Financial Crime World

Risk Mitigation Strategies to Avoid Material Stamp Duty Payments

In the wake of recent changes in tax laws, companies and financial institutions are increasingly focused on mitigating risks associated with material stamp duty payments. To avoid such payments, it is essential to implement effective risk mitigation strategies when dealing with offshore companies.

Conduct Due Diligence and Obtain Representations

  • Conduct thorough due diligence on the BVI or Cayman Islands company involved in a transaction to ensure that it does not have an interest in land in either jurisdiction.
  • Include representations and undertakings from the company to confirm that it does not hold any such interests and will not do so in the future.

Ensure Proper Execution of Documents

  • Direct signatories to execute documents outside of the Cayman Islands to prevent inadvertent creation of stamp duty liabilities.
  • Ensure that signing instructions are clear and concise to avoid potential issues.
  • Consider obtaining a legal opinion from a qualified BVI or Cayman Islands attorney to confirm the effectiveness of your risk mitigation strategies.
  • The legal opinion can provide assurance that no material stamp duty payments are required.

Security Registers and Registration in the BVI/Cayman Islands

British Virgin Islands (BVI)

  • Companies must record particulars of security created over assets in their register of charges.
  • While there is no statutory timeframe for updates, it is recommended to update the register promptly to ensure third-party notice of the security.
  • Failure to comply can result in fines.

Cayman Islands

  • Cayman Islands law does not require registration of security interests.
  • Priority is determined by common law rules.
  • Inserting details of mortgages and charges in the register of mortgages and charges does not confer priority on a charge.

Key Risk Mitigation Strategies

To ensure that material stamp duty payments are avoided, secured creditors should:

  • Include undertakings from the offshore company to update its internal security register and provide certified copies of the updated register.
  • Obtain undertakings from the offshore company to file particulars of the security with the relevant registrar and provide stamped particulars and certificates of registration.
  • Take control of the security registration process, if necessary.
  • Designate applicable security registers and filings as conditions precedent or subsequent to a financing agreement.
  • Consider obtaining a BVI or Cayman Islands legal opinion.

By implementing these risk mitigation strategies, companies can effectively avoid material stamp duty payments and ensure compliance with relevant laws and regulations.