The recent passage in 1995 of the International Trust Act(ITA) has added to the attractiveness of Barbados as a domicile for private wealth management and indeed asset protection. With the passage of this legislation Trusts established under this Act(hereinafter referred to as International Trusts or IT)can now be established to take their place along the already established Domestic Trusts and Trusts established under the regime of the Offshore Banking Act(OBA) as means of estate planning.
Trusts have traditionally been used by wealth families as a means to preserve their family wealth and also as a means to avoid creditors and the seeming endless arm of the taxing authorities of the Settlor's country of residence. Such Trusts which may be referred to as Domestic Trusts, have been in existence in Barbados from the time of its settlement by the English who introduced their legal system to the country and as such the common law of Trusts has been established here for many centuries.
With the gaining of Independence in 1966 attention was turned in the succeeding years to developing the financial services sector of the economy with a view to making it a significant contributor to the country's economy. New legislation was enacted to make the country attractive to investor's while at the same time double taxation treaties were signed with major trading partners such as the United States the United Kingdom and Canada so that investors would not face the disincentive of double taxation.
As part of this process of development the Offshore Banking Act was enacted in 1980.This Act made provision for offshore settlors to create an offshore Trust without any particular formalities .The Trustee of such a Trust had to be a licensee under the Act .Such a Trust was exempt from any tax in Barbados once the settlor was non resident ,the beneficiaries were non resident and the Trust Funds consisted solely of foreign currency or foreign securities which in general made the corpus of any 'property' that may be held in Trust very restricted.
The passage of the ITA has lead to an increase in attractiveness of Barbados as a domicile for private wealth planning for the following reasons:
1)It provided a clear definition of the relationship that establishes a Trust in language similar to that of Article 2 of the Hague Convention on Trusts.
2)It abolished the rule against Perpetuities.
3)It provided a definition of the Proper Law of the Trust.
4)It made provision for the establishment of Non-Charitable Purpose Trusts and the Office of a Protector to enforce same.
5)It rejected claims to the Trust Property based on foreign forced heirship laws.
6)Placing the burden of proof upon a creditor seeking to set aside a transaction on the basis of a fradulent disposition.
7)It created a framework whereby the establishment of an IT could take advantage of the benefits available under the country's network of double taxation treaties.
Earlier articles have already looked at the provisions outlined in one to six above and it is thus our intention to touch briefly on the benefits alluded to in 7 above.
Reference has been made already to Barbados' Double Taxation Treaty network and also to the possibility of creation Of 'Trusts' within the scope of the Offshore Banking Act by foreign investors as a means of wealth preservation. Use of the International Trust Act rather than the Offshore Banking Act to create a Trust by a foreign settlor for non resident beneficiaries has an additional advantage in that it allows the Trust to qualify for tax treaty benefits.
Under the provision of the Double Taxation Treaties a prerequisite for qualification for benefits is that a person or entity must be liable for taxation therein by reason of his domicile or residence.
The IT Act was amended to state that an IT is not domiciled in Barbados for the purposes of the Inland Revenue ACT. An IT which must have at least one of its Trustees resident in BARBADOS would nevertheless be considered resident here from the fact that its administrative working is done in the island.
As the Trust is resident but not domiciled it is only locally sourced income or income remitted to Barbados that is subject to local income tax while income that is distributed to non -resident beneficiaries is exempt from tax. It is arguable that such a Trust is entitled to qualify for benefits under the Double Taxation Treaties as it is liable for taxation although the same can not be said for a Trust established under the Offshore Bank Act as the foreign income of the Trust is not subject to tax.
The above is meant to be a general guideline and not an authoritative
exposition of the law with respect to the use of Trusts in Barbados. This area can often be complex and specific advice should be sought for the particular structure you may want to contemplate.