LATAM countries are poised to harbour additional wealth and will require a conduit for this, Liza A Harridyal-Sodha examines the opportunities Barbados has to offer for LATAM wealth planners.
If the recession has taught us anything, it is that, societies adapt in spite of their global position. Man changes his financial behaviours and the fittest survive. This tiny flicker or interruption in behavioural pattern, this mutation, could well have a ripple cosmic effect and alter the course of those persons who are prepared to create generational wealth. In this sense, wealth need not be gargantuan in order to foster intelligent financial planning. Persons over a wide range of affluence in emerging countries can now attain the goal of comfortably supporting multiple generations. This is true for individuals and companies alike.
The Latin American financial consumer has risen to become a natural focal point for experienced financial centres that are equipped to provide the vehicles required to create, manage and preserve wealth. The recession has revealed that the average Latin American has more disposable income than their rivals. We have seen an increase in the number of affluent Latin Americans travelling to the Caribbean and in particular, Barbados. Naturally, Barbados is poised to explore and bolster this untapped market.
In a world where flexibility and innovation are key to economic survival and success, Barbados continues to seek to advance its position as a leading international financial centre, through the exercise of modern legislative prowess. Barbados has revisited its international business approach, and has entered into a number of anti-double taxation treaties with countries such as Panama, Mexico, Venezuela and Cuba. Barbados is currently negotiating double taxation treaties with Colombia, Chile and Brazil. Barbados also has an extensive network of anti-double taxation treaties with various countries, such as Canada, the United States of America, China, Caricom countries, and various European and African countries, which can facilitate Latin American clients trying to access global markets. Similarly, Latin America is very attractive to foreign investors, and we have seen that a number of companies established in Barbados are also contemplating branch offices in Latin American countries.
When affluent Latin Americans ponder on their estate planning needs; asset management and protection; the preservation of wealth; tax planning and business continuity and all other such ideas entertained by the financially advantageous, the usual structure recommended by wealth management professionals is the Trust. A Trust is administered by a trustee who has title to all of the assets and usually owns the shares of a privately held underlying company. The company can own a variety of assets ranging from bank accounts to real property to chattels, or may have the right to receive income from a third party. The Barbados trust structure allows for flexibility and security.
In order to broaden its offerings and forging new relationships, Barbados has bolstered its laws to encourage the development of alternative trust structures, as a means of increasing its ability to attract a multiplicity of new wealth management based businesses. Barbados is in the process of enacting legislation which will allow for the formation of Private Trust Companies (PTCs) and Foundations. The Trustee Act Cap. 250 of the Laws of Barbados is also being amended to provide for certain reserved powers to settlors of Trusts. These changes are exceptionally attractive to Latin American planners.
PTC’s were borne out of the necessity for greater control by families over their trust assets and has become a very attractive option for the sophisticated clients. The settlor and family can legally exercise greater control over the administration of the assets of the trust. Such flexibility is favoured over the traditional trust structures, where the trustee is the legal owner and custodian of assets, and the beneficiaries are subject to the total and complete discretion of the trustee. PTCs offer managerial powers, as it relates to the transfer of the trust to other family members. The modus operandi of the PTC will allow the client to make administrative changes as needed, without actually affecting the role of the trustee.
A Foundation can best be described as a fund which has been endowed by its founder (known as the settlor in the Trust scenario) to be utilised for persons or purposes, as detailed in its charter. Unlike a traditional Trust, a Foundation is a legal entity that has no owners, but instead, is a legal person that can bring and defend legal action and has unlimited capacity to contract on its own behalf. Assets placed or transferred to a Foundation become the property of the Foundation and therefore are independent of the settlor. The Foundation can exist in perpetuity or have a life-span as defined in its statutes. As with a Trust, the Foundation cannot engage in commercial trading, but the Foundation’s ability to own a trading company is ideal when holding interests in a private company is contemplated by the founder. The settlors of a Trust and the founders of a Foundation, have in common the ability to direct the investment activities of the trusts, as well as, the ability to veto management decisions.
A brief exploration of some of the tax treaties that Barbados has with Latin American countries serves to reveal the mirage of benefits which Latin Americans and Barbadians alike stand to gain through proper structuring vehicles as noted above.
Let’s consider the Panama-Barbados Anti-Double Taxation Treaty, for example, with its main features being as follows:
The treaty establishes methods for the elimination of double taxation as follows:
Barbados avoids double tax by allowing a credit for the following:
Additionally, to the extent that a resident of Barbados may credit taxes paid in Panama, Barbados must include in the amount being credited any tax that is normally payable in Panama but that has been reduced or waived by Panama under tax incentive provisions (for example, for trade zones and economics areas) and any other subsequent provisions granting an exemption that is accepted by the competent authorities of Panama and Barbados as being of a substantially similar character.
In the case of Mexico-Barbados Anti-Double Taxation Treaty the main features are:
The treaty establishes methods for the elimination of double taxation as follows:
In addition to the benefits and products that Barbados has to offer, its other advantages lie in the political stability of the Island, it’s educated, multicultural and increasingly bilingual workforce, its geographical proximity to Latin America and the good corporate governance practices which are the focus of Barbadian practitioners involved in the area of financial services provision and wealth management. Furthermore, the Barbadian regulatory environment, whilst meeting international standards, also recognises the need for legitimate business facilitation and improvements are constantly being made to guarantee this result.
Essentially therefore, it comes down to the realisation and exploration of the benefits of utilising the various vehicles which Barbados has to offer, which an increasing number of Latin Americans seem to understand. The modern Latin American planners are recognising that Barbados has much more to offer than its traditional vehicles such as Insurance Companies, International Business Companies and International Banks. Latin American countries are poised to harbour additional wealth and require such a conduit as has been created in Barbados.
If you can see prosperity in recession, you can create generational wealth.
Liza Harridyal-Sodha is the Principal of Harridyal-Sodha & Associates. A law practice offering services in Company and Commercial matters, formation of Banks & Insurance Companies, Environmental Law, Tax Planning, Conveyance, Trademarks & Patents, Employment Law and the law of Trusts. Liza is an Executive of the Society of Trust and Estate Practitioners (Barbados Branch), a Director of the Barbados International Business Association, and the Deputy Chair of the Joint Working Policy Group which advises the Ministry of International Business in Barbados.