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  • 1. Sponsors ContentsBarbados International Finance 4 Welcome to the 2010 Edition& Business magazine is apublication of Invest Barbados. 5 Message from the MinisterInvest Barbados is grateful to theinternational business community 7 The Barbados Jurisdiction – Nextand the service providers for their Steps in a Changing Worldsupport on the editorial committeeand in contributing articles. We 8 The Evolution of Internationalwould like to thank the following Business in Barbados: Asponsors: Brief CommentaryInternational Business 9 Tax Treaties: New InstrumentsBreakwater Management Services Ltd. of International DiplomacyChancery ChambersDeloitte & Touche 10 The Future of InternationalErnst & Young Financial Centres… A Unique Barbados offers International businesses theHarridyal & Sodha Associates Opportunity for Barbados? necessary resources and structures required toKMPG facilitate and manage operationsLexis Nexis 12 Increase Your InternationalLondon Life Competitiveness byMeridian Law Using Barbados 22 Practical Issues ofPlatinum Offshore Management Managing International Services, Inc. 14 Raising the Bar – Barbados as an Companies in BarbadosPricewaterhouseCoopers International Financial CentreTD Reinsurance (Barbados) Inc. 23 The Basics of CaptivesTowner Management Group 16 Legal Issues on Operating anTrilon International Inc. International Business in Barbados 25 U.S. Property andTricor Caribbean Ltd. Casualty Round Up 17 How High Net Worth IndividualsCaptive Insurance Use International Financial 27 Captives - An Effective Solution forAmphora Bank and Trust Service Companies Accessing Reinsurance MarketsAON Insurance Managers (Barbados) Ltd. 18 Why Barbados Remains a Popular 28 Trade Credit: How a CaptiveCGE International Services Ltd. Choice for International Business Helped Improve ProfitabilityGlobal Re SCC 19 New EU Opportunities 30 Auditing Captives – WorkingWealth Management for Barbados Together to Ensure a TimelyButterfield Bank and Seamless ProcessCIBC Offshore Bank 20 Barbados: Gateway to ChinaCidel Bank and Trust 31 What Have We Learned fromFirst Caribbean International Bank the Global Meltdown?Glenhuron BankJ & T Bank and Trust 33 Designing an InvestmentRoyal Bank of Canada Strategy for New ClientsScotiabank 34 The End of International Financial Planning? …Not in Barbados30% Post ConsumerThis publication was printed on Mohawk 36 … And So Much More30% Post-Consumer Recycled paper.By using PC recycled fibres in place of newfibres the following has been achieved: 38 International Business – The Unintended Benefits in Barbados 13.54 trees preserved for the future 17.74 kg waterborne waste not created 289 kg solid waste not generated 21,780 litres wastewater flow saved 569 kg net greenhouse gases prevented 9,594,604 BTUs energy not consumed Barbados - a fundamental element of the growth strategy
  • 2. Welcome to the 2010 Edition W elcome to the 2010 issue of Barbados International Finance & Business … and what a year 2009 was. The world experienced a Global Financial Crisis not seen since the Depression of 1929, and of course Barbados has also been impacted. Barbados continues to be the domicile of choice for international companies seeking to become more globally competitive. The country’s strategy of pursuing Double Tax Treaties with other nations remains a key platform, 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 number of tax treaties grows, with Spain, Vietnam and Italy to be added soon and more to follow. Barbados has been classified by the OECD as a financial centre that Your aspirations, our expertise. has substantially implemented the It’s the perfect internationally agreed tax standard relationship. The overall purpose of the magazine remains to provide an Integrated Wealth Management annual update on Barbados as an International Business domicile, Solutions designed around you. and we thank Invest Barbados and our sponsors (both editorial and financial) for making this happen. We hope you enjoy reading the • BANKING 2010 issue and invite you to send any comments and suggestions to • CREDIT bifb@investbarbados.org . • INVESTMENTS • TRUST James Gardiner • TAX PLANNING • CUSTODY To find out more, please contact our Barbados office: 246-467-4346 email gordon.anderson@rbc.com or log on to www.rbcprivatebanking.com Investment Promotion & Facilitation Trident Insurance Financial Centres Tel: 1-246-626-2000 P.O. Box 1009 Fax: 1-246-626-2099 Bridgetown St. Michael bifb@investbarbados.org BARBADOS, BB111142 www.investbarbados.org® Registered trademark of Royal Bank of Canada, used under licence. Issued by Royal Bank of Canada onbehalf of RBC ® companies that comprise the RBC Wealth Management network. Trust services may not beavailable to clients resident in certain jurisdictions, or through all subsidiaries. 4  BARBADOS INTERNATIONAL FINANCE & BUSINESS  2010
  • 3. Message from Senator The Hon. Darcy Boyce Minister of State Ministry of Finance, Investment, Telecommunications & EnergyGlobal Change! It’s the new reality of our era.The international business and finance sectors have Duty Act. The changes to the two will be particularlyundergone a difficult year, with the global recession attractive to holding companies, as an exemption is nowslowing the pace of the investment flows across financial provided from the payment of property transfer tax oncentres. Today, we are all more acutely aware of our any transfer of shares to a person resident outside ofglobal interconnectivity. The challenge for many Barbados, whether or not the transferor is resident incountries is to survive these difficult and uncharted Barbados. The enhancements will also impact companieswaters. whose assets are derived solely from sources outside of Barbados. Also slated to be completed are amendmentsIn Barbados, our goal is to chart a course that will see to the Shipping (Incentives) Act and the Shippingus prosper as a premiere jurisdiction for financial Corporations Act. The amendments to the Shippingservices, offering stability and respectability. To achieve Corporations Act facilitate inter alia, the incorporationthis, we will continue to be meticulous in the governance, of offshore shipping corporations (in terms of requisiteregulation and supervision of our financial services authority) and that are domiciled; the registration of asector. In re-tooling, we will nurture a business culture shipping corporation incorporated in another jurisdictionthat mirrors excellence, integrity and innovation. We will as an External Corporation; a non-resident Director; theensure that our workforce is well trained and that our registration of incorporated and unincorporated bodiesinfrastructure is more efficient, responsive and for expanded shipping activities.supportive. Importantly too, we will safeguard ourpositive image as a transparent, credible, low tax In recognition of the key role that a Financial Servicesdomicile by strengthening our regulatory environment. Commission will play in the sustained growth of the Barbados domicile, government has already allocatedIn the April 2009 and subsequent progress reports on the resources to establish such an entity early in 2010. The“Jurisdictions Surveyed by the OECD Global Forum in Commission will regulate all non-banking sectorImplementing the Internationally Agreed Tax Standard”, activities, including the Stock exchange, Credit Unions,Barbados’ excellent standing was endorsed. the Insurance industry and pension funds, inter alia, regardless of the source of investment and will ensureWith its expanding network of tax treaties, Barbados that applicable internationally recognised best practicescontinues to be a beacon for the exchange of tax of due diligence are practised.information. The race to negotiate TIEAs by jurisdictionslisted on the grey or black lists has not included The climate of global change, galvanised by the financialBarbados, as the negotiation of Double Taxation crisis, makes it imperative for governments and investorsAgreements has always been a fundamental element of alike to embrace prudent investment choices. Theour international business strategy. Barbados government remains committed to this ideal.To garner more foreign direct investment, Barbados will I am confident that this publication will inform you aboutprovide a more competitive environment. In this regard, Barbados’ offerings as a first class international businessgovernment will move quickly to amend legislation to jurisdiction. I urge you to invest wisely - chooseenhance competitiveness, strengthen the regulatory Barbados!framework and bolster investor confidence. Senator The Hon. Darcy BoyceTwo key pieces of legislation have already been Minister of Stateamended: the Property Transfer Tax Act and the Stamp Ministry of Finance, Investment, Telecommunications & Energy 2010  BARBADOS INTERNATIONAL FINANCE & BUSINESS  5 
  • 4. Expertise. Just Ask Our Clients. Aon is the leading global provider of risk management services, captive management services, insurance and reinsurance brokerage, and human capital consulting. We deliver our expertise locally through more than 500 offices in more than 120 countries. Aon is recognized for delivering distinctive client value via innovative and effective solutions. Just ask John Alberici, Chairman of Alberici Corporation; “Aon helped us structure a captive program that is highly responsive to our needs; and we’ve saved significant money – both in terms of hard-dollar savings and unquantifiable value in improved claims experience. The team has in-depth expertise and the innovation to help us facilitate new ideas.” To discuss how Aon’s industry leading captive management strategies can best serve your organization, contact experts in our Barbados office and visit aon.com. Vinston Hampden BSc. FCA Managing Director Aon Insurance Managers (Barbados) Ltd p: 246.436.4895 e: Vin_Hampden@agl.aon.comBarbados Mag ad_v5.indd 1 10/14/09 3:21:25 PM Contributors Andy Sharp Liza Harridyal-Sodha Steve ClarkeTechnical Review: Specialist Taxation Services Harridyal Sodha & Associates Deloitte & ToucheBen Arrindell andy.sharp@sptax.co.uk liza@lizalaw.com stclarke@deloitte.comCidel Bank and Trustben.arrindell@cidel.com Lincoln Schreiner Gabriel Kelly Richard Bruce PricewaterhouseCoopers London Life and Casualty TD Reinsurance (Barbados) Inc. lincoln.schreiner@ca.pwc.com (Barbados) Corporation richard.bruce@td.comEditorial Committee: gabriel@londonlife.bb Russ Jones Gordon AndersonCaroline Gardiner PricewaterhouseCoopers Clennell Jackman Royal Bank of CanadaJames Gardiner russ.jones@bb.pwc.com Tricor Caribbean Ltd. (Caribbean) CorporationRuss Jones clennel.jackman@bb.tricorglobal.com gordon.anderson@rbc.comSandra Payne Ricardo KnightDominique Pepin Towner Management Group Michael Arthur David BusheDawn Williams ricardo.knight@townermanagement.com Artel CIMTEC Inc. Close Wealth Management mike@artel-cimtec.com (Barbados) LimitedAuthors: Ken Villazor david.bushe@closeam.com Trimel Biopharma Nicholas CrichlowWayne Kirton ken.villazor@ottawasenators.com Marsh Management Services Dave ThomasInvestBarbados (Barbados) Ltd. J & T Bank and Trustwkirton@investbarbados.org Dawn Williams nicholas.crichlow@marsh.com dthomas@jtbanktrust.com Meridian LawStephen Greaves daw@meridianlawbb.com Michael Douglas E. Adrian MeyerPlatinum Offshore Management AON Global Risk Consulting Cidel Bank & TrustServices Inc. Gail Ifill michael_douglas@ars.aon.com ameyer@cidel.comstepheng@platinumoffshore.com Ernst & Young gail.ifill@bb.ey.com Chris Evans Design:Dr. Trevor Carmichael, Q.C. CGE Group Ltd.Chancery Chambers H. Wayne Lovell chrisevans@cge.bb Masthead and Cover Designchancery@chancerychambers.com KPMG Blueprint Creative Inc. wlovell@kmpg.bb Hugh RosenbaumFrancoise Hendy Hughro Limited Design, Layout and PrintingMinistry of International Business Jonathan Brathwaite hughro2@yahoo.com EVillages Ltd.& International Transport - Barbados Cititrust (Barbados) International Inc.francoise_hendy@barbadosbusiness.gov.bb jjbrathwaite@cititrust-barbados.com Mike Hoffman Gildan mhoffman@gildan.com 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: bifb@investbarbados.org © 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.
  • 5. Note From the CEOThe Barbados Jurisdiction – Next Steps in aChanging World F irstly, welcome to the second issue of our International By early 2011, international Finance & Business magazine. Since our last publication, the world investors structuring their activities has tumbled into recession, and shell- shocked G20 leaders have launched through Barbados should also be an entirely misplaced attack on international financial centres (IFCs). able to list their IPOs on the new Unfortunately, even those centres –like Barbados - that followed a path of bilateral tax and investment international trading floor of ourtreaty negotiation – Government-to-Government - have been underattack, and some proposed G20 retaliatory measures would overturn stock exchangeor contravene negotiated agreements – a unilateral trampling ofbilateral agreements that will no doubt trigger countless complaintsat WTO level. In defense of IFCs, the recent publication of University of Toronto’s and Country Planning, Corporate and Intellectual Affairs, Immigration,Professor Walid Hejazi’s new study on the use and value of IFCs – and legal drafting – all aimed at faster and more transparent servicewhich expands the original Canadian study to for international business. I am also delighted toinclude US companies, is certainly timely, as announce that the Immigration department hasit reflects a similar conclusion to the original dedicated an officer to international business, Barbados’ Double Taxstudy - that companies which use structures in located in the offices of Invest Barbados, where Treaty Network includes:IFCs (as opposed to tax and secrecy havens) are all international business immigration matters Austria Mexicomore successful, expand more rapidly, and pay are now processed on a fast track basis. Botswana Netherlandsmore taxes and employ more people in their In terms of new offerings, Barbados will soondomestic market than companies that do not Canada Norway provide a facility for high net worth individualsuse those structures. CARICOM Seychelles who wish to become resident, but not domiciled, (10 countries) However, while there is evidence in some Sweden for tax purposes in Barbados, offering a transpar- Chinaparts of the world that the recession has begun Switzerland ent and fast immigration process, freedom from Cubato abate, credit availability is still problematical, United exchange controls on funds brought in, and a Finland Kingdomand the G20 are still playing the ‘name, blame very attractive local income tax rate based on the Malta United Statesand shame’ game with IFCs – the latest front of America taxpayer’s level of foreign currency earnings. Mauritiusbeing regulatory havens. Today’s investors are Venezuela We have also commissioned a study of theunderstandably cautious, and that translates to insurance industry to see where we can improvea wait-and-see attitude, for the most part. and whether there are any niches developing So in this state of world investment flux, what is Barbados doing that we should seek to facilitate in Barbados. Also on the cards isas a jurisdiction? Firstly, we are a treaty based jurisdiction and are the establishment of a branch of an international arbitration firm incontinuing to expand our tax treaty network. On the regulatory front, Barbados, with the aim of making the island a seat for internationalpart of the reason why the World Economic Forum ranks our banking arbitration by 2011. By early 2011, international investors structuringsystem so highly among Western hemisphere countries is because their activities through Barbados should also be able to list their IPOsof our robust regulatory systems and anti-money laundering regime. on the new international trading floor of our stock exchange.Recognising that we need to improve in the non-banking regulatory And let’s not forget the quality of life investors can enjoy in Barbadosarena, we are in the final stages of implementing a Financial Services - friendly and well educated people, an infrastructure that works,Regulatory Commission, which will be in place early in 2010. safety, great weather, plenty of good restaurants, and many things to We are creating appropriate, but strong regulation for Hedge Funds do … as our ad says, isn’t it time you considered Barbados?and Private Trusts, and we are making changes to various otherpieces of legislation to make it more attractive for Headquarters andHolding Companies to set up in Barbados. Wayne Kirton On the local business environment scene, Barbados has solicited the Chief Executive Officertechnical assistance of the IADB in overhauling its processes in Town Invest Barbados 2010  BARBADOS INTERNATIONAL FINANCE & BUSINESS  7 
  • 6. The Evolution of International BusinessCase study − Platinum Ten Years of Platinum Service in Barbados: A Brief Commentary By Stephen Greaves The genesis of Platinum Offshore Management Services, Inc. (Platinum) was in 2000, when by D r . T revor A . C armichael , Q . c . we took over the infrastructure W and human talent of my former hen the framers of the original 1965 be a catalyst in the expansion of the international employer, who decided to close International Business Companies business agenda, and further contributed to the the operation which I had man- legislation formulated the statute ease of captive insurance corporate formations aged since 1993. primarily to leverage the benefits of United and the growing transaction work which now One of our company’s first innova- Kingdom direct investment into Barbados, they flows naturally within the local financial services tions was to launch a website, as could hardly have considered that the ever chang- industry as a whole. In this respect, the further a means of creating a presence in ing scope of global financial flows would dictate refinement of the legislation, with the introduc- the international market at a time such later flexibility in the statute. Indeed, that tion of segregated cell legislation and the Society when few local companies had flexibility and creativity, blended with consist- with Restricted Liability Act, has buttressed the created websites. We focused on ency, all mirror the wider scope of international flexible use of the corporate vehicle. Furthermore, networking, by participating at business in Barbados. these two additions were introduced at the time tax planning conferences and sym- At the outset, and throughout the past forty of particular need and have been very favour- posiums organised by the BIDC/ years, there has been an implicit recognition that ably utilised, thereby underscoring the flexibility Invest Barbados, which generally the path of a zero tax policy was one not to be which has marked the consistency within the resulted in client referrals. pursued. Having inherited, on independence, industry as a whole. the Scandinavian treaties, there followed an Of no less significance has been the creative Platinum is built on the basic core ongoing recognition of tax treaty negotiation thinking which has marked the international values of ethics, integrity and a and multiplication as an article of faith, which banking sector. When, in 1979, the relevant passion for excellence in service, has been manifested in different ways. The flex- legislation was introduced, which also employed by providing our clients with ibility in this policy may be easily identified by the term Offshore in its title, the international responsive hands-on deliverables. the development of the negotiating machinery financial milieu recognised the importance attrib- Our marketing strategy included itself, which at one time comprised an informal utable to the term. However, as the international advertising in key global mix of government officials combined with some regulatory ethos changed and the term Offshore periodicals, as well as writing unpaid professional lawyers and accountants. lost much of its glamour and respectability, the sector-based articles in reputable However, as international capital flows increased new International Financial Services legislation publications. and globalisation manifested itself in its many recognised the trend and renamed, as well as forms, the speed, organisation and skills required refashioned, the statute accordingly. Suffice to Our achievements to date have for multiple treaty development accounted for say, the amended legislation, regulations and been due to hard work, determina- more rigorous treaty negotiating teams, as is practice directives have endorsed the consist- tion and strategic alliances with clearly manifested in the jurisdiction’s current ent creativity of the sector, while ensuring that other service providers, as well team of very effective professionals. proper banking regulation is not compromised by as the continuous support of the In the decades of the eighties and nineties, banking confidentiality. Hence, on the one hand BIDC/Invest Barbados. It would recommendation and change were essentially the Central Bank has set important categories also be remiss of us if we did not led by small groups of professionals meeting and criteria for establishment while, at the more acknowledge the transfer of useful informally with the Central Bank’s legal advisors. international level, it has ensured that banking knowledge as an important source However, this feature has been supplanted by the regulation keeps pace with the ongoing Basle of our professional development organisation of formal structures advising the financial edicts. at Platinum. relevant Ministers. The flexibility has allowed The consistency of creativity and flexibility With a track record of execut- the development of the sector and, in particular, remains a critical component of Barbados’ ing the tax strategy of foreign has facilitated critical changes to be effected at international business, in full recognition that investors by effectively managing opportune times. the delivery and refining of new products over the the day-to-day operations of the Hence, the decision to modify the CARICOM years is a sine qua non for the ongoing feeding Barbados subsidiary, Platinum Model Corporate Legislation and to introduce, of a national economy. Such growth, however, continues to be a service provider in 1982, a statute which, although based on will hopefully seek to continually recognise the of choice in the international the Ontario and Delaware models, was philo- important ingredient of discipline which, as Tom business segment of the industry. sophically in keeping with the CARICOM draft - a Rohn reminds, is the bridge between goals and strategic coup. For this new legislation proved to achievement.  F 8  BARBADOS INTERNATIONAL FINANCE & BUSINESS  2010
  • 7. Tax Treaties: New Instruments of InternationalDiplomacy  by F rancoise H endyF or the early negotiators of those where the investment flows income tax treaties, com- are destined. monly referred to as double Moreover, because Barbados hastaxation agreements (DTAs), the an established system of taxation onpolicy and practice of their modern- income, is able to add significantday counterparts might well cause value to the investment flows andthem to pause. is already an exporter of goods and Of course, DTAs have long been an services, the DTA is its preferredimportant expression of a countrys vehicle to internationalise agreeddesire to expand bilateral trade by tax transparency norms over theaddressing the tax constraints to the more recent construct of the Taxcross-border movement of persons, Information Exchange Agreementgoods and services through the (TIEA).articulation of clear rules designed Aside from the now well-knownto avoid double taxation and prevent The Hon. George Hutson, M.P., Minister of International Business & fact that Barbados was not required International Transport and His Excellency Mr. Hubert Wurth, Ambassadorfiscal evasion. to make a commitment to the OECD for Luxembourg in the UK, participate in the signing ceremony of the Mindful of this customary basis Barbados – Luxembourg DTA as a result of that group’s work onfor DTAs, it should not be a surprise Harmful Tax Competition, a positionthat the first question answered by governments prior to a round of that was recently endorsed by the G20 in its April 2009 announcementnegotiations being scheduled would be, what is the level of trade of white-listed countries, Barbados has long subscribed to the viewbetween the two countries, and are current levels sufficiently high that a full tax treaty with the OECD-style provision on exchange ofto warrant the establishment of a bilateral mechanism to address the information is the best way to give expression to the internationallyinternational aspects of domestic taxation? agreed standards in this area. For traditionalists, the satisfactory determination of this issue, Indeed, many countries, with whom Barbados cannot boast sig-based on quantitative data, is still a pre-condition for tax talks. nificant trade flows according to traditional indices, share BarbadosHowever, even for those who adhere to the purists view, equally view. As a result, Barbados tax treaty network continues to expand atimportant today is the consideration of prospective trade flows and a rate that demonstrates the currency of its thinking on transparencythe opportunity that such a negotiation would present to further and tax information exchange. Since the Washington Summit of themultilateralize internationally accepted standards of transparency G20 meeting, which formally endorsed the use of tax treaties asand access to tax information. instruments of international diplomacy, Barbados has successfully Perhaps ushered in by the establishment of the World Trade concluded tax treaties with Spain, Vietnam and Italy. Dates haveOrganisation (WTO), subsequent work by the Organisation for already been confirmed in 2010 for negotiations with the CzechEconomic Co-operation and Development (OECD) on tax havens, Republic and Belgium, as well as second round talks with Chile,prescriptions announced by the G20 in response to the global economic Iceland and Brazil. Meanwhile, firm commitments have been receivedcrisis, and the practice of states, it is clear that tax treaties are now from Australia and Columbia.  Fimportant instruments of international diplomacy. How else can one explain the proliferation of DTAs brought intoforce between countries where issues relating to trade flows mightotherwise preclude the conclusion of such an arrangement? Of course Treaty Updateone can point to those non-traditional flows more closely associated Treaties signed awaiting ratification: Luxembourgwith an international business and financial services centre, like and GhanaBarbados, which continues to successfully interpose itself in invest-ment flows around the globe, adding value to and, in some cases, Treaties initialled: Spain, Italy, Vietnamultimately re-deploying the investment. Treaties currently under negotiation: Chile, Brazil, Indeed, it is precisely because of the host/home country charac- India, Iceland, Czech Republic, Belgium, Panamateristics of the major international business and financial servicescentres that DTAs have become an important tool in creating relation- Treaties awaiting negotiation dates: Australia,ships between the taxing authorities in such centres and those in Colombia, South Africa, Ireland, Malaysiathe countries from which the investment flows originate, and in 2010  BARBADOS INTERNATIONAL FINANCE & BUSINESS  9 
  • 8. The Future of International Financial Centres…A Unique Opportunity for Barbados? by A ndy S harp ‘The future is clear – the future is The recent actions of the OECD and the G20 nations, following the election of President Barack Obama, have concentrated on targeting clean money’ the traditional ‘tax havens’, or international financial centres, in order to force transparency and, more importantly, the provision of information regarding investors in international financial centres. Current estimates of undeclared tax funds in offshore centres rangeT he face of global financial markets has changed dramatically between $6.5 and $11.5 trillion, which provide for an estimated in recent months and many nations are now, as a result of under declaration of tax across the globe in billions of dollars annu- the credit crunch, suffering significant monetary pressures ally. Indeed, HM Revenue & Customs in the UK has conservativelyon cash flow and also face mounting debts. computed that the tax lost in the UK to avoidance and evasion ranges One of the key questions is how countries, such as the G20 nations, between £11 billion and £41 billion per annum. Other research incan attempt to reduce their unheard of levels of debt? Rather surpris- the UK suggests that the tax lost annually from avoidance alone isingly, it seems that without realising it, several developed countries well in excess of £25 billion.have started a train of action which potentially will assist them Given the size of the potential recovery from tackling tax evasion andconsiderably in addressing their debt problems. The action in question tax avoidance, it is hardly surprising that the OECD and G20 actionsis tackling tax evasion by their citizens. against tax havens are beginning to produce results. Recently the IRS has secured details of US citizens from a leading Swiss bank and f Tailored to suit your needs Deloitte offers clients a multi-dimensional approach to addressing their issues. We draw upon a combination of audit, tax, consulting and financial advisory services to understand and evaluate those issues more broadly and more deeply than our 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 barbados@deloitte.com Tel: +246 430 6400 Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, 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 firms. Copyright © 2009 Deloitte & Touche. All rights reserved Member of Deloitte Touche Tohmatsu10  BARBADOS INTERNATIONAL FINANCE & BUSINESS  2010
  • 9. f banks in the UK, and details were reported by a former employee 50%. Political pressure and concerted action by the OECD and G20of a Liechtenstein bank to EU countries. So called ‘Amnesties’ are are likely to force the smaller international financial centres that areincreasingly favoured by governments, as this produces high cost-yield viewed as tax havens to close and funds located in these jurisdictionsratios and governments frequently do not have the resources to fully will have to move to other financial centres. However, in that process,prosecute tax evasion in all cases. it will be necessary for those previously undeclared funds to be In addition to this type of activity, information exchange is now taxed, or cleansed, in the relevant jurisdiction. This will resultat a level never seen before: who could have predicted in countries which have a solid financial basis and a goodthat Switzerland and Liechtenstein would sign reputation, like Barbados, attracting funds from theTax Information Exchange Agreements with shrinking world of the tax havens.the UK in 2010? Furthermore, who could have The second issue relates to the rise in the needforeseen that Liechtenstein would agree, within to carry out effective tax planning, given the12 months, to change its internal laws to allow fact that governments will attempt to increasethe British government to obtain the names of UK their domestic tax take by raising tax rates.residents who have funds hidden away in Vaduz? Accordingly, tax arbitrage has to be the futureThese are very significant and dramatic changes of the international tax world. However, to beand give a clear indication of the way traditional effective in this field it is necessary to haveoffshore financial centres will have to operate in an extensive network of double tax treaties,the future. It is also clear that these developments and it is this aspect which finds Barbados athave radically altered the relationship between the a significant advantage when compared to itsOECD nations and the international financial world. Caribbean competitors. Therefore, with the right support and direction, Barbados can compete effectively inIs there an opportunity for Barbados? the world of tax arbitrage.Two issues arise, and the first relates to funds currently held in those What will be required is for the international financial sector injurisdictions regarded by the OECD and G20 countries as traditional Barbados to have a greater outward focus over the next 2-4 years, intax havens. Current estimates suggest that within the next 5 years, order to ensure that it remains ahead of its competitors.  Fthe number of international financial centres will decline by at least 2010  BARBADOS INTERNATIONAL FINANCE & BUSINESS  11 
  • 10. Increase Your International Competitiveness byUsing Barbados  by L incoln S chreiner & R uss J onesW hen Canadian corporations begin planning to expand their Travel Access and Service Providers businesses outside Canada, they usually engage a team Barbados has good commercial airline access and is in the US Eastern of advisors to make recommendations on all aspects of seaboard time zone. Barbados’ legal, accounting and banking servicethe transaction. One aspect is to develop a global tax strategy to make providers are experienced with serving the local Barbados needs ofthem internationally more competitive, and often Barbados is included Canadian companies.as a fundamental element of the growth strategy - here is why: Attractive Corporate Tax RegimeStable Pathways for Capital Flows By world standards, Barbados has a low combined corporate incomeThe Central Bank of Barbados and tax policy decision makers do not and dividend withholding tax regime (ranging between 1% andmake radical changes from one political administration to another. 2.5%). The low tax regime applies to International Business. SomeOther comfort factors include the fact that English is the spoken examples include:language and the major Canadian banks have significant operationsin Barbados. • Global sales & distribution of goods; • Hedging the sale price of goods made or processed;Investment Protection • Collecting (factoring) trade receivables;Barbados and Canada have a Foreign Investment and ProtectionAgreement (FIPA). A FIPA generally adds an additional layer of • Paying trade payables;benefits, such as protection against economic discrimination, fair • Licensing intellectual property;compensation in the case of appropriation, most favoured nation statusand curtailing the ability of a central bank to inhibit the repatriation • Lending for working capital & term debt needs;of foreign currency. Barbados has negotiated a number of FIPAs. It • Accepting deposits & investing excess cash; andshould be noted, however, that FIPAs do not cover tax policy issues.Such issues are dealt with in a tax treaty. • Providing various (captive) insurance needs. fFamiliar Corporate LawBarbados corporate law is founded on the Canadian corporate lawmodel.12  BARBADOS INTERNATIONAL FINANCE & BUSINESS  2010
  • 11. International Businessf Using a holding company located in Barbados as a vehiclefor investing in foreign subsidiaries is especially attractive,because of the combination of the exemption from tax inBarbados on dividends derived by the holding company A Clear Pathfrom the investment, and exemption from withholding taxon dividends paid by the holding company to its Canadianparent. to the Green Barbados has good commercial airline access and is in the US Eastern seaboard time zoneGenerally speaking, cash dividends received from a Barbadossubsidiary that were derived from operational profits earned inBarbados can be exempt from Canadian taxation in the handsof the Canadian parent company, but there are exceptionswhen such dividends are taxable in Canada1.Tax Treaty Network Let J&T Bank and Trust MakeBarbados has 18 income tax treaties (covering 27 countries) the Most of Your Assetsthat may reduce or provide immunity from taxation in acountry from which the Barbados company derives income, A World of Investments at Your Fingertips:or in which it carries on business or has a representational J&T Bank and Trust is a chartered bank that has operated inoffice. Additionally, Barbados’s maturity as a good citizen is Barbados for over a decade. We provide private banking andwell recognised in the global tax community, including the comprehensive wealth management services to corporationsOrganisation for Economic Co-operation and Development and individual investors located around the world.(OECD). In its April and subsequent status reports, the OECDplaced Barbados in its highest ranking as a country that has The Ultimate Flexibility of Choice:made progress on the implementation of the internationally • Banking, trust, corporate and other services;agreed tax standard on tax information exchange. • Global investment opportunities from over1200Value Added independent money management firms;A Canadian company that creates an appropriately designed • Choice of the degree of direct involvement an investorinvestment, sales, intellectual platform, and treasury platform elects to exercise in the portfolio management process;outside Canada may actually increase the equity market-cap • Investment structures and domiciles;value of the Canadian parent company.  F • Complementary consulting, planning & strategy services. Contact Our Management Team: Toll free from North America: (866) 376-6230 Telephone: (246) 430-8650 info@jtbanktrust.com www.jtbanktrust.com1 A Canadian corporate tax advisor needs to be consulted before payinga dividend from a Barbados subsidiary to a Canadian company, to assessif the dividend is coming from exempt surplus retained earnings, inwhich case no Canadian tax is payable, or if the dividend is comingfrom taxable or pre-acquisition surplus retained earnings, in which caseCanadian tax may be payable on the dividend. 2010  BARBADOS INTERNATIONAL FINANCE & BUSINESS  13 
  • 12. International BusinessRaising the Bar – Barbados as an InternationalFinancial Centre  by R icardo K nightThere has been much talk in recent times of Global Economic Considerations At the September 2009 meeting of the leaders of the Group of 20the future of International Financial Centres economic powers, accusing fingers were pointed at perceived tax(IFCs). One clear message emerging is the havens across the globe, with the threat of sanctions being imposed against those countries that fail to tighten standards and improveneed for IFCs to raise the bar. But what, transparency. The lesson for Barbados from the G20 pronouncements, and perhapsexactly, does that mean? the single most important challenge facing the international financialIFCs are widely perceived to be low-tax, lightly regulated jurisdictions services sector, is the need for a comprehensive review and strengthen-that typically specialise in the provision of the corporate and business ing of the regulatory framework governing the sector. The first stepsinfrastructure to facilitate the formation of legal entities and the towards improved regulatory oversight will be the establishment ofinvestment of funds. a Financial Services Commission, slated to come on-line in 2010. In addition, the Resident Agent’s legislation is expected to furtherBrand Differentiation regulate service providers operating within the sector.Easy implementation and a seemingly unlimited access to jurisdictionshave highlighted the need for brand differentiation and careful thoughtas to how this can be strategically achieved. Identifying significant The easiest and most readilybenefits can often result not only in brand preference, but brandinsistence. Differentiating factors to be considered in evaluating the identifiable way to differentiatebenefits of the Barbados brand, in comparison to the other IFCs withwhich it competes, include: the Barbados brand is by way of • Unique and superior customer service • Superior performance its extensive tax treaty network • Heritage (i.e. continuity and solid leadership) and its ability to provide superior • Leading technology and innovation performance and customer service • Focus on, or expertise or specialisation in, a particular customer segment • Choice of experts Raising the Bar as an International Financial Centre • Best overall value for the price The easiest and most readily identifiable way to differentiate the Barbados brand is by way of its extensive tax treaty network andConfirmation of a brand’s worth is readily identified in the its ability to provide superior performance and customer service. Infollowing: the prevailing environment, Barbados’ performance will be judged • Expert endorsements by its capacity to ensure that business is conducted seamlessly and efficiently with the highest level of professional competence. It must be • Top ratings by independent authorities the aim of service providers in the public and private sector to surpass • Industry analyst reports client service expectations and provide uncompromising excellence and integrity, combined with a focus on unrivalled compliance and • Blue chip customer list due diligence. • Market share However, this will not be sufficient to raise the bar. The real distinction has to be either through industry innovation, expert • Positive comparison testing with competing brands knowledge or specialty offerings. The challenge for the jurisdictionUltimately, the conclusion is that all brands can be differentiated, is to strike the correct equilibrium between maintaining an effectiveand Barbados’ rating in the above areas speaks for itself. regulatory framework 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 successfully.  F14  BARBADOS INTERNATIONAL FINANCE & BUSINESS  2010
  • 13. International Business Melnyk’s Latest Investment … Yet AnotherCase study − TR older individuals who have difficulty swallowing pills will also Bridge between Canada and Barbados benefit from the advantages of taking their medicine through By Ken Villazor this unique form of nasal delivery. TRIMEL BIOPHARMA was established Trimel BioPharma’s nasal-drug delivery platform has yielded in Barbados in July 2008 by the interna- four products now under active development. One of these tionally recognised business executive, products is expected to enter Phase III clinical trials in the Eugene Melnyk. Melnyk is the former United States this year, paving the way for Trimel BioPharma CEO and Chairman of Biovail Corpora- to soon launch its first product in the largest pharmaceutical tion, and is renowned for his relentless market in the world. entrepreneurial spirit and global vision. From Research Bench to Bedside Ambitious Corporate Mandate The products under development are in market segments Trimel BioPharma is centred on a vision of rapidly building a that are currently achieving combined sales of $35 billion in fledgling pharmaceutical business into a major market force the United States. Therefore, it is our belief that the growth faster than has ever been done before. and revenue potential for Trimel BioPharma over the next few years is phenomenal. As Trimel BioPharma grows, soIMEL BIOPHAR World-class Pharmaceutical Innovation will significant new employment opportunities in Barbados, Nearly two years into its research and development pro- Canada and worldwide. gramme, Trimel Biopharma has found a nice niche in the As a Canadian born resident of Barbados, Melnyk has made non-systemic drug delivery category. The traditional route a strong investment commitment to the island he has called for administering medicines is orally in tablet, capsule or home for nearly twenty years. liquid form. Trimel Biopharma is by-passing this traditional Whether it is sport or business, Melnyk has a long list of oral route and targeting a novel nasal delivery method. This achievements, illustrating how he has leveraged and strength- direct and efficient mode of drug delivery has the potential ened the strong commercial, tourism and investment links for a variety of benefits, including improved effectiveness and between Canada and Barbados. The establishment of Trimel a decrease in a variety of challenging side effects normally BioPharma in Barbados is expected to further solidify theMA associated with orally administered medicines. Younger and strong investment bridge that exists between both countries. 2010  BARBADOS INTERNATIONAL FINANCE & BUSINESS  15 
  • 14. International BusinessUpcoming Legal Issues on Operating an InternationalEvents 2010Updates to thisCalendar of Events Business in Barbados  by D awn A . W illiams Swill be available atinvestbarbados.org etting up an international business in Barbados is Compliance requirements include: a straight forward process, provided the requisite • Licensing and annual renewal of licenses; Know-Your-Client, Due Diligence, incorporation • While there are no capital reserve requirements orLexis Nexis International and licensing details are complied with. minimum capital requirements for IBCs, QICs andTax and Trust Planning Operating an international business in Barbados neces-Conference International Banks must maintain the capitalInternational Tax Planning sarily means that the company must be doing business reserve requirements as set out in the relevantBridgetown, BB outside of Barbados. Entities available for licensing toMarch 1-2 Acts or decreed by the Supervisor of Insurance undertake international business under Barbados law and Central Bank of Barbados respectively;CICA International include: an International Business Company (IBC); anConference International Society with Restricted Liability (ISRL); a • While this information is not kept publicly,International Insurance Qualified Insurance Company (QIC); an Exempt Insurance any information provided to the Director ofOrlando, FLMarch 7-9 Company (EIC) or an International Bank. International Business or Supervisor of Insurance For example, an IBC must be carrying on at least one or Central Bank that subsequently changes, e.g.RIMS USAInternational Insurance of the following: change of share ownership, change of name,Boston, MA • International manufacturing, i.e. making, process- amendment to Articles, must be submitted to theApril 25-29 ing, preparing or packaging any product within relevant licensing authority for approval (pursu-OffshoreAlert Barbados which is exclusively for export outside ant to the governing Act).Financial Due Diligence of Barbados, being a broker, agent, dealer, seller,Conference • Application to Inland Revenue for a corporate taxInternational Tax Planning buyer or factor within Barbados of that product; number;South Beach, FLMay 2-4 • International trade and commerce, i.e. the busi- • Annual filing of company tax return; ness of the selling services which, if originating inSociety of Trust & Barbados, are to or for, or on account of, persons • Application for work permits, where needed,Estate Practitioners(STEP) Conference resident outside Barbados. should be commenced as early as possible beforeWealth Management the company goes active. Work permits forand TrustsSanta Monica, CA applicants in the Barbados international businessMay 6-7 sector are fast tracked;STEP Caribbean In addition to the many • Where the company has employees, the companyConferenceWealth Management benefits of a Barbados must register with National Insurance and payand Trusts the applicable National Insurance employer andBridgetown, BBMay 24-26 international business employee contributions; • Compliance with Barbados labour laws. In-house,Canadian MarketingAssociation (CMA) company (IBC), setting up or external, labour law advice is recommended.InformationCommunicationand Technology an IBC is a straight forward Under the Companies Act of Barbados, many of theToronto, ON requirements may be familiar to some as they are similarMay 26-27 process to those in the Canada Business Corporations Act. ThesePrairie Provinces include requirements for a company seal, annual generalTax Conference meeting and meeting solvency requirements, before reduc-International Tax Planning What happens after licensing? tions in capital or distribution of a dividend.Saskatoon, SKMay 31 - June 1 Where the company is incorporated elsewhere and reg- While this is just a quick overview of the issues, when istered as an external company in Barbados and licensed operating an international business in Barbados it isSTEP Canada ConferenceWealth Management as an IBC, it will be taxed in Barbados only on the profits recommended that local Barbados counsel be sought toand Trusts earned from its Barbados operations. ensure that full compliance is met, regardless of whetherToronto, ON There are certain other requirements under Barbados the company is a local company or in an international busi-June 7-8 law which must be met in order to obtain the benefit ness structure, such as an IBC, ISRL, QIC or EIC.  F of 1 to 2.5% tax on profits and other tax and financialContinued on page 17 benefits. Compliance is therefore important and not to be overlooked. 16  BARBADOS INTERNATIONAL FINANCE & BUSINESS  2010
  • 15. International BusinessHow High Net Worth Individuals Upcoming Events ( Continued)Use International Financial Service ACCE Show Information Communication and TechnologyCompanies  by G ail I fill New Orleans, LA June 14-17 BPO ConferenceI Information n the midst of the uncertainty surrounding the eco- In addition, income derived by the IFSC from such Communication and Technology nomic crisis, not only companies but also wealthy investments is taxed in Barbados at low rates ranging London, UK individuals and families need to closely manage their from 2.5% down to 1%. Further, distribution of the invest- June 23portfolios and focus on potential savings, in order to ment income by the IFSC to its non-Barbadian-resident Global Businessmaintain and accumulate wealth. In addition, new econo- shareholder would be exempt from withholding taxes in Solutions Expomies are creating significant wealth, with China, Brazil Barbados. Additional benefits can also be enjoyed where Information Communicationand India being the most notable. These developments the investments are made through a Barbados trust, the and Technologyaccount, in part, for the continued need for the manage- trustee of which is an IFSC. The reasons for this are London, UK June 24-25ment of the wealth of such individuals and families. But that the income earned by such trusts would be exempthow has such wealth been traditionally managed and from tax in Barbados and, in addition, the remittance of AHDI Medical Transcriptionwhat role has Barbados played in the management of such income to the beneficiaries would be exempt from Austin, TXsuch wealth? withholding tax. August 3-7 Traditionally, private banks, trust companies and bro- IFSCs have also been used for establishing family Institute of Charteredkerage firms have assisted wealthy families in managing offices, particularly by wealthy Canadian families seeking Accountants Barbadostheir finances. They have done so with the assistance of to take advantage of the Canadian exempt surplus rules. Financial Services Workshoplawyers, accountants and investment advisors. However, These rules provide that dividends derived by a Canadian Barbadosfamily offices staffed by multi-disciplinary teams have company from active business profits earned by an affiliate August 27also played a major role in providing such services, resident in a foreign country with which Canada has a Call Centre & Customeralbeit on a more personalized basis. In modern times, double taxation treaty, would not be taxable on receipt Management Expo Informationmultifamily offices, i.e. where more than one family sets in Canada. Investment income earned by an IFSC which Communicationup an office to deal with their financial interests, have employs more than 5 full-time employees generally and Technologyemerged as a means of defraying the costs inherent in qualifies for this exemption. Therefore, in order to take Birmingham,UK September 21-22such an undertaking. The advent of multifamily offices advantage of the above exemption, the Barbados IFSC willhas resulted in an increase in the use by wealthy families usually be owned through a Canadian company and not AHIMA Medical Transcriptionof the services of experts in wealth management to assist directly by the Canadian resident individuals. In such a Orlando, FLthem in their efforts to preserve and grow their wealth. case, dividends paid by the IFSC to the Canadian company September 25-30And with this change, Barbados has played, and will would generally be entitled to exempt surplus treatment RIMS Canadacontinue to play, a key role. in Canada. The Canadian company, and its shareholders, International Insurance Edmonton, AB benefit from these increased after-tax profits, which can September 26-29The Barbados Solution be distributed to the shareholders or reinvested.From 1979, with the introduction of the Offshore Banking The existence of the segregated account and segregated Barbados International Business WeekAct, Barbados became involved in a more structured way cell legislation also enhances the Barbados legislative Barbadosin the provision of management and financial services to framework, as several families can now join together October 17-23the wealthy. This legislation was repealed and replaced to defray the costs associated with the operation of the 62nd Annual Canadaby the International Financial Services Act in 2002. The family office, while at the same time segregating their Tax Foundation (CTF) Conferenceexistence of such legislation, together with a network of assets, income and liabilities from those of other families. International Tax Planningdouble taxation agreements, presents attractive options The legislative framework will become even more flexible Vancouver, BC November 28-30for wealthy individuals, since it allows them to maxim- with the passage of proposed legislation that will allowise the returns on their investments when structured for the establishment of private trust companies. It is OHA Health Achievethrough Barbados. For example, in many instances proposed that such companies would not be required to Medical Transcription Toronto, ONinvestment through a Barbados international financial meet the same regulatory requirements associated with November 8-10services company (IFSC) could reduce the exposure to the international financial services regime. World Captive Forumwithholding taxes ordinarily applicable on the income As long as wealthy individuals and families require International Insuranceearned on investments, by virtue of the 18 double taxa- a well-regulated environment to manage their wealth Scottsdale, AZ November 8-10tion treaties that Barbados has entered into with foreign in a tax-efficient manner, Barbados must ensure that itsGovernments. This advantage is significant, especially as legislation continues to meet their needs.  FBarbados continues to vigorously expand its tax treatynetwork. 2010  BARBADOS INTERNATIONAL FINANCE & BUSINESS  17 
  • 16. International BusinessWhy Barbados Remains a Popular Choice forInternational Business  by H . W ayne L ovellB efore looking at international developments impacting multi- national companies, we should first get some understanding as to why companies and individuals use Barbados as theirdomicile. Companies looking to thrive in a highly competitive global mar-ketplace invest in Barbados to capitalise on its business friendlyenvironment, strong human capital, high quality infrastructure,tax advantages and investment protection. Barbados, therefore,enjoys a high degree of respectability among investors as a reputableInternational Financial Centre and has been successfully attractingForeign Direct Investment (FDI) for decades. Barbados’ world-class educational The new Supreme Court building system, with several tertiary and exchange. Multinational companies can minimise their global tax training institutions, produces a burden by using a Barbadian entity to conduct business overseas. The country offers a range of tax efficient vehicles through which highly skilled, English-speaking international business can be conducted. These specially enacted entities enjoy tax and other incentives locally, including low rates labour force of corporate tax, participation exemption for dividends and capital gains, low or nil withholding tax rates on dividends and capital gains on holding company shares and freedom from exchange controls. Investors can also benefit from no (or minimal) control foreignNon-Tax Criteria corporation rules, subject to tax requirements, income characterBarbados offers a well-regulated, transparent, politically stable and tests, no (or minimal) capital duty, net worth tax, or other indirectsupportive environment for business. Competitiveness is enhanced taxes and the ability to obtain binding tax rulings.by transparent policies, effective laws and a flexible and business- In addition, investors using Barbados entities to conductfriendly tax administration and regulatory framework. It has a international business may benefit from the extensive treaty network,strong legal system which ensures that property rights are well which offers low dividend withholding tax rates and exemptionprotected and an independent judiciary guarantees the impartial from source-country tax on capital gains.and effective resolution of disputes. These tax and non-tax criteria have enabled Barbados to develop Barbados’ world-class educational system, with several tertiary an excellent reputation among investors as a jurisdiction from whichand training institutions, produces a highly skilled, English-speaking to conduct business of substance, including financial services,labour force. Investors can readily access the services of tax advisors, business process outsourcing and niche manufacturing.reputable international banks, global accounting firms, lawyers Canada has been important to Barbados because of the benefits ofand management companies offering the full range of corporate using Barbados as a jurisdiction of choice for Intermediate Holdingservices. Companies (IHC). This facilitates repatriation planning through Barbados has a well-developed seaport and a modern international managed ordering of distributions from surplus and blending ofairport offering daily connections to countries in North America, low with high-taxed taxable surplus. IHCs also enable repatriationEurope and the Caribbean. It has gained the respect of the world of taxable surplus to be deferred, provide for reduced foreign with-for the quality of its communication infrastructure. holding tax on dividends and capital gains, allow for deferral of Canadian tax on dispositions of foreign affiliates and facilitate cashTax Criteria redeployment and centralisation of head office functions. BarbadosBarbados’ biggest attraction for FDI may be its reputation as a is the third leading destination for Canadian direct investmentlow-tax jurisdiction for international business, having a high level abroad, after the UK and USA.  Fof transparency and disclosure, and procedures for tax information18  BARBADOS INTERNATIONAL FINANCE & BUSINESS  2010
  • 17. International BusinessNew EU Opportunities for Barbadosby J onathan B rathwaiteN ew developments in international finance mean that Ireland to Switzerland and other countries with more favourable Caribbean advisors are going to be faced with a big threat tax regimes. to their business over the next few years – and an equally Barbados will introduce the non dom regime for personal taxationbig opportunity. early in 2010, and has a growing double tax treaty network. This The drive for increased tax revenues in many developed countries should be enough to be attractive to UK and Irish entrepreneurs who(as a result of the financial crisis) has seen a demand for greater do not fancy giving away two thirds of their wealth to the state.information exchange, more anti-avoidance rules and more focused The UK has a growing battery of anti-avoidance legislation. Thisaction by the tax authorities. For example, the UK authorities have has increased substantially this year with the introduction of therecently issued an amazing three hundred and eight (308) Section Corporation Tax Act (CTA) 2009. The CTA 2009 has introduced anti-20(8) A notices to UK financial institutions, which will in due course avoidance provisions pertaining to foreign dividends paid to the UK.yield tens or even hundreds of thousands of clients who have held As Barbados has a double tax treaty with the UK, this market segment can use Barbados most effectively in conceptually the same way as Canadian SMEs use the Barbados international business platform. Barbados will introduce the non In addition, as Barbados has a double tax treaty network, it is five to ten years ahead of Jersey, Guernsey, Isle of Man and Bermuda. dom regime for personal taxation Barbados is also outside the EU and has an established international business infrastructure. Barbados main competitors are, essentially, early in 2010, and has a growing 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 double tax treaty network network because it is not currently offering information exchange in its treaty negotiations. However, Hong Kong has recently committed to information exchange in accordance with the EU Savings Directive, a feature which is likely to spread to other offshore centres as timeundeclared funds offshore – many in the Caribbean. goes by. The UK middle class is going to be extensively targeted over the Barbados, therefore, is in an ideal position to win significant newnext five years starting November 30th, when the business. Because of its tax treaty network, many typesOffshore Disclosure amnesty closes. This is of business activities can be commercially NETWORKlikely to lead to significant tax expo- ATY structured out of Barbados in a tax efficient TRE TAXsure for many UK taxpayers with BLE manner. Cayman, BVI, Bermuda and the DOUoffshore accounts. Barbados other overseas territories all have to restruc-practitioners will possibly at first ture their economies to introduce a propersee a decrease in business, as tax base, otherwise they will not be able toUK clients liquidate their offshore negotiate double tax treaties and that willpositions. have implications for them within five years. However, this presents advisors In any case, some of these territories that arewith UK clients with an opportu- not Sovereign states will have challenges innity to provide such clients with this respect, as they may be unable to negotiatepro-active advice now. tax treaties in their own right. In Ireland, taking into account The developments highlighted abovethe levies, the income tax rate for present Barbados with a significant oppor-high earners is going to be more tunity to expand its customer base to EUthan 60%. In the UK, self employed countries.  Fhigher rate earners will be subject tomore than 50% higher rate tax on earningsover £150,000. For those in the UK with closecompanies, the higher rate is effectively 55-64%. These high tax rates have resulted in an exodus of hedge fundmanagers, private bankers and entrepreneurs from the UK and 2010  BARBADOS INTERNATIONAL FINANCE & BUSINESS  19 
  • 18. International BusinessBarbados: Gateway to China  by L i z a H arridyal - sodhaT he signing of the China/Barbados Double Taxation Agreement (the Treaty) has placed Barbados in a unique position in The Treaty not only makes relation to other competing financial jurisdictions. The Treatynot only makes Barbados an attractive jurisdiction for International Barbados an attractive jurisdictionBusiness Companies (IBCs) and other special incentive entities froma corporate planning perspective, but its ratification has created for IBCs and other special incentivethe architecture that can support and sustain significant ChineseInvestments. entities from a tax planningThe key benefits of the Treaty are: perspective, but its ratification hasDividends, Interest and Royalty Payments • Under Chinese domestic law, dividend remittances are created the architecture that can exempt from withholding tax, if originating from a foreign enterprise or from a foreign investment enterprise operating support and sustain significant in China. Should there be any change to China’s tax laws, Article 10 of the Treaty stipulates that dividends paid by a Chinese Investments Chinese resident company to a Barbados entity are taxed at a minimum withholding rate of 5%. • An IBC that is resident in Barbados and receiving such of the capital of the entity paying the dividend and the dividends is subject in Barbados to a tax rate of 2.5% down shareholding does not constitute a portfolio investment. In to 1%. However, the dividends will be exempt from tax in general, where the dividend is taxable in Barbados, the IBC Barbados, provided the IBC owns at least 10% of the shares can claim a credit for the Chinese withholding tax and, if f © 2010 KPMG, a Barbados partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity, All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. Operational Multidisciplinary Global KPMG Hastings Christ Church Barbados Tel: 246-434-3900 Fax: 246-427-7123 Email: info@kpmg.bb www.kpmg.bb20  BARBADOS INTERNATIONAL FINANCE & BUSINESS  2010
  • 19. International Business f applicable, the tax paid in China on the profits out of which • Capital gains derived by a foreign investor from the sale of the dividends were paid. However, the credit can not reduce shares in a foreign investment enterprise which is operating the total tax payable to less than 1%. Any remittances by the in China, are subject to withholding tax of 10% in China, said IBC to its non-resident shareholders compared to the 33% levy that would are normally exempt from withholding normally be applicable in respect of a sale of tax under the Barbados IBC Act. shares by resident Chinese entities; • Interest and royalty payments arising •  If a Barbados IBC owns shares in a in China and paid to a company resident Chinese entity and then disposes of those in Barbados are subject to 10% with- shares, then only Barbados has taxation holding tax. 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 Tax Exposure and Capital Gains because the Treaty allows the right to tax the The Treaty also provides opportunities for state where the seller of the shares is resident, tax planning under Article  5-Permanent thereby preventing the other treaty partner Establishment and Article 7- Business Profits, from levying tax on the capital gain. in that: • Chinese resident companies acting through an independent From a macro-economic perspective, there has never been a more agent and not establishing a fixed place of business in opportune time for investors to capitalise on Barbados’ strategic Barbados can enjoy complete exemption from taxation in alliance with China in structuring their investments into China. Barbados. Entities that set up permanent establishments and Similarly, opportunities exist for Chinese investors to utilise Barbados derive income in Barbados are subject to Barbados tax; as a conduit for certain of their overseas investments. China boasts the third largest economy in the world and has been the fastest growing • Fees charged by Barbadian service providers acting outside of economy for the past 30 years, with an annual GDP growth rate above China will not be taxable in China. 10%. China is standing firm against world economic patterns due to • Another important provision under Article 13 of the Treaty is the implementation of a series of proactive responses, including the the treatment of capital gains: shifting of focus from an export driven economy to one that focuses on domestic consumption, partnered with the emergence of long term demand drivers of urbanisation and middle class society.  F LRG offers specialty reinsurance 1990, has made annual contributionsCase study− Lo ndon life products to the life insurance and to local charities and social and property and casualty markets in sporting events. the United States, Europe, Bermuda and a number of other countries We are proud of our record of worldwide. Activities in the US and growth and development here Europe represent the majority of the in Barbados, as we continue to Groups current business mix. service our clients and brokers and 20 Years of London Life contribute to shareholder value. in Barbados Today we employ 20 people, the By Gabriel Kelly majority of whom are Barbadians, and LRG In 1989, London Reinsurance Group has a programme Inc. (LRG) established operations that encourages con- in Barbados. LRG is part of a much tinuing professional larger financial services organisation development for our under Great-West Life Assurance employees, many Company (Great-West), which is of whom have been one of the largest insurers in North with us in excess of America. Great-West, in turn, is 10 years. Further, our ultimately part of Power Corporation Group is conscious of Canada, a diversified international of the needs of the management and holding company. community and, since 2010  BARBADOS INTERNATIONAL FINANCE & BUSINESS  21 
  • 20. International Business Practical Issues of Managing International Companies in Barbados  by C lennell J ackman E xpanding your corporate operations outside of your home essentials on both domestic entities and those operating in its jurisdiction to an international financial services centre International Business and Financial Services sector by requiring, can be a challenging exercise for even the most among others: seasoned of investors. Much effort is expended in ensuring the financial, commercial, market •  the maintenance in Barbados of financial and and tax rationales driving such expansion are accounting records; sound and tested. •  the audit of financial statements Considering whether to use Barbados in where prescribed asset and revenue your international operation can be an easy limits are exceeded; decision, given the Island’s reputation as a mature, highly-respected and well-regulated •  the filing of corporation tax returns; jurisdiction. Beyond the strategic critical success •  the maintenance of corporate factors are several ongoing practical elements, which records; must also be considered at the planning stages to identify the necessary resources and structures required •  the application and renewal of enabling to facilitate and manage the operation. business licences; and •  regulatory filings. Barbados has attracted and While these requirements are by no means onerous or unique to Barbados, they are not likely to be the main focus of the investor developed excellent, internationally- during the initial planning stages for the Barbados venture.  F branded, and indigenous business support providers ++ Strategic Partnering ++ Corporate Filings with Service Provider ++ Accounting Records ++ Tax Compliance ++ Corporate Records Barbados built its enviable reputation by moving beyond hosting ++ Due Diligence brass plate operations to emphasising the need for commercial and ++ Banking Facilities strategic substance in international business entities established in ++ Business Licence the Island. Barbados’ legislative regime imposes various complianceCase study− Artel C Exporting Manufactured companies with the opportunity to entails building upon the existing Products to the World outsource their costly labour-intensive product base and identifying new By Michael Arthur activities with significant economic market niches. Commensurately, the benefit. company is seeking to re-invent itself Artel CIMTEC Inc. (Artel) is an Assem- by working at enhancing its human, bly Manufacturing Services company During its 10th anniversary cel- technical and operating resource providing services to major US ebrations in August 2009, Artel’s capabilities in its effort to meet the companies. Operating from its Newton, management articulated its business future head on. Christ Church location in Barbados, strategy: Re-evaluating, Renewing and Artel currently produces electrical coils Re-inventing ourselves to meet the Artel remains committed to develop- for Haydon Kerk Motion Solutions challenges of the future, by embark- ing an internationally competitive, of Waterbury Connecticut, and RF ing upon a programme that strives world-class Centre of Manufacturing connectors to Santron Inc. of Ipswich to ensure success even beyond the Excellence, which can be the standard Massachusetts, thus providing these coming decade. The renewal effort bearer for Barbadian Industry.IMTE C 22  BARBADOS INTERNATIONAL FINANCE & BUSINESS  2010
  • 21. Captive InsuranceThe Basics of Captives  by N icholas C . C richlowA captive insurer is a legal entity formed primarily to insure risks are insured, issuing the policies to the parent company and the risks of one corporate parent or a number of similar providing claims-handling, loss-control and other insurance-related corporations (e.g., trade associations), thereby contributing services. The fronting company cedes a portion of the premium andto a reduction in its parent’s total cost of risk. Captives are formed risk to the captive through a reinsurance contract. The captive canfor many reasons including: then retain all the risk and premium it assumes or, if appropriate, it • lack of a commercial market for certain lines of coverage; can pass on, or retrocede, a portion to another reinsurer. Alternatively, a captive may insure the risks directly. • a desire to recapture underwriting profits and investment The premium received by the captive, together with the investment income that would otherwise be earned by the commercial income earned on its capital and reserves, is used to pay losses and underwriter; loss-adjustment expenses. The premium also covers various captive • as a means to access the reinsurance market; or operating expenses, including captive management expenses, any local regulatory costs and legal and audit fees. The captive must be • in certain circumstances, as a means of diversifying into adequately capitalised to ensure its financial viability, that it satis- insurance services. fies the regulatory requirements in its domicile, and that it can be Captives are used extensively throughout the world by major demonstrated that the insurance structure represents real transfercorporations to cover both domestic and international risks. The of risk to the captive.largest developments historically have been in North America, theUnited Kingdom, and Europe, but recently considerable interest has Advantages of a Captivebeen evident in South America and in the Far East, particularly from The major benefits that the establishment of a captive brings toJapan and Australia. its parent can be divided into two main categories: financial and insurance. fCaptive Insurance StructuresMany captives operate as reinsurers, with a licensed commercialinsurer (the fronting company) located in the country where the 2010  BARBADOS INTERNATIONAL FINANCE & BUSINESS  23 
  • 22. Captive Insurance f Financial Advantages Reduced Insurance Costs: A captive can reduce the overall cost of an insurance programme by retaining the premium for the expected losses, thereby avoiding the premium loading for a commercial insurer’s overheads and profits. Protected Cash Flow: Reserves for unpaid claims and unearned premium, otherwise kept by a commercial insurer, can be held by a captive and invested. Performance Measurement: As financial statements are pre- pared for the captive, its performance can be monitored and evaluated in terms of return on investment (ROI) or other financial criteria. Source of Additional Revenue: A captive can expand its book of business by offering insurance to related third parties, such as franchisees, vendors or customers, thereby generating an additional revenue stream for 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 of retaining a greater proportion of its parent’s 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 facilitates the design of allocation systems to distribute costs more equitably among profit centres, the implementation of uniform account- ing procedures, the accumulation of actuarial information, the design of more effective claims-handling, loss-control and engineering programmes, and the unification of the application of risk management throughout all divisions or subsidiaries. Disadvantages of a Captive While there are many potential benefits in forming a captive, several significant disadvantages exist. Before deciding to establish a captive, an organisation should establish and maintain an effective enterprise risk management programme, then thoroughly assess the potential disadvantages, which include providing the necessary capital to satisfy the regu- latory requirements and providing capital to cover adverse underwriting results.  F24  BARBADOS INTERNATIONAL FINANCE & BUSINESS  2010
  • 23. Captive InsuranceU.S. Property and Casualty Round Up Global Re SCC is proud to offer our clients the powerful benefits ofby M ichael D ouglas Barbados Domiciled Captive Insurance Global Re SCCMichael Douglas provides a brief analysis of the A Barbados Premiums: There is an overall expectation of continued softening Segregated Cell into 2010, as carriers repair balance sheets from organic growth andcurrent state of the insurance industry, its trends Insurance Company are actively seeking fresh capital. Clients with a significant naturaland future growth prospects, together with a view Creative catastrophic exposure saw the most upward premium rate pressure, Insurance with only a few insureds experiencing higher than 20% rate increase.on where the opportunities are for industry captives. Solutions for Insureds with little or no natural catastrophe exposures remained Your Business competitive, which has the hallmarks for softening.This analysis is against a background of Mr. Chris Evans, Presidentunprecedented financial crisis and a combination Mr. Jeffrey Kurz, Director Limits: The initial reaction to purchase higher limits due to the eco- “Orena” nomic downturn, dropped off rapidly in the second quarter, resultingof events which have posed many challenges and in the same limits in the second quarter despite the upward pressure St. Lawrence Main Road on rates.opportunities for the insurance market over the Christ Church Barbados, BB 15029 Deductibles: Deductibles and retentions experienced little changepast 18 months. Tel: (246) 418-9768 since the third quarter of 2008. Fax: (246) 418-0246Property Snapshot – Holding the Line Coverage and Terms: Similar to deductibles, there is no significantThe feeling from property insurance carriers entering 2009 was change in property coverage and terms for property risks.decidedly shaky, due to attrition, global natural catastrophes andthe global financial meltdown. In the coming year, insureds expectrenewed competition and modest downward pressure on rates. 2010  BARBADOS INTERNATIONAL FINANCE & BUSINESS  25 
  • 24. Captive InsuranceInvestBarb_HP_FC_SPCG_Ad:Layout 1 11/18/09 2:32 PM Page 1 f Capacity: Some markets reduced offerings, particularly in natural catastrophe prone areas. Most carriers continue to offer renewal capacity. Casualty Snap Shot – Soft and Softening Competition remains strong in the casualty marketplace, with low rate decreases resulting in lower premiums. Soft market conditions are expected to continue into 2010. Premiums: Primary and Excess casualty rates have continued to decrease. Limits: While modest purchasing continued, insureds were reluctant to change limits. Deductibles: The overriding discussion in 2009 regarding deductibles focused on the amount of collateral required to support deductibles. Credit market tightening resulted in more scrutiny and a conservative collateral position among primary casualty carriers. Insureds now weigh premium credit for increased retentions against likely increased collateral. Coverage and Terms: Carriers continued coverage enhancements, lessening the impact of exclusions where there was good under- Individual solutions writing. Underwriters are expected to be unwilling to offer policies with unlimited defense obligations as they are waiting for the for individual needs. next asbestos, providing opportunities for companies to use their captive to include some such risks. We believe effective asset management begins with in-depth Capacity: Excess capacity is at record levels. The overall increase knowledge – of both your specific needs and multiple financial in capacity led to further competitive pressure, especially on disciplines. excess layers, where carriers are more flexible in pricing and As a member of the Scotiabank Group, our team of experts coverage positions. encompasses both local and global specialists across private banking, investments and wealth structuring to ensure we have the right knowledge in place to create the more sophisticated financial An Ill Wind … solutions you need. The events of the last 18 months tested the insurance marketplace. Carriers around the world are looking to raise capital to repair For more information on how we can put our team’s knowledge balance sheets and reposition for future growth. The current trend to work for you, contact: for softening in the market increased, however the insurance Ben Crayston Kevin Workman market will be challenged to attain growth in the next few years. Financial Consultant Centre Director Pundits are predicting a round of mergers and acquisitions in 2010 246.417.2027 246.417.2004 ben.crayston@scotiabank.com kevin.workman@scotiabank.com and growth in captives due to mis-pricing opportunities. Property & Casualty and Workers Compensation remain Scotia Private Client Group | International Trading Centre the most popular lines for captives and some captive owners | Warrens | St. Michael | Barbados have used the opportunity (lack of capacity) to cover emerging risks. Captive owners in Barbados who follow the well travelled road of writing standard coverages, assuming an appropriate amount of risk and avoiding problem lines, will benefit from the expected uplift in insurance premiums, with the only clouds on the horizon being the low investment returns and increased * Trademark of The Bank of Nova Scotia. Scotia Private Client Group is composed of the Scotiabank group collateral requirements.  F of companies that provide private client services, including Scotia Capital Inc., a Member CIPF. In Barbados, investment advice is provided by the Offshore Banking Unit of The Bank of Nova Scotia through an unrestricted license granted by the Barbados Central Bank. International wealth structuring services are provided by The Bank of Nova Scotia Trust Company (Bahamas) Limited, Scotiabank & Trust (Cayman) Ltd., or Scotiatrust (Asia) Limited, all wholly-owned subsidiaries of The Bank of Nova Scotia. BARB (11/09) 26  BARBADOS INTERNATIONAL FINANCE & BUSINESS  2010
  • 25. Captive InsuranceCaptives - An Effective Solutionfor Accessing ReinsuranceMarkets  by C hris E vansT he business community buying insurance is aware of reinsur- Still, corporations ance. However, knowledge is often limited to the perspective often prefer to access that it is a method used by insurance companies to shift the wholesale reinsur-risk in order to avoid being overburdened and to allow them to take ance markets directlyon more business, which is correct to a large extent. Nevertheless, because:it is more appropriate to see insurance as ‘retail’ and reinsurance 1. It removes someas ‘wholesale’. Indeed, each of these markets takes this view. of the friction costs built into the insurance premium, e.g. are all of the There are several reasons to form layers reflected above truly needed? a captive, but a major one is to 2. In the traditional insurance market, it is difficult for a well run entity to completely avoid sharing the poor experience of provide a vehicle allowing direct other insureds as part of its insurance premium. Direct access to the reinsurers provides greater opportunity to reduce the access to the reinsurance markets impact of this; 3. The insurer often cedes most of the risk to the reinsurers because that is where the greater financial strength lies, i.e. the ability to assume and retain the risk. Therefore the direct access is to the ultimate risk taker(s);Reinsurers provide insurers with products, the nature 4. The discussions, negotiations, etc. with the reinsurer(s) areof which is substantial financial strength and expertise, conducted on the insured’s behalf by the brokers, who dowithout which the retailers (insurers) could not exist. not understand the insured’s business as well as the insured.The traditional premium flow from the insured is: This is not a criticism of the brokers, merely recognition that • Insurance broker no one understands a corporation’s business better than the • Insurer corporation’s own people. In addition, the reinsurers often have relevant expertise, e.g. engineers, to help evaluate the • Reinsurance broker insured’s risk as presented by the latter; • Reinsurer 5. The reinsurers are often willing to be flexible in the structure • Retrocessionaire of the cover provided.A major difficulty in seeking to purchase insurance directly from the In summary, the end buyer has problems accessing the reinsurerswholesalers is that they sell only large amounts to a small number directly, and one solution which removes many of the obstaclesof customers. Other relevant issues include: highlighted above is the formation of a captive insurance company • The marketing and relatively small sales forces of wholesalers (captive). A captive is a subsidiary insurance or reinsurance company are geared to that environment; formed to insure the shareholder corporation and affiliates and no others. The concept is well established and used extensively. There • There is often considerable regulation to protect the insured, are several reasons to form a captive, but a major one is to provide a whether they are corporate or individuals. The reinsurers vehicle allowing direct access to the reinsurance markets, i.e. these are not subject to the same regulation and are therefore markets cannot, or will not, deal with the insured, but will do so prohibited from providing cover to the end insured, so that, with its captive because it is an insurance company. Often the ability generally, the reinsurers will not deal directly with the end to directly access the reinsurers through a captive is the only reason insureds. they are formed.  F 2010  BARBADOS INTERNATIONAL FINANCE & BUSINESS  27 
  • 26. Captive InsuranceTrade Credit: How a Captive Helped ImproveProfitability  by H ugh R osenbaumThe context recaptured in the captive, thereby adding to the overall profitabilityThe business of the captive owner is wholesale distribution of materi- of the business, provided that losses do not become excessive. Theyals and equipment to the construction trade. They buy it in large lots, even spent some of the promised gains on a group annual aggregatestore it in owned warehouses, and sell it on to small and medium-sized retrocessional protection for the captive, which was an importantclients in several countries. These clients are required to pay their selling point for both the owner’s board and the insurance supervisorinvoices within 60-90 days. If they don’t, they become problems, and in the captive’s domicile.if collection efforts have been unsuccessful after 6 months, a credit The best part of this success story is that the subsidiaries that wereinsurer steps in to continue collection efforts and indemnify the selling heretofore precluded from dealing with some clients will now havecompany for 80-90% of the bad debt after a deductible. the possibility of increasing their sales and profitability. This captive owner’s subsidiaries in the UK, France and othercountries found that, instead of 90% of the clients and credit limitsbeing approved, only 40%-60% were approved, and none at all in Captive owners who are thinking ofSpain. This was a serious concern to the credit management depart-ment (CMD), who found that their local managers were unable taking back sleeping surplus capitalto maintain, much less increase, sales if the credit insurers wereunwilling to accept half of their proposed clients. should learn from this example, In a strategy meeting with their brokers, they heard that the brokerswere expecting large increases in premium rates from the big-name which demonstrates why it is bettercredit insurers. Maybe not all in the first year, which might be seenas anti-commercial, but 25% increases in rates for the next three strategically to leave such surplus inyears is our expected scenario, said their experts. Additionally, theseincreases in rates would be on the sales which the credit insurers are the captivewilling to accept. The restrictions on who they will insure and forhow much will endure longer than the return to profitability. The captive owner had never considered having the captive writetrade credit insurance, correctly believing that half the value was Key factors for successin the services which the captive management company could not Having information systems and aging balance reports which tell usprovide. However, the CMD staff, information systems and com- within weeks of any deterioration in this moral hazard.munications had been recently upgraded. Why didn’t they decide The other key factor for success was the large surplus in the captivethere and then to stop buying trade credit insurance altogether, and that had been left there for a rainy day. This was a critical factor ingo non-insured? One or two of their subsidiaries, notably ones in the convincing the credit insurers to cede to it, even with Solvency 2US and Switzerland, were doing just that. However, the client mix coming down the pike. It also allowed guarantees and collateral to beand credit information systems in those countries without insurance reduced to a minimum by a skilful use of centralised funds-withheldwere special cases. In addition, they felt that their financial backers balances at the international level, even though some countries’would have been seriously concerned by an announcement of going guarantee and business profiles would not have been convincingbare. They had to continue dealing with insurers whose rates were on their own.increasing and whose conditions were going down. Hugh’s viewsUse the captive to reinsure trade credit risk There are opportunities for reinsuring trade credit risks in the nextThe generalisation of the situation described above would be familiar few years. Captive owners who are thinking of taking back sleepingto insurance buyers in other sectors – rates going up, availability surplus capital should learn from this example, which demonstratesgoing down, risk management providing better judgement of the why it is better strategically to leave such surplus in the captive, inrisks than the insurers, and claims and losses stabilised or reducing. order to be able to take advantage of such opportunities when theyThey and their brokers convinced the primary insurers to reinsure present themselves.  F75% of the normal business to the captive and (this was a keyselling point) 100% of the business that the credit insurers wouldhave rejected, even though they had been approved by the captiveowner’s CMD. This allowed some 75% of the rate increases to be28  BARBADOS INTERNATIONAL FINANCE & BUSINESS  2010
  • 27. Case study − gildan Captive Insurance In vesting made simple... Gildan - International Apparel Manufacturer By Mike Hoffman Gildan Activewear is a leading international manufacturer of apparel. Gildan selected Barbados for its sales and marketing headquarters due to its financial stability, modern infrastructure and quality of human resources. Gildan’s success is clearly a reflection on its employees. Due in large part to the educa- tion, work ethic and enthusiasm of its staff, Gildan is able to successfully compete on a global scale in the apparel industry. Gildan owes much of this success not only to its employees in Barbados, but also to the long-standing partnership and tax and trade agreements that exist with Canada. Focused on setting the standard in all of its markets, Gildan is a leader, recognised for its corporate social responsibility initiatives and its adherence to stringent environmental protection standards and fair labour practices. With more than 20,000 employees world- Whatever plans you have for your future, Butterfield Asset wide, Gildan remains committed to the Management is here to help you achieve them. At Butterfield, communities in which it operates through our team of experienced investment professionals will take charitable donation programmes focused on the time to get to know you and understand your financial youth education and humanitarian aid. This is goals. We look after you and your assets with care, and strive an element of our corporate strategy that we to deliver the best financial products to meet your needs. will continue to emphasise in Barbados. Call us today on (246) 430 1650 to arrange an appointment Gildan employs 150 people in Barbados, all of or email us at Caroline.Prow@bb.butterfieldgroup.com whom support the entire sales and marketing efforts for the corporation, which has annual sales of US$1.25 billion. Everything required to properly manage the business is available in Barbados. As a result, the company plans to www.butterfieldgroup.com expand its presence on the island. INVESTMENT ADVISORY l BROKERAGE l MUTUAL FUNDS l DISCRETIONARY MANAGEMENT Butterfield Asset Management Limited is licensed to conduct Investment Business by the Bermuda Monetary Authority. 2010  BARBADOS INTERNATIONAL FINANCE & BUSINESS  29 
  • 28. Captive Insurance Auditing Captives – Working Together to Ensure a Timely and Seamless Process  by S teve C larke T his article is not meant to respond to all the issues between • If an actuary is utilised, is he/she in-house or external? auditors and their captive clients, but instead addresses • Depending on the above, and sometimes regardless of the some of the key points that readily come to mind from the above, the audit firm may require a review of the client’s perspective of both the captive entity and the auditor. reserves by the firm’s own actuary. Typically, insurance captives have a smaller risk exposure compared to domestic insurance entities, in terms of the extent of The client, should, however, have a documented procedure on how the reasonable persons at large. However, they tend to have more their reserves are determined. Again, some audit firms may still complex contract structures, with potentially greater substance require a review by their in-house actuary, and this is something over form issues. With this in mind, the business plan, which is that needs to be discussed and resolved at the outset. One of the typically submitted as part of registration of the entity, is one of potential bargaining chips that a client can use to negate the need the key documents to be utilised by the auditors. for an audit firm actuary (even for long-tail businesses) is the use Following on from the business plan, copies of all signed insurance of a third party as well as an in-house actuary. Essentially, the third and reinsurance contracts and amendments should be made available party actuary reviews the work of the client’s in-house actuary or and the expectation is that the terms of these should be consistent insurance specialist, and the auditor may be able to utilise this third with the amounts recorded in the company’s general ledger. party actuary by evaluating their credentials, based on the use of Agreements between any significant service organisations that the specialist audit guidance. captive utilises should be provided; this includes agreements with From a financial reporting perspective, IFRS 4, which is the third party administrators, brokers, and the local captive management international accounting standard for insurance in general, poses company. For larger captives, there may be specific committees further challenges to captives. One of the main challenges relates set up to govern the key business processes, such as investments, to the requirement that an insurer should disclose information underwriting and claims, and copies of the related documented that helps users to understand the amount, timing and uncertainty policies, procedures and minutes should also be provided. of future cash flows from the insurance contracts. This includes Probably the most significant item of concern to both management information on the sensitivity of income and equity to changes and auditors is the actuarial reserves. The International Standards in variables that have a material effect on them, and information on Auditing (ISA) do not provide specific guidance relating to the on actual claims compared with previous estimates, the latter of auditing of reserves, rather the guidance relates to the auditing of which may involve the inclusion of a loss development triangle in accounting estimates, which is closer. the financial statements. International audit firms, however, have typically added additional With the continued growth of captive and captive-like insurers procedures to the ISA requirements, some of which may appear in Barbados, there will be a need for better understanding between onerous to the captive insurer. Some key considerations, regarding the companies and their auditors, and the above should provide a reserves, of which management should be aware are: stepping stone to aid in that process.  F • Does the type of business warrant the use of an actuary in the calculation of the reserves?Case study − td TD Celebrates 25 Years in Barbados By Richard Bruce TD Bank Financial Group celebrated TD is an active participant 25 years of operation in Barbados in community programmes during October 2009. and encourages continuing professional development Barbados was in its infancy as an amongst its staff. With more international financial centre when than 90 years of collective operations commenced in 1984, and service, this has been over the years the group has grown rewarded with employee to employ 11 Barbadian staff. The productivity and loyalty. largest employer is TD Reinsurance (Barbados) Inc., operating under the Exempt Insurance Act. 30  BARBADOS INTERNATIONAL FINANCE & BUSINESS  2010
  • 29. Wealth ManagementWhat Have We Learned from the GlobalMeltdown?  by G ordon A nderson2 009 saw a return to positive returns for most Fund Managers income, equities, alternatives, commodities, etc.) is determined. as global stock markets have rebounded from their lows. Banks Historically, this strategic asset allocation has accounted for have survived a Global Financial Crisis (GFC), economic activity over 90% of the performance of the portfolio. However, tacticalrecovers, but unemployment remains high. Against this background, moves around major market events are important as long asit is important that we learn from history in order not to repeat they are within the client’s long term strategic allocation. Noinvestment mistakes. What follows are a few key lessons we must one can time market moves and therefore major shifts can beunderstand as we start to recover from the GFC: dangerous, but making measured tactical decisions around protecting capital is important. 1. Discovery Process is critical - there is nothing more important in the investment process than spending time with clients at 3. Don’t Buy Anything You Don’t Understand - famous investors, the beginning of the relationship, to understand in detail their such as Peter Lynch and Warren Buffett, abide by one of the objectives in terms of risk and return, liquidity, time horizon, Golden Rules of investments - don’t buy anything you don’t tax implications, and any other constraints. Prescribing an understand. That would have prevented many investments investment solution without clearly understanding all the facts in schemes such as CDO’s, ABCP, Sub-Prime Mortgages and of the client’s personal situation is investment malpractice. other catastrophes that occurred in the last two years. The recommended portfolio needs to be back-tested in terms of risk and volatility through all market cycles, including the 4. Private Clients Don’t Want to Lose Money - it is an investment last two years, to see how it would have performed in the professional’s responsibility to mitigate this risk. You must worst case scenario. educate your clients on the expected volatility of investments to reduce surprises, prevent your client from realising losses 2. Strategic Asset Allocation complemented by Tactical Moves - at the worst possible time and, equally important, not miss upon completion of the Discovery Process, a long term asset the rebound. allocation between the various asset classes (cash, fixed 2010  BARBADOS INTERNATIONAL FINANCE & BUSINESS  31 
  • 30. Wealth Managementf 5. Due Diligence - although similar to point #3, due diligence 9. Diversify - although almost all asset classes have experienced addresses rigorous, diligent research on all investment solu- major corrections in the last two years, cash and high quality tions in order to avoid potentially fraudulent schemes, such as fixed income would have helped preserve capital for the overall Madoff and Stanford. If you can’t get full disclosure from your portfolio. hedge fund managers, for example, don’t invest with them. There are many quality options with full transparency. No one can time markets and 6. Use External Managers - sometimes clients focus more on the higher cost of using external managers versus the severe therefore major shifts can be under performance of proprietary solutions. The first quartile managers in all geographies, including US large capitalisation dangerous, but making measured stocks, out-perform benchmark by a minimum of over 7% per year, and have done so for the past 25+ years. tactical moves around protecting 7. House View vs. One Person’s View - does your investment capital is important professional have a large team supporting them or is it just one person’s view on the world? It is not possible for one person to adequately cover the world. Investment managers in Barbados would do well to review their 8. Quality Firms - always ask the question: What is the likelihood client’s investment guidelines, so that the risk and return associated of the firm I am investing with going out of business? The with particular classes of assets meets the client’s objectives and that balance sheet and deep pockets of the firm with which you the allocation between the various asset classes is clearly defined and invest are very important. understood by both the client and the fund manager.   F32  BARBADOS INTERNATIONAL FINANCE & BUSINESS  2010
  • 31. Wealth ManagementDesigning an Investment Strategy forNew Clients  by D avid B usheM anaging money for clients requires discipline and an recommendations made for each client. A successful active manage- understanding of the client’s needs, risk profile and long ment strategy requires deep investment knowledge across all asset or short-term expectations, in order to deliver solutions classes. Utilise experienced investment professionals who have accessthat work today and into the future. to research from both in-house and external analysts, which allows Many clients choose their investment advisors through personal them to decide the optimum strategic asset allocation based on currentrecommendations and require financial advice and solutions in the market conditions and forecasts. Also utilise external investmentbest interests of their stakeholders. managers to assist in constructing client portfolios in the most cost A rigorous five-step investment process can be used to manage effective manner possible.clients’ assets.Step One: Client ProfilingRecognise that each client has unique financial needs andrequires an investment portfolio tailored to reflect thoseneeds. To gain a better understanding of the client,use a detailed financial planning questionnaireto develop a complete picture of each client’sinvestment goals, circumstances and attitudesto risk. This allows the investment advisor todevelop a bespoke recommendation tailoredto the client’s individual situation and onethat will meet their financial requirementsover both the short and long term.Step Two: PersonalRecommendation Based on theClient’s ProfileUtilise the information gathered using thefinancial planning questionnaire, combinedwith a risk analysis tool, to create an individu-alised proposal based on the client’s investmentprofile. The recommended proposal will be preparedby the investment advisor with input from the portfoliomanagement team. Any solution developed will takeinto account the client’s existing assets, tolerance to risk andincome requirements.Step Three: Explaining our Recommendation Step 5: Ongoing Review and MonitoringPresent potential clients with an investment proposal that explains Once a client’s portfolio is established, it should be constantlythe financial advisor’s recommendations and then ensure that the monitored to ensure it is performing in line with the agreed objec-client fully understands – and agrees to – the investment approach tives. In response to any changes in the client’s profile or in marketproposed. Present the financial advisor’s recommendation to the conditions, a portfolio can be adjusted so that it remains aligned withclient by letter, explaining, in detail, why the financial advisor thinks the client’s goals. The client’s dedicated relationship manager willthat the proposal is suitable for them. Detail how the recommended conduct regular reviews with the client to ensure that everythinginvestment strategy and asset allocations in the portfolio support the stays on track and be available to answer client queries or addressclient’s goals, both now and in future. concerns whenever they arise. Captive managers and family office banks operating in BarbadosStep Four: Delivery of a Tailored Portfolio should meet with their investment managers to review their investmentUtilise all of the resources available to the financial advisor, both policy, to discuss strategy and asset allocation that recognise the risksinternal and external, and tailor the portfolio to the individual associated with both the fund manager and their portfolios.  F 2010  BARBADOS INTERNATIONAL FINANCE & BUSINESS  33 
  • 32. Wealth Management The End of International Financial Planning? …Not in Barbados  by D ave T homas R ecent headlines from around the world declare the end experienced service sector. It continues to grow its international of international finance and the death of offshore private business sector by delivering the benefits of offshore banking to a banking. No financial centre seems immune to global client base. the turmoil, with daily reports from Switzerland and other major jurisdictions about forced Country Diversification disclosure, fleeing investors and the strident Most HNW and UHNW investors position a measures brought to bear by tax-hungry portion of their assets internationally in order governments. to ensure the maximum flexibility for estate Despite the perception of doom, and succession planning. By employing recent events are paradoxically positive geographic diversification, these investors for OECD compliant jurisdictions such benefit from knowing they have diversified as Barbados. Offshore private banking their assets into multiple jurisdictions that continues to offer high net worth (HNW) are subject to different social and political and ultra high net worth (UHNW) individu- risks. They also benefit from the diversity of als unique benefits that complement their legislative frameworks each jurisdiction pos- onshore planning and wealth management. sesses, that can offer substantial improvements Barbados offers an environment that is well and benefits relative to the domestic legislation in regulated, follows international know-your-client and their home countries. anti-money laundering requirements, and has a developed and CS.ai 30/10/2009 17:43:53 Tricor Grey C0 M0 Y0 K72 Tricor Red C0 M95 Y85 K0 You’re known by the company you keep. And by the company that keeps you. The Business Enablers Our global benchmark to top quality service makes us C one of the leading professional corporate services M providers globally. YCMMYCYCMY K We enable you to focus on growing your business Tricor Caribbean’s services include: You’re in good hands with Tricor looking after your non-core business • Accounting • Company Maintenance support functions. • Book-Keeping • Company Secretarial • Data Processing • Payroll and Treasury Services Tricor is a global provider of integrated Business, Corporate and Investor • Company Formations & Licensing • Registered Agent and Office services. As a business enabler, Tricor provides outsourced expertise in corporate administration, compliance and business support functions that www.bb.tricorglobal.com allows you to concentrate on what you do best – building business. Member of The Bank of East Asia Group BARBADOS • BRITISH VIRGIN ISLANDS • BRUNEI • HONG KONG • INDONESIA • LABUAN • MACAU • MAINLAND CHINA • MALAYSIA • SINGAPORE • THAILAND • UNITED KINGDOM 34  BARBADOS INTERNATIONAL FINANCE & BUSINESS  2010
  • 33. Wealth ManagementConfidentialityConfidentiality does not mean secrecy, nor is it a method forevading detection of financial crime. Confidentiality meansthat personal and family financial information is well protectedfrom unauthorised disclosure and systems and safeguards are inplace to preserve the identity and assets of investors. Barbadoshas a very well established regime of confidentiality that ismanifested both legislatively and in best practices monitoredby the Central Bank.Asset ProtectionInternational jurisdictions have very specific and investor-friendlyasset protection laws that are designed to protect an investor’sassets from, among other things: • forced heirship rules which provide entitlements to spouses and heirs; • financial exposure for public company directors; • the spiraling costs of indemnity insurance; and • threats of identity theft and other unforeseen financial claims.Barbados possesses very clear asset protection provisions as part ofthe International Trust Act, 1995. These provisions include a: • 3 year period for creditors to commence action; • requirement for creditors to prove intent to defraud; and • requirement that decisions must be made solely by the Barbados courts without regard to the judgments of foreign courts.Optimise Tax GloballyInternational jurisdictions are often crucial global conduits ofinvestment capital for corporate and HNW investors alike. Theuse of these jurisdictions, particularly a jurisdiction like Barbadoswhich possesses an extensive network of tax treaties, confers anumber of benefits with respect to international structuring: • Certainty and clarity of tax provisions; • Elimination or reduction of withholding taxes and other potential frictional costs; and • Simplification of tax reporting requirements and a reduction in the burden of tax bureaucracy.Global Investment OptionsMany international banks offer an open architecture approach fortheir clients, whereby they search out the best money managersfrom a global list of candidates. Many domestic jurisdictionsimpose burdensome restrictions on investor choice and limitinvestors in their ability to invest internationally. By utilising anoffshore jurisdiction, investors are able to access a full universeof investment management options many of which are onlyoffered offshore. The portfolio benefits of this access from adiversification and return perspective can be substantial.  F 2010  BARBADOS INTERNATIONAL FINANCE & BUSINESS  35 
  • 34. ... and so Enjoying the Prime Minister’s reception for International Business much more treTennis at the Olympic Cen Olympic class swimming facility ©  Anton BestRacing at the Garrison © www.TotallyBarbados.comPolo Cricket - our national sport World class golf courses Annual Jazz Festival ©  Hugh FiskeLuscious dining options Crop Over festival - Carniv al time 36  BARBADOS INTERNATIONAL FINANCE & BUSINESS  2010
  • 35. Biking … Art show openings© Lindsay Farmer Rally Barbados Beaches … Join a musical group Boardwalks … Enjoy a cruise with friends Rum, originated in Barbados, exported world-wide The Concorde Experience Surfing on the east coast ©  Umoja Rock Charity work the list goes on ... Entertainment: Activities: Places to Visit: Education: • Cinemas • Fitness Centres & Spas • Historic buildings & sites • International schools • Local & International • Marathon runs • Museums • University & Colleges Theatre • Horse riding • Rum distilleries • Conference facilities • Concerts & Live Music • Ecological Hikes • Plantation homes venues 2010  BARBADOS INTERNATIONAL FINANCE & BUSINESS  37 
  • 36. Wealth ManagementInternational Business – The UnintendedBenefits in Barbados  by E . A drian M eyerI n 1998, a group of entrepreneurial Canadian bankers, convinced As a result, Cidel is able to access non-Canadian markets using a that globalization would allow capital to move easily to places model of an overseas front office supported by a back-office platform where it would attract the lowest liabilities, decided to establish in Barbados. Put educated people in an innovative work environmentan international bank and trust company in Barbados. We named and you can quickly build a team which is able to compete with anyit Cidel Bank & Trust Inc (Cidel). North American team at lower cost. These human resources – our Eleven years later, Cidel and its subsidiaries, with offices in people – are as productive as any.Toronto, Calgary, Johannesburg and Bermuda, has grown into a For example:successful financial services “group” and is the largest privately • Information Technology (IT) Resourcesowned international bank and trust company on the island. It has been the bank’s experience that well educated IT resources are available in good supply. These employees are likely to be graduates of the local campus of the University Of particular note are the “human of the West Indies. capital” benefits we have derived; • Corporate Services Resources Among the bank’s core products is the provision of corpo- these have enabled the business to rate services to clients. In effect, we help them to structure their wealth needs by using corporate and trust vehicles. be more profitable and to grow at a There is a well resourced corporate services sector on the island that primarily emanates from the legal profession. faster rate than might have been the • Accounting Resources Barbados is fortunate to have the “big four” accounting case elsewhere firms well represented on the island. As a result, there is a steady supply of good quality accounting talent. From this point of view, it is a competitive advantage for the bank to be located in Barbados. It is a success story, and Barbados has played a leading role in • Management and Administrative Staffthat success. We chose the island for two primary reasons: Every organisation requires highly competent managers and • Prospective Canadian clients could set up and plan their administrators, and Barbados has a plentiful supply of these. affairs through Barbados, using the existing Canada/ Indeed, the bank has managed to develop a valuable pool Barbados double taxation agreement that had been in place of highly experienced managers and administrative bankers for a number of years; from this resource base. • To satisfy a Canadian requirement where a regulated institu- Obviously, the above human skills are not the only skills required tion that has more than five employees in a treaty country for a successful private wealth management organisation. However, can generate significant tax benefits for any Canadian being able to access them readily in Barbados, means that most resident corporation that owns more than 10% of its shares. international businesses need import only very specific skills. The This is an attractive proposition when you are seeking to real benefit here is that a business such as ours can reduce staff raise capital from prospective Canadian shareholders. turnover and limit the number of revolving expatriates.Over the years, we have reaped solid benefits from our decision, In summary, apart from all of the benefits created by its legislativemany of them unintended and unexpected. Of particular note are framework, the real competitive advantage that Barbados offers tothe “human capital” benefits we have derived; these have enabled international businesses is a pool of competent people from whichthe business to be more profitable and to grow at a faster rate than to recruit. Rest assured that trained, skilled “Bajans”, recruited intomight have been the case elsewhere. a North American-style workplace, perform just as efficiently and This human capital is made up of the bank’s information more cost effectively than their peers from North America.  Ftechnology, corporate services, accounting and management andadministrative skills. Together, these elements form the core of arobust financial services platform that has been developed in thebank’s Barbados headquarters.38  BARBADOS INTERNATIONAL FINANCE & BUSINESS  2010
  • 37. Regional expertise. International reach.Specialised Banking Solutions for the International InternationalFinancial Services Sector Corporate Banking Centres:We believe that banking is about opportunities, not restrictions. With our wide rangeof products and services, you will have the opportunity to grow your organisations Bahamasthe way you always dreamed – without hassle and with a team of financial specialists Barbadosrepresented through your very own Relationship Manager. British Virgin IslandsAs an International Corporate Banking Client you will benefit from specialised banking Cayman Islandssolutions offered by our International Corporate Banking teams located in dedicatedcentres across the region. Our Corporate Banking Specialists will be able to guide Curacaoyou through our services, ensuring you receive ongoing, relevant, discreet and high Turks and Caicosquality support.Our membership of the CIBC Group expands our global reach whilst our regionalexperience gives us access to a wide network of industry experts and contacts withinthe industry.Tel: (246) 367-2012www.firstcaribbeanbank.comFirstCaribbean International Bank is a member of the CIBC Group
  • 38. Isn’t it time you explored the possibilities?Open your business in Barbados or expand your operations. Barbados is recognised around theworld for its quality lifestyle, natural beauty, culture and, above all, the friendliness of its people.We are a highly respected International Financial Centre with: • A wide network of tax and investment protection • Strong regulatory systems treaties that continues to expand • A well-developed infrastructure including • Modern corporate law excellent telecommunications • Daily international flights to the UK, USA and • A highly educated and flexible workforce Canada • Quality lifestyle • A wide variety of business incentive legislation • And so much more Thousands of international businesses have already discovered the advantages! Contact us bifb@investbarbados.org | tel: 246-626-2000