Introduction
Legal System
Legal Entities
Trusts
Mutual Funds
Regulation


Introduction

The Turks & Caicos Islands (TCI) are a British Overseas Territory located approximately 500 miles south-east of Miami, Florida, at the southern tip of the Bahama chain. The main industries are offshore finance, tourism and fishing. The last 10 years have been a period of prolonged economic growth, and unemployment is virtually zero. The government estimates the current population at about 25,000 of whom 80% live on the most developed island, Providenciales.

Government
The TCI has a considerable degree of internal self-government. A UK appointed governor has responsibility for external affairs, policing, defence and internal security. There is a legislative council comprising 13 locally elected members, three ex officio members and three nominated members. The executive arm of government, the executive council, is made up of the governor, three ex officio members (the chief secretary, the Attorney General and the permanent secretary of finance) and six ministers appointed from amongst the elected members of the legislature. The executive council has responsibility for managing all affairs that do not fall under the jurisdiction of the governor.

Taxation
The TCI is a zero-tax jurisdiction; there are no income or capital taxes of any kind. There are significant customs duties on imported goods and stamp duties on local real-estate transactions. The local currency is the US dollar and the TCI has no exchange control regulations.

Legal System

The TCI's law is a mixture of English common law, some UK statutes which have been extended in whole or in part to the islands, and local ordinances. A number of international conventions to which the UK is a party extend to the TCI.

The court system is based on English law and procedure. The TCI has a Magistrate's Court dealing with minor criminal and civil matters and a Supreme Court presided over by a resident Chief Justice. Appeals from the Supreme Court are made to the Turks & Caicos Islands Court of Appeal, which sits in the islands on a quarterly basis, and from there to the Privy Council in London.

Legal Entities

It is possible to establish a considerable variety of flexible and effective legal entities in the TCI for use in international transactions:

Exempted companies
An exempted company is a company incorporated in the TCI whose business is conducted mainly elsewhere. The opening of bank accounts in the TCI, the concluding of contracts within the TCI, and the exercising within the TCI of any of the company's powers in connection with its business carried on outside the TCI are permitted.

TCI exempted companies have a number of attractive features:

  • Incorporation can be effected on a same-day basis;

  • An exemption from future taxation for a period of 20 years is granted automatically on incorporation;

  • Capital may be expressed in any currency;

  • Shares may be issued to the bearer;

  • Shares may have no par value;

  • The doctrine of ultra vires does not apply;

  • No statutory meetings are required and if meetings are held they may be held anywhere in the world;

  • Subject to certain solvency requirements, a company may purchase or otherwise deal in its own shares;

  • Shares may be issued in fractions;

  • There is no need to prepare or file audited accounts; and

  • Shares may be issued in different classes with different rights and liabilities attaching to each class.

Companies incorporated elsewhere may migrate to and be continued in the TCI as exempted companies. Similarly exempted companies may migrate to and be continued in other jurisdictions.

Hybrid companies, partly limited by shares and partly limited by guarantee, can be established. These entities are particularly useful as an alternative to a trust, in certain circumstances.

Limited life companies
A limited life company is similar to the limited liability company found in many US jurisdictions. It combines the corporate characteristics of limited liability with the partnership characteristics of limited duration, restricted transferability of interest, and automatic dissolution. A number of major US companies including Texaco Inc, Enron Corp and USX Corp have set up limited life companies in the TCI as financing subsidiaries.

Limited partnerships
The limited partnership has been routinely used for many years in the United States and in certain European countries such as Switzerland and Germany. However, it is not widely employed in England or other non-US common law jurisdictions. The TCI's Limited Partnerships Ordinance of 1992 is based primarily on the US (uniform code) model. Limited partnerships are particularly useful in raising money for venture capital and in mutual fund structures.

A TCI limited partnership is registered by submitting a statement of the general partners specifying the firm name, the general nature of its business, its TCI address, its term (which may be unlimited) and the name and address of each general partner. It is not necessary to file the limited partnership agreement. Each TCI limited partnership shall have at least one general partner and one limited partner. The total number of partners shall not exceed 100. General partners will typically be companies; at least one of the general partners must be a TCI entity or (if incorporated abroad) must be registered in the TCI as a foreign corporation. Exempted limited partnerships that undertake business primarily outside the TCI may obtain an exemption from taxation for up to 50 years.

Trusts

The Trusts Ordinance came into force in 1991, although the trust concept has long been known and used in TCI law. The ordinance is not a complete codification of the law of trust but seeks to set out to achieve the following:

  • to clarify the essential characteristics for the formation, administration, variation and termination of trusts;

  • to settle and clarify some of the international conflict rules relating to trust recognition;

  • to abolish the rules against perpetuities and accumulation;

  • to give statutory recognition to concepts and ideas commonly found in modern trust documentation (such as trust protectors); and

  • to make rules in relation to trust administration more flexible.

The ordinance also allows for the establishment of asset protection trusts. A transfer to a TCI trust will not be set aside at the instance of a creditor of the settlor provided that the settlor was solvent (according to the definition in the ordinance) at the time he made the transfer, and did not become insolvent because of the transfer. The burden of proof of insolvency is on the person alleging it.

TCI trusts may be of a perpetual duration. Any disposition under a TCI trust which avoids or defeats any rights under foreign law of any person relating to the settlor (including inheritance rights) is not void or voidable.

There is no obligation to register a TCI trust and therefore the terms of such trusts are not a matter of public record.

Mutual Funds

Before the Mutual Funds Ordinance of 1998, there was no legislative framework in the TCI regulating mutual funds. Finalization of subsidiary regulations has taken longer than expected but the ordinance is expected to come into force imminently. It provides for four types of funds:

  • Registered mutual funds formed under TCI law which are authorized to issue equity interests only to investors who meet prescribed qualifications or in which equity interests are listed on a stock exchange recognized by the TCI authorities for this purpose.

  • Recognized mutual funds formed outside the TCI whose equity interests are listed on an approved exchange.

  • Licensed mutual funds, a category for funds which fall outside the registered and recognized headings, but are otherwise approved.

  • Exempt mutual funds in which the equity interests are held by not more than 15 investors the majority of whom are capable of appointing or removing the operator of the fund, or funds that are authorized to issue equity interests only to professional investors.

A TCI fund can be structured as a company, a partnership (limited or otherwise) or as a unit trust.

Insurance

The conduct of insurance business in or from within the TCI is governed by the Insurance Ordinance. Whilst the TCI is home to a growing number of captive insurance companies, it has become the jurisdiction of choice for producer-owned reinsurance companies (PORCs). Approximately 2,500 PORCs are licensed and incorporated in the TCI. A PORC is a reinsurance company which is beneficially owned or controlled by the producers of business ultimately reinsured by the PORC. The typical uses include:

  • Provision of life, accident and health reinsurance coverage to the US car dealership industry;

  • Service contract/extended warranty business;

  • Mortgage guarantee insurance; and

  • Involuntary unemployment reinsurance coverage.

PORCs are exempt from a variety of the regulations which apply to ordinary TCI insurance or captive insurance companies. There is no audit requirement, no requirement for a TCI insurance manager, no capitalization requirements, no requirement that liquid assets be maintained in the TCI, and government fees are reduced. Upon application for the licence, the insurer must give an undertaking that it will not engage in any business other than the reinsurance of risks covered by a single named insured.

Regulation

The TCI has an extensive regulatory regime governing almost all aspects of the local financial industry. Banks, company formation agents, insurance companies (including insurance managers, brokers and agents), trust companies and mutual fund administrators are subject to stringent licensing requirements.

An anti-money laundering regime is laid down in the Proceeds of Crime Ordinance. It covers all serious crimes other than drug trafficking (which is already dealt with under the Control of Drugs (Trafficking) Ordinance). Courts can make confiscation orders against offenders who have benefited from the proceeds of crime. Pending a confiscation order, the court may make restraint, charging and disclosure orders to ensure that property which constitutes the proceeds of crime is not dissipated. It is an offence to acquire, possess or use the proceeds of criminal conduct, to assist others to retain the proceeds of their crime, to conceal or transfer the proceeds of crime and to tip off persons about pending or threatened criminal investigation.

All financial institutions and professional advisors in the TCI are required to disclose suspicious transactions to a reporting authority and are bound by a statutory code of conduct in the acceptance and operation of financial services business.


For further information on this topic please contact Owen Foley at Misick & Stanbrook by telephone (+1 649 946 4732) or by fax (+1 649 946 4734) or by e-mail ([email protected]).


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