Nevis – Dealing with the Repercussions of the Economic Meltdown

In the last 18 months or so, events around the globe have changed the financial world out of all recognition but, despite this adverse backdrop, Nevis has continued to prosper as an evolving, regulated and credible domicile.

Indeed, significant progress has been made in the signing of tax information exchange agreements (TIEAs) and seven countries, including the Netherlands, Denmark, Liechtenstein and New Zealand, have already signed in 2009, with a number of other countries anticipated to sign early in 2010.

Nevis continues to be subject to compliance with international standards for the prevention of money laundering and countering the financing of terrorism. The most recent assessment of the Federation’s compliance with these standards was conducted late in 2008, whilst the Mutual Evaluation Report was adopted at the May 2009 Plenary of the Caribbean Financial Action Task Force (CFATF).

All of these developments have combined to raise the profile of Nevis overall as an offshore centre, and particularly as an insurance sector par excellence. Nevis has seen significant growth in the number of licensed entities since the enactment of the Nevis International Insurance Ordinance, 2004, and the jurisdiction continues to make significant progress up the international league table for numbers of licensed captive insurance companies and other regulated insurance entities within the domicile. It has also seen an increased number of insurance managers becoming licensed in the territory.

The lack of consumer confidence in major financial institutions has undoubtedly caused an upsurge in captive insurance formations and Nevis provides a credible option for such companies within a regulated, compliant and competitive environment.

Competitive

Minimum capitalisation requirements for the single-owner, pure captive, compare favourably to other jurisdictions, starting at USD10,000 and rising to USD50,000 dependent on ownership. However, that is balanced by minimum solvency requirements generally on a par with many of the leading offshore jurisdictions and states in America that now have captive legislation. Higher minimum capitalisation requirements are sensibly in place for other licensed insurance entities, such as re-insurance companies. For captives, the minimum solvency requirements are 20 per cent of net written premiums up to the first USD5million, and 10 per cent of the surplus thereafter.

Regulatory fees are also attractive to the prospective new captive-owner, with first-year licence application and annual insurance licence fees payable to the government starting at USD1,880 for the pure captive.

Choice

The insurance legislation requires a minimum of two directors, but neither of them have to be locally based, and nor does the company have to hold its annual board meetings in the domicile. However, many captive-owners will take advantage of the splendour and beauty of the island to combine business and pleasure at one of the many high-quality resorts in Nevis. There is no statutory requirement either for local legal representation, local bank accounts or local auditors, although the latter must be pre-approved by Nevis Financial Services.

Ultimately, all these facets provide the captive-owner with a wider choice and greater control of how they run their business, with resultant time and cost benefits to the operation.

Combine the competitive cost environment with mature and established company laws, a legal system based on English common law (with the Privy Council in England as the ultimate court of appeal) and a regulatory body that is communicative and responsive and you have a formula for success. This is clearly evidenced by the expansion and development of Nevis as an increasingly sophisticated and well-regulated insurance domicile.

Beneficial Tax Regime

As with most captive insurance domiciles, onshore or offshore, it would be naïve to believe that a beneficial tax regime was not a factor in the decision-making process for clients’ selecting their domicile. The fact that no taxation is levied within the domicile for licensed insurance companies that make underwriting profits must be an advantageous factor in selecting Nevis as the ultimate domicile of choice for the parent company.

Furthermore, no income tax, direct, or indirect tax shall be levied in Nevis on transactions, contracts, securities or other dealings, profits or gains of a registered insurer. No tax is levied on dividends or earnings attributable to shares or securities of the registered insurer. There is also an exemption from stamp duty, and from all currency and exchange control restrictions.

Nevertheless, tax levies should not be the primary or motivating factor, as tax rules around the world are subject to change, often at short notice, which could feasibly undermine the economic viability and existence of the captive if that was the sole purpose in establishing the entity in the first place.

Any commercial enterprise looking to establish a new operation should always evaluate the political, geographical, and economic elements in advance of making that selection, and they will find that Nevis qualifies with aplomb in all of these regards.  

Innovative

The legislation itself is modern, pragmatic and innovative, and section 17 of the Ordinance encapsulates this. This allows for statutory funds to be established by the licensed insurer that in turn enable that insurer to ring-fence the assets and liabilities allocated to each individual statutory fund. The proviso to this is that all parties must be made aware at the outset that section 17 provisions are being utilised in the formation and operation of the company.

If structured in the correct manner, it can be argued that, under section 17, the licensed entity is granted greater flexibility than the more traditional cell structure for multi-insured programmes, making the accounting function at least far less onerous.

The Future

Over the last few years, Nevis has moved from limited regulatory supervision prior to the enactment of the insurance legislation to the imposition of an increasing compliance and corporate governance regime for regulated insurance entities in the domicile.

The continued growth is testament to the fact that all of this has been achieved through fair but balanced regulation within a competitive environment that has made the domicile attractive to an expanding range of customers from an ever-widening geographical sphere. Parent companies from Europe, the Far East, the United States of America and the former Eastern-bloc have all made Nevis their domicile of choice for new formations, whilst other companies have elected to re-domicile to the jurisdiction from other domiciles. With all that Nevis has to offer, that trend looks set to continue for the foreseeable future.