If you’re a fan of offshore businesses, you might want to pay attention to this latest news. The Commonwealth of Dominica announced on June 8th, 2021, that it was closing its International Business Companies (IBC) registry from January 1st, 2022. This move is likely to have ripple effects throughout the offshore business industry, so let’s take a closer look at what happened and what it could mean for you.
International Business Companies (IBCs) are popular legal entities used by businesses seeking to conduct international business transactions.
IBCs offer a number of advantages, including limited liability, tax efficiency, and asset protection. However, it is important to note that they can also be used for money laundering and other illicit activities, which has led the Dominica government to come under pressure to close its IBC registry in recent years.
In 2019, the European Union (EU) placed Dominica on its blacklist of non-cooperative jurisdictions for tax purposes due to concerns about financial crime. The following year, the Organisation for Economic Co-operation and Development (OECD) added Dominica to its “gray list” of countries that have committed to reforming their tax systems but have not yet done so. However, after almost a year, European Union agreed to remove Dominica from its tax haven’s list.
The closure of the IBC registry is part of the Dominican government’s efforts to improve its compliance with international standards and make its financial system more transparent. All IBCs registered in Dominica were wound up by December 31st, 2021, and it’s no longer possible to form new IBCs in the country.
The termination of the IBC regime is likely to have far-reaching consequences for both local and international businesses operating in Dominica. For one thing, it could lead to an increase in the cost of doing business in the country. This is because businesses will no longer be able to take advantage of the lower taxes that were once available to IBCs.
It’s also worth noting that the closure of the IBC registry could deter foreign investment in Dominica. This is because many investors choose to use IBCs as a way to reduce their exposure to risk. Without the option of setting up an IBC, some businesses may decide to invest their money elsewhere.
Finally, the end of the IBC regime is likely to have implications for the wider offshore business industry. This is because Dominica has been one of the most popular jurisdictions for setting up IBCs in recent years. The closure of the registry is likely to lead to a shift in demand towards other jurisdictions, such as Bermuda and the Cayman Islands.
Dominica is an Eastern Caribbean island country with a population of around 71,000 and a total land area of only 750 square kilometers. This makes it one of the smallest countries in the world, yet it has become one of the most popular destinations for offshore companies. For many years, Dominica was considered the most favorable country for opening International Business Companies (IBCs).
The reasons behind this popularity were numerous. Overall, IBCs based in Dominica had access to tax, secrecy, and governance-related relaxations, which gave them a competitive edge over other countries. Dominica was under pressure because of those same relaxations it offered to International Business Corporations.
Many countries have restrictions on the ownership of companies by foreign individuals or entities. However, Dominica allowed foreign investors to fully own and control their IBCs, which made it a very attractive option.
IBCs registered in Dominica were not subject to any corporate tax or withholding tax. This is because the country has nothing to very little domestic income or
capital gains taxes, making it an ideal location for businesses looking to reduce their overall tax burden.
IBCs established in Dominica were subject to strict confidentiality requirements, meaning that the identities of their owners and directors could not be revealed to anyone outside the company. This ensured that businessmen could conduct their operations without fear of having their personal information made public.
IBCs in Dominica were not required to submit any annual or financial reports, making it much easier for companies to maintain their privacy and anonymity.
Unlike many other jurisdictions, Dominica only required a single shareholder or director in order to operate an IBC. This made it much simpler for investors to set up their companies as they did not need to find multiple people to serve in these roles.
The process of setting up an IBC in Dominica was relatively straightforward, making it simpler for investors to establish their companies quickly and without any major delays. Additionally, the cost associated with establishing an IBC in Dominica was significantly lower than in other jurisdictions.
IBCs registered in Dominica did not need to hold any meetings, meaning that shareholders and directors could conduct their business without having to meet in person. This also resulted in ease of doing business but was considered a controversial relief by the international communities.
An IBC in Dominica provided limited liability protection from creditors and legal action; this means shareholders were not held personally liable for any debts or legal obligations incurred by the company if anything were to go wrong.
Dominica offered full privacy for IBCs established in the country, protecting their financial transactions from external scrutiny. This ensured that company accounts could be conducted securely without any fear of disclosure or intrusion.
An IBC in Dominica was well suited to those looking for asset protection; assets owned by an IBC could not be seized or confiscated by foreign authorities as long as they were held in Dominica’s jurisdiction.
Overall, Dominica was an ideal destination for those looking to establish International Business Companies.
For years, Dominica’s offshore corporation sector had been on the decline. The country agreed to the Organisation for Economic Co-operation and Development’s (OECD) demands and did away with the confidentiality of its offshore structures. This development came six years ago and had many IBCs look for other options. Because without privacy, why would anyone want to open a business in Dominica? Why not open in another country that offers the confidentiality that businessmen want? This fact alone deterred many from setting up their offshore companies in Dominica.
In addition to this, the International Monetary Fund (IMF) and World Bank advised Dominica to close down its IBCs. This was due to the fact that these companies were not complying with international standards and regulations.
Dominica’s economy relies heavily on these financial giants; thus, a notice from them also contributed to the closure of offshore corporations.
Moreover, US banks also had their role in forcing Dominica to close down its offshore industry. There are many banks in Dominica that only transact through US banks. If it weren’t for these types of partnerships, the Dominica banking industry would come to a standstill. US banks asked for stringent information regarding the IBCs, which made it practically very inefficient for banks in Dominica to proceed with opening IBC accounts. As a result, these accounts were shut down, and the IBCs became ineffective.
The closure of IBCs in Dominica thus had a major impact on the country’s economy, with many businesses having to either close down or scale back operations. However, the government is working hard to attract new investment and business to the country. A number of tax incentives and investment programs have been put in place, and the government is also working to improve the infrastructure and business environment. While it will take some time for Dominica to recover from the closure of IBCs, there is reason to believe that the country can once again become a thriving business destination.
After the closure of IBCs in Dominica, there are still a few good options for the offshore business industry. Panama and the Cook Islands are two of the best
choices for tax relief. Panama offers a flat tax rate of just 7.5% on all income, while the Cook Islands provides full exemption from taxes on all offshore income.
Nevis is another good choice, offering exemption from most taxes for the IBCs. All three jurisdictions offer a variety of other benefits, such as political stability, low set-up costs, and a favorable legal regime.
As such, they are all excellent options for those looking to set up an offshore company.
The decision by the Dominican government to close its International Business Companies registry from January 1st, 2022, has surely sent shockwaves through both the local economy and the offshore banking industry more broadly. While there are some potential benefits associated with this move, such as increased transparency and compliance with international standards, it’s also likely to lead to higher costs for businesses operating in Dominica and deter foreign investment. Only time will tell what kind of effect this decision will ultimately have.