A long-standing tourist hotspot, sunny Belize in Central America started to position itself as one of the most attractive tax havens in the world in 1990, when it expanded and amended a series of offshore financial services laws designed to exempt international businesses from paying taxes and filing company reports while offering virtual secrecy to their owners.
These measures have not been lost on Ukrainian businesses, which are keen to pursue tax optimization strategies, shift profits abroad or engage in illicit activities.
Ukraine’s exports to Belize in the first five months of this year rose sharply by 132,477 percent compared to the same period last year, according to state statistics. Curiously, nearly 92 percent of the exports, worth almost $740 million, were mineral fuel and oil products. These went to a nation of 300,000, which occupies an area of only 23,000 square kilometers – roughly the size of Massachusetts or Sumy Oblast.
Interestingly, the exports took place as oil refinery production in Ukraine dropped by 42 percent in the first five months of this year, a recent Da Vinci AG report says.
Such suspicious transactions are not uncommon. In October 2012, three obscure Ukrainian companies apparently exported in one month 117,000 tons of gasoline to Zevidon Trading Ltd in Belize, the equivalent of what Ukraine’s largest oil refinery ships annually when it runs at peak capacity, Interfax Ukraine reported.
Not surprisingly, the ownership trail of Ukraine’s digital TV monopoly provider, Zeonbud, leads to Belize, as does the ownership structure of Road Building Altcom, which received nearly $200 million from the Ukrainian government in no-bid Euro 2012 soccer championship construction orders.
By comparison, Ukraine exported less in U.S. dollar figures for the same period to neighboring Hungary ($704 million), Germany ($665 million), or the Netherlands ($383 million), according to the state statistics service.
On the other end, Belize has become Ukraine’s 11th largest foreign direct investor since independence, ahead of the U.S. and Poland with more than a $1 billion, the vast majority of which tax consultants and experts believe is repatriated money.
“In Belize, it is easier to conduct questionable transactions than in other offshore jurisdictions,” said Vadim Medvedev, an associate with Avellum Partners.
The benefits for international business companies (IBC) in this jurisdiction include quick and cheap incorporation – starting as low as $800 and usually within 24 hours, respectively – exemption from any tax or duty on income or profits, and no capital gains tax, estate tax, withholding tax and inheritance tax.
And tax exemption is guaranteed if the IBC does not carry out business or investment activity in the jurisdiction, owns no property in Belize and owns no shares in a domestic or onshore Belize company.
All most IBCs do is pay a fixed, annual government fee of $100, though this can jump to $1,000 if an IBC’s authorized capital is more than $50,000.
As for confidentiality, when incorporating an IBC, the names and addresses of company shareholders and directors are not filed with the registrar, and thus do not become a part of public records. Additional privacy is allotted to beneficial owners of Belize offshore companies through the use of nominee shareholders and directors, including bearer shares, which as the name implies, result in the company belonging to the person who appears with the physical document of the share. Typically, they are held in the custody of a registered agent in Belize.
Furthermore, IBC’s can be registered with one shareholder and one director who can be the same person, and can then transfer such a bearer share to the real owner.
These benefits are why the Tax Justice Network, an international tax and regulation advocacy group, named Belize in 2011 as one of the most secretive jurisdictions worldwide. Overall, it ranked Belize 41 out of 73 jurisdictions on its 2011 Financial Secrecy Index, because it is still a “tiny player compared with other secrecy jurisdictions.”
In its most recent study, TJN found that since independence, some $167 billion was sent from Ukraine to offshore accounts, nearly the equivalent of the nation’s 2012 gross domestic product.
The International Narcotics Strategy Report writes that although “Belize is not a major regional financial center…Belizean officials suspect that money laundering occurs within the country’s offshore financial sector. Money laundering, primarily related to narcotics trafficking and contraband smuggling, is suspected to occur through banks operating in Belize. Criminal proceeds laundered in Belize are derived primarily from foreign criminal activities.”
Recently, however, Belize made a slight improvement in May when it signed and ratified the Organization for Economic Cooperation and Development’s amended convention on assistance in tax matters in which contracting states are required to exchange any relevant information for tax purposes.
Ukraine’s Duties and Revenue Minister Oleksandr Klymenko recently told the Kyiv Post he wants to secure a similar bilateral arrangement with the British Commonwealth nation.
Still, Markus Meinzer, senior analyst for TJN and member of the Financial Transparency Coalition, says the “effectiveness of the convention rests on the availability of information in Belize,” which is miniscule.
“Even accounting records, invoices, and supporting documents are not kept…Belize doesn’t require underlying documentation, you can invent your accounts, thus this information exchange willingness may be of limited value,” Meinzer explained.
Another measure deemed an improvement was that the Belizean government now holds the register of IBC’s, but “this doesn’t change the fact that registration of the IBCs should be conducted through the local registered agent – the company which has access to the IBC register,” said Medvedev of Avellum Partners.
Thus nobody really knows how many Ukrainian firms have end-ownership, partially or wholly, in Belize.
“It could be more than 5,000 or 10,000 Ukrainian companies,” said Maksym Lavrynovych, managing partner of Lavrynovych & Partners, adding that the only difference between Belize and the British Virgin Islands is “the difference in price,” with BVI being on the pricier end.
He advises Ukrainian businesses not to purchase existing Belizean IBC’s and instead “form new companies.”
Lavrynovych also foresees more pressure bearing down on Belize from high-tax countries in the European Union and the U.S. for reasons “that are not related to Ukraine.”
A recent OECD report titled Addressing Base Erosion and Profit Shifting noted: “That the integrity of the current global tax system has been undermined by multinational companies and their tax planners exploiting the boundaries of acceptable tax planning.”
And it is developing countries like Ukraine who have “suffered proportionately more tax abuse than any other actor,” according to the Financial Transparency Coalition.
But this doesn’t change the fact that many Ukrainian companies need offshore not for secrecy, but also for the security that foreign arbitration entails.
According to Lavrynovych, “Most Ukrainians never trust their government, they’ve had too many bad experiences, they don’t trust the government’s promises as well as Ukrainian banks.”
Kyiv Post editor Mark Rachkevych and staff writer Kateryna Kapliuk can be reached at [email protected] and [email protected], respectively.
