Barbados is a small island situate at the eastern end of the Caribbean sea. As a colony of England, it was considered a precious jewel in the Empire because of the sugar it produced. At the time of the Country's Independence in 1966, the once mighty sugar industry had begun its dramatic decline from its heyday. To avoid the country's over reliance on a single source of revenue for its economy the Tourism industry was developed and began to quickly flourish as the islands' tropical climate was ideal for same.
When in the 70's it became evident that the country's economy was too reliant on these two industries that could be and were to be detrimentally influenced by factors outside of the country's control, the Government of the day started to put in place the necessary infrastructure changes to allow for the development of the island's Offshore sector.
Today Barbados boasts of being a well developed international business and financial centre. Its excellent infrastructure ,highly qualified local Professionals along with its skilled labour force have only enhanced this status.
The sector's several regulatory authorities along with the Government are determined to maintain if not enhance the country's reputation as a "clean" domicile.
Barbados offers the investor or the entrepreneur the advantage of utilising either of the following:
- International Business Companies.
- Exempt Insurance Companies.
- Foreign Sales Corporations.
- Offshore Banks.
- Societies with Restricted Liability.
Many other offshore domiciles provide similar vehicles for investment or business purposes to those listed above. What makes Barbados unique is that it has entered into a number of bilateral double taxation treaties with several countries the three most important of which are with Canada, the United Kingdom and the United States. It is the ability to combine of treaty protection with the low tax entities mentioned above, that makes Barbados such an attractive low tax domicile.
Trusts-The Use of Barbados Trusts as a means of wealth planning.
Recently Barbados passed into law its International Trusts Act. Passage of this Act has now given to Settlors a chance to use a third type of Trust in their Estate Planning. These Trusts are referred as:
- The International Trust (IT)
- The Domestic Trust (DT) and
- The Offshore Trust (OT)
Barbados' trust law is derived from the English Common Law of Trusts. In 1979 the Trustee Act (based primarily on the English Trustee Act of 1925) was enacted. In that same year, the Offshore Banking Act came into force with provisions that lead to the subsequent establishment of Offshore Trusts.
THE OFFSHORE TRUST
To establish an OT, the trustee must be a licenced offshore bank under the Act and the Settlor and Beneficiary must all be resident outside of Barbados. The trust is exempt from all Barbados taxes and duties and there is also an exemption from Exchange Control requirements. The assets of the Trust must consist solely of foreign securities or foreign currency. There need be no specific form of Trust. However as OT are not taxed in Barbados, they are not entitled to any treaty benefits.
THE DOMESTIC TRUST
If a Barbadian resident or company is appointed as a Trustee of a trust and the trust does not stipulate that it is not an International Trust, then a Domestic Trust is created. The income of a DT that it is not paid to a beneficiary before the end of the calender year in which it is earned will be subject to Barbados Income Tax at the rate of 40%.
DT are an attractive proportion when they are established with a view to taking advantage of treaty benefits. If the income that the trust is receiving consists of dividend or interest income in a jurisdiction with which Barbados has a double taxation treaty, then the tax payable in the other jurisdiction can be either zero % or substantially reduced if a DT is established.
Unlike the DT or OT, an IT must be created by a written deed specifying that the International Trust Act applies. The other requirements are as follows:
(a) One of the Trustees must be a Barbados resident
(b) The settlor and beneficiaries must be non-Barbados residents at the time the Trust is established and at any time that property is added to the Trust.
(c) The assets of the Trust must not include real estate in Barbados.
Once these requirements are met an IT is not considered as domiciled in Barbados and as such is only liable to tax on Barbados source income or that remitted to Barbados.
The Act makes provision for amongst other things the establishment of Purpose Trusts. Now traditional Trust law had dictated that such Trusts had to be for charitable purposes. The Act makes provision for a Purpose Trust once it is established for a particular purpose that is specific, reasonable and capable of fulfillment with the caveat that it must not be for an illegal or immoral purpose. Such Trusts must appoint a Protector whose responsibility it will be to enforce the Trust.
Purpose Trusts have already been established for the holding of shares in Companies, debt financing, the leasing of airplanes and ships as well as a myriad of other social, philanthorpic and political purposes which would not have slipped under the guise of being charitable.
ASSET\CREDITOR PROTECTION TRUSTS
Provision is also made in the Act for the establishment of Asset Protection or Creditor Protection Trusts. These provisions will no doubt be attractive to many Professionals whose daily livelihood leaves them open to the possibility of a ruinous malpractice suit ,as well as the very wealth individual. Once a Trust is established then a Creditor seeking to set it aside must establish that there was a fraudulent intent in so establishing the Trust. Importantly this must be done within three years of the Settlement. Further should this fraudulent intent be established ,the Trust will only be set aside to the extent necessary to satisfy that creditor's claim.
FORCED HEIRSHIP PROVISIONS
Settlors from jurisdictions that have stringent forced heirship provisions can be comforted by the fact that the legislation stipulates that the laws of Barbados will not recognise any claim brought on the basis of the laws in another jurisdiction.
The above article is merely illustrative of the many avenues available to persons who are considering using Barbados for their business needs. The statements contained therein should not be considered as definitive for all purposes as individual circumstances can lead to a change in the application of the law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.