The Christian Science Monitor reports on the Cayman Islands, stating that, for a territory of just more than 56,000 people, the three-island British territory boasts an impressive corporate roster, from some of the favorite US brands like Coca-Cola and Federal Express to the world’s richest sports franchise, English football club Manchester United. Furthermore, the article says, it has more than 92,000 registered companies, most of which do the majority of their business elsewhere. Here are excerpts with a link to the full article below:
A check around the Caribbean reveals similar stories. The islands have long been attractive because they collect little or no taxes. They’ve built economies around financial services, which has proven a more reliable source of income than tourism in recent years. And over time they’ve helped foreign companies and well-heeled individuals reduce their tax bills. Among them is the hedge fund Bain Capital, of Mitt Romney fame, which became a lightning rod for criticism during the presidential campaign.
But something happened on the way to tax haven status: Caribbean governments have accumulated massive debts they are struggling to repay. Without the taxes most governments use to pay for the costs of running public works projects or social programs, the bills have added up. With little in the way of economic expansion – The United Nations forecasts 1.6 percent growth this year for the Caribbean – governments are turning to other means. Well-known tax shelters from the Cayman Islands to the Bahamas to the British Virgin Islands are considering new fees and taxes that would directly affect foreign investors.
[. . .] In the BVI, Mr. Smith proposed an increase in trade license fees, which businesses are required to purchase to operate there, and to base work permit fees on salary levels, meaning higher-paid workers, many coming from large companies with multimillion dollar payrolls, would pay more. His counterpart in the Cayman Islands has proposed an increase in registration fees for hedge funds. And in the Bahamas, the government is considering a sales or value added tax as well as a broad-based corporate tax for the first time. “This is coming from the same pressure that is affecting other governments around the world: the need to raise revenue,” says Bruce Zagaris, a Washington-based lawyer who has advised Caribbean governments on tax matters. “Small countries, like those in the Caribbean, are more limited in the ability to raise revenue. In many, such as the Bahamas and Cayman Islands, there is no income tax.” [. . .] Raising taxes is never easy or popular. But taxes are generally so low or nonexistent in the Caribbean that raising them comes only in dire straits.
Assets in the Cayman Islands total more than $1.6 trillion, while the proposed registration fees would total less than $3 million. [. . .] “These amounts are so small compared to the level of money that is being made and invested,” says Andrew Schneider, president and chief executive of Global Hedge Fund Advisors, which has helped numerous hedge funds establish in the Caribbean. Mr. Schneider says the hedge fund industry is expanding at a pace not seen in years, with sector growth between 20 percent and 30 percent. The growth has increased demand for banks and companies that assist funds in setting up. And they are looking to established, trustworthy tax havens, such as the Caribbean. “I think this is a perfect time for the governments to increase fees,” Mr. Schneider says. [. . .]