Montserrat

It’s a little after four o’clock on a weekday afternoon. The clapboard and stone shops and offices in the little waterfront village of Plymouth on Montserrat have closed for the day. Except for a couple of stray roosters the streets are empty. 

This is the way it used to be throughout the Caribbean before jet planes began disgorging legions of tourists demanding service at all hours, pretty much wiping out the easy island life. Tranquility has been and remains one of Montserrat’s prized assets. The only air service to Montserrat is by puddle jumper from Antigua (and St. Maartin) which takes about 15 minutes. In spite of its inaccessibility, Montserrat has excellent telephone, telex and fax communications and two international courier services. While Montserrat is a flourishing tax haven worth a second look, recently an active volcano spewing smoke and ash has been giving local residents much to worry about. 

Montserrat is a small (¨=40 square miles) mountainous, sparsely populated British crown colony located in the Eastern Caribbean southwest of Puerto Rico and about 27 miles west of Antigua. It’s lush tropical beauty led writers to christen it the “Emerald Isle”. Celebrities such as Mick Jagger, Elton John, Beatles’ producer George Martin, Britain’s Princess Margaret (sister of Queen Elizabeth II), David Bowie, the Earl of Lichfield, and New York Restaurateurs Maguy & Gilbert La Coze have homes here cashing in on that precious intangible – peace and quiet. 

One of the Leeward Islands in the Lesser Antilles of the West Indies, it has an area of 106 sq km (40 sq mi) and a population of 12,504 (1991 est.). Plymouth is the capital and only port. The island is rugged and lush, with steep, thickly forested mountains, many of them active sulfurous volcanoes; deep valleys; and beaches of dark volcanic sands. The average annual temperature is 26 degrees C (78 degrees F), and rainfall averages from 1,015 to 2,030 mm (40-80 inch) yearly. Montserrat is known for its sea-island cotton, limes, and tomatoes and other vegetables. The majority of the people are of African descent. Tourism and light industry are important to the economy.  

Montserrat was discovered by Christopher Columbus in 1493, and it was named Montserrat for the mountain monastery in Spain. The island was colonized by Irish settlers in 1632, but the French took possession of it twice – in 1664-68 and in 1782-84. A British crown colony since 1871, Montserrat gave up attempts to federate with other islands in 1966. 

Twenty-five year guarantee from income taxes 

On December 4th, 1985 Montserrat’s Governor A.C.Watson signed An Ordinance to make provisions for the incorporation and operation of International Business Companies (IBCs). Under the new law, offshore IBCs that  do not (1) carry on business with persons in Montserrat, other than leased office space (3) accept banking deposits from persons resident in Montserrat (4) accept contracts of insurance from persons resident in Montserrat, are totally exempted from Montserrat’s regular income taxes, which top-out at about 40%. 

Part XI (Income Taxes & Stamp Taxes) 

111. (1) notwithstanding any provisions of the Income Tax Ordinance (1967),

1. a company incorporated under the (IBC) Ordinance, 1985;
2. all dividends, interest, rents, royalties, compensations and other amounts paid by the company to persons who are not persons resident in Montserrat;
3. capital gains realized with respect to any shares, debt obligations or other securities of a company incorporated under this Ordinance by persons who are not persons resident in Montserrat,  

are exempt from all provisions of the Income Tax Ordinance, 1967 (as amended), the Exchange Control Ordinance, Cap. 115, the Foreign Currency Levy Ordinance 1980 and the Stamp Act, Cap 238, such exemption to continue for a period of not less than 25 years from the date of incorporation under this Ordinance. 

Under 111.(2) when the Governor-in-Council is satisfied that a company registered under the IBC Ordinance requires the services of specially qualified persons in order to enable it to conduct its business effectively from within Montserrat, and that is neither able to acquire those services in Montserrat nor acquire them elsewhere without special benefits being made available to them, the Executive Council may, by order in a special case, provide that these persons:

1. be exempted from specified taxes in Montserrat (individual tax rate = 40%).
2. Be permitted to be paid in a foreign currency into a trust account without being liable to be taxed thereon or on the interest thereon, and
3. Be permitted to be paid in some prescribed manner in another currency or otherwise without being liable to taxes thereon in Montserrat. 

Part X (Fees & Penalties) of the IBC Ordinance outline what government fees the entrepreneur will encounter upon incorporating a company in Montserrat. 

104. There shall be paid to the Registrar fees as follows:

1. $300 upon the registration by the Registrar of a company incorporated under this Ordinance the authorized capital of which does not exceed $50,000.
2. $1,000 upon the registration by the Registrar of a company incorporated under this Ordinance the authorized capital of which exceeds $50,000. 

To keep a company in good standing annual license fee equal to the amounts prescribed above are payable to the Registrar’s office on the 31st of December or before January 31 of the following year. 

Option: Instead of paying the annual fees as prescribed above, a Montserrat IBC may opt to be taxed on its net profits at a rate of 1.75%. This option is particularly beneficial for Dutch subsidiaries domiciled in Montserrat. Under the Dutch tax system the participation exemption (which permits dividends from foreign subsidiaries to be received 100% tax free by the Dutch parent company) is available only if the host country levies some form of tax on profits. The rate of the profits tax assessed is not a factor. Any tax rate (however small) will satisfy the Dutch tax authorities. 

Any person may singly or jointly with others incorporate a company in Montserrat by subscribing to a Memorandum and to a set of Articles, and submitting them to the Montserrat Registrar of International Business Companies. Upon registration, the Registrar will issue within three working days a certificate of incorporation under its hand and seal certifying that the company is a going concern. 

A company may subject to any limitation in its Memorandum or Articles:

1. issue registered shares or shares issued to bearer or both;
2. issue voting shares, non-voting shares, shares that may have more than one vote per share, shares that carry special voting privileges, common shares, preferred shares or redeemable preferred shares, options, warrants.
3. Purchase or redeem or otherwise acquire and hold its own shares. 

A company incorporated under the IBC Ordinance must state in its articles whether share certificates will be issued. Share certificates must be signed by two directors or two officers of the company, or by one director and one officer. A company need not issue share certificates, if it so chooses, and may simply record the names of the shareholders in its share registrar. In the case of bearer shares, the total number of shares outstanding issued to bearer must be recorded in the share register along with:

1. the identifying number of the certificates;
2. the date of issue of the certificates;
3. the number of each class or series of bearer share issued to bearer. 

Article 28.(3) provides that no notice of trust, whether expressed or implied or constructive, shall be entered into the share register. 

Article 34. of the IBC Ordinance says where shares in a company are held by the company as treasury shares, or are held by another company of which the first company holds, directly or indirectly, shares having more than 50% of the votes in the election of directors of the other company, those shares are not entitled to vote or to have dividends paid thereon and shall not be treated as outstanding for any purpose under this Ordinance except for the purpose of determining the capital of the other company. 

Part IV of the IBC Ordinance requires that a company have a registered office and a registered agent at all times in Montserrat. Only a barrister, solicitor or chartered accountant practicing in Montserrat, or a company registered under the Company Act as a trustee and has an authorized capital of not less than $250,000, may act as an agent. 

Agents may be dismissed or replaced with a resolution of the company directors. A written notice containing the name and address of the new agent must be sent to the Registrar within 30 days. 

Subject to any limitation in the Memorandum or  Articles of Association (by-laws), the directors of a company incorporated in Montserrat may meet a such times and in such manner and places within or without Montserrat as the directors may determine to be necessary or desirable. Pursuant to Article 48 (below) a director living outside Montserrat may send a cassette tape prior to the director’s meetings to satisfy the meeting requirements. 

Article 48.(2): A director shall be deemed to be present at a meeting of directors if:

1. He participates by telephone or other electronic means, and
2. All directors present at the meeting are able to hear each other. 

Article 59.(1) provides that the directors of the company may, subject to any limitations in the memorandum or articles, convene meetings of the members (i.e., the shareholders) of the company at such times and in such places within or without Montserrat as the directors consider necessary or desirable. 

Subject to a provision in the Memorandum or Articles for a lesser percentage, any shareholder(s) possessing more than 50% of the votes of the outstanding voting shares in the company may force the directors to convene a meeting. 

Article 31.(1) states that where a governmental authority, whether it is legally constituted or not, in any jurisdiction outside Montserrat,

1. by or in connection with any nationalization, expropriation, confiscation, coercion, force or duress, or similar action; or
2. by or in connection with the imposition of any confiscatory tax, assessment or other governmental charge,  

take or seize any shares or other interest in a company incorporated under this Ordinance, the company itself or a person holding shares or any other interest therein, including an interest as a creditor, may apply to the Montserrat Court for an order that the company disregard the taking and seizure and continue to treat the person who would have held the shares but for the taking or seizure of the shares as continuing to hold the shares or other interests. 

Montserrat has a common law tax system styled after its British colonizer. The Trustee Ordinance of 1961 (Chapter 324 Trustee) refers specifically to England, Canada and the Colony, which leads one to think that the Ordinance was originally tailored to white Englishmen and Canadians as well as those of the local residents. The Trustee Ordinance provides the legal framework by which lawyers and other professionals can establish a trust in Montserrat. 

You are given much leeway in how you must draft a Montserrat deed or trust. Under the title “Interpretation” on the cover of the Ordinance the term authorized investments is defined as “investments authorized by the instrument, if any, creating the trust for the investment of money subject to the trust, or by law.” In part II, Article #4 it states “A trustee may, unless otherwise prohibited by the instrument creating the trust, retain or invest in securities payable to bearer which, if not so payable, would have been authorized investments.” 

After being racked by several banking scandals in the 180’s, Montserrat’s government is trying to get back into the offshore banking business. Nicknamed Monster Rat after Scotland Yard had to be called in to clean up Montserrat’s banking mess, this Caribbean island paradise and UK dependent territory has just recently enacted new offshore banking regulations to woo respectable banks and bankers. 

In the late 1980’s, Montserrat flaunted itself as a “suitcase”-banking banking center, offering banking licenses by the crateful for $10,000 apiece to bank charter wholesalers – the most notorious of which was Jerome Schnider of the Beverly Hills based WFI Corporation. 

Hundreds of conmen sought and obtained banking licenses. Using names like “Chase Overseas”, “Prudential Bank and Trust”, and “Deutsche Bank (Suisse)”, you would have thought Montserrat was a respectable banking center, but these brand name banks were nothing more than bastardly versions of their real-world namesakes. 

What followed were a multitude of banking frauds as revealed in a report from Coopers and Lybrand commissioned by the UK Foreign Office in 1990. Overnight Montserrat revoked 211 banking licenses, representing fee income of $18 million. 

Now, with slow, tentative steps, Montserrat wishes to refashion itself and get back into the offshore banking business. The government has issued new banking regulations and appointed a Washington D.C. firm called “Offshore Financial Services, Inc.” to reform the island’s battered image. 

Today, Montserrat has about 23 banks, all but three of them from Latin America. Ms. Kathleen Tuitt, president of Offshore Financial Services, Inc. insists the isle has “cleaned up its act”. Her job is to introduce banks to Montserrat’s chief minister, Mr. Ruben Meade, and banking supervisor, Mrs. Dulcie James, formerly with the Bank of England. 

The new Montserrat banking regulations expect bank applicants to meet the following criteria:

1. pay an up-front, non refundable fee of $3,000;
2. pay an annual license fee of $8,000 ($12,000 for bank insurers);
3. submit a business plan to the Montserrat authorities;
4. reveal directors’ names;
5. have a minimum capitalization of $500,000;
6. file quarterly statements and audited annual accounts;
7. agree to a three-month inspection prior to receiving their licenses (to which the FBI, Scotland Yard, and Interpol would be privy). 

Over the last several years, the Montserrat authorities have sweeping supervisory powers and have introduced new International Business Company (IBC) legislation, as well as legislation for APT (Asset Protection Trusts). Montserrat wants to attract wealthy retirees and expatriates, of which 2,000 presently inhabit the island.