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Whilst the Caribbean state of St Vincent and the Grenadines is probably best known as a tourist destination and hideaway for the well-heeled (Princess Margaret had a holiday home on Mustique for many years and Mick Jagger, who still has a home there, is a regular visitor), the former British colony is also emerging as a well governed and regulated financial jurisdiction to rival the more prominent offshore finance centres in the region.

The state of St. Vincent and the Grenadines (commonly shortened to SVG) is located approximately 1,600 miles southeast of Miami and 100 miles west of Barbados, forming part of the Windward Islands at the southern end of the Lesser Antilles chain. In a typically Caribbean setting, the country itself consists of a group of 18 small islands. The largest of these islands is St Vincent, a lush volcanic island just 18 miles north to south and 11 miles wide. Its capital, Kingstown, has a natural deep-water harbour and the island is dominated by the 3,000ft (950m) volcano, Soufriere which last erupted in 1979.

The tropical climate of the south-eastern Caribbean ensures that the temperature in the area varies little the year round. Rainfall however, is a different matter. July is the wettest month when there is measurable rainfall for an average of 26 days, while April, the driest month, averages six days of rain. January to May tend to be the driest and most popular months with tourists. Generally, the Grenadines have a drier climate than St Vincent.

From 1763 until independence, St. Vincent passed through various stages of colonial status under the British. Following a referendum in 1979, the territory became the last of the Windward Islands to gain independence and SVG is now a self-governing parliamentary democracy, with a common law system based on the British model. The currency is the Eastern Caribbean Dollar (EC$) which is linked to the US$ at an exchange rate of 2.7 EC$ to 1 US$, and is managed by the Eastern Caribbean Central Bank, which has its headquarters in St. Kitts. However, in addition to the US dollar, the British pound and the Canadian dollar are widely used in the islands although major credit cards are not as widely accepted in SVG as they are on other Caribbean islands. Nevertheless, plastic can be used at most hotels, car rental agencies and dive shops.

In the past, the country's economy was based on income from sugar and more latterly bananas, although tourism has since superseded agriculture as SVG's biggest earner. Economic growth has been restricted somewhat by a combination of events such as climatic problems, September 11 and the need to remodel the financial services sector to appease the OECD and FATF (Financial Action Task Force). Accordingly, an ambitious programme of policy reforms designed to strengthen the public finances, achieve higher growth, lower unemployment and reduce poverty is underway.

The Offshore Finance Authority (later the International Financial Services Authority (IFSA) was created by Parliament to institute a new system to manage and supervise the financial services industry. After a certain amount of pruning in the financial services sector in 2001, SVG was given a clean bill of health by the FATF in June 2003, putting its offshore economy on a more stable footing and enabling steady growth in the industry.

Banking, trusts, insurance and mutual funds form the cornerstone of the finance industry although the registration of International Business Companies has also become a strong growth area for SVG.

In the offshore banking sector, the regulator has concentrated its efforts on ensuring that only well managed and adequately staffed banks with a physical presence are licensed in the jurisdiction, and therefore, no shell banks will be found in SVG. At present there are only a handful of banks licensed to conduct international banking business, all of which are subject to on-site examinations by the authorities every 12-18 months.

The IFSA collaborates with the Saint Kitts-based Eastern Caribbean Central Bank in the licensing and supervision of offshore banks, and SVG banking firms must adhere to strict staffing requirements. Under the International Banks Act, 1996 institutions must have local employees and a minimum of two OFA-approved directors, one of whom must be resident in the jurisdiction. Whilst SVG in the past afforded a high degree of confidentiality to account holders, the Exchange of Information Act passed in 2002 in order to bring the jurisdiction in line with international anti-money laundering standards has of necessity compromised this to a certain extent.

As mentioned above, the SVG offshore sector also caters to the mutual fund industry, which is governed by the Mutual Funds Act 1997 (as amended in 1998). The act provides for the licensing of both domestic and offshore mutual funds and licenses can be granted either for private and accredited funds public funds. There are no capital adequacy requirements or minimum subscription limits placed on public funds although they must maintain accounting records and financial statements as well as publish a prospectus and file it with the OFA.

The international insurance sector was also identified by the government as an additional growth area for SVG. The sector is currently governed by two Acts passed in 1998 and 1999 which attempt to create a high quality legal and regulatory framework designed to attract market participation and offer flexibility to insurers wishing to conduct international insurance business.

In a bid to secure future growth for the jurisdiction's finance industry, the government created a new international promotion agency, known as National Investments Promotions Inc (NIPI). This new body commenced operations in August 2004.

St. Vincent and the Grenadines operates a favourable taxation regime for international entities, which are not subject to tax under the country's laws. Furthermore, under the domestic tax regime there is no capital gains tax, no inheritance tax, and no tax on dividends. Corporate tax ranges from 10% to 35%. Income tax is levied on all persons whose chargeable income is more than EC$12,000 per annum whilst National Insurance (social security) Contributions are payable from salary up to EC$20,040 per annum at rates of 3% for the employer and 2.5% for the employee. Capital and profits may be freely repatriated up to a limit of US$100,000 whilst amounts exceeding this sum require approval before repatriation. Also there are no exchange controls on current transactions under US$100,000.

All visitors to SVG must have valid passports and a return or ongoing ticket. However, nationals of Canada, UK and the USA need only proof of citizenship (a valid or expired passport, certified birth certificate or Certificate of Naturalization and photo identification) along with an onward/return ticket and/or proof of sufficient funds.

The acquisition of land by non-residents is governed by the Aliens Holding Ordinance, and all foreign nationals wishing to obtain land in the state must apply to the government for a license. Applications fall into two categories: those involving an acre of land or less; and those involving more than one acre of land. For an acre of land, the application must contain an approved plan for development and an execution of conveyance. However, for more than one acre of land, the process is a lot more involved and one is required to submit a development plan for the entire area.

In terms of communications within the jurisdiction, UK telecommunications firm Cable and Wireless provides most of the telephone services in the country, with fax, cable and internet services also in wide use. Cellular phone services are provided by the Caribbean Cellular Company (formerly known as Boatphone) although the opening up of this market by the government has recently seen new entrants.

Getting to and from the country itself is not straightforward: there are no direct long- haul flights to St Vincent's E.T. Joshua Airport and visitors must first fly to neighbouring islands such as Barbados or Trinidad before taking a connecting flight with a regional carrier such as LIAT, Mustique Airways or Air Martinique. Nevertheless, the country is well served by maritime links and Kingstown's harbour can accommodate 2 ocean-going cruise ships. The islands are also particularly suited to exploration by yacht. Indeed many of SVG's beaches, scattered around the many islands, are inaccessible by any other means.

So, with its location somewhat off the beaten track and its miles of unspoilt sandy beaches, SVG may be an attractive proposition to those wishing to buy or build a holiday home in the Caribbean away from the tourist throng of more popular destinations, or acquire a Robinson Crusoe existence on one of the untouched islands. And besides the excellent snorkelling and laid back lifestyle, the country is also an interesting and nowadays well-regulated base for the expatriate or international investor.