Of the variety of structures offered by the Samoan Offshore Centre, it is the International Company of Samoa that has enjoyed the most success and recognition. In fact, the incorporation figures in Samoa are such that it has become, without doubt, the regional leader for the provision of offshore corporate structures. It is convenient to compare the International Company of Samoa with the International Business Company ("IBC") of the British Virgin Islands (BVI) for two reasons.
Firstly and most importantly, I wish to enable offshore industry advisors to make a considered decision in recommending one jurisdiction over another (practice that seems to be sadly lacking on occasions). Secondly, I wish to educate the offshore marketplace concerning the benefits of the International Company of Samoa.
From the enactment of the International Business Companies Act 1984, the BVI has developed to become a most popular offshore jurisdiction for the incorporation of offshore companies. Although not the "inventors" of the IBC, the BVI was the first jurisdiction to market the simple and effective offshore corporate structure known as the International Business Company or "IBC". The success of the BVI has been somewhat self-fulfilling since its initial market dominance. IBC's are now favoured because they have been successfully utilised in the past; they are the "well known" rather than the "unknown". IBCs are easily sold as their application to a specific client's situation is rarely questioned or examined.
The International Company of Samoa is an offshore corporate structure that is in direct competition with the IBC. In order to compete against such a popular product in such a conditioned market, the International Company of Samoa has been developed to provide a modern and even more effective form of company.
Common Characteristics
The British Virgin Islands and Samoa are similar jurisdictions in several respects. Both jurisdictions offer:
- Full exemptions from taxation and stamp duty
- English common law foundations
- Minimal compliance requirements
- The easy transferability of corporate domiciles
- Sound telecommunication and professional services infrastructure
- A stable political climate including proven government support of their offshore industry
- A commitment to the ongoing development of their offshore legislation.
Without these fundamental features an offshore jurisdiction would have great difficulty in making any impact because there is simply too much competition. I have noted these similarities, for the record, however it is the differences between Samoa and the BVI that will be of most interest to readers.
Client Confidentiality
In respect to issues of confidentiality, the changes that Britain and the USA have forced onto the BVI and other jurisdictions are significant and it is their end users that are paying the price. At best, the BVI can offer common law principles to protect client confidentiality. This common law protection is eroded by the myriad of "mutual assistance", "information exchange" and "gateway" legislations. Furthermore, the trustee companies are bound by a "code of conduct" to have sufficient documentation on file to support an investigation into "serious crime". All practitioners that recommend the BVI should be asking; exactly what are the boundaries of these gateway and mutual assistance provisions? Quite simply, can a foreign taxation authority gain access to records in the BVI if they can establish reasonable grounds for charges of taxation evasion? Exactly what are the "serious crimes" that will trigger access to client documentation in the BVI?
External influence has been successful to minimising the risk of money laundering in the BVI but the legislation is now such that the BVI is no longer competitive. There are gaping holes in the BVI's confidentiality framework and the average client is not getting the guarantees of privacy that they assume to be in place should matters not proceed as planned. In contrast, the situation in Samoa is in line with users expectations. The Samoan people are proudly independent. In 1962, Samoa was the first Pacific Island nation to become an Independent State. Unlike the BVI, which offers no statutory protection of confidentiality, the International Companies Act 1987 ("the Act") of Samoa includes strict secrecy provisions (Section 227 of the Act). In addition to common law protection it is a criminal offence to divulge any information regarding the shareholders, officers, or operations of an International Company in Samoa.
Samoa is not a party to any mutual assistance, gateway, or information exchange agreements. Unlike the BVI, the legislation in Samoa is very specific regarding the obtainment of court orders to gain access to confidential information. Subsections 227(2) and (4) of the Act specify that such a court order is only possible in cases of improper conduct of directors during winding up, fraud or dishonesty, or money laundering. The Act expressly denies any right to disclose information that "will, or is likely to, result in the payment of any tax, other penalty or any fine by the company" (Section 227 (4 (c) of the Act). Whilst taking a hard line on money laundering and fraud, Samoa has legislated to protect the confidentiality of its International Companies. This legislation combined with a lack of external influences give rise to an offshore corporation in Samoa that is much more confidential and private than that on offer in the BVI.
Asset Protection
A question that is important is whether a foreign taxation authority can petition for the winding up of an IBC on the basis of tax related debts? The BVI legislation offers no specific protection for this situation. However, the legislation in Samoa is, again, in line with users' expectations. In Samoa, the definition of "debt" (Section 2 of the Act) specifically excludes any "taxation, fines or penalties imposed by any government". A foreign taxation authority is therefore unable to petition the court for the winding up of an International Company in Samoa for the recovery of tax related debts, because the court cannot recognise any taxation payable as a debt.
With increasing uncertainty regarding the courts' interpretation of tax evasion and avoidance a client needs his offshore structures protected from foreign taxation authority investigations and winding up actions. As the offshore industry enters a new era of litigation it is features like these that will become more relevant. A high level of protection is offered in Samoa. The smartness of the Samoan legislation is also demonstrated by a unique asset protection section of the Act (Section 228B) whereby a member can elect that his shares in the company can be automatically vested in a specified person on the occurrence of a specified event. The definition of a "specified event" is flexible. However, it typically includes the occurrence of a foreign government expropriation or court order. Furthermore, in Samoa, the statutory limitation for a creditor to petition the court for the re-instatement of a corporation previously struck off is only two years (Section 197(6) of the Act). The comparable limitation period in the BVI is ten years giving rise to a period of contingent liability five times greater than that of Samoa.
Directors' Standard of Care Provisions
In Samoa, directors are required to act in what they believe to be the best interests of the company (Section 89(1) of the Act), however the statute provides for an exception in the case where the directors' actions are ratified by a special resolution of members.
Furthermore, officers' liability is limited to deeds of wilful misconduct or neglect, even in the case of carrying on business when insolvent (Section 89A of the Act). This is in contrast to the law in the BVI and elsewhere, where directors are required, without exception, to act in good faith with a view to the best interests of the company. This lack of flexibility increases the potential for liabilities to directors and is particularly relevant to trustee companies providing "nominee" director services for International Business Companies.
Multi-Language Capabilities
In Samoa, the Act includes specific foreign language provisions whereby the official name and memorandum and articles of association can be in non-English text including Chinese characters.
Other Points
The differences that I have outlined are those that would be relevant to virtually all client situations. In addition Samoa has unique legislation allowing for the incorporation of no-shareholder ("creditor controlled") corporations. Samoa is very flexible in the areas of share capital, subscribers, and the location of the register of members. Samoa's captive banking legislation, orientated towards corporate treasury operations, is also unique.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
