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Transcript of IB - Barbados International Finance & Business Magazine 2010
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4 Welcome to the 2010 Edition
5 Message rom the Minister
7 The Barbados Jurisdiction NextSteps in a Changing World
8 The Evolution o InternationalBusiness in Barbados: ABrie Commentary
9 Tax Treaties: New Instrumentso International Diplomacy
10 The Future o InternationalFinancial Centres A UniqueOpportunity or Barbados?
12 Increase Your International
Competitiveness byUsing Barbados
14 Raising the Bar Barbados as anInternational Financial Centre
16 Legal Issues on Operating anInternational Business in Barbados
17 How High Net Worth IndividualsUse International FinancialService Companies
18 Why Barbados Remains a Popular
Choice or International Business
19 New EU Opportunitiesor Barbados
20 Barbados: Gateway to China
ContentsSponsors
30% Post Consumer
Barbados oers International businesses the
necessary resources and structures required to
acilitate and manage operations
Barbados a undamental element o
the growth strategy
This publication was printed on Mohawk
30% PostConsumer Recycled paper.
By using PC recycled fibres in place o new
fibres the ollowing has been achieved:
13.54 treespreserved or the uture
17.74 kgwaterborne waste not created
289 kgsolid waste not generated
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569 kgnet greenhouse gases prevented
9,594,604 BTUs energy not consumed
22 Practical Issues oManaging InternationalCompanies in Barbados
23 The Basics o Captives
25 U.S. Property andCasualty Round Up
27 Captives - An Eective Solution orAccessing Reinsurance Markets
28 Trade Credit: How a Captive
Helped Improve Proftability
30 Auditing Captives WorkingTogether to Ensure a Timelyand Seamless Process
31 What Have We Learned romthe Global Meltdown?
33 Designing an InvestmentStrategy or New Clients
34 The End o International Financial
Planning? Not in Barbados
36 And So Much More
38 International Business TheUnintended Benefts in Barbados
Barbados International Finance& Business magaine is a
publication o Invest Barbados.Invest Barbados is grateul to theinternational business communityand the service providers or their
support on the editorial committeeand in contributing articles. Wewould like to thank the ollowing
sponsors:
International BusinessBreakwater Management Services Ltd.Chancery Chambers
Deloitte & ToucheErnst & YoungHarridyal & Sodha Associates
KMPGLexis Nexis
London LieMeridian LawPlatinum Oshore Management
Services, Inc.
PricewaterhouseCoopersTD Reinsurance (Barbados) Inc.Towner Management GroupTrilon International Inc.
Tricor Caribbean Ltd.
Captive InsuranceAmphora Bank and TrustAON Insurance Managers
(Barbados) Ltd.
CGE International Services Ltd.Global Re SCC
Wealth ManagementButterfield Bank
CIBC Oshore BankCidel Bank and TrustFirst Caribbean International Bank
Glenhuron BankJ & T Bank and TrustRoyal Bank o Canada
Scotiabank
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Welcome to the 2010 issue
o Barbados International
Finance & Business
and what a year 2009 was. The world
experienced a Global Financial Crisis
not seen since the Depression o 1929,
and o course Barbados has also been
impacted.
Barbados continues to be the domicile
o choice or international companies seeking to become more globally
competitive. The countrys strategy o pursuing Double Tax Treaties with
other nations remains a key platorm, and this strategy was rewarded
in April 2009 with an excellent standing endorsement in the Progress
Report on the Jurisdictions Surveyed by the OECD Global Forum in
Implementing the Internationally Agreed Tax Standard. The numbero tax treaties grows, with Spain, Vietnam and Italy to be added soon
and more to ollow.
The overall purpose o the magazine remains to provide an
annual update on Barbados as an International Business domicile,
and we thank Invest Barbados and our sponsors (both editorial and
nancial) or making this happen. We hope you enjoy reading the
2010 issue and invite you to send any comments and suggestions to
James Gardiner
Welcome to the 2010 Edition
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OECD as a nancial centre that
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www.investbarbados.org
4 BARBADOS INTERNATIONAL FINANCE & BUSINESS 2010
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Message froM senator the hon. Darcy BoyceMinister of state
Ministry of finance, investMent, telecoMMunications & energy
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Senator The Hon. Darcy BoyceMinister of State
Ministry of Finance, Investment,
Telecommunications & Energy
2010 BARBADOS INTERNATIONAL FINANCE & BUSINESS 5
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Contributors
Copyright Invest Barbados 2010. All rights reserved. No part of this publication may be reproduced or transmitted in any form or any means, or stored in any retrieval system of any nature without prior
written permission of the copyright holder. The views expressed in this magazine are those of the contributors, and not necessarily those of Invest Barbados. The information provided in this magazine is
meant as a guide only and does not amount to professional advice.
Barbados International Finance & Business 2010 Edition Published by Invest Barbados | www.investbarbados.org
Barbados: (246) 626-2000, Toronto: (416) 214-9919, New York: (212) 551-4376, London: 44 0207 299 7195 Email: [email protected]
Technical Review:Ben ArrindellCidel Bank and Trust
Editorial Committee:
Caroline Gardiner
James Gardiner
Russ Jones
Sandra Payne
Dominique Pepin
Dawn Williams
Authors:Wayne KirtonInvestBarbados
Stephen GreavesPlatinum Oshore Management
Services Inc.
Dr. Trevor Carmichael, Q.C.Chancery Chambers
Francoise HendyMinistry o International Business
& International Transport Barbados
Andy SharpSpecialist Taxation [email protected]
Lincoln SchreinerPricewaterhouseCoopers
Russ JonesPricewaterhouseCoopers
Ricardo KnightTowner Management Group
Ken VillazorTrimel Biopharma
Dawn WilliamsMeridian Law
Gail IfllErnst & Young
H. Wayne LovellKPMG
Jonathan BrathwaiteCititrust (Barbados) International Inc.
Liza Harridyal-SodhaHarridyal Sodha & [email protected]
Gabriel KellyLondon Lie and Casualty
(Barbados) Corporation
Clennell JackmanTricor Caribbean Ltd.
Michael ArthurArtel CIMTEC Inc.
Nicholas CrichlowMarsh Management Services
(Barbados) Ltd.
Michael DouglasAON Global Risk Consulting
Chris EvansCGE Group Ltd.
Hugh RosenbaumHughro Limited
Mike HomanGildan
Steve ClarkeDeloitte & [email protected]
Richard BruceTD Reinsurance (Barbados) Inc.
Gordon AndersonRoyal Bank o Canada
(Caribbean) Corporation
David BusheClose Wealth Management
(Barbados) Limited
Dave ThomasJ & T Bank and Trust
E. Adrian MeyerCidel Bank & Trust
Design:Masthead and Cover DesignBlueprint Creative Inc.
Design, Layout and PrintingEVillages Ltd.
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Firstly, welcome to the second
issue o our International
Finance & Business magazine.
Since our last publication, the world
has tumbled into recession, and shell-
shocked G20 leaders have launched
an entirely misplaced attack on
international nancial centres (IFCs).
Unortunately, even those centres
like Barbados - that ollowed a path o bilateral tax and investment
treaty negotiation Government-to-Government - have been under
attack, and some proposed G20 retaliatory measures would overturnor contravene negotiated agreements a unilateral trampling o
bilateral agreements that will no doubt trigger countless complaints
at WTO level.
In deense o IFCs, the recent publication o University o Torontos
Proessor Walid Hejazis new study on the use and value o IFCs
which expands the original Canadian study to
include US companies, is certainly timely, as
it refects a similar conclusion to the original
study - that companies which use structures in
IFCs (as opposed to tax and secrecy havens) are
more successul, expand more rapidly, and pay
more taxes and employ more people in their
domestic market than companies that do not
use those structures.
However, while there is evidence in some
parts o the world that the recession has begun
to abate, credit availability is still problematical,
and the G20 are still playing the name, blame
and shame game with IFCs the latest ront
being regulatory havens. Todays investors are
understandably cautious, and that translates to
a wait-and-see attitude, or the most part.
So in this state o world investment fux, what is Barbados doingas a jurisdiction? Firstly, we are a treaty based jurisdiction and are
continuing to expand our tax treaty network. On the regulatory ront,
part o the reason why the World Economic Forum ranks our banking
system so highly among Western hemisphere countries is because
o our robust regulatory systems and anti-money laundering regime.
Recognising that we need to improve in the non-banking regulatory
arena, we are in the nal stages o implementing a Financial Services
Regulatory Commission, which will be in place early in 2010.
We are creating appropriate, but strong regulation or Hedge Funds
and Private Trusts, and we are making changes to various other
pieces o legislation to make it more attractive or Headquarters and
Holding Companies to set up in Barbados.
On the local business environment scene, Barbados has solicited the
technical assistance o the IADB in overhauling its processes in Town
and Country Planning, Corporate and Intellectual Aairs, Immigration,
and legal drating all aimed at aster and more transparent service
or international business. I am also delighted to
announce that the Immigration department has
dedicated an ocer to international business,
located in the oces o Invest Barbados, where
all international business immigration matters
are now processed on a ast track basis.
In terms o new oerings, Barbados will soon
provide a acility or high net worth individuals
who wish to become resident, but not domiciled,
or tax purposes in Barbados, oering a transpar-
ent and ast immigration process, reedom rom
exchange controls on unds brought in, and a
very attractive local income tax rate based on the
taxpayers level o oreign currency earnings.
We have also commissioned a study o the
insurance industry to see where we can improve
and whether there are any niches developing
that we should seek to acilitate in Barbados. Also on the cards isthe establishment o a branch o an international arbitration rm in
Barbados, with the aim o making the island a seat or international
arbitration by 2011. By early 2011, international investors structuring
their activities through Barbados should also be able to list their IPOs
on the new international trading foor o our stock exchange.
And lets not orget the quality o lie investors can enjoy in Barbados
- riendly and well educated people, an inrastructure that works,
saety, great weather, plenty o good restaurants, and many things to
do as our ad says, isnt it time you considered Barbados?
Wayne Kirton
Chie Executive Ofcer
Invest Barbados
Te Barbados Jurisdiction Next Steps in a
Changing World
By early 2011, international
investors structuring their activities
through Barbados should also be
able to list their IPOs on the new
international trading oor o our
stock exchange
Barbados Double Tax
Treaty Network includes:
Austria
Botswana
Canada
CARICOM(10 countries)
China
Cuba
Finland
Malta
Mauritius
Mexico
Netherlands
Norway
Seychelles
Sweden
Switzerland
UnitedKingdom
United Statesof America
Venezuela
2010 BARBADOS INTERNATIONAL FINANCE & BUSINESS 7
Note From the CEO
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When the ramers o the original 1965
International Business Companies
legislation ormulated the statute
primarily to leverage the benets o United
Kingdom direct investment into Barbados, they
could hardly have considered that the ever chang-
ing scope o global nancial fows would dictate
such later fexibility in the statute. Indeed, that
fexibility and creativity, blended with consist-
ency, all mirror the wider scope o internationalbusiness in Barbados.
At the outset, and throughout the past orty
years, there has been an implicit recognition that
the path o a zero tax policy was one not to be
pursued. Having inherited, on independence,
the Scandinavian treaties, there ollowed an
ongoing recognition o tax treaty negotiation
and multiplication as an article o aith, which
has been maniested in dierent ways. The fex-
ibility in this policy may be easily identied by
the development o the negotiating machinery
itsel, which at one time comprised an inormal
mix o government ocials combined with some
unpaid proessional lawyers and accountants.
However, as international capital fows increased
and globalisation maniested itsel in its many
orms, the speed, organisation and skills required
or multiple treaty development accounted or
more rigorous treaty negotiating teams, as is
clearly maniested in the jurisdictions current
team o very eective proessionals.
In the decades o the eighties and nineties,
recommendation and change were essentiallyled by small groups o proessionals meeting
inormally with the Central Banks legal advisors.
However, this eature has been supplanted by the
organisation o ormal structures advising the
relevant Ministers. The fexibility has allowed
the development o the sector and, in particular,
has acilitated critical changes to be eected at
opportune times.
Hence, the decision to modiy the CARICOM
Model Corporate Legislation and to introduce,
in 1982, a statute which, although based on
the Ontario and Delaware models, was philo-
sophically in keeping with the CARICOM drat - a
strategic coup. For this new legislation proved to
be a catalyst in the expansion o the international
business agenda, and urther contributed to the
ease o captive insurance corporate ormations
and the growing transaction work which now
fows naturally within the local nancial services
industry as a whole. In this respect, the urther
renement o the legislation, with the introduc-
tion o segregated cell legislation and the Society
with Restricted Liability Act, has buttressed the
fexible use o the corporate vehicle. Furthermore,these two additions were introduced at the time
o particular need and have been very avour-
ably utilised, thereby underscoring the fexibility
which has marked the consistency within the
industry as a whole.
O no less signicance has been the creative
thinking which has marked the international
banking sector. When, in 1979, the relevant
legislation was introduced, which also employed
the term Oshore in its title, the international
nancial milieu recognised the importance attrib-
utable to the term. However, as the international
regulatory ethos changed and the term Oshore
lost much o its glamour and respectability, the
new International Financial Services legislation
recognised the trend and renamed, as well as
reashioned, the statute accordingly. Suce to
say, the amended legislation, regulations and
practice directives have endorsed the consist-
ent creativity o the sector, while ensuring that
proper banking regulation is not compromised by
banking condentiality. Hence, on the one hand
the Central Bank has set important categoriesand criteria or establishment while, at the more
international level, it has ensured that banking
regulation keeps pace with the ongoing Basle
nancial edicts.
The consistency o creativity and fexibility
remains a critical component o Barbados
international business, in ull recognition that
the delivery and rening o new products over the
years is a sine qua non or the ongoing eeding
o a national economy. Such growth, however,
will hopeully seek to continually recognise the
important ingredient o discipline which, as Tom
Rohn reminds, is the bridge between goals and
achievement. F
Te Evolution o International Business
in Barbados: A Brie CommentaryB Y D R . T R E V O R A . C A R M I C H A E L , Q . C .
Case
studyPl
atinum
Ten Years o PlatinumServiceBy Stephen Greaves
The genesis o Platinum Oshore
Management Services, Inc.
(Platinum) was in , when
we took over the inrastructure
and human talent o my ormer
employer, who decided to close
the operation which I had man
aged since .
One o our companys first innova
tions was to launch a website, as
a means o creating a presence in
the international market at a time
when ew local companies had
created websites. We ocused on
networking, by participating at
tax planning conerences and sym
posiums organised by the BIDC/
Invest Barbados, which generally
resulted in client reerrals.
Platinum is built on the basic core
values o ethics, integrity and a
passion or excellence in service,
by providing our clients with
responsive handson deliverables.
Our marketing strategy included
advertising in key global
periodicals, as well as writing
sectorbased articles in reputable
publications.
Our achievements to date have
been due to hard work, determina
tion and strategic alliances with
other service providers, as well
as the continuous support o the
BIDC/Invest Barbados. It wouldalso be remiss o us i we did not
acknowledge the transer o useul
knowledge as an important source
o our proessional development
at Platinum.
With a track record o execut
ing the tax strategy o oreign
investors by eectively managing
the daytoday operations o the
Barbados subsidiary, Platinum
continues to be a service providero choice in the international
business segment o the industry.
8 BARBADOS INTERNATIONAL FINANCE & BUSINESS 2010
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For the early negotiators o
income tax treaties, com-
monly reerred to as double
taxation agreements (DTAs), the
policy and practice o their modern-
day counterparts might well cause
them to pause.
O course, DTAs have long been an
important expression o a country's
desire to expand bilateral trade by
addressing the tax constraints to the
cross-border movement o persons,goods and services through the
articulation o clear rules designed
to avoid double taxation and prevent
scal evasion.
Mindul o this customary basis
or DTAs, it should not be a surprise
that the rst question answered by governments prior to a round o
negotiations being scheduled would be, what is the level o trade
between the two countries, and are current levels suciently high
to warrant the establishment o a bilateral mechanism to address the
international aspects o domestic taxation?
For traditionalists, the satisactory determination o this issue,
based on quantitative data, is still a pre-condition or tax talks.
However, even or those who adhere to the purists view, equally
important today is the consideration o prospective trade fows and
the opportunity that such a negotiation would present to urther
multilateralize internationally accepted standards o transparency
and access to tax inormation.
Perhaps ushered in by the establishment o the World Trade
Organisation (WTO), subsequent work by the Organisation or
Economic Co-operation and Development (OECD) on tax havens,
prescriptions announced by the G20 in response to the global economic
crisis, and the practice o states, it is clear that tax treaties are nowimportant instruments o international diplomacy.
How else can one explain the prolieration o DTAs brought into
orce between countries where issues relating to trade fows might
otherwise preclude the conclusion o such an arrangement? O course
one can point to those non-traditional fows more closely associated
with an international business and nancial services centre, like
Barbados, which continues to successully interpose itsel in invest-
ment fows around the globe, adding value to and, in some cases,
ultimately re-deploying the investment.
Indeed, it is precisely because o the host/home country charac-
teristics o the major international business and nancial services
centres that DTAs have become an important tool in creating relation-
ships between the taxing authorities in such centres and those in
the countries rom which the investment fows originate, and in
those where the investment fows
are destined.
Moreover, because Barbados has
an established system o taxation on
income, is able to add signicant
value to the investment fows and
is already an exporter o goods and
services, the DTA is its preerred
vehicle to internationalise agreed
tax transparency norms over the
more recent construct o the Tax
Inormation Exchange Agreement(TIEA).
Aside rom the now well-known
act that Barbados was not required
to make a commitment to the OECD
as a result o that groups work on
Harmul Tax Competition, a position
that was recently endorsed by the G20 in its April 2009 announcement
o white-listed countries, Barbados has long subscribed to the view
that a ull tax treaty with the OECD-style provision on exchange o
inormation is the best way to give expression to the internationally
agreed standards in this area.
Indeed, many countries, with whom Barbados cannot boast sig-
nicant trade fows according to traditional indices, share Barbados'
view. As a result, Barbados' tax treaty network continues to expand at
a rate that demonstrates the currency o its thinking on transparency
and tax inormation exchange. Since the Washington Summit o the
G20 meeting, which ormally endorsed the use o tax treaties as
instruments o international diplomacy, Barbados has successully
concluded tax treaties with Spain, Vietnam and Italy. Dates have
already been conrmed in 2010 or negotiations with the Czech
Republic and Belgium, as well as second round talks with Chile,
Iceland and Brazil. Meanwhile, rm commitments have been received
rom Australia and Columbia. F
ax reaties: New Instruments o International
Diplomacy B Y F R A N C O I S E H E N D Y
Treaty Update
Treaties signed awaiting ratifcation: Luxembourg
and Ghana
Treaties initialled: Spain, Italy, Vietnam
Treaties currently under negotiation: Chile, Brail,
India, Iceland, Cech Republic, Belgium, Panama
Treaties awaiting negotiation dates: Australia,
Colombia, South Arica, Ireland, Malaysia
The Hon. George Hutson, M.P., Minister of International Business &
International Transport and His Excellency Mr. Hubert Wurth, Ambassador
for Luxembourg in the UK, participate in the signing ceremony of the
Barbados Luxembourg DTA
2010 BARBADOS INTERNATIONAL FINANCE & BUSINESS 9
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Te uture is clear the uture is
clean money
T
he ace o global nancial markets has changed dramatically
in recent months and many nations are now, as a result o
the credit crunch, suering signicant monetary pressureson cash fow and also ace mounting debts.
One o the key questions is how countries, such as the G20 nations,
can attempt to reduce their unheard o levels o debt? Rather surpris-
ingly, it seems that without realising it, several developed countries
have started a train o action which potentially will assist them
considerably in addressing their debt problems. The action in question
is tackling tax evasion by their citizens.
The recent actions o the OECD and the G20 nations, ollowing the
election o President Barack Obama, have concentrated on targeting
the traditional tax havens, or international nancial centres, in
order to orce transparency and, more importantly, the provision o
inormation regarding investors in international nancial centres.
Current estimates o undeclared tax unds in oshore centres range
between $6.5 and $11.5 trillion, which provide or an estimated
under declaration o tax across the globe in billions o dollars annu-
ally. Indeed, HM Revenue & Customs in the UK has conservativelycomputed that the tax lost in the UK to avoidance and evasion ranges
between 11 billion and 41 billion per annum. Other research in
the UK suggests that the tax lost annually rom avoidance alone is
well in excess o 25 billion.
Given the size o the potential recovery rom tackling tax evasion and
tax avoidance, it is hardly surprising that the OECD and G20 actions
against tax havens are beginning to produce results. Recently the IRS
has secured details o US citizens rom a leading Swiss bank and
Te Future o International Financial Centres
A Unique Opportunity or Barbados?B Y A N D Y S H A R P
Tailored to suit your needs
Deloitte offers clients a multi-dimensional approach toaddressing their issues. We draw upon a combination of audit,
tax, consulting and financial advisory services to understandand evaluate those issues more broadly and more deeply thanour competitors. We offer not just deep local understanding,but a comprehensive global perspective and experience.
Every client is unique, that is why we structure our
multi-disciplinary services to suit our clients individual needs.
www.deloitte.com
Tel: +246 430 6400Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member rms,
each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed
description of the legal structure of Deloitte Touche Tohmatsu and its member rms.
Copyright 2009 Deloitte & Touche. All rights reservedMember of Deloitte Touche Tohmatsu
f
10 BARBADOS INTERNATIONAL FINANCE & BUSINESS 2010
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banks in the UK, and details were reported by a ormer employee
o a Liechtenstein bank to EU countries. So called Amnesties are
increasingly avoured by governments, as this produces high cost-yield
ratios and governments requently do not have the resources to ully
prosecute tax evasion in all cases.
In addition to this type o activity, inormation exchange is now
at a level never seen beore: who could have predicted
that Switzerland and Liechtenstein would sign
Tax Inormation Exchange Agreements with
the UK in 2010? Furthermore, who could have
oreseen that Liechtenstein would agree, within
12 months, to change its internal laws to allow
the British government to obtain the names o UK
residents who have unds hidden away in Vaduz?
These are very signicant and dramatic changes
and give a clear indication o the way traditional
oshore nancial centres will have to operate in
the uture. It is also clear that these developmentshave radically altered the relationship between the
OECD nations and the international nancial world.
Is there an opportunity or Barbados?
Two issues arise, and the rst relates to unds currently held in those
jurisdictions regarded by the OECD and G20 countries as traditional
tax havens. Current estimates suggest that within the next 5 years,
the number o international nancial centres will decline by at least
50%. Political pressure and concerted action by the OECD and G20
are likely to orce the smaller international nancial centres that are
viewed as tax havens to close and unds located in these jurisdictions
will have to move to other nancial centres. However, in that process,
it will be necessary or those previously undeclared unds to be
taxed, or cleansed, in the relevant jurisdiction. This will result
in countries which have a solid nancial basis and a good
reputation, like Barbados, attracting unds rom the
shrinking world o the tax havens.
The second issue relates to the rise in the need
to carry out eective tax planning, given the
act that governments will attempt to increase
their domestic tax take by raising tax rates.
Accordingly, tax arbitrage has to be the uture
o the international tax world. However, to be
eective in this eld it is necessary to have
an extensive network o double tax treaties,
and it is this aspect which nds Barbados ata signicant advantage when compared to its
Caribbean competitors. Thereore, with the right
support and direction, Barbados can compete eectively in
the world o tax arbitrage.
What will be required is or the international nancial sector in
Barbados to have a greater outward ocus over the next 2-4 years, in
order to ensure that it remains ahead o its competitors. F
f
2010 BARBADOS INTERNATIONAL FINANCE & BUSINESS 11
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When Canadian corporations begin planning to expand their
businesses outside Canada, they usually engage a team
o advisors to make recommendations on all aspects o
the transaction. One aspect is to develop a global tax strategy to make
them internationally more competitive, and oten Barbados is included
as a undamental element o the growth strategy - here is why:
Stable Pathways or Capital Flows
The Central Bank o Barbados and tax policy decision makers do not
make radical changes rom one political administration to another.
Other comort actors include the act that English is the spoken
language and the major Canadian banks have signicant operations
in Barbados.
Investment Protection
Barbados and Canada have a Foreign Investment and Protection
Agreement (FIPA). A FIPA generally adds an additional layer o
benets, such as protection against economic discrimination, air
compensation in the case o appropriation, most avoured nation status
and curtailing the ability o a central bank to inhibit the repatriation
o oreign currency. Barbados has negotiated a number o FIPAs. It
should be noted, however, that FIPAs do not cover tax policy issues.
Such issues are dealt with in a tax treaty.
Familiar Corporate Law
Barbados corporate law is ounded on the Canadian corporate law
model.
Travel Access and Service Providers
Barbados has good commercial airline access and is in the US Eastern
seaboard time zone. Barbados legal, accounting and banking service
providers are experienced with serving the local Barbados needs o
Canadian companies.
Attractive Corporate Tax Regime
By world standards, Barbados has a low combined corporate income
and dividend withholding tax regime (ranging between 1% and
2.5%). The low tax regime applies to International Business. Some
examples include:
Global sales & distribution o goods;
Hedging the sale price o goods made or processed;
Collecting (actoring) trade receivables;
Paying trade payables;
Licensing intellectual property;
Lending or working capital & term debt needs;
Accepting deposits & investing excess cash; and
Providing various (captive) insurance needs.
Increase Your International Competitiveness by
Using Barbados B Y L I N C O L N S C H R E I N E R & R U S S J O N E S
f
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Using a holding company located in Barbados as a vehicle
or investing in oreign subsidiaries is especially attractive,
because o the combination o the exemption rom tax in
Barbados on dividends derived by the holding company
rom the investment, and exemption rom withholding tax
on dividends paid by the holding company to its Canadian
parent.
Generally speaking, cash dividends received rom a Barbadossubsidiary that were derived rom operational prots earned in
Barbados can be exempt rom Canadian taxation in the hands
o the Canadian parent company, but there are exceptions
when such dividends are taxable in Canada1.
Tax Treaty Network
Barbados has 18 income tax treaties (covering 27 countries)
that may reduce or provide immunity rom taxation in a
country rom which the Barbados company derives income,
or in which it carries on business or has a representational
oce. Additionally, Barbadoss maturity as a good citizen is
well recognised in the global tax community, including the
Organisation or Economic Co-operation and Development
(OECD). In its April and subsequent status reports, the OECD
placed Barbados in its highest ranking as a country that has
made progress on the implementation o the internationally
agreed tax standard on tax inormation exchange.
Value Added
A Canadian company that creates an appropriately designed
investment, sales, intellectual platorm, and treasury platorm
outside Canada may actually increase the equity market-cap
value o the Canadian parent company. F
1 A Canadian corporate tax advisor needs to be consulted beore paying
a dividend rom a Barbados subsidiary to a Canadian company, to assess
i the dividend is coming rom exempt surplus retained earnings, in
which case no Canadian tax is payable, or i the dividend is coming
rom taxable or pre-acquisition surplus retained earnings, in which case
Canadian tax may be payable on the dividend.
Barbados has good commercial
airline access and is in the US
Eastern seaboard time zone
f
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2010 BARBADOS INTERNATIONAL FINANCE & BUSINESS 13
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Tere has been much talk in recent times o
the uture o International Financial Centres
(IFCs). One clear message emerging is the
need or IFCs to raise the bar. But what,
exactly, does that mean?
IFCs are widely perceived to be low-tax, lightly regulated jurisdictions
that typically specialise in the provision o the corporate and business
inrastructure to acilitate the ormation o legal entities and the
investment o unds.
Brand Dierentiation
Easy implementation and a seemingly unlimited access to jurisdictions
have highlighted the need or brand dierentiation and careul thought
as to how this can be strategically achieved. Identiying signicant
benets can oten result not only in brand preerence, but brand
insistence. Dierentiating actors to be considered in evaluating the
benets o the Barbados brand, in comparison to the other IFCs with
which it competes, include:
Unique and superior customer service
Superior perormance
Heritage (i.e. continuity and solid leadership)
Leading technology and innovation
Focus on, or expertise or specialisation in, a particular
customer segment
Choice o experts
Best overall value or the price
Conirmation o a brands worth is readily identiied in the
ollowing:
Expert endorsements
Top ratings by independent authorities
Industry analyst reports
Blue chip customer list
Market share
Positive comparison testing with competing brands
Ultimately, the conclusion is that all brands can be dierentiated,
and Barbados rating in the above areas speaks or itsel.
Global Economic Considerations
At the September 2009 meeting o the leaders o the Group o 20
economic powers, accusing ngers were pointed at perceived tax
havens across the globe, with the threat o sanctions being imposed
against those countries that ail to tighten standards and improve
transparency.
The lesson or Barbados rom the G20 pronouncements, and perhaps
the single most important challenge acing the international nancial
services sector, is the need or a comprehensive review and strengthen-
ing o the regulatory ramework governing the sector. The rst steps
towards improved regulatory oversight will be the establishment o
a Financial Services Commission, slated to come on-line in 2010.In addition, the Resident Agents legislation is expected to urther
regulate service providers operating within the sector.
Raising the Bar as an International Financial Centre
The easiest and most readily identiable way to dierentiate the
Barbados brand is by way o its extensive tax treaty network and
its ability to provide superior perormance and customer service. In
the prevailing environment, Barbados perormance will be judgedby its capacity to ensure that business is conducted seamlessly and
eciently with the highest level o proessional competence. It must be
the aim o service providers in the public and private sector to surpass
client service expectations and provide uncompromising excellence
and integrity, combined with a ocus on unrivalled compliance and
due diligence.
However, this will not be sucient to raise the bar. The real
distinction has to be either through industry innovation, expert
knowledge or specialty oerings. The challenge or the jurisdiction
is to strike the correct equilibrium between maintaining an eective
regulatory ramework that meets relevant international standards
and ensures high ethical standards, while creating an atmosphere
that remains attractive to business and enables them to mature and
develop successully. F
Raising the Bar Barbados as an International
Financial Centre B Y R I C A R D O K N I G H T
Te easiest and most readily
identiable way to dierentiate
the Barbados brand is by way o
its extensive tax treaty networkand its ability to provide superior
perormance and customer service
14 BARBADOS INTERNATIONAL FINANCE & BUSINESS 2010
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Melnyks Latest Investment Yet AnotherBridge between Canada and BarbadosBy Ken Villaor
TRIMEL BIOPHARMA was established
in Barbados in July 2008 by the interna
tionally recognised business executive,
Eugene Melnyk. Melnyk is the ormer
CEO and Chairman o Biovail Corpora
tion, and is renowned or his relentless
entrepreneurial spirit and global vision.
Ambitious Corporate Mandate
Trimel BioPharma is centred on a vision o rapidly building a
fledgling pharmaceutical business into a major market orce
aster than has ever been done beore.
World-class Pharmaceutical Innovation
Nearly two years into its research and development programme, Trimel Biopharma has ound a nice niche in the
nonsystemic drug delivery category. The traditional route
or administering medicines is orally in tablet, capsule or
liquid orm. Trimel Biopharma is bypassing this traditional
oral route and targeting a novel nasal delivery method. This
direct and efcient mode o drug delivery has the potential
or a variety o benefits, including improved eectiveness and
a decrease in a variety o challenging side eects normally
associated with orally administered medicines. Younger and
older individuals who have difculty swallowing pills will also
benefit rom the advantages o taking their medicine through
this unique orm o nasal delivery.
Trimel BioPharmas nasaldrug delivery platorm has yielded
our products now under active development. One o these
products is expected to enter Phase III clinical trials in the
United States this year, paving the way or Trimel BioPharma
to soon launch its first product in the largest pharmaceutical
market in the world.
From Research Bench to Bedside
The products under development are in market segments
that are currently achieving combined sales o $35 billion in
the United States. Thereore, it is our belie that the growth
and revenue potential or Trimel BioPharma over the next
ew years is phenomenal. As Trimel BioPharma grows, so
will significant new employment opportunities in Barbados,
Canada and worldwide.As a Canadian born resident o Barbados, Melnyk has made
a strong investment commitment to the island he has called
home or nearly twenty years.
Whether it is sport or business, Melnyk has a long list o
achievements, illustrating how he has leveraged and strength
ened the strong commercial, tourism and investment links
between Canada and Barbados. The establishment o Trimel
BioPharma in Barbados is expected to urther solidiy the
strong investment bridge that exists between both countries.
Cases
tudytRimelBiOPHaRma
2010 BARBADOS INTERNATIONAL FINANCE & BUSINESS 15
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Setting up an international business in Barbados is
a straight orward process, provided the requisite
Know-Your-Client, Due Diligence, incorporation
and licensing details are complied with.
Operating an international business in Barbados neces-
sarily means that the company must be doing business
outside o Barbados. Entities available or licensing to
undertake international business under Barbados law
include: an International Business Company (IBC); an
International Society with Restricted Liability (ISRL); a
Qualied Insurance Company (QIC); an Exempt Insurance
Company (EIC) or an International Bank.For example, an IBC must be carrying on at least one
o the ollowing:
International manuacturing, i.e. making, process-
ing, preparing or packaging any product within
Barbados which is exclusively or export outside
o Barbados, being a broker, agent, dealer, seller,
buyer or actor within Barbados o that product;
International trade and commerce, i.e. the busi-
ness o the selling services which, i originating in
Barbados, are to or or, or on account o, persons
resident outside Barbados.
What happens ater licensing?
Where the company is incorporated elsewhere and reg-
istered as an external company in Barbados and licensed
as an IBC, it will be taxed in Barbados only on the prots
earned rom its Barbados operations.
There are certain other requirements under Barbados
law which must be met in order to obtain the benet
o 1 to 2.5% tax on prots and other tax and nancial
benets. Compliance is thereore important and not to
be overlooked.
Compliance requirements include:
Licensing and annual renewal o licenses;
While there are no capital reserve requirements or
minimum capital requirements or IBCs, QICs and
International Banks must maintain the capital
reserve requirements as set out in the relevant
Acts or decreed by the Supervisor o Insurance
and Central Bank o Barbados respectively;
While this inormation is not kept publicly,
any inormation provided to the Director o
International Business or Supervisor o Insuranceor Central Bank that subsequently changes, e.g.
change o share ownership, change o name,
amendment to Articles, must be submitted to the
relevant licensing authority or approval (pursu-
ant to the governing Act).
Application to Inland Revenue or a corporate tax
number;
Annual ling o company tax return;
Application or work permits, where needed,
should be commenced as early as possible beorethe company goes active. Work permits or
applicants in the Barbados international business
sector are ast tracked;
Where the company has employees, the company
must register with National Insurance and pay
the applicable National Insurance employer and
employee contributions;
Compliance with Barbados labour laws. In-house,
or external, labour law advice is recommended.
Under the Companies Act o Barbados, many o therequirements may be amiliar to some as they are similar
to those in the Canada Business Corporations Act. These
include requirements or a company seal, annual general
meeting and meeting solvency requirements, beore reduc-
tions in capital or distribution o a dividend.
While this is just a quick overview o the issues, when
operating an international business in Barbados it is
recommended that local Barbados counsel be sought to
ensure that ull compliance is met, regardless o whether
the company is a local company or in an international busi-
ness structure, such as an IBC, ISRL, QIC or EIC. F
Legal Issues on Operating an International
Business in Barbados B Y D A W N A . W I L L I A M S
In addition to the many
benets o a Barbados
international business
company (IBC), setting up
an IBC is a straight orwardprocess
Lexis Nexis International
Tax and Trust Planning
Conerence
International Tax Planning
Bridgetown, BB
March 1-2
CICA International
Conerence
International Insurance
Orlando, FL
March 7-9
RIMS USA
International Insurance
Boston, MA
April 25-29
OfshoreAlert
Financial Due Diligence
Conerence
International Tax Planning
South Beach, FL
May 2-4
Society o Trust &
Estate Practitioners
(STEP) ConerenceWealth Management
and Trusts
Santa Monica, CA
May 6-7
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Conerence
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and Trusts
Bridgetown, BB
May 24-26
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May 31 - June 1
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Toronto, ON
June 7-8
UpcomingEvents 2010Updates to this
Calendar of Events
will be available atinvestbarbados.org
Continued on page 17
16 BARBADOS INTERNATIONAL FINANCE & BUSINESS 2010
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In the midst o the uncertainty surrounding the eco-
nomic crisis, not only companies but also wealthy
individuals and amilies need to closely manage their
portolios and ocus on potential savings, in order to
maintain and accumulate wealth. In addition, new econo-
mies are creating signicant wealth, with China, Brazil
and India being the most notable. These developments
account, in part, or the continued need or the manage-
ment o the wealth o such individuals and amilies. Buthow has such wealth been traditionally managed and
what role has Barbados played in the management o
such wealth?
Traditionally, private banks, trust companies and bro-
kerage rms have assisted wealthy amilies in managing
their nances. They have done so with the assistance o
lawyers, accountants and investment advisors. However,
amily oces staed by multi-disciplinary teams have
also played a major role in providing such services,
albeit on a more personalized basis. In modern times,
multiamily oces, i.e. where more than one amily sets
up an oce to deal with their nancial interests, have
emerged as a means o deraying the costs inherent in
such an undertaking. The advent o multiamily oces
has resulted in an increase in the use by wealthy amilies
o the services o experts in wealth management to assist
them in their eorts to preserve and grow their wealth.
And with this change, Barbados has played, and will
continue to play, a key role.
The Barbados Solution
From 1979, with the introduction o the Oshore Banking
Act, Barbados became involved in a more structured wayin the provision o management and nancial services to
the wealthy. This legislation was repealed and replaced
by the International Financial Services Act in 2002. The
existence o such legislation, together with a network o
double taxation agreements, presents attractive options
or wealthy individuals, since it allows them to maxim-
ise the returns on their investments when structured
through Barbados. For example, in many instances
investment through a Barbados international nancial
services company (IFSC) could reduce the exposure to
withholding taxes ordinarily applicable on the income
earned on investments, by virtue o the 18 double taxa-
tion treaties that Barbados has entered into with oreign
Governments. This advantage is signicant, especially as
Barbados continues to vigorously expand its tax treaty
network.
In addition, income derived by the IFSC rom such
investments is taxed in Barbados at low rates ranging
rom 2.5% down to 1%. Further, distribution o the invest-
ment income by the IFSC to its non-Barbadian-resident
shareholder would be exempt rom withholding taxes in
Barbados. Additional benets can also be enjoyed where
the investments are made through a Barbados trust, the
trustee o which is an IFSC. The reasons or this are
that the income earned by such trusts would be exemptrom tax in Barbados and, in addition, the remittance o
such income to the beneciaries would be exempt rom
withholding tax.
IFSCs have also been used or establishing amily
oces, particularly by wealthy Canadian amilies seeking
to take advantage o the Canadian exempt surplus rules.
These rules provide that dividends derived by a Canadian
company rom active business prots earned by an aliate
resident in a oreign country with which Canada has a
double taxation treaty, would not be taxable on receipt
in Canada. Investment income earned by an IFSC which
employs more than 5 ull-time employees generally
qualies or this exemption. Thereore, in order to take
advantage o the above exemption, the Barbados IFSC will
usually be owned through a Canadian company and not
directly by the Canadian resident individuals. In such a
case, dividends paid by the IFSC to the Canadian company
would generally be entitled to exempt surplus treatment
in Canada. The Canadian company, and its shareholders,
benet rom these increased ater-tax prots, which can
be distributed to the shareholders or reinvested.
The existence o the segregated account and segregated
cell legislation also enhances the Barbados legislativeramework, as several amilies can now join together
to deray the costs associated with the operation o the
amily oce, while at the same time segregating their
assets, income and liabilities rom those o other amilies.
The legislative ramework will become even more fexible
with the passage o proposed legislation that will allow
or the establishment o private trust companies. It is
proposed that such companies would not be required to
meet the same regulatory requirements associated with
the international nancial services regime.
As long as wealthy individuals and amilies require
a well-regulated environment to manage their wealth
in a tax-ecient manner, Barbados must ensure that its
legislation continues to meet their needs. F
How High Net Worth IndividualsUse International Financial Service
Companies B Y G A I L I F I L L
ACCE Show
Information
Communication
and Technology
New Orleans, LAJune 14-17
BPO Conerence
Information
Communication
and Technology
London, UK
June 23
Global Business
Solutions Expo
Information
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and Technology
London, UK
June 24-25
AHDI
Medical Transcription
Austin, TX
August 3-7
Institute o Chartered
Accountants Barbados
Financial Services
Workshop
Barbados
August 27
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September 21-22
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Orlando, FL
September 25-30
RIMS Canada
International Insurance
Edmonton, AB
September 26-29
Barbados International
Business Week
Barbados
October 17-23
62nd Annual Canada
Tax Foundation
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Vancouver, BC
November 28-30
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Medical Transcription
Toronto, ON
November 8-10
World Captive Forum
International InsuranceScottsdale, AZ
November 8-10
Upcoming Events
( Continued)
2010 BARBADOS INTERNATIONAL FINANCE & BUSINESS 17
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Beore looking at international developments impacting multi-
national companies, we should rst get some understanding
as to why companies and individuals use Barbados as their
domicile.
Companies looking to thrive in a highly competitive global mar-
ketplace invest in Barbados to capitalise on its business riendly
environment, strong human capital, high quality inrastructure,
tax advantages and investment protection. Barbados, thereore,
enjoys a high degree o respectability among investors as a reputable
International Financial Centre and has been successully attracting
Foreign Direct Investment (FDI) or decades.
Non-Tax Criteria
Barbados oers a well-regulated, transparent, politically stable and
supportive environment or business. Competitiveness is enhanced
by transparent policies, eective laws and a fexible and business-
riendly tax administration and regulatory ramework. It has a
strong legal system which ensures that property rights are well
protected and an independent judiciary guarantees the impartial
and eective resolution o disputes.
Barbados world-class educational system, with several tertiary
and training institutions, produces a highly skilled, English-speakinglabour orce. Investors can readily access the services o tax advisors,
reputable international banks, global accounting rms, lawyers
and management companies oering the ull range o corporate
services.
Barbados has a well-developed seaport and a modern international
airport oering daily connections to countries in North America,
Europe and the Caribbean. It has gained the respect o the world
or the quality o its communication inrastructure.
Tax Criteria
Barbados biggest attraction or FDI may be its reputation as a
low-tax jurisdiction or international business, having a high level
o transparency and disclosure, and procedures or tax inormation
exchange. Multinational companies can minimise their global tax
burden by using a Barbadian entity to conduct business overseas.
The country oers a range o tax ecient vehicles through which
international business can be conducted. These specially enacted
entities enjoy tax and other incentives locally, including low rates
o corporate tax, participation exemption or dividends and capital
gains, low or nil withholding tax rates on dividends and capital gains
on holding company shares and reedom rom exchange controls.
Investors can also benet rom no (or minimal) control oreign
corporation rules, subject to tax requirements, income character
tests, no (or minimal) capital duty, net worth tax, or other indirect
taxes and the ability to obtain binding tax rulings.
In addition, investors using Barbados entities to conduct
international business may benet rom the extensive treaty network,
which oers low dividend withholding tax rates and exemption
rom source-country tax on capital gains.
These tax and non-tax criteria have enabled Barbados to develop
an excellent reputation among investors as a jurisdiction rom which
to conduct business o substance, including nancial services,business process outsourcing and niche manuacturing.
Canada has been important to Barbados because o the benets o
using Barbados as a jurisdiction o choice or Intermediate Holding
Companies (IHC). This acilitates repatriation planning through
managed ordering o distributions rom surplus and blending o
low with high-taxed taxable surplus. IHCs also enable repatriation
o taxable surplus to be deerred, provide or reduced oreign with-
holding tax on dividends and capital gains, allow or deerral o
Canadian tax on dispositions o oreign aliates and acilitate cash
redeployment and centralisation o head oce unctions. Barbados
is the third leading destination or Canadian direct investment
abroad, ater the UK and USA. F
Barbados world-class educational
system, with several tertiary and
training institutions, produces a
highly skilled, English-speaking
labour orce
Why Barbados Remains a Popular Choice or
International Business B Y H . W A Y N E L O V E L L
The new Supreme Court building
18 BARBADOS INTERNATIONAL FINANCE & BUSINESS 2010
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New developments in international nance mean that
Caribbean advisors are going to be aced with a big threat
to their business over the next ew years and an equally
big opportunity.
The drive or increased tax revenues in many developed countries
(as a result o the nancial crisis) has seen a demand or greater
inormation exchange, more anti-avoidance rules and more ocused
action by the tax authorities. For example, the UK authorities have
recently issued an amazing three hundred and eight (308) Section
20(8) A notices to UK nancial institutions, which will in due course
yield tens or even hundreds o thousands o clients who have held
undeclared unds oshore many in the Caribbean.
The UK middle class is going to be extensively targeted over the
next ve years starting November 30th, when the
Oshore Disclosure amnesty closes. This is
likely to lead to signicant tax expo-
sure or many UK taxpayers with
oshore accounts. Barbados
practitioners will possibly at rst
see a decrease in business, as
UK clients liquidate their oshore
positions.
However, this presents advisorswith UK clients with an opportu-
nity to provide such clients with
pro-active advice now.
In Ireland, taking into account
the levies, the income tax rate or
high earners is going to be more
than 60%. In the UK, sel employed
higher rate earners will be subject to
more than 50% higher rate tax on earnings
over 150,000. For those in the UK with close
companies, the higher rate is eectively 55-64%.
These high tax rates have resulted in an exodus o hedge und
managers, private bankers and entrepreneurs rom the UK and
Ireland to Switzerland and other countries with more avourable
tax regimes.
Barbados will introduce the non dom regime or personal taxation
early in 2010, and has a growing double tax treaty network. This
should be enough to be attractive to UK and Irish entrepreneurs who
do not ancy giving away two thirds o their wealth to the state.
The UK has a growing battery o anti-avoidance legislation. This
has increased substantially this year with the introduction o the
Corporation Tax Act (CTA) 2009. The CTA 2009 has introduced anti-
avoidance provisions pertaining to oreign dividends paid to the UK.
As Barbados has a double tax treaty with the UK, this market segment
can use Barbados most eectively in conceptually the same way asCanadian SMEs use the Barbados international business platorm.
In addition, as Barbados has a double tax treaty network, it is ve
to ten years ahead o Jersey, Guernsey, Isle o Man and Bermuda.
Barbados is also outside the EU and has an established international
business inrastructure. Barbados' main competitors are, essentially,
Singapore, which does not have a treaty with the USA but has a much
larger treaty network, and Hong Kong, which does not have a treaty
network because it is not currently oering inormation exchange in
its treaty negotiations. However, Hong Kong has recently committed
to inormation exchange in accordance with the EU Savings Directive,
a eature which is likely to spread to other oshore centres as time
goes by.
Barbados, thereore, is in an ideal position to win signicant new
business. Because o its tax treaty network, many types
o business activities can be commercially
structured out o Barbados in a tax ecient
manner. Cayman, BVI, Bermuda and the
other overseas territories all have to restruc-
ture their economies to introduce a proper
tax base, otherwise they will not be able to
negotiate double tax treaties and that will
have implications or them within ve years.
In any case, some o these territories that are
not Sovereign states will have challenges in
this respect, as they may be unable to negotiate
tax treaties in their own right.
The developments highlighted above
present Barbados with a signicant oppor-
tunity to expand its customer base to EU
countries. F
New EU Opportunities or BarbadosB Y J O N A T H A N B R A T H W A I T E
Barbados will introduce the non
dom regime or personal taxation
early in 2010, and has a growing
double tax treaty network
DOUBLE
TAXTREATY
NETWORK
2010 BARBADOS INTERNATIONAL FINANCE & BUSINESS 19
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T
he signing o the China/Barbados Double Taxation Agreement
(the Treaty) has placed Barbados in a unique position in
relation to other competing nancial jurisdictions. The Treaty
not only makes Barbados an attractive jurisdiction or International
Business Companies (IBCs) and other special incentive entities rom
a corporate planning perspective, but its ratication has created
the architecture that can support and sustain signicant Chinese
Investments.
The key benets o the Treaty are:
Dividends, Interest and Royalty Payments
Under Chinese domestic law, dividend remittances are
exempt rom withholding tax, i originating rom a oreign
enterprise or rom a oreign investment enterprise operatingin China. Should there be any change to Chinas tax laws,
Article 10 o the Treaty stipulates that dividends paid by a
Chinese resident company to a Barbados entity are taxed at a
minimum withholding rate o 5%.
An IBC that is resident in Barbados and receiving such
dividends is subject in Barbados to a tax rate o 2.5% down
to 1%. However, the dividends will be exempt rom tax in
Barbados, provided the IBC owns at least 10% o the shares
o the capital o the entity paying the dividend and the
shareholding does not constitute a portolio investment. In
general, where the dividend is taxable in Barbados, the IBC
can claim a credit or the Chinese withholding tax and, i
Te reaty not only makes
Barbados an attractive jurisdiction
or IBCs and other special incentive
entities rom a tax planning
perspective, but its ratication has
created the architecture that can
support and sustain signicantChinese Investments
Barbados: Gateway to China B Y L I z A H A R R I D Y A L - S O D H A
f
Operational Multidisciplinary Global
2010 KPMG, a Barbados partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG Internat ional), a
Swiss entity, All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (KPMG Internati onal), a Swiss entity.
KPMG
Hastings
Christ Church
Barbados
Tel: 246-434-3900
Fax: 246-427-7123
Email: [email protected]
www.kpmg.bb
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applicable, the tax paid in China on the prots out o which
the dividends were paid. However, the credit can not reduce
the total tax payable to less than 1%. Any remittances by the
said IBC to its non-resident shareholders
are normally exempt rom withholding
tax under the Barbados IBC Act.
Interest and royalty payments arising
in China and paid to a company resident
in Barbados are subject to 10% with-
holding tax.
Tax Exposure and Capital Gains
The Treaty also provides opportunities or
tax planning under Article 5-Permanent
Establishment and Article 7- Business Prots,
in that:
Chinese resident companies acting through an independentagent and not establishing a xed place o business in
Barbados can enjoy complete exemption rom taxation in
Barbados. Entities that set up permanent establishments and
derive income in Barbados are subject to Barbados tax;
Fees charged by Barbadian service providers acting outside o
China will not be taxable in China.
Another important provision under Article 13 o the Treaty is
the treatment o capital gains:
Capital gains derived by a oreign investor rom the sale o
shares in a oreign investment enterprise which is operating
in China, are subject to withholding tax o 10% in China,
compared to the 33% levy that would
normally be applicable in respect o a sale o
shares by resident Chinese entities;
If a Barbados IBC owns shares in a
Chinese entity and then disposes o those
shares, then only Barbados has taxation
rights with respect to this transaction. In this
case, since Barbados has no capital gains tax,
there would be no tax due. This is possible
because the Treaty allows the right to tax the
state where the seller o the shares is resident,
thereby preventing the other treaty partner
rom levying tax on the capital gain.
From a macro-economic perspective, there has never been a moreopportune time or investors to capitalise on Barbados strategic
alliance with China in structuring their investments into China.
Similarly, opportunities exist or Chinese investors to utilise Barbados
as a conduit or certain o their overseas investments. China boasts the
third largest economy in the world and has been the astest growing
economy or the past 30 years, with an annual GDP growth rate above
10%. China is standing rm against world economic patterns due to
the implementation o a series o proactive responses, including the
shiting o ocus rom an export driven economy to one that ocuses
on domestic consumption, partnered with the emergence o long term
demand drivers o urbanisation and middle class society. F
20 Years o London Lie
in BarbadosBy Gabriel Kelly
In 1989, London Reinsurance Group
Inc. (LRG) established operations
in Barbados. LRG is part o a much
larger financial services organisation
under GreatWest Lie Assurance
Company (GreatWest), which is
one o the largest insurers in North
America. GreatWest, in turn, is
ultimately part o Power Corporation
o Canada, a diversified internationalmanagement and holding company.
LRG oers specialty reinsurance
products to the lie insurance and
property and casualty markets in
the United States, Europe, Bermuda
and a number o other countries
worldwide. Activities in the US and
Europe represent the majority o the
Group's current business mix.
Today we employ 20 people, themajority o whom are
Barbadians, and LRG
has a programme
that encourages con
tinuing proessional
development or our
employees, many
o whom have been
with us in excess o
10 years. Further, our
Group is conscious
o the needs o the
community and, since
1990, has made annual contributions
to local charities and social and
sporting events.
We are proud o our record o
growth and development here
in Barbados, as we continue to
service our clients and brokers and
contribute to shareholder value.
Casestu
dylOndOn
l
ife
f
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Expanding your corporate operations outside o your home
jurisdiction to an international nancial services centre
can be a challenging exercise or even the most
seasoned o investors. Much eort is expended
in ensuring the nancial, commercial, market
and tax rationales driving such expansion are
sound and tested.
Considering whether to use Barbados in
your international operation can be an easy
decision, given the Islands reputation as a
mature, highly-respected and well-regulated
jurisdiction. Beyond the strategic critical successactors are several ongoing practical elements, which
must also be considered at the planning stages to
identiy the necessary resources and structures required
to acilitate and manage the operation.
Barbados built its enviable reputation by moving beyond hosting
brass plate operations to emphasising the need or commercial and
strategic substance in international business entities established in
the Island. Barbados legislative regime imposes various compliance
essentials on both domestic entities and those operating in its
International Business and Financial Services sector by requiring,
among others:
the maintenance in Barbados o nancial and
accounting records;
the audit o nancial statements
where prescribed asset and revenue
limits are exceeded;
the ling o corporation tax returns;
the maintenance o corporate
records;
the application and renewal o enabling
business licences; and
regulatory lings.
While these requirements are by no means onerous or unique to
Barbados, they are not likely to be the main ocus o the investor
during the initial planning stages or the Barbados venture. F
Practical Issues o Managing International
Companies in Barbados B Y C L E N N E L L J A C K M A N
Barbados has attracted and
developed excellent, internationally-
branded, and indigenous businesssupport providers
Strategic Partnering+
with Service Provider
Tax Compliance+
Due Diligence+
Business Licence+
Corporate Filings+
Accounting Records+
Corporate Records+
Banking Facilities+
CasestudyaRtelCimteC
Exporting ManuacturedProducts to the WorldBy Michael Arthur
Artel CIMTEC Inc. (Artel) is an Assem
bly Manuacturing Services company
providing services to major US
companies. Operating rom its Newton,
Christ Church location in Barbados,
Artel currently produces electrical coils
or Haydon Kerk Motion Solutions
o Waterbury Connecticut, and RF
connectors to Santron Inc. o Ipswich
Massachusetts, thus providing these
companies with the opportunity tooutsource their costly labourintensive
activities with significant economic
benefit.
During its th anniversary cel
ebrations in August , Artels
management articulated its business
strategy: Reevaluating, Renewing and
Reinventing ourselves to meet the
challenges o the uture, by embark
ing upon a programme that strives
to ensure success even beyond thecoming decade. The renewal eort
entails building upon the existingproduct base and identiying new
market niches. Commensurately, the
company is seeking to reinvent itsel
by working at enhancing its human,
technical and operating resource
capabilities in its eort to meet the
uture head on.
Artel remains committed to develop
ing an internationally competitive,
worldclass Centre o Manuacturing
Excellence, which can be the standardbearer or Barbadian Industry.
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A
captive insurer is a legal entity ormed primarily to insure
the risks o one corporate parent or a number o similar
corporations (e.g., trade associations), thereby contributing
to a reduction in its parents total cost o risk. Captives are ormed
or many reasons including:
lack o a commercial market or certain lines o coverage;
a desire to recapture underwriting prots and investment
income that would otherwise be earned by the commercial
underwriter;
as a means to access the reinsurance market; or
in certain circumstances, as a means o diversiying into
insurance services.
Captives are used extensively throughout the world by major
corporations to cover both domestic and international risks. The
largest developments historically have been in North America, the
United Kingdom, and Europe, but recently considerable interest has
been evident in South America and in the Far East, particularly rom
Japan and Australia.
Captive Insurance Structures
Many captives operate as reinsurers, with a licensed commercial
insurer (the ronting company) located in the country where the
risks are insured, issuing the policies to the parent company and
providing claims-handling, loss-control and other insurance-related
services. The ronting company cedes a portion o the premium and
risk to the captive through a reinsurance contract. The captive can
then retain all the risk and premium it assumes or, i appropriate, it
can pass on, or retrocede, a portion to another reinsurer. Alternatively,
a captive may insure the risks directly.
The premium received by the captive, together with the investment
income earned on its capital and reserves, is used to pay losses and
loss-adjustment expenses. The premium also covers various captive
operating expenses, including captive management expenses, any
local regulatory costs and legal and audit ees. The captive must be
adequately capitalised to ensure its nancial viability, that it satis-
es the regulatory requirements in its domicile, and that it can bedemonstrated that the insurance structure represents real transer
o risk to the captive.
Advantages o a Captive
The major benets that the establishment o a captive brings to
its parent can be divided into two main categories: nancial and
insurance.
Te Basics o Captives B Y N I C H O L A S C . C R I C H L O W
f
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Financial Advantages
Reduced Insurance Costs: A captive can reduce the overall cost
o an insurance programme by retaining the premium or the
expected losses, thereby avoiding the premium loading or a
commercial insurers overheads and prots.
Protected Cash Flow: Reserves or unpaid claims and unearned
premium, otherwise kept by a commercial insurer, can be held
by a captive and invested.
Perormance Measurement: As nancial statements are pre-
pared or the captive, its perormance can be monitored and
evaluated in terms o return on investment (ROI) or other
nancial criteria.
Source o Additional Revenue: A captive can expand its book
o business by oering insurance to related third parties, such
as ranchisees, vendors or customers, thereby generating an
additional revenue stream or its parent.
Insurance Advantages
Coverage for Risks: A captive can provide insurance cover
that is either not available in the commercial market, or not
available at a realistic premium.
Reduced Need for Commercial Insurance: As a captive matures
and its net worth grows, it becomes capable o retaining a
greater proportion o its parents risks.
Flexibility in Programme Design: A captive provides opportuni-
ties to more easily structure insurance programmes, since the
captive is not subject to the same constraints and conventions
normally associated with traditional insurers.
Better Risk Management Programme: A captive acilitates the
design o allocation systems to distribute costs more equitably
among prot centres, the implementation o uniorm account-
ing procedures, the accumulation o actuarial inormation,
the design o more eective claims-handling, loss-control
and engineering programmes, and the unication o the
application o risk management throughout all divisions or
subsidiaries.
Disadvantages o a Captive
While there are many potential benets in orming a captive,
several signicant disadvantages exist. Beore deciding to
establish a captive, an organisation should establish and
maintain an eective enterprise risk management programme,
then thoroughly assess the potential disadvantages, which
include providing the necessary capital to satisy the regu-
latory requirements and providing capital to cover adverse
underwriting results. F
f
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Michael Douglas provides a brie analysis o the
current state o the insurance industry, its trends
and uture growth prospects, together with a view
on where the opportunities are or industry captives.
Tis analysis is against a background o
unprecedented fnancial crisis and a combination
o events which have posed many challenges and
opportunities or the insurance market over the
past 18 months.
Property Snapshot Holding the Line
The eeling rom property insurance carriers entering 2009 was
decidedly shaky, due to attrition, global natural catastrophes and
the global nancial meltdown. In the coming year, insureds expect
renewed competition and modest downward pressure on rates.
Premiums: There is an overall expectation o continued sotening
into 2010, as carriers repair balance sheets rom organic growth and
are actively seeking resh capital. Clients with a signicant natural
catastrophic exposure saw the most upward premium rate pressure,
with only a ew insureds experiencing higher than 20% rate increase.
Insureds with little or no natural catastrophe exposures remained
competitive, which has the hallmarks or sotening.
Limits: The initial reaction to purchase higher limits due to the eco-
no