Indebted Caribbean tax havens look to tax foreign investors
Industry analysts say new fees and taxes could bring in needed money to a region where some debts are near that of Greece. But could they scare off investors?
SANTO DOMINGO, Dominican Republic
For a territory of just more than 56,000 people, the Cayman Islands boasts an impressive corporate roster: From some of the favorite US brands like Coca-Cola and Federal Express to the world’s richest sports franchise, English football club Manchester United.Skip to next paragraph
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The three-island British territory tucked just south of Cuba in the Caribbean Sea has more than 92,000 registered companies, according to the government, most of which do the majority of their business elsewhere.
A check around the Caribbean reveals similar stories. The islands have long been attractive because they collect little or no taxes. They’ve built economies around financial services, which has proven a more reliable source of income than tourism in recent years. And over time they’ve helped foreign companies and well-heeled individuals reduce their tax bills. Among them is the hedge fund Bain Capital, of Mitt Romney fame, which became a lightning rod for criticism during the presidential campaign.
But something happened on the way to tax haven status: Caribbean governments have accumulated massive debts they are struggling to repay. Without the taxes most governments use to pay for the costs of running public works projects or social programs, the bills have added up. With little in the way of economic expansion – The United Nations forecasts 1.6 percent growth this year for the Caribbean – governments are turning to other means.
“It is a well established fact [that] … any government has but one fundamental way to … have the resources available to fulfill its obligations to its citizens… and that is to raise taxes or fees,” D. Orlando Smith, minister of finance in the British Virgin Islands (BVI), said in a Nov. 15 budget presentation.
But industry analysts and tax specialists believe new fees and taxes will bring in needed money for government coffers while doing little harm to the business community.