By Geralyn Edward, on behalf of Invest Barbados
For hundreds of years, Barbados was the jewel in the British crown. As one of its prized Caribbean colonies, producing what would be the current equivalent of billions of British pounds’ worth of sugar, its thriving mono crop agricultural base provided crucial funding for Britain’s industrialisation process.
In the accounts of noted Barbadian historian Professor Sir Hilary Beckles, the Vice Chancellor of the University of the West Indies, in a writing titled On Barbados, the Black Slave Society (8 April 2017), he stated: “By the 1650s, England was grandly celebrating Barbados as its premier global investment. The island had provided impetus for the breakthrough into profitable colonialism the nation had long desired but found irritatingly elusive. Henceforth, the national discourse on trade and economic growth, wealth creation and mercantilism.”
So significant was the island’s trade, it was more than that of the combined English colonies until the early 1700s, when that status was overtaken by geographically larger colonies such as Jamaica. The estimated value of Barbados was put at £5.5 million in 1730.
There is no contradicting the eastern Caribbean island’s contribution to the industrial development of the United Kingdom through the profits of slavery and colonialism, the evidence of which has long been chronicled.
Barbados has, however, come a long way post-independence in 1966. It has triumphed over the dissolution of substantial preferential treatment for sugar as the rules of the global trade regime were fundamentally altered with the rise of the World Trade Organisation and trade liberalisation.
The island’s successive administrations have tried to pursue diversification of the country’s economy when the influence of sugar waned as a global commodity. The diminution was driven by a combination of national circumstances and evolving global trade practices.
It was the natural beauty of Barbados, historical ties to the UK, level of development in comparison to its regional neighbours and hospitable population, that kindled rapid growth of the tourism sector and an increasing dependence on this sector’s economic benefits. While tourism remains a critical economic pillar for the island, continued expansion of the economy through multiple avenues for earning valuable foreign exchange has been the quest of the island’s government.
As a small open economy, Barbados has pursued a development strategy that has placed education of its people, universal provision of broad-based social services and rapid infrastructural buildout as key priorities. These attributes have coalesced strategically not only for enhancement of tourism, but they support the island’s mission to be a globally respected international financial centre (IFC).
This is just some of the critical backdrop to understanding Barbados’ vigorous defence of its global business sector over the past four decades. The country was among the early entrants from the Caribbean in the provision of global financial services, at a time when many were still trying to figure out how tiny nations could penetrate an area of the financial space dominated by industrialised countries.
Total assets of the global financial system have been placed at US$468 trillion in 2021, according to Germany-based Global Statista, while the global financial services market that supports this gigantic global platform was sized at approximately US$25.588 billion. They are both still dominated by metropolitan centres such as London, Zurich, New York, Luxembourg, and Toronto.
In terms of global financial services, Barbados has created strong enabling business development agencies to promote the strengthening and expansion of the sector, vigorous regulatory institutions to maintain the integrity of the system, and a robust legal framework. Together, they reinforce the legitimacy of the global business sector as an authentic economic activity.
Invest Barbados, headed by Chief Executive Officer Ms. Kaye Greenidge and her team of dedicated professionals, is an economic development agency of the government of Barbados. It facilitates foreign direct investment by providing critical information and resources to investors, liaising with other government departments and institutions, and working with relevant stakeholders to create a conducive environment for investors.
Likewise, the country’s development strategy prioritises education, ensuring the provision of free education to citizens from nursery through to university, including post-graduate studies. As a result, Barbados continuously produces a cadre of professionals whose expertise ably supports the sector and are also in demand in global corporations outside the country. These include highly trained and experienced specialists in fields such as wealth management, insurance, legal services, investment, compliance, governance, taxation, auditing, corporate services, accounting, information technology, and human resources.
Therefore, Barbados does not require a reliance on expatriates to support the sector’s growth. Moreover, with the level of mind and management on the ground, the country is well positioned and meets the newly introduced Organisation for Economic Cooperation and Development (OECD) reporting standard for economic substance.
The scope of Barbados’ corporate legislative framework encompasses activities such as fund management, banking, intellectual property, insurance, finance and leasing, shipping, distribution/service centres, headquarters and holding companies.
To meet the economic substance benchmarks, a tax resident entity must have directors physically meet in Barbados; it must be directed, managed and controlled in the island; strategic decisions must be made at the meeting of the board; and directors must have the expertise and knowledge required to carry out their duties.
Additionally, there must be adequate physical assets in Barbados and the conduct of core income-generating activities.
The island’s administration has been proactive in its approach to ensuring the maintenance of the sector. Barbados has long rejected, and strenuously so, the pejorative references of “tax haven”, often ascribed to IFCs in the Caribbean. It offers competitive tax rates and an enviable and broad-based network of double-taxation and investment treaties with more than 40 jurisdictions around the world. That list is expanding as the island is at various stages of negotiations with other jurisdictions in Africa, South America and Asia.
In December 2018, Barbados responded to the OECD introduction of a Base Erosion and Profit Shifting initiative, by becoming one of the first countries in the world to converge its local and international tax rates.
The country’s Prime Minister Mia Amor Mottley said her administration opted to replace the preferential tax regime by converging the two tax rates to a maximum of 5.5 per cent.
“This government is not one for hiding from difficult decisions or avoiding difficult decisions. We must play the hand that we were dealt. We will do what we must . . . . We will honour the commitment the Government signed up to last year to the OECD. We believe Barbados’ word must count for a lot,” Prime Minister Mottley told the House of Assembly then in her Ministerial Statement on the matter.
After convergence of the tax rates took effect in January 2019, amidst some concern that the administration’s corporate tax base would be eroded, the global business sector’s contribution to the island’s tax revenue proved invaluable to the operations of government during the lockdowns and business disruptions caused by the COVID-19 pandemic in 2020 and early 2021.
The sector’s resilience underscored its value to the economy, contributing a sizeable percentage of the US$444.2 million in corporate taxes collected by Government as at 31 December 2020. This was confirmed by Cleviston Haynes, Governor of the Central Bank of Barbados in his review of the island’s economic performance for the year.
Speaking to the issue as he addressed hundreds of business executives attending the hybrid Global Business Week Conference on 26 October 2022, in Barbados, Jamar Arthur-Selman, President of BIBA, the Association for Global Business stated: “Our sector’s successful performance provided a welcome boost to the fiscal position of government and in so doing, helped to dismiss any remaining naysayers that the global business sector was not a reliable economic pillar for this island.
“The sector is not without its challenges, but what makes it unique, has been the ability of its players to be pre-emptive in their approaches to various tests; to be strategic and nimble, while at the same time, leveraging the contacts and goodwill we have developed over the years to ensure that we are never crushed or unprepared for what may be coming.”
Barbados has voiced criticism of the standards being used to assess it and other IFCs in the Caribbean, deeming them as unfairly applied to the small developing countries. Despite this, the country has committed to meeting the standards to ensure the viability of the sector.
As Arthur-Selman told delegates attending the Global Business Week Conference, his association of key players in the sector were supportive of the “all-of-country” approach to meeting the Financial Action Task Force’s deadlines to ensure removal from the adverse list.
Among the areas to which action is being taken include speed of access to beneficial ownership information, country by country reporting and demonstrated evidence of enforcement through anti-money laundering prosecutions. Additionally, Barbados has expanded the regulatory role of the Corporate Affairs and Intellectual Property Office and it is undergoing institutional strengthening and a major digitisation process to facilitate ease of doing business.
It is the seamless integration of a highly skilled and educated workforce, competitively priced mind and management as well as services, a wide tax and investment treaty network, enabling business environment, modern infrastructural and telecommunications networks and contemporary legislative framework that has helped Barbados to be ranked number seven in the world for the captive insurance segment according to Business Insurance’s global rankings.
As Patrick Ferguson, Senior Vice President, Captive Sales, Marsh Captive Solutions Group – Canada affirmed during an address last month in Barbados, this island is the domicile of choice for Canadian companies to establish captive insurance entities.
“Barbados is the No. 1 domicile for Canadian captives . . . in the world which is a remarkable achievement,” Ferguson stated, outlining that Canadian corporates have relied heavily on the Canada/Barbados tax and investment treaty, as well as the country’s established reputation for integrity, as foundational features for choosing the nation.
As the commercial insurance market becomes even more constrained, the establishment of captives is mushrooming among corporates and even some state-owned corporations in Canada. Among the many incentivising features of Barbados include the speed of incorporation which can be achieved in under a week, competitively priced start-up costs and licensing fees, minimum capitalisation of US$125,000, reasonable and simplified solvency laws, and exemption from withholding tax.
Barbados has for many years been among the top developing countries in the Americas and the world according to standards such as the United Nations Human Development Index. It continues to defend its reputation as a welcoming but well-regulated jurisdiction of integrity where adherence to the rule of law is a fundamental feature.
A multi-award winning business writer and communications professional.