Very modern vehicles
Barbados offers a unique value proposition and is prized by wealth planners in certain quarters for its expanding double-taxation treaty network. To date Barbados has double-taxation treaties with more than 20 countries, providing multiple tax-planning opportunities.1 The market for Barbados entities and arrangements is international (including Asia, North America – particularly Canada – and Europe), and lately there has been a surge in demand for structures for the Latin American market. The recent legislative developments in Barbados are likely to be of interest in many regions.
Private trust company legislation
Legislation permitting the creation of private trust companies (PTCs) is now an established feature in many international finance centres. Barbados will be joining their ranks by introducing the Private Trust Companies Act, 2012-22. Although the Act has been enacted, it has not yet been proclaimed by Parliament (this is expected to occur shortly). Under the Act a PTC is required to conduct exclusively ‘connected trust business’: trust business concerning trusts whose settlors are connected to each other through the specified relationships of blood, affinity and adoption. A PTC is prohibited from soliciting or receiving assets from members of the public to be held on the terms of the trust.
Under the proposed legislation, a PTC is required to be licensed on initial registration and thereafter annually. In addition, it must have a registered agent who must maintain, at their registered office, copies of the trust instrument (and any variation documents) for each of the trusts for which the PTC acts as trustee. The registered agent has an obligation to take reasonable steps to ensure that the PTC complies with all statutory requirements. To ensure that the PTC is properly administered (a critical point in preserving the integrity of the trusts for which the PTC acts as trustee), it must have at least one director who is appropriately qualified and is resident in Barbados. There are no capitalisation requirements for the PTC and there is a statutory obligation of confidentiality for any application made in connection with a prospective PTC, and generally in relation to the affairs of a PTC.
A PTC will not be subject to income tax in Barbados, where it is managed by a licensee under certain legislation and its activities are restricted to investment activities. No tax, duty or other impost will generally be levied on a PTC, its shareholders or its transferees in respect of any transfer of assets to a non-resident of Barbados or a resident of Barbados licensed under certain legislation.
The Foundations Act, 2013-2 enables foundations to be established in Barbados, and has also been enacted but not yet proclaimed by Parliament (this too is expected to occur shortly). The legislation permits the creation of a foundation, which is a hybrid of the concepts of a company and a trust, and tends therefore to appeal to persons from jurisdictions that are less familiar with the trust concept but more comfortable with the concept of a company.
Under the proposed legislative framework, a foundation is established as a separate legal entity. The assets are transferred by the founder to the foundation and are held by the foundation for the benefit of the beneficiaries of the foundation and for the attainment of its purposes pursuant to the terms of the charter and/or by-laws. No shares in the foundation are issued and the foundation does not have an owner – thus dispensing with the question of who should own it. However, on dissolution of the foundation, the persons who are entitled to its assets are those who are identified in the charter and/or by-laws.
The affairs of the foundation are managed by a foundation council through the councillors, at least one of whom must be resident in Barbados. A guardian may be appointed whose duty is to supervise the management and conduct of the affairs of the foundation by the councillors. A foundation must have a secretary, and certain records and information must be maintained with the secretary at the registered address. The councillors, guardian(s) and secretary are subject to an express duty to act honestly, in good faith and in the best interests of the foundation, its beneficiaries and its purposes, and to exercise the care, diligence and skill that a reasonably prudent person would be expected to exercise in comparable circumstances.
It is possible to enjoy an effective tax rate of 2.45 per cent in Barbados in relation to foreign-sourced income
Founders may reserve certain powers to themselves or confer these powers on any other person. These include the power to direct or approve the investment activities; the amendment of the charter or by-laws; the appointment or removal of a councillor or guardian; and the rights, entitlements and restrictions of beneficiaries.
The proposed legislation includes conflict of laws provisions relating to the transfer of assets to a foundation, the capacity of the founder and the rights of beneficiaries; difficulties often arise in the context of challenges under forced heirship laws brought by disgruntled heirs. In terrorem provisions are expressly permitted, so a beneficiary who brings a challenge concerning a foundation may forfeit their interest or rights thereunder. Separately, it is possible to prohibit the alienation or disposition of assets available for distribution to a beneficiary by bankruptcy, insolvency or liquidation; or the seizure, sale, attachment or taking into execution by process of law of those assets.
A foundation may exist perpetually or for a specified period, and the legislation includes provisions for mobility so foundations may be transferred into or out of Barbados. There is a minimum threshold of USD5,000 for the value of assets held by a foundation, and information and documents maintained in relation to a foundation are not a matter of public record. It is anticipated that a favourable tax regime will be prescribed for the proposed foundation legislation.
Reservation of powers by settlors
The Trustee (Amendment) Act, 2012–21 amended the Trustee Act to expressly permit settlors to reserve various powers to themselves without those reservations invalidating the trust. These include the power to revoke, vary or amend the terms of the trust; the power to appoint trust assets; the power to give binding directions to the trustee in connection with the purchase, holding or sale of trust assets; and the power to advise on the investment of the trust assets or the selection of investment advisors.
Reduced tax rates for international business companies and societies
Presently, the maximum rate of income tax applicable to an international business company and an international society with restricted liability in Barbados is 2.5 per cent on profits of up to USD5million. The applicable income tax progressively decreases as the profits of the entity increase.
The Societies with Restricted Liability (Amendment) Act 2012-25 and the International Business Companies (Amendment) Act 2012-23 have reduced the lowest level of income tax payable to, at present, 0.25 per cent on profits in excess of USD15 million.
Special entry permit immigration regime
A new immigration regime has been introduced that enables, among others, people with a minimum net worth of USD5 million to obtain permission to reside and work indefinitely in Barbados. Applicants need to prove their source of wealth, and they and their spouses and dependants must satisfy security and background checks and provide evidence of adequate health insurance coverage.
People who are resident but not domiciled in Barbados are subject to income tax only on income that is derived from Barbados and income derived from outside Barbados that is remitted to Barbados. However, they are entitled to claim a foreign currency tax credit for foreign-sourced income if that income is transferred to Barbados. Depending on the percentage of foreign currency earned in relation to total earnings, this potential tax credit can amount to 93 per cent of the income tax that would otherwise be payable in Barbados. It is therefore possible for such persons to enjoy an effective tax rate of 2.45 per cent in Barbados in relation to foreign-sourced income that is transferred to Barbados.
Other legislative developments
- The Financial Services Commission Act, 2010-21 established the Financial Services Commission and centralised the regulation and supervision of non-banking financial services activity conducted in or from Barbados.
- The International Corporate and Trust Service Providers Act, 2011-5 created a regime focused on international trust and corporate service providers operating in the international business sector. It ensures that such service providers are appropriately regulated and monitored.
- The Money Laundering and Financing of Terrorism (Prevention and Control) Act, 2011-23 repealed the previous anti-money laundering (AML) legislation and updated the Barbados AML regime to a standard that is consistent with comparable legislation in other leading international finance centres.
- The recent legislative developments in Barbados show the jurisdiction’s commitment to providing attractive and relevant solutions for an international clientele. Given Barbados’ reputation as a stable and well-regulated jurisdiction, the recent and contemplated changes to the legislative framework create sound structuring opportunities for the discerning advisor to capitalise on.
- 1. Including Austria, Botswana, Canada, China, Cuba, Finland, Luxembourg, Malta, Mauritius, Mexico, Netherlands, Norway, Panama, Seychelles, Spain, Sweden, Switzerland, the UK, the US, Venezuela and the Caribbean countries that constitute CARICOM
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