Barbados: The Ideal International Banking Sector

Barbados has been prudent in the development of its international banking sector. As a result it has emerged as a jurisdiction known for its client service and respect for confidentiality on the one hand while on the other had adhering to good regulatory and supervisory practices.

Offshore banking is governed by the Offshore Banking Act Cap 325. The purposes of the Act are to:

1. encourage the development of Barbados as a responsible offshore financial centre;
2. provide incentives by way of tax reduction, exemptions and benefits for offshore banking carried on from wtihin Barbados;

3. enable citizens of Barbados to share in the ownership, management and rewards of any business activities resulting therefrom.

Moreover section 2 states that the Act shall receive fair, large and liberal construction and interpretation as to ensure the attainment of its purposes.

In order to commence offshore banking activities a licence must be obtained from the Central Bank. An applicant may either be an eligible company or a qualified foreign bank.

An eligible company is one that:

1. is incorporated under the Companies Act;
2. its objects or business activities are restricted to offshore banking from within Barbados;
3. at least one of its directors is a resident citizen of Barbados;
4. the authorized and stated capital accords with Central Bank requirements.

A qualified foreign bank is one that:

1. has previously held a banking licence under Barbados complies with the requisite minimum capitalization requirements; or
2. a financial institution approved by the Central Bank that is directly or indirectly a wholly owned foreign subsidiary.

An applicant for a licence to conduct offshore banking from within Barbados must:

1. show that it is an eligible company or a qualified foreign bank;
2. give the names and addresses of its directors;
3. give the names of any shareholders who are residents of Barbados and the number of shares held directly or indirectly by residents of Barbados;
4. provide such other information of a financial or other nature as the Minister require.

An eligible company must submit a certified copy of the memorandum and articles of association with the application.

A qualified foreign bank must submit the prescribed documents with the application.

There are a number of fiscal benefits which accrue to offshore banks. These include:

• low rate of tax of profits range from a maximum of 2.5% to a minimum of 1%;
• no capital gains tax;
• no estate or inheritance taxes on assets, shares or securities of a non-resident licensee;
• no taxes or dividends and interest paid to non-residents;
• no tax or trusts established by a non-resident for the benefit of other non-residents if trust assets consist solely of foreign currency or foreign securities.

Barbados is a party to double taxation treaties with USA, Switzerland, Sweden, Norway, Finland, China, Venezuela and Cuba and therefore banks are entitled to benefit under the provisions of these treaties.

CONFIDENTIALITY

Confidentiality and privacy are fundamental to the offshore banking industry. The Act provides that no information with respect to the affairs of any customers of the licensee bank can be disclosed except for the names of any residents of Barbados who are offshore banking customers.

The Act also provides for the non-disclosure by the Central Bank of information in its possession, except in the following circumstances:

1. Disclosure to a public official, provided the official does not disclose or use the information for any personal benefit not related to his duties;

2. Disclosure of information by order of the court in circumstances where the court considers that the financial institution is conducting its affairs in a manner detrimental to its customers.

1. Money Laundering Act 1998: Barbados has enacted legislation for the prevention and control of money laundering and imposes severe penalties for the breach of the provisions of the legislation including granting the court power to freeze assets and seize property. Barbados has also adopted the criteria and procedures created by the Financial Action Task Force (FATF) was established by the G-7 Summit in Paris in 1989 and is a member of the Caribbean Action Task Force (CATF) which is an organization of states and territories in the Caribbean Basin. CATF has agreed to implement counter measures against money laundering.

There are proposals for a new International Financial Services Act which seeks to repeal and replace the existing provisions of the Offshore Banking Act and will:

1. make new provision with respect to the carrying on of international financial services in Barbados and provide for matters incidental thereto;
2. enable businesses organized under the Societies with Restricted Liability Act to become licensees;
3. enable certain businesses resident in Barbados to become customers of licensees.
4. require all licensees to have a place of business in Barbados
5. enable the on-site examination of licensees
6. exempt business whose banking business is restricted to affiliates and associates from the requirement to be licensed under the Act.

The Offshore banking industry in Barbados is alive and well due to its highly professional skills base underpinning the wider financial services sector where the financial vehicles are offered as investment mechanisms by a variety of legislation.

These vehicles are the international business companies, the limited liability companies (which we call the Societies with Restricted Liability), the trust, and the captive insurance company and combined with the availability of concessions provided by Barbados’ tax-treaties, particularly those with USA, Canada, Venezuela, China augurs well for the penetration of the South American and Asian markets creating investments from North America using Barbados vehicles.