along with some other countries, has made this route considerably less attractive by the imposition of swingeing tax penalties on offshore companies. The magnitude of these penalties can be seen from the examples below,
Taxation of Isle of Man Companies from April 2006
At the present time a company incorporated in the Isle of Man, owned by non-residents and which complies with the other statutory requirements, is not liable to Isle of Man taxation. Whilst locally trading companies pay tax at 18%, a qualifying offshore company pays a flat annual tax of £475 or £1,000.
Yacht and Ship Registration in the Isle of Man
The maritime history of the Isle of Man dates from the eighteenth century and the Island is recognised internationally as an efficient and well- run centre for both registration and management. It was ranked third in the world by Port State Authority in September 2004.
