Barbados

A review of the Barbados international business sector

The Barbados International Business Association (BIBA) provides a guide to the financial sector in Barbados 

International business in Barbados is a growing and dynamic sector which is already making a substantial contribution to the Barbados economy. In recent years the importance the government has placed on this sector and its recognition of the sector’s potential for leadership in Barbados’ social and economic development has become quite evident.

There are currently more than 4,000 international business entities conducting a wide range of business in far-flung markets across the world. The business activities are classified as international insurance, banking, treasury management, private wealth management, international trade and commerce, trust, and information and communications technology businesses.

International insurance

International insurance business is established in Barbados either as exempt insurance companies (EIC) or qualifying insurance companies (QIC) in accordance with the relevant legislation.There are currently more than 240 international insurance companies (EICs and QICs) operating in Barbados. These entities are primarily of US or Canadian origin. The well known captive insurance business can be conducted within either of these legislative frameworks depending upon the wishes of the principals. 

Private wealth management trust

The law of trusts in Barbados has its foundation in the English Trustee Act 1925, common law, and rules of equity. The general principles relating to trusts are supplemented by the Barbados Trustee Act and the International Trusts Act (ITA). The International Financial Services Act 2002-5 (IFSA) also regulates licensees acting as trustees of offshore trusts in Barbados and regulates the powers and duties of the licensee as trustee.

Barbados has developed a legal infrastructure with accounting expertise to strengthen the proper establishment and administration of trusts.A Barbados trust provides for distributions at any time during the lifetime and upon death of the settlor. It can provide most of the benefits of a will without requirements of probate and court approval for distribution of assets to beneficiaries.

The law dictates that unquestioned legal title vests in the beneficiaries from the property of the trust.A trust, which takes effect only upon the death of the settlor, must be declared as prescribed by the Succession Act 1981 since it is essentially a will and is therefore subject to probate. Further, the Property Act 1979 requires thatfor dispositions of real property, the instrument must be in writing.Any person, resident or non-resident, may settle assets in a Barbados trust.

A trust is arguably the most secure of all vehicles available to investors to protect their assets.Historically, trusts have been used by wealthy individuals and families to protect assets from attack by creditors, minimise taxation, and provide for family members in the future without those beneficiaries being able to squander assets. For almost 20 years in Barbados, tax advisers and other professionals have used trusts in effective tax planning and wealth management for high net worth persons and in facilitating commercial transactions.

Domestic Barbados trust

Where the trustee is a Barbados resident individual or company and the trust deed does not specify that it is an international trust, it will be considered a domestic trust. Domestic trusts are generally entitled to treaty benefits. This substantially reduces or even eliminates tax in the other treaty jurisdiction.

Domestic trusts have the following features:

•   majority of trustees must be Barbados residents;
• trustee can be an individual or a trust company licensed under the Financial Institutions Act 1996-1; 
• worldwide income is taxable; 
• expenses are subject to value added tax (VAT) in Barbados; 
• exemption from exchange controls may be received if the trust has foreign assets, non-resident beneficiaries, and deals primarily in foreign currency; 
• perpetuity period of 80 years; and 
• no registration or filing requirements.  

International trust

One of the principal benefits of the international trust is its asset protection provision. To qualify as an international trust:

• at least one trustee must be resident in Barbados; 
• settlor must be resident outside of Barbados; 
• beneficiary is not a resident of Barbados (with certain exceptions); 
• trust instrument must specify that the ITA applies; 
• immovable property is owned in Barbados; 
• income derived within Barbados is taxed or remitted to Barbados 
• VAT is zero-rated, exempt from exchange controls and in Barbados withholding tax; 
• perpetuity period is up to 100 years; and 
• registration is required but does not become publicly available.  

The ITA also provides for the establishment of non-charitable purpose trusts which may have no named or ascertainable beneficiaries. One of the key attractions of the purpose trust is that it need not be set up for charitable purposes and may therefore be established for a group that does not otherwise meet the criteria of a charity. A purpose trust may be used in many diverse business transactions.

Offshore trust

An offshore trust is created when the trustee is licensed under the IFSA. The settlor and beneficiaries must be resident outside of Barbados and the trust assets must consist solely of foreign currency or securities. The offshore trust is exempted from all Barbados taxes, duties, and exchange control requirements.There are no registration or filing requirements for an offshore trust, so confidentiality is easily maintained. The perpetuity period of the trust can be up to 80 years and income can be accumulated for the perpetuity period.

Proper law of trusts

The proper law is the law of the jurisdiction stated in the trust instrument. If not expressly provided for, it is the jurisdiction with which the trust had its closest connection at the time of its creation (meaning place of administration, situs of assets, residence of trustee, and fulfilment of trust).Barbados is a party to the Hague Convention on the Law Applicable to Trusts and on their Recognition, July 1, 1985, which seeks to establish common provisions on the law applicable to trusts.It is preferable that the trust assets be managed in Barbados. If not, it is important to ensure that they are in a jurisdiction which recognises trusts and applies similar rules of private international law as does Barbados. If the assets are held in a jurisdiction where trusts are not recognised or different international laws are applied, then the judgment creditor may succeed in enforcing judgment directly against the assets in that jurisdiction.

One of the primary duties of the trustees is to make trust assets productive by purchasing investments from which income and/or capital appreciation might be expected. The power to invest can be made explicit in the trust instrument or the trustee can rely on the provisions of the Trustee Act. The majority of trust companies in Barbados have specialised expertise in asset management and are able to fulfil their obligations with ease. 

International trade and commerce

There are more than 2,400 entities in Barbados conducting a wide variety of international trade and commerce business facilitated by the provisions of the International Business Companies Act or the Societies With Restricted Liability Act. These operations are engaged in activities including international sales of products and equipment, aircraft leasing, support for mining operations, and inbound and outbound call centres.

International business companies

The International Business Companies Act is one of a suite of legislation Barbados has deliberately created to attract and facilitate the wide range of business activities allowing Barbados to become recognised as a modern and responsible international business centre for foreign and domestic investment. 

An international business company (IBC) is a company that carries on business in manufacturing, trade and commerce from within Barbados for customers residing outside of Barbados. An IBC may therefore manufacture process or otherwise prepare products for export outside of Barbados or provide services to non-residents of Barbados. The IBC legislation encourages local and non-resident participation in diverse activities including financing, investment management, futures trading, and information services among many others. The legislation stipulates that an IBC:must be financially capable of carrying out the businessmay not carry on business under any other offshore incentive legislationmust not carry on a trade in buying or selling goods and services in Barbados
 

Primary benefits: 

• Tax rate of 2.5% - 1% depending on the level of income of the IBC into perpetuity.
• Foreign tax credit can be taken in respect of taxes paid outside of Barbados, provided that the election to take the credit does not reduce the tax payable in Barbados to less than 1% of taxable income.
•  No withholding tax on dividends, interest and other payments made to non-residents or to another IBC. 
• No capital gains tax nor estate duties 
• Exemption from ad valorem stamp duty, except in respect of real estate situated in Barbados 
• Exemption from taxes and duties on plant, machinery, raw materials, goods and other articles imported into Barbados for use in the IBC’s business
• Exemption from exchange control
• Guarantee of benefits and exemptions for a period of 15 years 
• Tax concessions for specially qualified employees
• Exemption from taxes on the transfer of any securities or assets of the IBC, other than the transfer of real property situated in Barbados.  

Establishing an IBCA company must first be incorporated or registered in Barbados under the Companies Act. An application for an IBC licence may be made immediately after incorporation or registration of the company, after which it may then commence business in Barbados. The application for an IBC license must include a brief description of the intended business of the company, the name and address of the proposed shareholders and the percentage of shares to be held. Certain other due diligence information must also be supplied with the application. The application fee is Bds $850.00.  

Annual requirements: 

•  An IBC licence must be renewed annually on or before the 31st day of December;
• An annual fee of Bds $850.00;
• Audit requirement where the gross assets and revenues of the company exceed the statutory threshold of Bds $1m;
• Financial statements are to be filed with the renewal application.

International societies with restricted liability

A society with restricted liability (SRL) is an entity that is established under the Societies with Restricted Liability Act. An SRL is very similar to what is known in the US as a Limited Liability Company (LLC). An SRL that is entitled to special Barbados tax benefits is called an international society with restricted liability (ISRL) whereas entities subject to regular Barbados taxes are referred to as SRLs. ISRLs are designed to be used mainly for international transactions and are prohibited from transacting business with persons resident in Barbados.

Other characteristics of an SRL

• Limited liability;
• The rights, powers and privileges of an individual; 
• Stipulation that the transfer of quotas in a society will not confer on the transferee the right to become a member or participate in the management of the society without the written consent of all the members;
• Quotas similar to shares and bearer shares are not permitted.

Why consider an ISRL in Barbados

Primary benefits

The general benefits of an ISRL are identical to those of an IBC, except that an ISRL’s tax and duty exemptions are guaranteed for 30 years.

Additional benefits

• Limited liability 
• Simplified corporate mobility into and out of Barbados 
• Simple winding-up provisions
• Ease of organisation with no minimum capital requirements
• Corporate directorship and secretary permitted with certain restrictions
• Provision for redeemable quotas and for pre-incorporation contracts 
• An ISRL may purchase, redeem or otherwise acquire quotas issued by it, subject to solvency test. 

Establishing an ISRL

The organisation of an ISRL is achieved by filing articles of organisation and prescribed information as to managers and registered agent, along with the fee of Bds $780.00 ($390.00), to the Registrar of Companies. A certificate of organisation is issued by the registrar, on filing of the organisational documents.The formation procedures are essentially the same for both types of SRLs, except that an ISRL must obtain a licence from the minister responsible for International Business to operate as such. This license must be renewed annually. 

Annual licensing

• An ISRL licence must be renewed annually on or before December 31; 
• Annual licence fee of Bds $850.00 ($425.00); 
•  Audit requirement where the gross assets and revenues of the SRL exceeds the statutory threshold of Bds $1m ($0.5m); 
• Financial statements are to be filed with the regulatory authorities; 
• Annual return to be filed by January 31 of each year.

Exempt Insurance Act

The Barbados Exempt Insurance Act states that for a company to qualify as an Exempt Insurance Company it must be incorporated in Barbados with a minimum capital of $125,000, and at least one of its directors must be a resident citizen of Barbados. Exempt insurance companies cannot insure risks originating in Barbados or risks of local residents. Exempt insurance companies are taxed on their profits at the rate of 0% for the first 15 years and thereafter, 2% on the first $250,000 of profits. They are also exempt from withholding tax and exchange control restrictions. There is an application fee of $250 for an exempt insurance company and an annual licence fee of $10,000.00.

Qualifying insurance companies

A 1998 legislative enactment allows companies involved in international insurance business to register under the domestic insurance legislation as Qualifying Insurance Companies (QIC). A QIC is entitled to the benefit of a low effective rate of tax (generally 1.75%) after deduction of a foreign currency earnings allowance, and exemptions from withholding taxes and exchange control. Unlike exempt insurance companies, a QIC can be owned by residents of Barbados and can insure a certain amount of local risk.

A QIC is entitled to the tax concessions once at least 90% of its premiums originate outside of CARICOM, and at least 90% of its risks insured are located outside CARICOM

•  A maximum tax credit of 93% is available where premiums originate outside of CARICOM
• Exemption from withholding taxes
• Exemption from exchange control
• Personal tax concessions for specially qualified employees
• Re-domiciliation provisions
• Annual fee of BDS$20,000 ($10,000)

International Trusts Act

The International Trusts Act allows trusts to be created by non-residents for the benefit of non-residents. There are no minimum capital requirements for Barbados trusts and they can be either of fixed interest or discretionary. An international trust is taxed at a maximum of 50% on its profits earned in, or remitted to Barbados but there are no withholding taxes on payments to non-resident beneficiaries. 

An international trust must satisfy the following conditions:

• The trust deed must specify that the International Trusts Act applies 
• At the outset, the settlor and the beneficiaries must be non-residents of Barbados
• The assets of the trust cannot include Barbados real estate

International Financial Services Act

(Replaced the Offshore Banking Act in June 2002)

In order to establish an International Bank in Barbados, details of the proposed bank must first be submitted to the Central Bank of Barbados for approval. Approval must be sought from the ministry of finance prior to the incorporation of a company. A company must have a licence before engaging in the banking business. Applications for a licence are submitted to the Central Bank whom may issue the licence, subject to the approval of the minister of finance. A licence to operate is issued only to qualified foreign banks and eligible companies. Licences are under the control and oversight of the Central Bank of Barbados. 

The registration fee is $50,000.00. International banks are subject to audit, an annual licence fee of $50,000.00 and income tax on a sliding scale of 2.5% - 1%.The International Financial Services Act provides that dividends, royalties, interest, foreign securities funds, gains and assets generated or managed by a licensee are automatically exempt from the provisions of the Exchange Control Act.