For the 2017 Financial Complexity Index, the Netherlands-based TMF Group has chosen 24 countries from the Americas in a total of 94 jurisdictions.
The region is home to the two most friendly and easy to comply with tax and accounting systems in the world – Cayman Islands and British Virgin Islands. Along with Curacao, these three figure in the bottom 10 of the Financial Complexity Index, i.e. among the simplest frameworks in the world.
Let’s look at what makes the tax structures in the Cayman and British Virgin Islands the simplest in the world.
In an earlier series in which we had looked at the ten most complex tax systems in the world, we had introduced the outline of the parameters used by the TFM Group for creating the Index. These four parameters are:
The tax system in Cayman Islands ranks the least complex in the world on two of these criteria – compliance and bookkeeping. While Greece, with a score of 78%, has the most complex system in the world when it comes to compliance, and the global average is 60%, Cayman Islands scores 32% on this parameter.
Meanwhile, Mexico tops the world in terms of complexity in the bookkeeping parameter with a score of 84%, Cayman Islands is the least complex with a score of just 27%; the global average is 51%.
As we have seen in the opening article of this series, Cayman Islands does not levy any income, capital gains, profits, or estate tax and there are no restrictions on foreign exchange movement.
Further, companies incorporated in this geography are not required to adhere to a specific accounting standard; they just need to maintain books of accounts according to any accounting system they deem fit.
The Complexity Report stated that the territory has not made announcements about any forthcoming changes to its tax and accounting framework. Given that the system is adored by businesses, there seems to be little reason to tinker with it.
British Virgin Islands
The British Virgin Islands (BVI) allows registered firms and their partners to make use of any accounting standards used in countries where they do business. The territory does not levy several taxes like profits, sales, income, and value-added, among others.
Alike Cayman Islands, BVI also does not impose any restrictions on foreign exchange. Further, it also does not intend to change the existing system, and given its simplicity, it does not need to.