Genuinely favourable jurisdictions for high net worth individuals to conduct business and investment in are not as common as one would expect, and oases can be vexing to get into, thinks Rachel Smith.
That said, even among the basket of welcoming, business-enabling destinations, the Marshall Islands are seldom mentioned at the top of the list. A closer look at the benefits of doing business in this domain calls into question why it doesn’t feature more prominently.
A geographically unusual country comprising over 1,000 islands far into the Pacific Ocean, the Marshall Islands are officially known as the Republic of the Marshall Islands (RMI).
For those willing to do their homework, the Marshall Islands can be highly attractive as a business base, with the government offering tailored incentives to aid foreign business and investment. Certain sector investments are exempt from paying duties and taxes, regardless of whether their founders are citizens or foreign nationals. Hospitality, manufacturing and new recreational maritime businesses, to name a few, can enjoy a full five-year gross tax exemption.
The RMI are made up of two main parallel chains of coral atoll islands that number 1,200 in total. The Ratak (Sunrise) lies to the east, while the Ralik (Sunset) lies to the west. Around 200 km apart and running over 1,200 km between the northwest and the southeast, the islands that some 53,000 people call home sit just above the equator. The capital Majuro accommodates around two-thirds of the population, together with Ebeye, the second most important urban centre in Kwajalein Atoll. Seen as open-ended residents in the US, there is a lot of movement between the islands and the United States, with the US also contributing aid to its far-flung neighbour on a regular basis.
Only around 5,000 visitors come to the islands every year, making the Republic of the Marshall Islands among the least visited countries in the world. While this might seem a damper on tourism and other tourist-related business ventures, it has nonetheless resulted in several highly attractive incentives for foreign business as a whole. The US military employed several areas in the island chain of 181 km² as nuclear test sites several decades ago, and a strong US military presence remains to this day on some of the islands.
MARSHALL ISLANDS OFFSHORE COMPANY FORMATION
The Marshall Islands government has developed very attractive incentives to draw business to these easternmost Micronesian islands. An investment of $1 million, or paying local wages exceeding $150,000 per annum, opens up a swathe of subtle and overt benefits for foreign investors. In this predominantly Christian, English-speaking nation where Marshallese remains the mother tongue, the island government has long recognised the need to incentivise business incorporation and maritime registration to attract foreign capital.
Considered a cooperative tax haven in terms of OECD regulations, thanks to the practice of recognised transparency standards, the RMI’s stable political and economic climate are in themselves incentives for foreign entrepreneurs who want to incorporate offshore. The islands present as the most favourable location for particularly neighbouring Americans to establish investment or holding companies, for a number of reasons. These begin with the fact that company registration takes just 17 days, with the process defined by only five procedures that have been simplified for ease of application.
In the case of initial company registration, there are no minimum capital requirements. Associated fees are also minimal, with retail business licenses, for example, costing as little as $100.
Yet possibly the most attractive corporate incentive to invest in the Marshall Islands is the statutory exemption from any income tax, corporate tax, withholding tax, taxes on corporate profit, asset or wealth tax, stamp duties and even exchange controls. The government recognises that most foreign investors and corporations do not conduct their business within the Marshall Islands jurisdiction, and in order to accommodate this, has structured generous legislation around it.
To this end, foreign owned business profits are completely tax exempt. There is also no resident director stipulation on company formation, and one does not have to submit the usual annual financial statements and associated paperwork upon registration.
THE NATURE OF NON-RESIDENT DOMESTIC CORPORATIONS
Foreign nationals who register companies in the Islands are recognised in the category of non-resident domestic corporations. This is the RMI’s offshore company registration vehicle, which avails a generous raft of possibilities when compared to traditional domestic company formation.
For example, such corporations can be taken public in order to raise capital. They can conduct third-party trading, trade as an investment advisory service and, indeed, conduct any nature of business apart from gaming, banking or insurance while enjoying such wholesale concessions. Any non-resident domestic company is also exempt from paying any local municipal or other taxes.
In order to deliver on its mandated social obligations and keep the wheels of government turning, the RMI also offer a blanket tax exemption for certain sectors to both foreign and citizen entrepreneurs. Hotels and resorts, most recreational facilities, deep sea fishing, farming and manufacturing for local use and export — or exclusively for export — are all industries that enjoy an extended period of zero obligation. The only prescriptions for qualification are that $1 million or greater be invested in the business, or that such businesses pay a minimum of $150,000 per annum in local (citizen) wages.
EASY BUSINESS AND EASY LIVING IN THE MARSHALL ISLANDS
Widely known as a “fixed taxation location,” Marshall Island companies pay very few annual taxes after any period of complete concession. Taxes levied are also not linked to annual profits, which implies that there is no need to submit annual returns, as tax is not determined by a company’s profitability. The tax liability is determined in advance and minimal in nature. Besides this nominal annual tax, companies are free of any other obligations — a very different picture to what is typically encountered elsewhere in the world.
As an added bonus for those who spend their leisure hours on the water or travel frequently between the islands, yacht registration is also simplified. Particularly for personal use, many find the most cost-effective maritime registration here, although commercial maritime registration is comparably easy and inexpensive. Charter boats are classified as business pursuits, while private yachts remain free of commercial levies. There is, however, a large margin for occasional profitable excursions using private vessels.
For the above reasons, many corporations select the Marshall Islands to incorporate — both new ventures and established companies seeking reregistration. For the purpose of avoiding onerous tax in their home countries, many investors and high net worth individuals have been known to take advantage of the islands’ minimalist stance on tax in general and minimal individual obligation to fill government coffers. While some establish their affairs here on paper, many in effect end up living here, too.
With local sales tax only 2-4 percent, living is simple and inexpensive in this dollar economy. In terms of running an established business based in the Marshall Islands, company obligations are 7 percent retirement fund contribution, 3.5 percent healthcare, with employees enjoying maximum taxable wages of only $5,000 per quarter.
Foreigners wishing to make the islands their permanent home can investigate citizenship by investment options. Joining a swathe of other remote islands, the Marshall Islands still run on a personalised application system where foreigners merely need to send a letter to the relevant authorities to apply. While a formally established practice elsewhere, citizenship by investment is also broadly doable in the Marshal Islands. Such arrangements are not onerous in terms of minimum investment requirements, and individual applications are considered on merit.
Exceptionally beautiful as a holiday destination and residence, the Marshall Islands eclipse many other tax havens when it comes to long-term benefits such as savings on registration and taxes. The complete lack of prying eyes into one’s personal wealth and even business conduct makes the country an attractive destination for many who would simply preserve their wealth.
It is prudent to note that the islands are listed as under threat from immersion due to global warming, according to green watchdog bodies. Estimates vary on timelines, with the more dire predicting major loss of habitat by 2030, yet to date, all remains business as usual.
To any foreign company incorporated in the islands but trading elsewhere, and for that matter, for any high net worth individual looking to avoid taxes by investment in the islands, this possibility might be noteworthy, yet of negligible immediate concern for the intended business purposes. EG