Barbados in the year 2014 began to evidence positive results in the effort which it took since August of 2013 to halt the decrease in foreign exchange reserves, while at the same time maintaining a level of reserves which gave adequate protection of the Barbados dollar which had been pegged to the US dollar since it long left the old sterling area. Hence, from the beginning of 2014, Barbados' foreign reserves stabilised and the usual seasonal pattern of reserve fluctuation ensued.
The jurisdiction's tourism receipts continue to show an enviable stability and both tourism arrivals and tourism spending have increased, particularly because of an ever popular United Kingdom market, a slowly expanding European intake and a gradual resurgence of North American visitor arrivals. With its traditional careful economic management, Barbados' fiscal consolidation measures yielded US$26 million in savings during the April to June quarter of 2014. Hence, the country continues to experience an easy task of servicing its external debt at a comfortable six per cent of expected receipts on the current account of the balance of payments.
Within this favourable economic performance, the World Economic Forum indicates that in comparison with the Caribbean and Central American countries, Barbados has a better infrastructure, better health and educational facilities, as well as more resilient institutions. It further notes that Barbados, in that context, has higher technological readiness and financial market development as well as a more efficient labour market. Furthermore, the jurisdiction remains in the forefront on the human development index with an unchanged rating index of 0.776 over the past two years.
Within this favourable dynamic framework policymakers have embarked on strengthening the international financial services sector with the introduction of new and streamlined legislation and policies.
The Private Trust Company
Barbados has proclaimed its Private Trust Companies Act 2012 after overcoming a few technical hurdles. Although practitioners had for long been utilising well designed structures in lieu of such legislation, yet this introduction has provided a welcome certainty and reliability. The legislation provides a simple registration form which after completion allows the applicant to receive a Certificate of Incorporation under the Companies Act. It allows for annual registration on payment of the appropriate fee, and calls for a Registered Agent with a Registered Office and also a Special Director. This director must be a resident of Barbados, of good character and with at least five years’ experience in a discipline related to the administration of trusts including one or more of the following: law, finance, accounting, investment management, or trust and estate planning. It must use the words ‘Private Trust Company’ or the letters "PTC" in its name.
There are strict prohibitions against disclosure of information in connection with the affairs of such an entity, as well as any prospective applicant. Not surprisingly, the Private Trust Company is essentially exempt from tax except in specific circumstances stated in the legislation. Finally, in the first schedule to the Act, a very carefully definition of "connected persons" is provided.
The New Special Entry Permit
In keeping with a flexible residence programme which is also safe and well defined, Barbados has streamlined a Special Entry Permit Programme for High Net Worth Individuals.
The terms and conditions may be summarised as follows:
Persons over 60 years - an indefinite period special entry permit
Persons under 60 years - a 10 year Special Entry Permit (SEP), renewable as indefinite after age 60
Persons under 50 years - a permit with a term to reach 60, renewable as indefinite after age 60
Spouses and dependents under 18 or still attending University are able will obtain the same period as the Special Entry Permit holder (evidence of schooling is required every three years)
Special Entry Permit holders are entitled to a work permit and are required to pay a separate fee should they wish to work for a Barbadian Company. Living in Barbados as a ‘non-dom’ (resident but not domiciled) and running a global business does not however require a work permit. In such a case, it is possible to declare one's tax residence in writing to the Barbados Revenue Authority and thereby be taxed only on worldwide income, to extent as it is remitted to Barbados, with an effective tax rate of approximately 2.5 per cent. As a ‘non dom’ it is also possible to hold local directorships and pay a small work permit fee annually if the individual is not on a work permit. The fees chargeable are as stipulated for a Special Entry Permit which gives the right to reside, but not to work.
Effective September 1, 2013, high net worth individuals who own more than US$2 million in property and investments in Barbados, which have been purchased with funds sourced outside the jurisdiction, are eligible for a Special Entry Permit for five years. Similarly, non residents who possess special skills required in Barbados are also eligible for this permit. Spouses and dependents of such individuals will also be issued with a permit on payment of the relevant fees.
Legal Residence in Barbados
The matter of residence in Barbados has always been one buttressed in the law but easily capable of application. Residence is not strictly linked to domicile, for a person need not be domiciled in Barbados to be considered a resident. Section 17 of the Income Tax Act refers to "persons' resident but not domiciled" and stipulates what, in the circumstances, is not to be included in the assessable income of such persons. It also deals with persons not domiciled in Barbados at any time in the relevant income year. While at section 85(5) a person is deemed to be resident if, in aggregate, more that 181 days are spent, yet this section is to be construed as a deeming provision.
Residence in Barbados must to be viewed within the context of the many Canadian and British legal decisions which deal with the topic, since there is no leading local decision on the subject. In the well known Canadian Tax case of MacDonald v. M.N.R.1968, Justice Roland St. Onge underscored the reasoning of the subject by emphasising the "degree of permanency" as creating the status of residence. In short, it is clear that the question of residence is one to be decided on the facts more so than on the laws and it is essentially a subjective test but not without certain objective criteria. Notwithstanding this feature, residence in Barbados may be easily determined.
Barbadian policy makers many years ago amended the Income Tax Act so as to give a very favourable and precise definition and interpretation of ‘ordinary residence’. Section 95 of the legislation provides that a person shall be deemed to be ordinarily resident in Barbados if, in an income year, that person has a ‘permanent home’ in Barbados and has given notice to the Commissioner of Inland Revenue that he intends to reside in Barbados for a period of at least two consecutive income years, including the income year in question.
The interpretation of permanent home is such that the accommodation must be "permanently available for the use of the persons in question". It does not include accommodation which is retained for use in Barbados solely as a vacation property. There is a clear presumption that the persons must own a home and live in it in a comprehensive sense rather than rent or own a home for casual holiday use. In practice, the Barbados Revenue Authorities will promptly reply to applications made on the subject.
The New IBC Protocol
The new licensing regime for international business companies and societies with restricted liability has been ushered in to operation with resounding approval from service providers as well as users and managers of such entities. As a tax treaty jurisdiction which makes full use of those treaties for the structuring of international transactions, it is critical that an effective licensing regime exists for the certification of those entities enjoying preferential tax and other incentives. Furthermore, as a country which has traditionally based its international and domestic policy on trust and transparency, an updated and user friendly licensing regime adds a greatly desired and enhanced level of certainty and reliability. To give such certainty, The International Business (Miscellaneous Provisions) Act 2014 came in to effect on August 25, 2014, making provision for an indefinite licence and also introducing a revised fee structure to all International Business Companies and all International Societies with Restricted Liability.
Barbados remains a jurisdiction with the better features of both simplicity and complexity - an attribute which emanates from its status as a low tax jurisdiction steeped in the tax treaty framework, but also open to the zero tax benefits where needed, of the international exempt insurance company or the legally appropriate international business company. In mapping the future, it is mindful of this subtle yet strong dichotomy; and its recent continuing attraction and attention to the high net worth individual is consistent with this premise.
Sir Trevor Carmichael QC
Sir Trevor Carmichael, KA,LVO,QC. was born in Barbados and educated at Harrison College and the University of the West Indies, Mona, Jamaica. After pursuing post graduate studies in the United States, he was called to the United Kingdom Bar as a member of the Middle Temple in London and the Barbados Bar in December of 1977. He is a member of the International Bar Association, the Inter-American Bar Association and a Committee Member of the Inter-American Bar Foundation as well as an associate member of the Canadian Bar Association. He holds membership in the International Tax Planning Association, the International Fiscal Association and was one of the parties responsible for establishing a Barbados Chapter of the International Fiscal Association of which he is Charter President. He is the Barbados Country Chairman of the International Litigation Committee on Business Law of the International Bar Association and a former Deputy Secretary General of the International Bar Association. He is a Life Fellow of the Institute for Advanced Legal Studies in the United Kingdom, a Life Member of the Commonwealth Magistrates and Judges Association and a member of the International Law Association.