Tax Haven Dominica

For several decades, the economies of small island nations, particularly in the Caribbean region, have been scrutinized by powerful First World Countries.

The history of these islands was shaped by their colonial masters, and today, their future and domestic policies are very much influenced, if not dictated, by other super powers that very much control and manipulate the reigns of the international market, trade, social and economic policies.

Technological advancement, however, has managed to strengthen globalisation, and as a result, fostered several of the drastic changes that have taken place in the way in which business is being conducted internationally. Separate national economies have been knitted into a single world economy as trade barriers have been broken, investment flows have increased, labor and capital have become more mobile and the transfer of information has gained extraordinary rapidity. Consequently, investing abroad is no longer solely based on gaining access to plantations and fixed resources such as minerals and oil deposits, but on a wide range of factors such as a country’s political, social and economic stability, bilingualism, linguistic competency in a particular language, the availability of cheap and or skilled labour and communication systems. Even trade has evolved as it has grown to involve the exchange of intangible goods and services such as trademarks, patents, software and information transfer through consultancy.

The acquisition of tax haven status by several small countries such as Dominica is merely a consequence of several of the economical and social changes that have taken place in the international arena. Countries exercise the sovereign right to implement tax laws and policies to suit their own economic and political needs, and in so doing, implement tax rates which may end up being higher, lower or similar to that of other countries. Given the new trends and forms that business has acquired, increased capital mobility has only lead businesses throughout the world to seek to maximize their profits by scouting the possibilities of doing so on the international market, rather than locally. Foreign investment and business expansion have thus become very sensitive to countries with low or no taxes, since many of the taxes imposed by governments are often viewed as financial burdens that hinder the economic growth of businesses.

The negativity that has surrounded the existence of tax havens such as Dominica has many times been over escalated, since these countries do not seat and devise means of harming the economies of other countries, but merely seek ways to protect and build their own. For over 300 hundred years, dating back to as far as the era of African slavery and colonialism, Dominica’s economy was based solely on sugar cane, then banana production. However, economic stability during the years preceding independence in 1978 came to an unanticipated halt in August 1979, when the ravaging winds of Hurricane David completely devastated the island. The years that followed were difficult ones as much rebuilding and economic planning had to be done.

Up to the mid 80s, the recovery efforts made included the formation of organisations, such as the Industrial Development Corporation (IDC, 1981), which was given the mandate to foster economic diversification through foreign direct investment by invitation in areas such as agro processing and the light industry. In light of the circumstances under which investors were being invited to the island, recommendations for tax holidays and tax exemptions were given by other international governments as means of providing incentives to attract foreign investors to the young independent state. Dominica’s evolution as a “tax haven” was thus a consequence of the island’s quest to revive itself from its economic and social difficulties at the time. Yet still, the concept of Dominica as a “tax haven” as it exists today was not applied.

However, Dominica’s economic growth tended to move mainly in the direction of banana production, which became the mainstay of an entirely monocultural economy. Increased attempts by the WTO (World Trade Organisation) to reduce and eventually eliminate the preferential treatment that Dominica’s bananas received on the world market, made evident the need to diversify the island’s economy. From 1988 onwards, various infrastructural measures were undertaken in order to develop the tourism industry, and in 1996, a new arm of diversification was explored when a new generation of politicians who won the 1995 general elections passed the International Business Companies Act (IBC Act). Like the IBC Act, other Acts such as the Offshore Banking Act (May, 1996), Exempt Insurance Business Act (1997), Exempt Trust Act (1997) were enacted in order to oversee the operation, incorporation, and regulation of IBCs, Offshore Banks, Exempt Insurances and Exempt Trusts in Dominica.

The growth of Dominica as a tax haven became almost synonymous with the development of the offshore industry, although the tax benefits of the island had already been existent for about 16 years. Adding these tax incentives to newly established policies of privacy, exemption from exchange controls, commercial confidentiality and proper communications infrastructure, as well as increased political, social and economic stability, Dominica had evolved into a premier tax haven.

As a result of the various offshore Acts, offshore companies that are incorporated and or operating in Dominica enjoy the full benefits of a classic tax haven and are exempt from taxes for a period of several years. For example, International Business Companies are exempt from taxes for a minimum of twenty years, and are not liable to pay any inheritance, capital gains and gift taxes, death or estate duties.

The right to confidentiality is enshrined in Dominica’s offshore legislation, thus protecting the personal data of the owners of offshore companies from being divulged to the local public and foreign tax authorities. Today, secrecy plays an important role in deferring and reducing competition, and consequently, several offshore companies, trusts and insurances are formed as a means of securing market share. Any local offshore service provider who discloses information concerning the beneficial owners of a company are liable to a fine of several thousands of dollars.

The offshore industry has made a significant contribution to Dominica’s economy through the creation of job and investment opportunities. Today, the island’s tax haven status has assisted it in fighting its way out of several of the challenges that it confronts as a small island nation. Revenue earned through the incorporation of offshore companies has increased the government’s ability to undertake infrastructural development such as in the construction and maintenance of roads, schools and public health facilities. The island has been recognised as an excellent eco tourist destination with remarkable dive sites and protected tropical rain forests; consequently, the need to develop its tourism industry is absolutely necessary in order to further market the island as offering unique eco tourist product. One way in which this has been achieved, is through the offshore industry which allows for more exposure of the country through increased communication with people of all nationalities throughout the world while facilitating their offshore interests.

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