Barbados is considered to be one of the important international business and financial services centres in the region. Recently collected data indicate that its international business and financial services sector is the second largest income earner after tourism, contributing 40% of the revenues collected from corporation tax. The sector employs approximately 6,000 people, a significant number of them in highly skilled activities. The sector also contributes significantly to economic activity in the areas of tourism, restaurant services, recreational services, real estate services and professional services.
In the face of competition from both developing and developed countries, international tax planners have found Barbados to be an attractive domicile with numerous advantages for international and financial services. Barbados’ special incentive entities include:
- International Business Companies (IBC’s);
- Societies with Restricted Liabilities (SRL’s);
- Foreign Sales Corporations (FSC’s);
- International Trusts;
- Exempt Insurance Companies;
- Offshore Banks;
- Facilities for Ship Registration in London and Barbados.
Barbados has created an environment that is conducive to the development of international business and financial services and will enhance this environment as it becomes necessary. It provides a range of incentives to facilitate the operations of the investor. These incentives include a corporate tax rate ranging between one percent and two percent, and exemption from withholding taxes on payments made to non-residents, import duties, capital gains tax, taxes on transfer of shares, securities or debt obligations and from exchange controls. In addition, the international investor has at his disposal a well-educated and trainable workforce.
Since 1998 Barbados has had to grapple with a number of international events and initiatives that have placed enormous pressure on the sectors that traditionally earn foreign exchange - the international business and financial services sector as well as the tourism sector. These international developments include the Organisation for Economic Cooperation and Development (OECD) initiative on harmful tax competition and tax havens; the Financial Action Task Force (FATF) initiative on money-laundering; the events of September 11th 2001; and the subsequent developments emanating from these attacks, such as the passing of the United Nations Security Council Resolution 1373 and the United States Patriot Act.
As a result of these initiatives, reviews of existing international business and financial services legislation have been undertaken to ensure that the legislation meets international standards in terms of supervision and regulation, transparency and effectiveness from a business perspective. One of the lessons learnt from the OECD experience is that Barbados must continually seek to enhance the integrity of its jurisdiction in anticipation of any further challenges to its regime.
In its efforts to successfully integrate Barbados into the global economy, the Government is actively seeking to restructure the domestic economy. The further development of the international business and financial services sector will form an integral part of this restructuring. Apart from the international business and financial services sector, the Government is seeking to expand the participation of international investors in non-tourism services such as informational technology services.
Barbados is effecting radical changes to its infrastructure to accommodate increased activity in the area of international business and to facilitate investment from local, regional and international sources. The Government is of the view that these programmes will play a major role in the development of its international business product. The Government remains committed to its vision of transforming Barbados into a country that provides high quality services to the international market, that acts as a hub for the Caribbean and a convergence point for business facilitation in the Americas.
Government has assigned high priority to the task of ensuring that Barbados’ supervisory and regulatory systems conform to internationally accepted standards. Supervisory and regulatory procedures are constantly reviewed to ensure that the necessary scrutiny is carried out on companies wishing to carry on international business. The country pays particular attention to its licensing processes and in addition, has enacted legislation to improve the application process for IBC’s and SRL’s. This legislation, the International Business (Miscellaneous Provisions) Act, 2001, makes provision for new application and renewal forms for the entities to provide greater disclosure by applicants and thus places the relevant authorities in a better position to assess such applicants.
The commitment of the Government to high regulatory and supervisory standards is reflected in its efforts to minimize, if not eliminate, the occurrences of illegal activity, tax evasion, tax crimes and money laundering. Since 1990 the Government has enacted several pieces of legislation aimed at preventing and detecting drug trafficking, money laundering and other serious crimes. These are the: -
- Drug Abuse (Prevention and Control) Act, 1990;
- Proceeds of Crime Act, 1990-13;
- Mutual Assistance in Criminal Matters Act, 1992; and
- Money Laundering (Prevention and Control) Act, 1998-38.
The Money Laundering (Prevention and Control) Act, 1998-38 confers responsibility for the supervision of financial institutions on the Anti-Money Laundering Authority ("the Authority"), which was officially established in August 2000. In 2001, The Government amended the Money Laundering Act to clearly outline the offences under the Act. Furthermore, a Financial Intelligence Unit was established to carry out the Authority’s anti-money laundering supervisory function over financial institutions including the collecting, analyzing and disseminating suspect transaction reports. In addition, a Financial Investigations Unit has been established within the Royal Barbados Police Force to investigate reports referred to it by the Authority.
New anti-terrorism legislation was enacted in 2002 in keeping with Barbados’ international obligations and to assert its intolerance of acts of terrorism. The Anti-terrorism Act 2002-6 seeks to implement the United Nations Convention with respect to the Suppression of Terrorism and the United Nations Security Council Resolution 1373 on Terrorism. Generally, this Act makes provision for preventing and combating terrorism.
The Central Bank of Barbados issued "know your customer guidelines" to financial institutions licensed under the Offshore Banking Act and the Financial Institutions Act. The Ministry of Economic Development and the Anti-Money Laundering Authority (AMLA) have compiled a set of guidelines for the detection and prevention of money laundering in relation to fiduciary services and business investment. These guidelines have been issued to service providers and have also been placed on the Ministry of Economic Development’s website to inform service-providers of their obligations under Barbados’ anti-money laundering legislation.
The Financial Services Act 2002-5, which repeals the Offshore Banking Act, is designed to strengthen the regulatory framework under which Barbados-licensed international banks operate in Barbados. Among other things, this Act will permit entities other than those incorporated under the Companies Act to become licensees; further strengthen Barbados’ position as a well regulated international business centre, whose regulatory environment meets international best practices; and increase the penalties with respect to offences under the Act.
The new legislation complements the Financial Institutions Act (FIA), which embraces the Core Principles for effective banking supervision issued by the Basle Committee on Banking Supervision and provides the regulatory framework for the domestic banking system. The Core Principles are applicable to international as well as domestic financial services. In view of the fact that the financial sector and the way it is regulated are dynamic in nature, legislative changes are often required to enable the sector to adapt and to allow the regulatory framework to comply with international standards.
An important factor, which highlights the determination to ensure that the entire process is transparent, is the transferring of responsibility for marketing the international business sector from the International Business Division of the Ministry of Economic Development to the Barbados Investment and Development Corporation (BIDC). This decision permits the Ministry of Economic Development to concentrate entirely on policy and regulation, thus removing the potential area of conflict that may arise if the same agency is responsible for both promotion and regulation.
In recognition of the fact that double taxation agreements can facilitate the growth of international business and financial services sector, Barbados is continually seeking to expand the number of countries with which it negotiates such agreements. Barbados currently has eleven bilateral double taxation agreements with Canada, China, Finland, the United Kingdom, Malta, the United States, Switzerland, Sweden, Venezuela and Cuba; and is also party to a multilateral double taxation agreement with its CARICOM neighbours. The most recent addition to the Treaty Network is the Barbados / Malta Agreement, which was entered into force on June 19th 2002. The Government will continue with its programme to actively expand its network of double taxation treaties in an effort to further promote business to Barbados as well as create a favourable export climate for its producers and service providers1.
Barbados recognises the importance of increasing the range of products available to international investors. To this end, the Government has amended existing legislation and enacted new legislation to achieve this objective. A number of amendments were made to the International Business Companies Act, the Societies with Restricted Liability Act and the Exempt Insurance Act to allow these entities to sell their products in the CARICOM Region. Amendments were also made to the International Business Companies Act to encourage Barbadian nationals to export their goods and services under the IBC Regime.
The Government has also introduced both segregated accounts and segregated cell legislation as amendments to its Companies Act, the Exempt Insurance Act and the Insurance Act. The legislation will permit a company to establish and maintain one or more separate accounts or cells in respect of any contract liability of the company, to be segregated from its general assets. The recent legislative changes also provide an opportunity for foreign insurance companies to operate through branches in Barbados.
In recognition of the increased levels of cross-border Internet activity and its impact on business, the Government passed the electronic transaction Act in 2001 to facilitate the growth of e-commerce related activity in Barbados. This legislation, which is drawn up along the lines of the UNCITRAL Model Law, seeks to establish the necessary legal environment for the processing of electronic transactions, addressing such issues as the legal recognition of electronic records, the formation and validity of contracts, certification of electronic signatures, encryption, data protection and the liabilities of intermediaries.
Government continues to engage in an aggressive marketing campaign aimed at promoting Barbados as a favourable jurisdiction for attracting investment. The transferring of the responsibility for promotion of the international business and financial services sector to the BIDC, will enable the country to take advantage of the network of offices, the market intelligence and other resources which this agency possesses as it seeks to expand the horizons of its marketing programme. The BIDC has participated in a number of promotions in the United States and Canada aimed at highlighting Barbados’ image as an international business and financial services centre that ‘works’ and provides the environment that is conducive to the needs of prospective investors.
Infrastructural projects are also expected to play a major role in transforming Barbados into the premier hub for doing international business in the hemisphere. Barbados is currently expanding its sea port to accommodate more cruise and shipping vessels as well as renovating and expanding its airport facilities in an effort to provide improved services at this establishment.
The Government is currently reforming its telecommunications sector with the intention of improving the already high quality of telecommunications services offered in Barbados, while at the same time offering more customer friendly rates for those that consume the many services offered within this sector. The reform programme will further enhance Barbados’ capacity to provide high-quality telecommunication services at competitive prices and will further lend support to the initiative for Barbados to be the leader and hub for doing international business in the Caribbean and Latin America.
1. Barbados is currently reviewing the model agreements of countries from Europe and Africa with intention of concluding these Agreements by 2003.
© Reproduced with the kind permission of Caribbean Business Publications.
This article appeared in the 2003 edition of Business Barbados, the island's premier business publication. www.businessbarbados.com