BY MATTHEW SMITH – SENIOR LEGAL COUNSEL
It has been a busy time for the Nevis legislators in recent years, with more changes being made to company laws in Nevis in the last three years than were seen over the previous fifteen.
Some of these changes have led to much uncertainty among practitioners, registered agents and other service providers, none more so than the amendments made at the tail-end of 2019 to the Nevis Business Company Ordinance 2017 and the Nevis Limited Liability Company Ordinance 2017. These amendments removed the tax exemption which international business companies (‘IBCs’) and limited liability companies (‘LLCs’) currently benefit from, with effect from 30 June 2021 or, if earlier, the date on which any Nevis IBC or LLC holds assets or engages in activities which would give rise to assessable income.
A major driver of these changes was the European Union’s temporary blacklisting of St Kitts and Nevis in the spring of 2018, which led to the Federal Government there making assurances to the EU that it would change elements of international companies law which the EU had ruled were perpetuating ‘harmful tax practices’. The 2019 amendments were the result of those assurances, and resulted in Nevis’ inclusion in February 2020 (together with that of the Cook Islands) on a so-called ‘Whitelist’ complying with EU principles of good tax governance. More on this development can be found here.
In response to concerns from practitioners experienced in working with Nevis IBCs and LLCs that the Government may have overplayed its hand and made IBCs and LLCs uncompetitive as a result, the financial services industry in Nevis has sought clarification on the practical ramifications of these changes in order to allay these concerns and provide additional certainty for those considering whether to establish a Nevis IBC or LLC. Service users wished to know, for example, what rates of tax would be payable, whether exemptions were available, how tax would be assessed and collected, and whether entities would be taxable regardless of whether the management and taxable activity of the company took place in or outside of Nevis.
In March 2020, the Nevis Ministry of Finance informed service providers in Nevis that the Federal Government of St Kitts and Nevis had made a firm commitment to amend the St Kitts and Nevis Income Tax Act (‘ITA’) in order to provide a clear definition of tax residency which is based on central management and control. It is envisaged that IBCs and LLCs whose central management and control lies within St Kitts and Nevis will be subjected to corporate income tax on worldwide income. However, entities with no such central management and control, and which are not operating as Permanent Establishments in accordance with OECD guidelines, will not be liable for tax in St Kitts and Nevis.
In addition, while all IBCs and LLCs will be required to file a simplified tax return in Nevis by 15 April each year, the filing of the 15 April 2020 return (and, where relevant, the payment of any taxes due) has been deferred until the ITA amendments have been made and, in turn, the form of the return has been finalised.
While there is still some unknowns in the path ahead, the above assurances are encouraging and provide more certainty about how Nevis company taxation will look going forward than we have had for the best part of two years. It is hoped that clients and practitioners who were on the fence as to whether a Nevis IBC or LLC could or should play a part in their asset protection or tax structural planning will now feel more comfortable with proceeding.
Other recent changes to Nevis law include the passing of the Anti-Money Laundering National Committee Act, 2020, which provides for the establishment of a committee to ensure Nevis meets its international AML obligations; and the Virtual Asset Act, 2020, which makes detailed provision for the operation and establishment of virtual asset businesses in Nevis.
The proposed restatement of the Nevis International Exempt Trust Ordinance, which was the subject of much discussion in 2019, is still awaited, with no news on when – or if – this will be finalised.
Southpac continues to closely monitor legal developments in all jurisdictions in which we operate, and the impact these may have upon our clients. We will keep you appraised of any developments as they happen.