Legal System

The legal system of the Cook Islands is based on New Zealand and English Common law.

Generally speaking common law, as opposed to civil or socialist law, is a type of legal system where legislation is continually evolving. Courts refine and create laws on a case-by-case basis. When resolving a legal dispute, in the ideal world, a common law court looks to precedents set by other courts. What this means is that when a court is resolving a dispute, it must look to see if a similar dispute was resolved in the past. If one has, then the present day court is obligated to following the same reasoning used in the prior case; this principle is called stare decisis. On the other hand, if the dispute is totally unique, the court may resolve the matter itself using general guidelines. This new decision then becomes the precedent to which all future cases are bound. Over the years, the precedents created by past decisions coalesce into a complicated set of rules that apply to a wide array of case; this collection of rules is known as “common law”. Of course, common law systems are much more complex in practice, nevertheless the principle of stare decisis as described above, is the foundation of all common law systems.

Offshore Legal and Tax Regime

Please be aware that the following is simply a brief summary of some of the more important aspects of Cook Islands tax law and should be considered only general information. Please do not substitute this for professional tax advice.

General Information

It is possible to set-up offshore operations in the Cook Islands under the following business forms: international company, registered listed company, foreign company, or trust. For more information on these forms of business, please consult the incorporation section.

The Cook Islands and the FATF Blacklist

The Financial Action Task Force (FATF) was established in 1989 and is an inter-governmental organization designed to develop and promote international and national policies that combat money laundering and terrorist financing. In other words, the FATF is a “policy-making body” that works to bring about legislative and regulatory reforms in the financial sector.

Like many other offshore jurisdictions, the Cook Islands have been placed on FATF and OECD, the Organization for Economic Co-operation and Development, blacklists of jurisdictions with sub-standard or weak anti-money laundering legislation. More than anything inclusion on the blacklists is a form of pressure by the FATF and OECD, to establish a more restrictive regulatory regime.

The parliament of the Cook Islands responded to this pressure in September of 2000 by ratifying the Money Laundering Prevention Act that among other things laid the groundwork for setting up the Money Laundering Authority, an inter-governmental organization consisting of the financial secretary, the commissioner for offshore financial services, and the commissioner of police. Following the cabinet’s approval of the work of the Anti-Money Launder/Counter Financing Terrorism Committee, the parliament issued a further series of nine new measures in 2003. The Financial Transaction Reporting Act, requiring banks to report local and international money transfers to a central financial intelligence unit, was just one of the measures. Furthermore, full disclosure is now required by all operators of offshore companies, banks, trust accounts, and insurance firms.

The legislation passed in 2003 has since been reviewed following revised FATF regulations. Also, more regulations relating to anti-money laundry in response to an International Monetary Fund review in 2004 and a later review by the Financial Supervisory Commission. One important result of these revisions is an amendment to the International Trusts Act and International Partnerships Act that removes the powers of the Minister of Finance to grant exemptions from the afore mentioned acts and loosen the secrecy provisions outlined in them.

Having made these changes, the Cook Islands have been complimented by both the IMF and the FATF, who has since removed the Cook Islands from its black list. Nevertheless, as of 2004, the IMF felt that the Cook Islands still had work to do in the areas of training, transparency, and supervising the financial sector.

Taxes and Offshore Operations

With the exception of the Stamp Duty offshore entities are exempted from taxes on the Cook Islands.

Although foreign and local residents of the Cook Islands alike must pay income taxes, there are no special income tax rules that apply only to employees of offshore operations.

Employees of non-resident or offshore entities are not entitled to any special privileges in the Cook Islands. According to the Entry, Residence, and Departure Act 1977, only Cook Islands citizens and permanent residents may live and work on the islands without a work and resident permit. It is possible to apply for both online. It is possible for an employer of business to make the application on behalf of an expatriate employee. Generally speaking, permits are issued on a yearly basis and may be renewed on application by the employer. Work permits are connected with the applicant’s employer and may not be transferred to another employer.

As stated in the Leases Restrictions Act 1976, foreigners may not lease land for more than five years without getting special permission from a government committee. Foreigners are forbidden from leasing land for over 60 years and my not own a freehold. In this case a foreigner is defined as someone who is neither a citizen of the Cook Islands nor a permanent resident.