Barbados
Barbados has encouraged commercial activity and manufacturing, especially in high technology. It has taken advantage of its physical location alongside the US to attract a considerable number of Foreign Sales Corporations, although these will lose most of their purpose as the US responds to the banning by the WTO of FSC legislation and its replacement Extra-Territorial Income Exclusion Act.
The Government offers either direct or through the Barbados Investment and Development Corporation a wide range of investment incentives applying broadly to manufacturing industry under the Fiscal Incentives Act 1974 and other legislation, giving tax holidays up to 10 years, duty-free importation of materials, assistance with construction of factories, etc.
As well as the US-aimed Foreign Sales Corporation (now no longer used after the US repealed its FSC legislation in 2004), there is a wide variety of offshore company formats to choose from to suit all purposes.
Along with other offshore jurisdictions, Barbados is a suitable place in which to base e-commerce services for retail or wholesale distribution of material or non-material goods: see Offshore-e-com.com for extended descriptions of how such businesses can take advantage of the combination of offshore and e-commerce. Indeed Barbados has developed a strong computer facilities industry, and can probably give better support to e-commerce than many other jurisdictions.
Banking in Barbados
Barbados established an offshore banking sector under the Offshore Banking Act 1979 as amended. The Act provides for the licensing of offshore banks, and contains a precise description of offshore banking as the obtaining of funds as deposits or through the sale of financial instruments, the use of such funds to give advances or finance investment, and the use of trusts to hold money or property.
Offshore banking licenses are made available to 'eligible companies' and 'qualified foreign banks'. An eligible company:
- is a limited liability company incorporated under the Companies Act 1982;
- restricts its objects or activities to offshore banking from Barbados;
- has at least one resident Barbadian citizen among its directors;
- meets minimum capital requirements.
A qualified foreign bank is one that was already licensed under the Offshore Banking Act when it came into effect in 1980, a foreign bank with minimum assets as above, or a subsidiary of a foreign bank approved by the Central Bank.
There are 53 licensed offshore banks in Barbados. The Central Bank has recently strengthened its vetting procedures over applicant banks in response to international money laundering and criminal concerns. Subsidiaries of foreign banks have to provide written authorisation from the parent supervisory authority, and the activities of in-house corporate treasury operations must be consolidated into published group accounts.
See Offshore Legal and Tax Regimes for details of the tax concessions offered to offshore banks, which are also exempt from exchange control regulations. A licensed bank pays an initial and continuing annual fee of BDS$25,000. The Central Bank requires quarterly balance sheet reporting, and filing of full annual accounts, along with a list of the licensee's directors.
Trust Management in Barbados
Trust Management has been a considerable activity in Barbados for 30 years or more, much of it conducted by the trust departments of banks. Originally the trust was used primarily by wealthy individuals from the major common law countries, but it is now accepted as a major technique of asset protection in all parts of the world. The International Trusts Act 1995 gave Barbados a modern, comprehensive, business-oriented trust regime which has proven attractive, particularly to corporate users. This new, wider market-place for trusts is not necessarily interested so much just in tax avoidance, but also in the efficient management of wealth in a more general sense. See Law of Offshore for a fuller treatment of trust law in Barbados.
There is a sophisticated community of professional advisers on trust matters in Barbados. Individuals can provide trust services without registration, but companies offering trust services must be licensed by the Central Bank under the Offshore Banking Act 1979. Foreign or Barbados-resident companies may obtain licenses.
Barbadian Real Estate Holding
Barbadian International Business Companies have been put to a variety of uses, but one of the most popular has been as holding vehicles for US real estate, taking advantage of the terms of the US/Barbados double tax convention.
The US tax convention has anti-treaty-shopping clauses (strengthened in the Second Protocol ratified in 2004), but they are more favourable than is the case in many other double tax treaties. Essentially, a non-Barbadian person can use a Barbados International Business Company to hold the shares of a US real estate company (which should be income-producing); this structure can take advantage of the treaty provisions to escape US estate duty, among other tax benefits. See Double Tax Treaties and Offshore Legal and Tax Regimes for further details.
NB: This is a heavily simplified description. The interplay of US tax rules, Barbadian tax rules and the Barbados/US Tax Convention are complex, and professional advice is essential before entering any offshore transaction or structure.
Barbados Insurance
The Barbados insurance sector is regulated under the Exempt Insurance Act 1983. The Ministry of Finance and Economic Affairs is responsible for the insurance sector, and day-to-day supervision is in the hands of the Supervisor of Insurance. Entities involved in insurance are licensed by the Minister under the Act.
More than 300 insurers are licensed under the Act, with annual premiums of approximately US$2bn and assets of US$10bn. A majority of these insurers originate from the US, and are taking advantage of the provisions of the Barbados/US Double Tax Convention, which are not available to insurers located in the other main Caribbean jurisdictions. The Convention allows captives and other insurers in Barbados to write business in the US while avoiding the creation of a permanent establishment, and thus to escape much US taxation. See Offshore Legal and Tax Regimes for details of the tax benefits available to offshore insurers; also see Double Tax Treaties.
The Act defines exempt insurance as the business of insuring risks outside Barbados by a company which is not owned by persons resident in Caricom. An applicant for a license under the Act must:
- be incorporated under the Companies Act 1982 as a limited liability company or as a mutual insurance company;
- carry on only exempt insurance business;
- have at least one resident Barbadian citizen as a director;
- have only shareholders who are resident outside Caricom;
- must have minimum issued capital (or reserves, in the case of a mutual insurer) of BDS$250,000.
Licenses are issued to insurers as such; holding companies and management companies involved in offshore insurance business must register with the Supervisor of Insurance. Licensees and registrants pay an application fee of BDS$500, and initial and ongoing annual license/registration fees of BDS$5,000.
Trust Law in Barbados
Trusts in Barbados are governed by English common law and by the Trustees Act Cap 250 as amended, which deals with the powers of trustees. Appeal is to the Privy Council. There is no registration requirement or stamp duty; trustees can be non-resident as long as one is resident. A resident corporation acting as trustee must be licensed under the Offshore Banking Act. Exchange controls apply to local trusts.
The Hague Convention has not been implemented; the maximum perpetuity period is 100 years.
Local (domestic) trusts are taxed as separate entities
The International Trusts Act 1995 introduced purpose trusts and asset protection trusts, as well as strengthened protection against forced heirship provisions, non-recognition of foreign judgements, and protection against creditors. Creditors have three years in which to set aside the terms of a trust, but can only do so if they can establish an intent to defraud. A successful creditor can only set aside the terms of the trust in so far as he is prejudiced - he can't overset the whole thing unless that is necessary to satisfy him.
The rule against perpetuities does not apply, and accumulation of income is permitted for up to 100 years.
International trusts have considerable tax advantages (see Offshore Legal and Tax Regimes) and are exempt from exchange control; the following conditions must be fulfilled:
- the settlor must be non-resident when the trust is created and at subsequent times when property is added to the trust;
- trust property must not include Barbadian real estate or an interest in it;
- no beneficiary other than a Barbadian offshore entity can be a resident of Barbados at the time of creation of the trust, or at the time of any subsequent addition of property to the trust;
- at least one of the trustees must be resident in Barbados.
The Act lays down specific confidentiality rules, protecting the identity of settlor and beneficiaries, the workings of the trustees, the reasons behind trustees' actions, accounting information, etc. Confidentiality can only be broken by the Court or at the request of a beneficiary.
Trust Management has been a considerable activity in Barbados for 30 years or more, much of it conducted by the trust departments of banks. The International Trusts Act 1995 gave Barbados a modern, comprehensive, business-oriented trust regime which has proven attractive, particularly to corporate users. This new, wider market-place for trusts is not necessarily interested so much just in tax avoidance, but also in the efficient management of wealth in a more general sense.
There is a sophisticated community of professional advisers on trust matters in Barbados. Individuals can provide trust services without registration, but companies offering trust services must be licensed by the Central Bank under the Offshore Banking Act 1979. Foreign or Barbados-resident companies may obtain licenses.
Banking Law
Barbados established an offshore banking sector under the Offshore Banking Act 1979 as amended. The Act provides for the licensing of offshore banks, and contains a precise description of offshore banking, which is defined as:
- accepting foreign money deposits payable on demand, after a fixed period, or after notice;
- selling or placing foreign bonds, certificates, notes or other debt oblif=gations, or other foreign securities, or any similar activity involving foreign money or foreign securities;
- the acceptance in trust of amounts of money in foreign currencies and/or foreign securities, of foreign personal or movable properties, and/or of real or immovable property outside Barbados from persons resident outside Barbados to be administered, managed, invested or otherwise dealt with for the benefit of persons resident outside Barbados, including any activities related, incidental or ancillary thereto.
Offshore banking licenses are made available to 'eligible companies' and 'qualified foreign banks'. An eligible company:
- is a limited liability company incorporated under the Companies Act 1982;
- restricts its objects or activities to offshore banking from Barbados;
- has at least one resident Barbadian citizen among its directors;
- meets minimum capital requirements.
A qualified foreign bank is one that was already licensed under the Offshore Banking Act when it came into effect in 1980, a foreign bank with minimum assets as above, or a subsidiary of a foreign bank approved by the Central Bank.
The Act imposes capital reserve requirements: an offshore bank must annually transfer 25% of pretax profits to a reserve fund as long as that fund is less than the amount of the issued and paid-up capital. The Central Bank has authority to waive this requirement at its discretion. There are also solvency restrictions on the payment of dividends.
There are 40 licensed offshore banks in Barbados. The Central Bank has recently strengthened its vetting procedures over applicant banks in response to international money laundering and criminal concerns. Subsidiaries of foreign banks have to provide written authorisation from the parent supervisory authority, and the activities of in-house corporate treasury operations must be consolidated into published group accounts.
Details of an offshore bank's customers are kept confidential, but disclosure under the Act is permitted in the following circumstances:
- In response to a bona fide business request for a person's general credit rating;
- When a trust beneficiary provides written authorisation;
- If so ordered by the High Court (which can be in response to certain foreign initiatives, see Double Tax Treaties);
- If disclosure is lawfully pursuant to any other enactment (ditto - there is a summary of the circumstances in which confidentiality may lawfully be breached).