The global minimum tax, a new corporate tax regime under discussion among G-20 countries, has all the potential to deal a devastating blow to tax havens in the Caribbean.
Under the proposed plan, companies will have to pay 15% tax regardless of where they are incorporated, according to Bloomberg.
The new tax system is yet to be approved by G-20 countries as well as the Organisation for Economic Cooperation and Development (OECD).
Many Caribbean countries – including The Bahamas, the Cayman Islands, the British Virgin Islands, and Bermuda – charge no personal or corporate income tax, making themselves attractive for large global business groups to establish a subsidiary there.
The Cayman Islands, for example, has nearly 100,000 such corporations. According to Reuters, as many as 11,000 investment funds, representing more than 60% of the hedge fund industry’s US$3.8 trillion in assets, are registered on the island. Therefore, the financial sector alone accounts for almost 50% of the country’s economy.
The proposed tax system may “undermine the incentive for global companies to set up shop on storm-prone islands in the Caribbean,” reported Bloomberg, quoting an international tax lawyer.
The impact will be too huge to bear for the Caribbean countries, as it comes at a time when they are struggling to offset the economic loss caused by the COVID-19 pandemic on the tourism sector.