The main objective of the legislation is to facilitate the establishment of banks which while registered in Barbados may conduct all or a significant portion of their business off the island but still reap the tax benefits of being a company resident in Barbados. Any business conducted with persons in the island must be transacted in a foreign currency and is restricted to persons whom are themselves operating in the International Finance sector.
CATEGORIES OF OFFSHORE BANKING
The Act has categorised many activities as offshore banking to facilitate a wide range of investment. These categories include:
- the receiving of foreign funds through the acceptance of foreign money deposits payable upon demand or after a fixed period of time or upon the receipt of notice;
- the sale or placement of foreign bonds, certificate notes or other debt obligations or foreign securities or any other similar activity involving foreign money or securities, which either in whole or in part use foreign funds for the purposes of loans;
- the acceptance in trust of money in foreign currency, foreign personal or movable property or real or immovable property from persons outside Barbados who are not resident in Barbados to be administered, managed, invested or otherwise dealt with for the benefit of persons resident outside Barbados.
The Act does place some restriction on the persons who may register to obtain an offshore banking licence. A licence may only be issued to an eligible company or a qualified foreign bank.
ELIGIBLE COMPANY
An eligible company is defined as a company incorporated in Barbados under the provisions of the Companies Act 308, whose aims and objectives are restricted to offshore banking. The company must have a least one director who is resident in Barbados. The company's memorandum and articles of association must be acceptable to the Central Bank of Barbados and a paid up capital is to be in excess of $1,000,000.
FOREIGN BANK
A foreign bank on the other hand is one which was licensed under the Barbados Banking Act or under a banking act of another jurisdiction at the time of the commencement of the Offshore Banking Act having the prescribed minimum capitalisation and assets as required by the Central Bank; or being a financial institution approved by the Central Bank which is directly or indirectly a wholly owned subsidiary within the meaning of the Act of a foreign bank.
APPLICATION FOR LICENCE
The practice has developed in recent times to first make a tentative application (this applies only to an eligible company) whereby the intended licensee submits a proposal to the Minister of Finance for a licence and the Minister upon considering the application may indicate whether or not a subsequent full application based on the proposal would be favourably treated. This procedure has been instituted to save companies time and expense which could be incurred on being denied a licence after complying with all the rigorous formalities.
Any application for an offshore banking licence must show that the applicant is either an eligible company or a foreign bank and must give the names and addresses of its directors, the particulars of the offshore banking business to be undertaken in Barbados, the names of any shareholders who are resident in Barbados as well as provide such other financial information as the Minister of Finance may through the appropriate government agency require. The application is to be accompanied by a certified copy of the memorandum and articles of association of the applicant.
The application and all supporting documentation must be signed by the directors of the company making the application.
It should be stressed that all applications are scrutinised thoroughly by the Central Bank so that Barbados may maintain its reputation of integrity in the financial world. As such, the process may take a couple of months.
INCENTIVES TO OFFSHORE BANKS
Some of the incentives that are offered to Offshore Banks are:-
(a) Rates of tax on banking profits up to $10 million 2.5%
over $10 million but not exceeding $20 million 2.0%
over $20 million but not exceeding $30 million 1.5%
over $30 million 1.0%
(b) no other direct tax or capital gains tax on the profits or gains of the bank;
(c) no taxation on distributions to a non-resident person or another licensee;
(d) no taxation is levied on a licensee, its shareholders or transferees on the transfer of its assets or securities;
(e) no estate, inheritance or similar tax on any shares, securities or assets of a licensee owned by a non-resident person;
(f) exemption from customs duty on equipment imported for use in business;
(g)agreements or guarantees by the Minister regarding the future taxing of a licensee;
(h)tax concession for specially qualified non-residents whose services are required for the business (i.e. up to 35% of their salary can be paid in a foreign currency and is tax free);
(i) exemption from tax on trusts established by non-residents and managed for the benefit of non-residents;
(j) certain exchange control exemptions including safeguarding the affairs of a customer;
(k) securities, assets, funds, dividends, interest generated or managed by a licensee are exempt from exchange control;
(l) rates of interest are not controlled.
(m) A fixed rate of Stamp Duty of $10.00 is chargeable with respect to documents relating to the licence of Offshore Banking.
AUDIT AND INSPECTION
Every licensee, in respect of its business, must submit to the Central Bank of Barbados the following:-
(i) A quarterly statement of its assets and liabilities not later than twenty-one days after the end of its financial year, three copies of its balance sheet and profit and loss account, and the full and correct names of the directors of the licensee. The auditor's certificate must accompany the balance sheet and profit and loss account.
COSTS
A licence fee of BDS$25,000 (US$12,500) is payable on the issue of the licence and thereafter on the 1st day of January in each year.
Legal fees vary depending on the amount of work needed to be done with the application, between BDS$15,000 and $25,000 with a retainer of $5,000 payable on instructions being given.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
