Karen Perreira considers the attraction of the Barbados' virtual family office for LATAM clients.
What are Latin American investors looking for in an IFC?
The emergence of Latin American and Caribbean countries in the world market as a fast growing economy is gaining recognition and the region is steadily becoming a source of international business opportunities. The World Wealth Report 2015 shows that Latin American HNWIs invest mainly in cash and deposits, alternative investments, such as hedge funds, private equity and venture capital, as well as fixed income equities and real estate. Impact investing, either social through philanthropy, or environmental through innovation, has recently become a key determinant on the jurisdictions chosen by the Latin American Investor to place their assets.
To some, Barbados’ reputation as an international financial centre is a well-kept secret, to many who have investigated and utilized Barbados as an international financial center; Barbados has proven positive returns on their investments.
Barbados is ranked first in Latin America and the Caribbean for transparency and 15th worldwide in the Transparency International’s Corruption Perceptions Index 2013. In the Global Competitive Report 2014/2015, of 144 countries surveyed, Barbados ranked fourth in Latin American and the Caribbean for soundness of Banks and 14th worldwide; for global competiveness, Barbados ranked fourth in Latin America and the Caribbean and 55th worldwide and in regulation of securities exchange Barbados ranked fifth in Latin America and the Caribbean and 33rd worldwide. The Global Innovation Index 2015 ranks Barbados first in Latin America and the Caribbean nations for global innovation.
Barbados is primed to lure the Latin American HNWI and UHNWI. It is the home to the virtual family office, embracing highly skilled and experienced asset managers, trust service providers, corporate service providers, private banks, legal and tax advisors and risk managers who individually and collectively, together with sound global partners, create an environment for the elite investor confidence.
Barbados offers a unique opportunity for investment, rivalled by few; it possesses alternative tax solutions supported by its extensive treaty network and specially crafted investment vehicles. Barbados has successfully negotiated 38 Double Taxation Agreements (DTAs) with various countries including (regionally) Mexico, Panama, Venezuela and Cuba and extending further afield to Canada, USA, UK, China, Botswana and Singapore, to name a few. To ensure a secured investment climate, Barbados is currently party to 11 Bilateral Investment Treaties (BITs), otherwise known as foreign direct investment agreements, creating an environment of comfort for private investments by nationals and companies of one state into another. BITs exist between Barbados and Cuba, Venezuela, Germany, Canada, China and the UK, among others. In addition, Tax Information Exchange Agreements (TIEAs) currently exists between Barbados and five jurisdictions, among which is Columbia.
Various foreign direct investment (FDI) incentives are available to investors. Barbados’ legislation has kept abreast of the growing needs of today’s HNWI. Asset management and protection, wealth preservation and succession planning can be assured through the traditional trust structure established in Barbados over 30 years ago. Apart from the traditional trust structure having a component of a trust and a company, Barbados has recently enacted legislation which allows for the use of the private trust company (PTC) and the formation of a foundation. A foundation is a vehicle with which the Latin American investor is well acquainted and due to its hybrid nature as part trust and part company, it can provide the investor with flexibility and may prove to be more cost effective.
Captive insurance is another very popular and unique vehicle for investment and wealth management in Barbados. It is defined as the business of insuring risks located outside Barbados in respect of which premiums originate outside Barbados, and includes the business of the underwriter, broker, agent dealer or salesmen in respect of that business. Investors in this business enjoy low tax incentives and a strong and secured regulatory environment. Exempt insurance companies are taxed on their profits at the rate of zero per cent for the first 15 years and thereafter, two per cent on the first BB$250,000 of profits. They are also exempt from withholding tax and exchange control restrictions. According to the Barbados Financial Services Commission Report 2014/2015:
“Barbados remains the leading jurisdiction for foreign entities seeking to set up captive insurance companies. The country is measures in the top ten (10) domiciles for captive insurance measured by the number of registered captive insurance companies.”
At the end of 2014 financial year, Barbados held 264 international insurance companies with the total assets as at 2013 of BB$126 Billion with gross premium at BB$39 million.
A range of corporate vehicles such as the international business companies (IBC), the societies with restricted liabilities (SRL) and the regular business companies (RBC) characteristically allows the investor versatility in doing business. On stream is an amendment to the Companies Act of Barbados, permitting the use of the incorporated cell, which will further enhance Barbados’ international insurance business.
Investors are also keen on making Barbados real estate investments via corporate entities or individually. Some do so primarily to add to their investment portfolio, while others select Barbados real estate as their vacation homes. Foreign currency incentives apply to this type of investment and in cases where the investor qualifies, Special Entry and Reside Permits (SERP) are obtained, permitting the investor and their dependants to reside and work in Barbados for an indefinite period. Special Entry and Reside Permits are not limited to real estate investments but are extended to HNWIs with a net worth of at least US$5 million and HNWIs who have made an investment in Barbados valued at least at US$2 million acquired or made with foreign sourced funds and not subject to any mortgage.
Avenues explored with some attention are registration of ships and private jets (which boasts of various incentives under the many DTAs), international arbitration (Barbados is steadily on the path to becoming a Centre for International Arbitration and Mediation) and philanthropy (currently on the rise through international philanthropists, domestic individual philanthropists and corporate responsibility).
The Barbados’ virtual family office can lure the Latin American investor with diverse investment mechanisms, in addition, the UHNWI and the HNWI may take advantage of the luxury lifestyle offered through the high-end services available to visiting and private jet travellers as well as yachting services and international sporting events, features of which Barbados possess.
Karen A Perreira, Attorney at Law, Barbados