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27/08/19
Barbados: A Reputable Domicile of Substance
For several decades now, Barbados has been regarded as a domicile of substance; transparent, reputable and stable. The jurisdiction, small in size at 166 square miles, provides a diverse range of business opportunities for investors seeking to maximise returns on investments in several areas of wealth management. Of these, foundations, trusts and mutual funds; niche manufacturing; information and communications technology; banking and insurance; and global education services, are but a few.
Essentially, Barbados provides an enabling environment for those who want to establish or expand their businesses, while still expecting a safe, socially and politically stable place to call home. Moreover, the island offers excellent quality of life for all, as evidenced by the country’s high global ranking in the 2018 United Nation’s Human Development Report: 5th in the Caribbean and Latin America, and 7th in the Americas[i].
For High Net Worth Individuals (HNWIs) wishing to benefit from Barbados’ numerous opportunities, the jurisdiction offers a Special Entry Permit (SEP) programme. The Barbados SEP is distinct from the Citizenship by Investment Programmes (CIPs) that are offered in other countries, and is available for qualified non-nationals who wish to reside on the island indefinitely while still having the option to commute freely. Participants in this programme may also consider managing their global wealth from Barbados in order to benefit from certain incentives.
Barbados also continues to distinguish itself as a domicile of choice for global business through the expansion of its treaty network which assists investors in enhancing their global competitive advantage. Barbados currently has 40 Double Taxation Agreements (DTAs) in force, as well as 11 Bilateral Investment Treaties (of which nine are in force), and five Tax Information Exchange Agreements. In particular, DTAs have proven to be extremely robust arrangements in supporting businesses of substance and facilitating transparency. Consequently, more than 4,000 global entities currently operate in Barbados – a testimony to the jurisdiction’s quality and reputation.
Another key feature of Barbados’ supportive environment is its sound and well-managed international banking sector. The jurisdiction has long been home to four of the largest Canadian banks and, according to a recent World Economic Forum’s Global Competitiveness Report, Barbados has the 24th most stable banking system in the world.[ii]
Additionally, fintech, and particularly blockchain, has been embraced by the Barbados government to improve and automate the delivery and use of financial services. Although a relatively new industry, the benefits of fintech are proven: speed and convenience; simplified payments and settlements; wider choice; more economical costs per transaction; and greater personalisation to suit consumers’ needs, are all offered by this still-evolving sector. Such disruptive technology is redefining services such as money transfer, as well as the way in which these financial services and products are delivered. Those countries that have proved most attractive to fintech companies were among the first to adjust their regulatory framework to support the sector and, as such, continue to attract global business to their jurisdictions. It is anticipated that the demand for blockchain applications will increase as the technology is implemented across industries from banking and finance to logistics, healthcare, supply chain and many other areas. Indeed, blockchain is set to become the underlying technology of almost every IT system and application in the coming years. Barbados has therefore joined other countries on the fintech journey and is home to the first blockchain start-up in the Caribbean, BITT Inc., which has recently introduced the mMoney Wallet and mMoney Merchant Applications, offering mobile money payment services to individuals and businesses.
Barbados’ Revised Tax Regime
Barbados recently revised its tax regime and converged its domestic and international tax rates. This was in response to the Organisation for Economic Cooperation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) Action 5 Initiative addressing harmful tax practices. As one of the first countries in the Caribbean to undertake this initiative, Barbados demonstrates that it is staying ahead of the curve while remaining committed to compliance and adhering to international best practice standards.
Effective 1 January 2019, the below revisions were made to Barbados’ tax regime:
International Business Companies (IBCs) and International Societies with Restricted Liability (ISRLs)
IBCs and ISRLs not holding intellectual property (IP) and licensed before 17 October 2017 qualify for grandfathering to 30 June 2021. The applicable tax rate for the grandfathered entities, for taxable income in excess of US$ 15 million, is 1.0 per cent, in line with the minimum converged rate.
Table 1: Tax Rates - Grandfathered Entities
|
Taxable Income US$ |
Rate % |
|
Up to $5 million |
2.50 |
|
Above $5 million to $10 million |
2.00 |
|
Above $10 million to $15 million |
1.50 |
|
Above $15 million |
1.00 |
Intellectual Property Entities
An IBC or ISRL licensed as at 30 June 2018 and holding IP assets as at 17 October 2017, or IP Assets acquired after 17 October 2017, under certain conditions, will qualify for grandfathering to 30 June 2021.
Other Existing and New Companies
Entities that were licensed after 17 October 2017 will be transitioned into the new regime and subject to corporation tax at the rates as set out at Table 2. These entities will automatically become Regular Barbados Companies (RBCs) or Societies with Retracted Lability (SRLs) and will be able to conduct business locally, regionally and internationally. Those companies with 100 per cent of their earnings in foreign currency will receive a Foreign Currency Permit (FCP), giving them the same benefits enjoyed previously.
For fiscal years commencing on or after 1 January 2019, all corporate entities, excluding those that are grandfathered and insurance entities, will be taxed on the sliding scale shown at Table 2.
Table 2 – Corporate Tax Rates
|
Taxable Income US$ |
Rate % |
|
Up to $500,000 |
5.50 |
|
Above $500,000 to $10 million |
3.00 |
|
Above $10 million to $15 million |
2.50 |
|
Above $15 million |
1.00 |
Insurance Entities
Effective 1 January 2019, three classes of licenses came into existence for the insurance sector as follows:
- Class 1: Insurance companies which restrict the business they can underwrite to related party business. These insurance companies will be taxed at zero.
- Class 2: Insurance companies which can underwrite risks of third parties. These companies will be taxed at a rate of 2 per cent.
- Class 3: Includes brokers, intermediaries, insurance management companies, insurance holding companies, etc. These entities will be taxed at a rate of 2 per cent.
Corporate entities carrying on insurance business and licensed before 17 October 2017 will be grandfathered until 30 June 2021.
Financial Institutions
All financial institutions are licensed under the Financial Institutions Act which now provides for four classes of licenses as follows:
- Class 1: Commercial Banks
- Class 2: Trust Companies, Finance Companies, Merchant Banks and money or value transmission service providers
- Class 3: Financial Holding Companies
- Class 4: Financial Institutions qualifying for a Foreign Currency Permit (FCP)
Financial institutions carrying on business and licensed before 17 October 2017 will be grandfathered until 30 June 2021. Entities not grandfathered are subject to corporate tax at the rates also set out at Table 2.
Foreign Currency Permit
All entities that earn 100 per cent of their income in foreign currency, from 1 January 2019, are entitled to receive an FCP affording them similar benefits previously enjoyed by IBCs and ISRLs. These are:
- Exemption from exchange control.
- Exemption from withholding tax on payment of dividends to non-residents.
- Exemption from withholding tax on all other payments to non-residents.
- Exemption from payment of stamp duty and property transfer tax.
- Exemption from payment of value added tax and duties on importation of plant, machinery and raw materials.
- Income tax concessions for specially qualified individuals for a period of three years.
Generally, the revised tax regime will affect clients differently, and while some investors may have to pay a small increase, Barbados still has one of the most competitive corporate tax regimes, globally. Going forward, it is likely that jurisdictions that offer no or nominal tax rates, are likely to come under increased scrutiny from the OECD.
Apart from Barbados’ tax regime, there are several, additional, compelling reasons for doing business in Barbados. These include:
- People – Barbados has an excellent education system and a cadre of skilled industry professionals providing services to the international business community. Reputable and leading accounting firms are also well established in Barbados.
- Political and social stability – With the third oldest Parliament in the Commonwealth, Barbados is devoid of any real social and political instability.
- Protection of your investments - Barbados has a very good reputation for its continued commitment to high levels of security, efficient regulatory, anti-money laundering systems and transparency. Our pro-business environment encourages and facilitates foreign investment, with a well-defined legal system based on English common law. There are no restrictions on foreign ownership of business enterprises or real estate in Barbados, and no capital gains taxes are imposed.
- High-Quality Infrastructure – The country has an efficient ICT framework comprising a reliable high-speed fibre-optic network, Wi-Fi and 4G. An international airport offering direct daily flights to major cities and a modern seaport also exist.
Barbados remains an attractive domicile for global business. Consequently, the discerning investor who makes the decision to establish a business in Barbados can rest assured that his/her investment is protected, due to the jurisdiction’s unique characteristics and value proposition. As it engages with the world, Barbados will continue to further enhance and refine the country’s business environment in order to boost competitiveness, facilitate businesses of substance and strengthen mutually beneficial relationships globally. Barbados remains the perfect jurisdiction for you and your business to prosper.
[i]United Nations Development Programme, Human Development Indices and Indicators 2018 Statistical Update (Washington DC: United Nations, 2018), available from http://hdr.undp.org/sites/default/files/2018_human_development_statistical_update.pdf
[ii] Investbarbados.Org, 2019 <https://investbarbados.org/docs/International%20Rankings.pdf>
Jean-Paul Cumberbatch
Jean-Paul Cumberbatch is the Director of Research and Development (Ag) at Invest Barbados.
