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Whilst the Caribbean state of St Vincent and the Grenadines is probably best known as a tourist destination and hideaway for the well-heeled (Princess Margaret had a holiday home on Mustique for many years and Mick Jagger, who still has a home there, is a regular visitor), the former British colony is also emerging as a well governed and regulated financial jurisdiction to rival the more prominent offshore finance centres in the region.

The state of St. Vincent and the Grenadines (commonly shortened to SVG) is located approximately 1,600 miles southeast of Miami and 100 miles west of Barbados, forming part of the Windward Islands at the southern end of the Lesser Antilles chain. In a typically Caribbean setting, the country itself consists of a group of 18 small islands, with a total population of just uner 104,000 (2011). The largest of these islands is St Vincent, a lush volcanic island just 18 miles north to south and 11 miles wide. Its capital, Kingstown, has a natural deep-water harbour and the island is dominated by the 3,000ft (950m) volcano, Soufriere which last erupted in 1979.

The tropical climate of the south-eastern Caribbean ensures that the temperature in the area varies little the year round. Rainfall however, is a different matter. July is the wettest month when there is measurable rainfall for an average of 26 days, while April, the driest month, averages six days of rain. January to May tend to be the driest and most popular months with tourists. Generally, the Grenadines have a drier climate than St Vincent.

From 1763 until independence, St. Vincent passed through various stages of colonial status under the British. Following a referendum in 1979, the territory became the last of the Windward Islands to gain independence and SVG is now a self-governing parliamentary democracy, with a common law system based on the British model. The currency is the Eastern Caribbean Dollar (EC$) which is linked to the US$ at an exchange rate of 2.7 EC$ to 1 US$, and is managed by the Eastern Caribbean Central Bank, which has its headquarters in St. Kitts. However, in addition to the US dollar, the British pound and the Canadian dollar are widely used in the islands although major credit cards are not as widely accepted in SVG as they are on other Caribbean islands. Nevertheless, plastic can be used at most hotels, car rental agencies and dive shops.

The Economy

In the past, the country's economy was based on income from sugar and more latterly bananas, although tourism has since superseded agriculture as SVG's biggest earner. The rate of economic growth, which had averaged 4% percent a year during 1997-99, declined to zero in 2001 and 2002, then picking up until it was a strong 7% in 2007, although it moderated to 2.8% in 2008, plunging to - 6.5% in 2009, hit by weak US tourism demand. Growth of 0.5% was estimated for 2010 with a 2% increase forecast for 2011.

SVG Prime Minister and Finance Minister, Ralph Gonsalvez, delivering the country's 2010 budget in February, 2010, disclosed that measures would introduced in the near future to again reduce the tax burden on companies. “Across the board there has been a reduction of the standard rate of company tax and personal income tax from 40% in 2001 to 32.5% at present. My government intends to reduce this further as soon as the economic circumstances permit. Exporters to CARICOM and extra regional markets have taxation rates as low as 15%.” Debt is high, and the country has a budget deficit; the IMF has been giving support. The reductions in domestic income tax rates are being financed by receipts from VAT, which was introduced in 2007 at 15% to replace a number of sales taxes.

In the 2011 budget, delivered in February 2011, Gonsalves set in motion an overhaul to the islands’ property tax system as a result of which the current system under whereby property is assessed based on its annual rental value will be phased out in favour of a market value-based assessment system. Gonsalves said steps to introduce the new tax system will be taken in 2011, and will include a compliance drive to crack down on those with outstanding property tax balances from previous years, and tackle non-compliance by property owners failing to pay the levy. He said of 40,700 properties listed during the assessment, tax is being paid for just 25,940.

Gonsalves also proposed to grant a Tourism Development Incentive Credit to investors who are developing tourism related properties for sale. This credit will be limited to the equivalent of five percent (5%) of the selling price of each property and will only be used for settlement of the stamp duty payable by the developer on initial sale of the property. Any subsequent re-sale of the property will be liable to the stamp duty in full. To qualify for this incentive credit the project must include a minimum of twenty units and an initial investment of not less than USD10m.

St. Vincent and the Grenadines operates a favourable taxation regime for international entities, which are not subject to tax under the country's laws. Furthermore, under the domestic tax regime there is no capital gains tax, no inheritance tax, and no tax on dividends. Income tax is levied on all persons whose chargeable income is more than EC$18,000 per annum whilst National Insurance (social security) Contributions are payable from salary up to EC$51,996 per annum at rates of 3% for the employer and 2.5% for the employee. Capital and profits may be freely repatriated up to a limit of US$100,000 whilst amounts exceeding this sum require approval before repatriation. Also there are no exchange controls on current transactions under US$100,000.

Like other such Offshore International Financial Centres (OIFCs) SVG's economic growth has been restricted somewhat by a combination of events such as climatic problems, September 11 and the need to remodel the financial services sector to appease the OECD and FATF (Financial Action Task Force). Accordingly, an ambitious programme of policy reforms designed to strengthen the public finances, achieve higher growth, lower unemployment and reduce poverty is underway.

The Offshore Finance Authority (later the International Financial Services Authority (IFSA) was created by Parliament to institute a new system to manage and supervise the financial services industry. After a certain amount of pruning in the financial services sector in 2001, SVG was given a clean bill of health by the FATF in June 2003, putting its offshore economy on a more stable footing and enabling steady growth in the industry.

In 2009, SVG responded speedily to the international community's demand for such OIFCs to conclude Tax Information Exchange Agreement (TIEAs), and in on June 22, 2010, concluded its 20th such agreement, with Canada.

This TIEA was signed in Kingstown, St. Vincent by the territory’s Prime Minister and Minister of Finance, Ralph Gonsalves and the Canadian High Commissioner, Ruth Archibald. According to Gonsalves: “It was always the intention of St. Vincent and the Grenadines to sign such agreements despite the threat of sanctions by the OECD.”

“We are not opposed to signing tax agreements; we are a responsible country and want to see cooperation particularly where there may be instances of the use of the proceeds of crime and the facilitation of money laundering,” he stated.

St Vincent and the Grenadines was placed on the OECD white list on March 24, 2010, and the government said that it remains committed to implementing standards that will contribute towards greater transparency and international cooperation in tax matters.

Banking, trusts, insurance and mutual funds form the cornerstone of the finance industry although the registration of International Business Companies has also become a strong growth area for SVG.

The Financial Centre

In the offshore banking sector, the regulator has concentrated its efforts on ensuring that only well managed and adequately staffed banks with a physical presence are licensed in the jurisdiction, and therefore, no shell banks will be found in SVG. At present there are only a handful of banks licensed to conduct international banking business, all of which are subject to on-site examinations by the authorities every 12-18 months.

The IFSA collaborates with the Saint Kitts-based Eastern Caribbean Central Bank in the licensing and supervision of offshore banks, and SVG banking firms must adhere to strict staffing requirements. Under the International Banks Act, 1996 institutions must have local employees and a minimum of two OFA-approved directors, one of whom must be resident in the jurisdiction. Whilst SVG in the past afforded a high degree of confidentiality to account holders, the Exchange of Information Act passed in 2002 in order to bring the jurisdiction in line with international anti-money laundering standards has of necessity compromised this to a certain extent.

As mentioned above, the SVG offshore sector also caters to the mutual fund industry, which is governed by the Mutual Funds Act 1997 (as amended in 1998). The act provides for the licensing of both domestic and offshore mutual funds and licenses can be granted either for private and accredited funds public funds. There are no capital adequacy requirements or minimum subscription limits placed on public funds although they must maintain accounting records and financial statements as well as publish a prospectus and file it with the OFA.

The international insurance sector was also identified by the government as an additional growth area for SVG. The sector is currently governed by two Acts passed in 1998 and 1999 which attempt to create a high quality legal and regulatory framework designed to attract market participation and offer flexibility to insurers wishing to conduct international insurance business.

Prime Minister Gonsalves said in his 2011 budget speech that the IFSA has seen a reduction in the number of registrations of new entities, in particular international banks and international insurers since 2009. Revenue from IFSA fees amounted to $3.4 million in 2010, 3.1% below the amount collected in 2009.

In 2011, the IFSA is expected to fall under the umbrella of the Financial Services Authority, a single regulatory organisation, in an effort to enhance and strengthen the regulatory and supervisory capacity of the jurisdiction. At the same time, INVEST SVG, the organisation charged with responsibility for marketing the sector, will step up its marketing efforts.

Entry And Buying Land

All visitors to SVG must have valid passports and a return or ongoing ticket. However, nationals of Canada, UK and the USA need only proof of citizenship (a valid or expired passport, certified birth certificate or Certificate of Naturalization and photo identification) along with an onward/return ticket and/or proof of sufficient funds.

The acquisition of land by non-residents is governed by the Aliens Holding Ordinance, and all foreign nationals wishing to obtain land in the state must apply to the government for a license. Applications fall into two categories: those involving an acre of land or less; and those involving more than one acre of land. For an acre of land, the application must contain an approved plan for development and an execution of conveyance. However, for more than one acre of land, the process is a lot more involved and one is required to submit a development plan for the entire area.

Communications

In terms of communications within the jurisdiction, UK telecommunications firm Cable and Wireless (now known as LIME in the Caribbean region) provided most of the telephone services in the country until recently, with fax, cable and internet services also in wide use. The government has nominally liberalized the telecommunications market, but in July 2007, Digicel Group Ltd, a fast growing wireless telecommunications operator in the Caribbean and Central America, issued a claim in the English High Court against Cable and Wireless plc and various of its subsidiaries, alleging that it had been the victim of a co-ordinated effort on C&W’s part to prevent and delay Digicel launching competing mobile telephone networks in St Lucia, St Vincent & the Grenadines, Grenada, Barbados, the Cayman Islands, Trinidad & Tobago and the Turks and Caicos Islands.

Fixed line telephone services are currently provided by three operators: LIME, Digicel and Karib Cable. Mobile services are provided by LIME and Digicel while internet services are available from LIME and Karib Cable.

Getting to and from the country itself is not straightforward: there are no direct long-haul flights to St Vincent's E.T. Joshua Airport and visitors must first fly to neighbouring islands such as Barbados or Trinidad before taking a connecting flight with a regional carrier such as LIAT, Mustique Airways or Air Martinique. Work on the construction of a much needed US$200m international airport began in mid-2008, but, after a series of delays, it is not due for completion until mid-2013.

Nevertheless, the country is well served by maritime links and Kingstown's harbour can accommodate two ocean-going cruise ships. The islands are also particularly suited to exploration by yacht. Indeed many of SVG's beaches, scattered around the many islands, are inaccessible by any other means.

As communications improve, real estate agents are describing the once-isolated chain of islands as an emerging investment market. "Confirmation of the construction of the new international airport on St Vincent is the final piece in the jigsaw, in what has been a whirlwind rise to international awareness. Once an isolated chain of islands, St Vincent and the Grenadines are now one of the most talked about emerging markets," said Dave Ames of Harlequin Property. "With a keen eye on tourism and the obvious financial rewards that are associated with increasing numbers of visitors the international airport will help springboard St Vincent and the Grenadines into a new era of prosperity, which shrewd international investors will also benefit from," added Mr Ames.

Summary

So, with its location somewhat off the beaten track and its miles of unspoilt sandy beaches, SVG may be an attractive proposition to those wishing to buy or build a holiday home in the Caribbean away from the tourist throng of more popular destinations, or acquire a Robinson Crusoe existence on one of the untouched islands. And besides the excellent snorkelling and laid back lifestyle, the country is also an interesting and nowadays well-regulated base for the expatriate or international investor.