MEMORANDUM

(LAND OWNERSHIP IN THE TURKS AND CAICOS ISLANDS)

Re:  Purchase of Turks & Caicos Islands Property

     The following is an outline of the benefits of owning real estate (whether land, a home or a condominium unit) through a Turks Island company or through a Trust, or both.  A separate memorandum provides basic information on the costs of incorporation and maintenance of a company, while we discuss below the costs of establishing a Trust and the costs of buying and selling real estate.  Normally, the use of Trusts by individual property buyers is an unnecessary complexity and expense. 

           Ownership of property in the Turks & Caicos

    Land in the Turks and Caicos Islands is registered under a statute known as the Registered Land Ordinance 1967 which provides for a registered land system. Basically, this means that one can rely on the Register (which is maintained at Her Majesty’s Land Registry in Grand Turk) in respect of title. It is not necessary to investigate prior title. One can rely on the fact of the Register to demonstrate who is the owner of property from time to time and the Government guarantees the entries on the Register.  In some jurisdictions, this is known as the Torrents System.  There is no title insurance in the Turks and Caicos Islands. 

   Note that there are no restrictions, citizenship or residency requirements for an individual or individuals to hold title to real estate in the Turks and Caicos Islands.  However, if real estate is to be held by a company, that company must be a Turks and Caicos Islands company formed and organized under the Companies Ordinance 1981 as an Ordinary Company (i.e. a local company).  In other words, a foreign company, even if registered here as a foreign company under Part X of the Companies Ordinance, cannot hold title to real estate in the Turks and Caicos Islands.  There is no restriction on a foreign individual or individuals holding the shares of a Turks and Caicos Islands company which, in turn, owns real estate in the islands.

          Multiple owners of land

A purchaser may proceed to purchase land in his own name or may purchase the land in the joint names of himself and his co-purchaser (wife, partner or whatever), much as in most foreign jurisdictions.  Co-proprietorship may be by way of:-

              Joint proprietorship (or joint tenancy):  This is common in the case of husbands and wives where both parties own the entire property and there is an automatic right of survivorship on death without any requirement for a will, probate or other legal formality, save the lodgement of a simple form of application in the Land Registry to delete the deceased person’s name, such death being evidenced by a certified copy of Death Certificate; and,

              Proprietorship in common (or tenancy-in-common):  This is common where partners might purchase lands together but wish to be noted as having an

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              independent divisible interest in the property and in such case, upon the death of one or other of the co-proprietors, his or her share will devolve to his or her estate and will be dealt with in accordance with his or her will or, failing a will, under the intestacy laws of the pertinent jurisdiction.

           Ownership through a local company

        Alternatively, a purchaser may decide to incorporate a Turks and Caicos Islands company which will become registered as the proprietor of the property. The benefits of establishing a company to take title to a property will largely depend on a purchaser’s circumstances. Possible advantages of holding property through a company include avoidance of inheritance tax, the avoidance of income tax on revenues from the property in the country of residence of the shareholders of the company, the avoidance of capital gains tax on the sale of the property in the country of residence of the shareholders of the company, the ease of sale (which could be achieved by transferring the shares of the company rather than transferring the property owned by the company) and privacy considerations.  Where title to property is held by a company, income and capital gains taxes would, in most taxing jurisdictions, only be triggered when funds were paid out by the company to residents and/or citizens of those countries since there are no income taxes or capital gains taxes in the Turks and Caicos Islands.  Professional advice should, however, be sought in such countries.

        Many individuals feel that the company will provide corporate protection in the event of liability flowing from the property if, for example, insurance is inadequate to cover loss or damage to an invitee on the property or in the event of such insurance being void for any other reason.  Certain purchasers may find it convenient to have the title to the property held in a company so that any income earned by the property will be attributable to the company and not to the individual directly. The company may, in due course, pay dividends to the individual shareholders if there are any profits left over after expenses, management fees, etc. or company funds could be used to acquire other assets. 

          Nominees holding the shares of a land holding company

The shares of a land holding company may be held directly by an individual or by a group of individuals, or may, as is quite common in the Turks and Caicos Islands, be held by local management companies in trust for the beneficial owners.  Again, this can afford the purchaser a degree of anonymity, when combined with the Islands’ strict confidentiality laws, to deal with the ownership of the land both during the owner’s lifetime and after the beneficial owner’s death. The share may be held on what is known as a bearer trust declaration: a simple form of declaration where the nominee management company acknowledges that, although it is registered as holding the share, it is holding the share as trustee for the beneficial owner or owners. In such situations it is common, for example, for a purchaser to provide that the shares shall be held in trust for the husband and wife or for the lifetime of the survivor of them and thereafter to their children in equal shares.  This arrangement avoids probate being required upon the death of the first deceased spouse and also the surviving spouse.

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Holding a company through a Trust

        Alternatively, the shares in the company can be held under a full-blown Discretionary Trust Deed. This is a trust document which basically sets forth a discretionary trust arrangement where beneficiaries may be added to or taken away from the Trust in accordance with the terms of the Trust Deed, itself.  The Trustee in such a situation could be a professional trustee, licensed under the Trustees Licensing Ordinance of the Turks and Caicos Islands or could be an individual resident in a jurisdiction which does not tax Trusts on the income earned by Trusts. Trust deeds will typically provide that there will be a “Protector” to the Trust. The Protector is akin to the trust’s best friend, and has the right of veto in respect of certain Trustee activities such as, for example, adding or taking away from the list of beneficiaries or making distributions to the beneficiaries from time to time. It is possible, therefore, to have a discretionary trust arrangement whereby no tax domiciled individual is named as beneficiary at the outset and, thus, effectively seek to postpone taxation in the hands of such beneficiary. It must be emphasized that care must be taken in respect of all these trust arrangements, particularly with regard to U.S. grantor trust rules.  (Please note that we are not U.S., Canadian or European tax advisors and our clients are urged to seek and obtain professional tax advice in their home jurisdiction in relation to the tax benefits of any particular method of acquisition and holding of property in the Turks and Caicos Islands.)

Another option for a prospective purchaser is that property can be purchased directly in the name of a Trust or, more correctly, in the name of the Trustee of a Trust. 

           Costs of the different ownership options

The above sets forth the most common methods of purchasing and holding land in the Turks and Caicos Islands.  Please note, however, that the costs of incorporating companies and establishing Trusts, and the costs of maintaining such entities must be borne in mind before making a decision.  Obviously, if an individual or group of individuals purchases land in their own name or names, then no set-up fees or on-going maintenance fees will be incurred after the initial acquisition costs.

The cost of forming a Turks and Caicos Islands ordinary company and other pertinent information relating to the establishment and on-going maintenance of companies is set forth in an accompanying memorandum.

The establishment of a full blown Discretionary Trust is much more complicated and gives rise to a set-up charge of a minimum of $5,000.00 and ongoing trusteeship charges of a minimum of $2,500.00 per annum.  If the assets of the trust are limited to, for example, a single property, then the annual trustee charges will not exceed $2,500.00.

      Final considerations

    The individual purchaser should make up his or her own mind as to whether it is worthwhile, given his or her particular circumstances (with regard to tax obligations and/or the desirability for estate and asset protection planning and/or the desirability of privacy), as to how to proceed to purchase and hold property.

As a final comment, it should be noted that by executing the contract in the name of a company, one limits the liability that might flow under the contract in the event of a default on the part of the purchaser.

        Costs of acquiring property in Turks and Caicos Islands

       Regardless of who is the purchaser (i.e. individual, company or Trust), on the acquisition of property on Providenciales, a Stamp Duty (a one-time transfer tax) equal to 9.75% of the purchase price of property costing over $75,000.00 is payable to the Government.  Where the purchase price of property is between $25,000.00 and $75,000.00, the Stamp Duty for property in Providenciales is 6.5% of the purchase price.  No Stamp Duty is payable where the purchase price is $25,000.00 or less.   Stamp Duty rates are currently lower in the other islands forming part of the Turks and Caicos Islands.

     While some law firms charge more, legal fees on purchases and sales of real property are typically equal to 1% of the purchase price, whether the client is buying or selling.  Where the purchase price is less than $125,000.00, however, we have a minimum fee of $1,250.00.  Where transactions involve prices of over $750,000.00, our practice is to reduce the 1% somewhat based on the amount of time and the degree of difficulty involved in the transaction.  Before undertaking any work on behalf of a client, we will be pleased to provide a quotation with respect to legal fees.

       In addition to legal fees, attorneys charge their disbursements (i.e. money expended in carrying out the transaction) which are typically between $100.00 and $200.00.

Stamp Duty, legal fees and disbursements are normally payable at the time of the closing of the purchase transaction except in the case of the purchase of a condominium unit which has not yet been started or which is still under construction.  In those situations, closing can be several years away.  Thus, our practice in those situations is to charge 50% of the quoted legal fees after the Agreement for Sale has been negotiated and signed by the parties.  A good part of the legal work has been completed by the time that stage is reached and closing is often two or three years away.  All other costs, including Stamp Duty, remain payable at the time of closing. 

Legal fees for incorporations or establishment of Trusts are payable prior to undertaking such services and are held in trust until the services have been completed.

Saunders & Co.

(January 3, 2006)