If there was to be a ‘Holy Grail’ of offshore trust administration, it would probably be the ability to have a trust subject to an historically well developed trust law, a law in which there are many, well known and respected lawyers and judges well versed, a law which allows the trust to be enforced in accordance with well established equitable principles in which those lawyers and judges are equally well versed and experienced in applying, where trustees are well regulated and yet conduct their trusteeships in the active and attentive style expected of offshore trustees, rather than that of onshore administrators of deceaseds’ estates, and with no local tax on the trustees, the trust assets, the beneficiaries or the settlors (be they called that, the ‘asset contributors’, or whatever). This ‘Holy Grail’, like the original, might be the stuff of dreams or glorious myths; but it might be actually before you, waiting to be picked up and triumphantly carried off.
Whenever articles are written, papers presented or discussions held about the laws of offshore centres, they tend to focus upon the latest pieces of new legislation introduced for those wanting to make use of that legislation.
This article does that in part, but mostly it is concerned with legislation other than that which is normally the focus of such articles. For generally they will be about those separate sets of legislation ("suites" appears to be the vogue collective noun) enacted for use by outsiders, whether or not ring-fenced from locals - although traditionally there would be this exclusionary practice.
The article about St. Lucia’s legislation by Mr. Anthony Bristol, which also appears in this issue of Offshore Investment, is typical of the type, ably setting out the recent changes to and overall position of the generally acceptable "suite" of legislation offered for use by St. Lucia, without ring-fencing.
These separate sets of laws concerning, as they all seem to do, international companies or trusts, offshore insurance companies, or whatever, and particularly the exemption from local taxes found in them, be they in St. Lucia or elsewhere, will perhaps have been introduced because the laws that would otherwise apply in those jurisdictions are considered to be ineffective or unattractive to achieve certain purposes. Given the tendency to ring-fencing, amending the ‘local’ laws would rarely have been an option, even if it was considered by those advising the governments concerned.
Even without ring-fencing, and even if considered, amending the already existing laws would generally be seen as a more cumbersome and worrisome procedure than introducing new ones - often because the creative thought involved in drafting the new laws adopted for ‘international’ use by many a jurisdiction owes more to the skills necessary in using cut and paste software, or the bottle of white-out, than it does to much else.
Hong Kong, where the tax, company, trust and trustee laws that apply locally have no ring-fencing and have long been acceptable internationally, is a noticeable exception to the view that the local laws can not be used; in respect of the laws applicable to trusts and trustees and, as it concerns the taxation of trusts and trustees, the tax laws too, New Zealand is another place where the local laws have been found perfectly acceptable. For non-domiciled persons, especially as regards the taxation of trusts, so is the United Kingdom, of course; although there the law of trusts that one would be concerned with is that of England.
But this article is part of the "Update" on St. Lucia, so it is not to discuss those places that this article has been written; but they form a point of reference on the track of the ‘Holy Grail’.
By a deft amendment to the local tax laws, taking nothing away from the nation’s revenue that the Inland Revenue Department was not already collecting, St. Lucia is able to be clearly seen as one of that rare category of offshore centres, like Hong Kong, New Zealand and England (which have no ‘international’ laws anyway), where it is the ‘onshore’ law that one wants to consider - at least as concerns trusts - rather than the offshore "suite".
For whilst the International Trusts Act discussed in Mr. Bristol’s article, an Act not the subject of this article, save in passing, is one which has a number of things to commend it, viewed from certain perspectives, it is an Act that was introduced to correct (and replace) the previous International Trusts Act, which had little to commend it.
That hardly-missed predecessor was itself introduced as part of the "suite" of laws intended to launch St. Lucia into the offshore world, but not taking as its point of departure the question which could have been posed, given the absence of ring-fencing in St. Lucia’s offshore legislation, before framing the Act in the first place:
"What do we need to change about our already existing trust laws to make people elsewhere want to take advantage of those laws?"
Had that question first been asked, St. Lucia may never have had an International Trusts Act as part of the "suite", be that the original or replacement version.
That would probably have been a loss, for there will surely be those who, for one reason or another, will prefer to make use of that Act, rather than the pre-existing trust law, and still benefit from the quality of services available in St. Lucia to which the article of Mr. Nicholas John refers; and now they have the choice. Moreover, given that offshore centres with which St. Lucia likes (and deserves, in the opinion of this writer) to be bracketed, the Cayman Islands and Bermuda, have more than one trust law, it is probably in keeping that St. Lucia does too, even if others, like Hong Kong, New Zealand and England, seem to survive perfectly well with only one!
So there is one of ‘The Best of Both Worlds’: both ‘international’ and ‘local’ trust legislation are available for use in St. Lucia by international trust planners.
But that only alludes to the point of this article, as does another of The Best of Both Worlds available in St. Lucia, the true relevance of which will only become apparent later, namely that one can obtain the benefit of the very high standard of regulation applicable to registered trustees in St. Lucia if one so desires and, in any case, the very high quality of professional services available there in the offshore sector, as mentioned in the article by Mr. John, without having to use the ‘international’ trust law.
It must not be forgotten, although it often is, that the law of trusts (the focus of which is upon the rights of people to property and the enforcement of those rights) and the laws concerning trustees (the focus of which is upon their powers and their regulation) are by no means the same thing; and that is as true of St. Lucia as it is all other trust jurisdictions - for all that some jurisdictions’ legislation muddles the two. This article’s principal concern is to bring attention to the former, but in doing that it does not ignore the latter.
In respect of St. Lucia’s trust laws, the question which is set out above as being the one which perhaps could have first been asked in respect of the existing trust laws when considering the introduction of an International Trusts Act, has recently, belatedly been asked. It was asked as part of the process of moving from the old to the new International Trusts Act; but the answer to that question will result in a change to the local tax law
What will be that change? What was that answer?
The new section of the Income Tax Act will say as follows:
"Where a qualifying trustee is a trustee of a St. Lucia Trust wherever resident:
- the provisions of the Income Tax Act 1989 shall not apply to any property the subject of a St. Lucia Trust nor the income or gains thereon, nor to the trustees of the St. Lucia Trust nor to the settlors or beneficiaries thereof who are non resident except:
- Income or gains arising in or derived from St. Lucia
- Property situate in St. Lucia.
- For the purposes of this section
- Shares in an International Business Company
- Dividends, distributions, payments or other transfers from an International Business Company
- Rights or property of an International Business Company
- Property transferred from another St. Lucia Trust
shall not be considered to be property situate in St. Lucia or be income or gains which have arisen in or been derived from St. Lucia.
- For the purposes of this section:
- A qualifying trustee is a company incorporated under this Act or a registered trustee licensed under the Registered Agent and Trustee Licensing Act.
- A St. Lucia Trust is a trust expressed to be subject to the laws of St. Lucia whether or not registered under the International Trusts Act.
This change will be made to bring the letter of the law into line with the Inland Revenue Department’s attitude to taxing trustees of domestic trusts (and/or the trusts themselves) (that is those trusts subject to the law of St. Lucia that have not registered under the International Trusts Act) which have no ‘local’ component - namely that they are outside the ambit of the tax law - and to make it clear, for those trustees of such trusts who wish to acquire as an asset of the trust the shares in a St. Lucian I.B.C., as many may wish to do and are entitled to do, there being no ring -fencing, that such shares (or other interests) would not constitute the ‘local’ component that would bring the trustees (or trusts) within its ambit again.
Why was that done?
It was done because the answer to the question posed above was: "Probably nothing, if what is required is a comprehensive body of well understood law."; and the reason that was the answer is to be found in the Civil Code of the Laws of St. Lucia (Revised) which states (and has for many a year stated), at Part Third, Book Second, Chapter Fifth, Article 916A:
- Subject to the provisions of this Code or of any other statute the Law of England for the time being in force governing the rights, powers and duties of trustees and beneficiaries under a trust shall extend to and apply in [St. Lucia].
- Whenever by the law of England a beneficiary of a trust is entitled to in equity a beneficiary shall be entitled to a like right under this Code."
That is the real point of this article: for it means that because the law of trusts in St. Lucia and the law of trusts in England are one and the same, St. Lucia offers as its law of (domestic) trusts (and to a certain extent trustees, too) probably the best and certainly the best known onshore trust law in the world, one still developing according to traditional, judicial methods, whilst allowing those trusts to be established in an offshore setting where the trustees are strictly regulated, a setting where nearly all of the lawyers, whether or not involved in the offshore sector, first qualified in England, and at the same time allows the trustees (and the non-local trust assets, beneficiaries and settlors) to be free from local tax.
The attractiveness and possibility of that combination is boundless, for those drafting trust deeds, giving opinions on them and the law governing them, choosing the forum that will be used in those increasingly less rare instances of having to litigate concerning them, advising others on jurisdictions in which to base them, considering the tax consequences that would arise from the choice of one base over another, and so on.
Readers will be able to think them through, but as one learned commentator (not from St. Lucia) put it to this writer when advised of the apparent position: " This will enable all the joys of English trust law to be enjoyed in St. Lucia without the burden of English taxation and make it relatively simple to resolve in England, according to English law any dispute which might arise in respect of the trust. What a good idea!"
For those that want something beyond those "joys", well there is still the International Trusts Act to consider.
Whilst having a trust subject to the law of St. Lucia, even if with English and St. Lucian co-trustees, an option well worth consideration for the non-U.K. domiciled settlor, is not exactly the same as having a trust subject to English law with an English resident trustee, it may be The Best of Both Worlds; and that just might be well along the path to finding the ‘Holy Grail’.
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.