OFFSHORE BANKS

The Offshore Banking Act was enacted on July 26, 1979. Its purpose is to provide incentives by way of tax reductions and other exemptions and benefits for offshore banking carried on from within Barbados.

Offshore Banking is defined as:

A) Receiving foreign funds through:

·         Acceptance of foreign money deposits payable on demand, after a fixed period, or after notice;

·         Sale or placement of foreign bonds, certificates, notes or other debt obligations, or other foreign securities;

·         Any similar activity involving foreign money or foreign securities.

B) Using the foreign funds mentioned above to finance:

·         Loans, advances and investments; OR

·         Activities of the person carrying on the business.

Offshore Banking also includes the acceptance in trust of:

·         Amounts of money in foreign currencies, foreign securities or both;

·         Foreign personal or movable properties; AND/OR

·         Real or immovable property outside Barbados from persons resident outside Barbados.

To qualify and obtain a license, an applicant must:

·         Obtain the consent of the Minister to incorporate for the purpose of offshore banking. The government imposes a flat annual license fee of US $12,500.

·         Show that it is an eligible company or a qualified foreign bank

·         State the names and addresses of its director

·         Submit a certified copy of its articles of incorporation;

·         Give particulars of the proposed banking activity

·         Submit the names of shareholders who are residents of Barbados and the number of shares held by them.

·         Have at least one of the directors resident in Barbados.

·         Minimum capital requirement for residents and non-residents of US $500,000 and US $125,000 respectively.

 Summary of Incentives

·         Low rate of tax on net profits (maximum 2.5%).

·         No capital gains tax.

·         No taxes on dividends or interest paid to non-residents.

·         No estate, inheritance or succession tax on shares, securities or assets beneficially owned by non-residents.

·         No tax or duty in respect of the transfer of securities or other assets to non-residents.

·         No tax upon the incremental value of property or other assets in Barbados.

·         No tax on trusts established by a non-resident for the benefit of another non-resident if trust assets consist solely of foreign currency or foreign securities.

·         Availability of Government guarantee regarding future taxation.

·         Availability of exemption from customs duties on goods imported into Barbados (including equipment or fixtures) for doing business from within Barbados.

·         Tax treaties with US, Canada, UK, Switzerland, Sweden, Norway and Finland.

·         Dividends paid from the active business income of a Barbados resident foreign affiliate to its Canadian corporate shareholder may be considered exempt surplus and thus not taxable in Canada.

·         Simplified corporate mobility.

·         Exchange control exemptions

·         Provision for redeemable shares (subject to solvency tests).

·         Provision for pre-incorporation contracts.

·         Provision for telephone meetings.

·         Income tax and exchange control concessions for expatriate employees.

·         No requirement for public filing of financial statement.

·         Confidentiality relating to the affairs of the banks non-resident customers.

·         Freedom to conduct trust business.

EXEMPT INSURANCE

The Exempt Insurance Act was introduced in 1983 to establish Barbados as a domicile for international insurance activities. The approach of the Act is both modern and flexible and it facilitates the licensing of exempt (captive) insurance companies and the registration of management companies and holding companies.

Presently, Barbados has developed into a viable alternative to Bermuda for the location of exempt insurance companies and generally for the conduct of international insurance Business.

Requirements for exempt insurance business:

• The company must be incorporated under the Companies Act as a company limited by shares or as a mutual insurance company;
• Its activities are the transaction of exempt insurance business;
• Its articles of incorporation are acceptable to the Minister;
• Must have at least one resident citizen as a director;
• It must have paid-up capital, or in the case of a mutual insurance company approved by the Supervisor, contributed reserves amounting to not less than US $125,000.00;
• Its articles of incorporation provide that upon liquidation of the company, monies payable to shareholders are payable to or for the benefit or persons resident outside the Caribbean community.

Conditions of a license

• In issuing a license, the Minister may specify the class of insurance to be carried on. It is a condition of a license that the licensee will not, without prior consent:
• Enter into a merger;
• Transfer its assets or liabilities except in the ordinary course of business;
• Change its name;
• Engage in business other than that specified in the license; and
• Alter its articles of incorporation.

A license issued remains valid until revoked and is subject to the payment of an annual fee. The fees payable are as follows:

On application US $ 250

Certificate on registration US $ 2,500

Annual fee US $ 2,500

Incentives And Exemptions

• Exempt insurance companies and management companies pay no income or capital gains tax on their profits or gains or on their transfers of securities to persons who are not residents of Barbados.
• Exempt from withholding tax and exchange control restrictions
• Expatriate staff, who may readily obtain work permits, can be exempted from income tax and exchange control on up to 35% of their remuneration.

SOCIETIES WITH RESTRICTED LIABILITY (SRL)

The SRL Act was enacted in 1995 and the legislation allows for the creation of a true hybrid entity which may be recognized as either a corporation or a partnership depending on the nature of its organizational documents.

Definition

A SRL is an entity with full judicial personality, but whose members will enjoy the advantage of limited liability available to limited partners of a limited partnership. One or more persons may organize a society by signing and sending articles of organization in the prescribed form to the Registrar together with the prescribed fee.

Characteristics of an SRL

• It has full judicial personality.
• It can have a life of up to fifty (50) years.
• Limited liability.
• An SRL is required to have and continuously maintain registered office and an agent in Barbados.
• It may be recognized as a partnership or a corporation depending on the nature of its organizational documents.
• It must have a minimum of two (2) members.
• Contributions to capital may be made in cash or other property but not services.
• It is not dissolvable on the death of a ember except where the articles specifically so provides.

A SRL can be formed either as an "exempt society" or as a "non-exempt society".

Exempt SRL's are designed to be used mainly for international transactions and are taxed at reduced rates. Non-exempt SRL's are subject to the normal tax rate.

An Exempt Society may:

• Acquire such goods and services in Barbados as it requires for the conduct of its business; and
• Transact in Barbados such business as may be prescribed with:
• Another exempt society; OR
• An international business company licensed under the International Business Companies Act;
• An offshore bank licensed under the Offshore Act, AND
• An exempt insurance company licensed under the Exempt Insurance Act.

An Exempt Society may however not:

• Acquire or hold land in Barbados, other than land required for its business held by way of lease or a tenancy agreement for a term not exceeding the period fixed in the articles for the duration of the Society of for such shorter period as circumstances require.
• Transact business with any person resident in the CARICOM region (which is primarily the English-speaking Caribbean.
• Take deposits from any person in contravention of the Financial Institutions Act 1996.

Benefits Of Exempt Society:

• Tax on income on a sliding scale (from a maximum of 2.5% to a minimum of 1%).
• Exemption from all withholding taxes.
• No capital gains tax or estate duty.
• Tax credit in respect of taxes paid outside of Barbados is allowable but only in-so-far that the credit cannot reduce tax payable in Barbados to less than 1%.
• Complete freedom from exchange control.
• Books of accounts may be kept outside Barbados.
• No minimum capital or "thin capitalization" rules.
• Bearer shares quotas are not permitted.
• Benefits Of Exempt Society Continued:
• Inward and outward re-domiciliation provisions.
• Convention expenses allowed by U.S. tax authorities.
• Modern and flexible corporate law.
• The sale of foreign real estate or investments and the transfer of equity in an SRL, are not subject to local transfer taxes and stamp duty.
• An SRL may import - free from all customs duties - machinery or materials for use in its business.