Investors put their cash in choice spots

PUBLISHED : Sunday, 12 September, 1993, 12:00am
UPDATED : Sunday, 12 September, 1993, 12:00am

MORE than 40 offshore centres around the world competing for business are spoiling investors for choice.

The leading centres, such as Jersey, Guernsey, the Isle of Man, the British Virgin Islands, the Bahamas, Bermuda, Cyprus, Cook Islands, Lichtenstein and Switzerland, offer a wide range of services.

These include trust, investment and offshore banking facilities.

But investors should bear in mind the same considerations when selecting a smaller offshore centre: A low tax or no tax jurisdiction; A politically stable and economically strong country; A favourable and well-understood legal system; A favourable regulatory environment, particularly in exchange controls, banking secrecy and investor protection; and A central, easily accessible location with good communication and developed professional services, such as lawyers, bankers, accountants and insurers.

The Channel Islands are, arguably, the favourite choice of Hong Kong investors because they satisfy the above factors, and have close ties with Britain.

They enjoy a special relationship with Britain, and a substantial measure of self-government developed as a result of Royal Charter and custom dating back more than 900 years.

The islands' political systems should instil confidence among Hong Kong investors who are worried about the territory's stability after 1997.

While Britain looks after defence and foreign affairs, the Channel Islands are responsible for their own domestic and fiscal affairs.

Offshore banking, first set up on the two main islands of Jersey and Guernsey in the 1950s, has not looked back since.

Britain's ''big four'' - Barclays, Lloyds, Midland and National Westminster Bank - dominate the banking sector there.

There is less than eight hours' time difference between the islands and Asia, Europe and most of the United States, which allows bankers to call Channel Isle offices during their normal business hours.

Jersey is the largest of the Channel Islands. It covers about 116 square kilometres and has 80,000 residents.

When Britain entered the European Community, Jersey negotiated its own special relationship with the EC.

The pact preserves Jersey's independence and ensures its fiscal and taxation autonomy.

The operation of trusts in Jersey is governed by the Trusts (Jersey) Law of 1984. This validates and enforces trust arrangements and imposes duties trustees, protects the rights of the beneficiaries and generally regulates trusts' administration.

One of the island's most attractive points is its tax structure. Income tax is applicable only to residents and the islands have no capital gains, gift, wealth, inheritance, value-added or other capital tax.

The government imposes no exchange rate control restrictions and funds may be remitted freely throughout the world.

More than GBP45 billion (about HK$532.8 billion) is deposited in Jersey's banking vaults.

Add to this Jersey having refused licensing applications from the failed BCCI, and it is easy to see why its reputation as a long-established and reputable offshore centre is unblemished.

A law enacted in 1991, and modelled on the UK 1987 Banking Act, gives the authorities much wider powers to investigate accounts and banks' internal workings.

Guernsey also applies strict controls to protect its reputation as an impeccable banking centre.

Newcomers are checked, and must show a ''good name in the world's top 500''. A bank's home supervisor must be aware of plans for a Guernsey subsidiary.

Both initial licensing and renewal conditions are onerous. Banks are sometimes told not to lend more than 25 per cent of their capital without first notifying the financial authorities.

Supporting the island's well-regulated banking system is a highly developed communications system and a stable, well-trained workforce.

Another offshore centre that has captured Hong Kong's attention is Bermuda in the Caribbean.

More than 170 Hong Kong businesses, worried about the territory's future, have chosen to incorporate in Bermuda. The list includes Jardine Matheson, Hong Kong Land and Mandarin Oriental.

The British-dependent island provides a range of specialised services.

However, the main business that helped Bermuda's financial industry grow involved re-insurance, offshore private trusts and mutual funds.

Of more than 7,000 international businesses registered in Bermuda, about 25 per cent are insurance-related, and about 30 per cent are investment-holding companies.

Bermuda also has a healthy re-insurance market.

Mutual funds and other investment vehicles, such as unit trusts and closed-end fund companies, have a strong presence in Bermuda.

There are more than 200 mutual fund companies on the island alone.