Barbados Update – Anthony L. Murty
The recent changes are one short piece of domestic legislation affecting business in the international financial services sector, adding more regulation and penalties for failures to comply, and the signing of a second Protocol to the Double Tax Treaty with the United States. Neither of these changes is going to improve the outlook for the financial sector other than to add to the respectability of the jurisdiction.
The International Business (Miscellaneous Provisions) Act 2004 -7 was added to the law on 7th June. It amends six of the earlier pieces of legislation facilitating international business and giving special tax concessions. The changes introduced could have some long-term effects on the sector. A number of the provisions are deemed by the Act to have come into effect on earlier dates.
Amendments to the International Financial Services Act 2002 are deemed to have come into effect when the law was first implemented on 10th June 2002. At first glance these amendments appear to be of an administrative nature, but on close reading they have a greater impact. For the words “international financial service” in the original Act the words “international banking business” are substituted, and to be eligible to carry on such a business a licence. The licensee is required to be regarded as an international bank and regulated by the Central Bank. This requires substantial assigned capital – Bd$4m in the case where third party deposits are accepted and Bd$1m in other cases. The “business of accepting in trust from persons resident outside Barbados” is regarded as “international banking business”. This seems to be giving to the licensed banks a monopoly of business in the use of the international trusts. Not only does this change limit the competition but it also means that settlors are left with little choice. The big banks are notoriously expensive and in many professionals’ opinions not very good at the specialised business of managing international trusts. It also raises the question of when is money held in trust? Does it in the extreme analysis include an attorney or any professional holding funds in his client account at the direction of his client or perhaps to be used within certain discretions? The writer believes it is the end of the family trust management office in Barbados. This type of operation can be accomplished with the same tax effectiveness in London or some cities in the United States, where there is no regulation of a private trust company and no trust or banking licence is required.
Amendments to the International Business Companies Act include the redefining of the CARICOM region to comply with the revised treaty of Chaguaramas and moving the responsibilities of administering the Act from the Minister of Finance to the Minister responsible for international business. It introduces penalties for any person making an untrue or misleading statement, return, notice or other document required by the Act. The amendments to the regulations introduce an obligation upon the incorporator, (in Barbados this is restricted to attorneys) to carry out due diligence and ensure that company, directors, shareholders, officers and managers have not participated in money laundering. The declaration gives the Ministry power to carry out further enquiries.
The amendments to International Trusts Act introduce similar due diligence requirements and penalties, and add to the definitions of residents of Barbados for the purposes of the Act, licensees under the International Financial Services Act. This means that licensees are treated as resident for tax purposes.