TYPES OF BUSINESS FORMATIONS – RELEVANT LEGISLATION

The International Business Companies Act is one of a suite of legislation Barbados has deliberately created to attract and facilitate the wide range of business activities allowing Barbados to become recognised as a modern and responsible international business centre for foreign and domestic investment.

An International Business Company (IBC) is a company that carries on business in manufacturing, trade and commerce from within Barbados for customers residing outside of Barbados. An IBC may therefore manufacture process or otherwise prepare products for export outside of Barbados or provide services to non-residents of Barbados. The IBC legislation encourages local and non-resident participation in diverse activities including financing, investment management, futures trading, and information services among many others.

- must be financially capable of carrying out the business.

- may not carry on business under any other offshore incentive legislation.

- must not carry on a trade in buying or selling goods and services in Barbados

• Tax rate of 2.5% - 1% depending on the level of income of the IBC into perpetuity.
• Foreign tax credit can be taken in respect of taxes paid outside of Barbados, provided that the election to take the credit does not reduce the tax payable in Barbados to less than 1% of taxable income.
• No withholding tax on dividends, interest and other payments made to non-residents or to another IBC.
• No capital gains tax nor estate duties
• Exemption from ad valorem stamp duty, except in respect of real estate situated in Barbados
• Exemption from taxes and duties on plant, machinery, raw materials, goods and other articles imported into Barbados for use in the IBC’s business
• Exemption from exchange control
• Guarantee of benefits and exemptions for a period of 15 years
• Tax concessions for specially qualified employees
• Exemption from taxes on the transfer of any securities or assets of the IBC, other than the transfer of real property situated in Barbados.

A company must first be incorporated or registered in Barbados under the Companies Act. An application for an IBC license (Appendix I) may be made immediately after incorporation or registration of the company, after which it may then commence business in Barbados. The application for an IBC license must include a brief description of the intended business of the company, the name and address of the proposed shareholders and the percentage of shares to be held. Certain other due diligence information must also be supplied with the application. The application fee is Bds $ 850.00. See Application Form at Appendix I.

• An IBC license must be renewed annually on or before the 31st. day of December. See Renewal Form at Appendix II
• An annual fee of Bds $ 850.00.
• Audit requirement where the gross assets and revenues of the company exceed the statutory threshold of Bds $1M.
• Financial statements are to be filed with the renewal application

A Society with Restricted Liability (“SRL”) is an entity that is established under the Societies with Restricted Liability Act. An SRL is very similar to what is known in the US as a Limited Liability Company (LLC). An SRL that is entitled to special Barbados tax benefits is called an “International Society with Restricted Liability” (“ISRL”) whereas entities subject to regular Barbados taxes are referred to as SRLs. ISRLs are designed to be used mainly for international transactions and are prohibited from transacting business with persons resident in Barbados.

Other Characteristics of an SRL

• Limited liability.
• The rights, powers and privileges of an individual.
• Stipulation that the transfer of quotas in a society will not confer on the transferee the right to become a member or participate in the management of the society without the written consent of all the members.
• Quotas similar to shares and bearer shares are not permitted.

The general benefits of an ISRL are identical to those of an IBC, except that an ISRL’s tax and duty exemptions are guaranteed for 30 years.

• Limited liability
• Simplified corporate mobility into and out of Barbados
• Simple winding -up provisions
• Ease of organisation with no minimum capital requirements
• Corporate directorship and secretary permitted with certain restrictions
• Provision for redeemable quotas and for pre-incorporation contracts
• An ISRL may purchase, redeem or otherwise acquire quotas issued by it, subject to solvency test 

Organisation of an ISRL is achieved by filing articles of organisation and prescribed information as to managers and registered agent, along with the fee of Bds $ 780.00 (US$390.00), to the Registrar of Companies. A certificate of organisation is issued by the Registrar, on filing of the organizational documents.

The formation procedures are essentially the same for both types of SRLs, except that an ISRL must obtain a licence from the Minister responsible for International Business to operate as such. This license must be renewed annually. See licence application at Appendix III.

• An ISRL license must be renewed annually on or before December 31^st. See renewal form at Appendix IV.
• Annual Licence fee of Bds. $850.00 (Approx. US $425.00).
• Audit requirement where the gross assets and revenues of the SRL exceeds the statutory threshold of Bds $1M (US $0.5M).
• Financial statements are to be filed with the regulatory authorities
• Annual return to be filed by 31^st January of each year.

The Barbados Exempt Insurance Act states that for a company to qualify as an Exempt Insurance Company it must be incorporated in Barbados with a minimum capital of US$125,000, and at least one of its directors must be a resident citizen of Barbados. Exempt Insurance Companies cannot insure risks originating in Barbados or risks of local residents. Exempt Insurance Companies are taxed on their profits at the rate of 0% for the first 15 years and thereafter, 2% on the first $250,000 of profits. They are also exempt from withholding tax and exchange control restrictions. There is an application fee of US$250 for an Exempt Insurance Company and an annual licence fee of US$10,000.00.

A 1998 legislative enactment allows companies involved in international insurance business to register under the domestic insurance legislation as Qualifying Insurance Companies (QIC). A QIC is entitled to the benefit of a low effective rate of tax (generally 1.75%) after deduction of a foreign currency earnings allowance, and exemptions from withholding taxes and exchange control. Unlike Exempt Insurance Companies, a QIC can be owned by residents of Barbados and can insure a certain amount of local risk.

A QIC is entitled to the tax concessions once at least 90% of its premiums originate outside of CARICOM, and at least 90% of its risks insured are located outside CARICOM

• A maximum tax credit of 93% is available where premiums originate outside of CARICOM
  
• Exemption from withholding taxes
  
• Exemption from exchange control
  
• Personal tax concessions for specially qualified employees
  
• Re-domiciliation provisions
  
• Annual fee of BDS$20,000 (US$10,000)

The International Trusts Act allows trusts to be created by non-residents for the benefit of non-residents. There are no minimum capital requirements for Barbados Trusts and they can be either of fixed interest or discretionary. An International Trust is taxed at a maximum of 50% on its profits earned in, or remitted to Barbados but there are no withholding taxes on payments to non-resident beneficiaries.

• The Trust deed must specify that the International Trusts Act applies
• At settler and the beneficiaries must be non-residents of Barbados
• The assets of the Trust cannot include Barbados real estate

(Replaced the Offshore Banking Act in June 2002)

In order to establish an International Bank in Barbados, details of the proposed bank must first be submitted to the Central Bank of Barbados for approval. Approval must be sought from the Ministry of Finance prior to the incorporation of a company. A company must have a licence before engaging in the banking business. Applications for a licence are submitted to the Central Bank whom may issue the licence, subject to the approval of the Minister of finance. A licence to operate is issued only to qualified foreign banks and eligible companies. Licences are under the control and oversight of the Central Bank of Barbados. The registration fee is US$50,000.00. International Banks are subject to audit, an annual licence fee of US$50,000.00 and income tax on a sliding scale of 2.5% - 1%.

The International Financial Services Act provides that dividends, royalties, interest, foreign securities funds, gains and assets generated or managed by a licensee are automatically exempt from the provisions of the Exchange Control Act.

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