Barbados Repeals Exempted Insurance Act, Captives Maintain Zero Tax

The government of Barbados has announced a number of legislative measures as it moves toward tax convergence of the country's international and domestic business sectors. These initiatives also support Barbados's commitment to the Organization for Economic Cooperation and Development's Inclusive Framework on base erosion and profit shifting, particularly Action 5.

Nine pieces of Barbados's suite of international business legislation will be amended, including the following.

• Effective December 31, 2018, the International Business Companies (IBC) Act will be abolished, and no new IBC licenses will be issued.
• The Societies with Restricted Liability Act will be amended, and no new international societies with restricted liability (ISRL) licenses will be issued with effect from December 31, 2018.
• Effective January 1, 2019, all IBCs and ISRLs will automatically, by operation of law, become regular Barbados companies (RBC) and societies (RBS). Those IBCs and ISRLs that qualify for grandfathering are entitled to be so grandfathered until June 30, 2021. Such entities are required to renew their licenses as usual.
• All RBCs and RBSs may conduct business locally, regionally, and internationally from January 1, 2019.
• Effective January 1, 2019, all RBCs and RBSs that earn 100 percent of their income in foreign exchange will be entitled to receive a foreign currency permit, granted by the Ministry of International Business and Industry, which will afford them practically the same benefits previously enjoyed by IBCs and ISRLs.
• Corporate entities, except those that are grandfathered, will be taxed on a sliding scale from 5.5 to -1 percent.
• The Exempt Insurance Act will be repealed. All insurance entities including exempt insurance companies and qualified insurance companies will be regulated under the Insurance Act, which will be amended to provide for three classes of licenses, as follows.
  • Class 1, which includes captives, will pay a license fee and be zero taxed.
  • Class 2 includes all other insurance companies that insure and reinsure third-party risks and will be taxed at a rate of 2 percent.
  • Class 3 applies to brokers, managers, etc., who also will be taxed at a rate of 2 percent.
• The International Financial Services Act (IFSA) will be repealed, and the Financial Institutions Act (FIA) will be amended to include provisions for the licensing of business entities that generate solely foreign currency from their operations. Companies that were formerly structured under the IFSA will now be regulated under the FIA, which will provide for four classes of licenses, as follows.
  • Class 1—commercial banks
  • Class 2—trust companies, finance companies, merchant banks, and money or value transmission service providers
  • Class 3—financial holding companies
  • Class 4—foreign currency earnings banks
• The International Trusts Act will be renamed the Trusts (Miscellaneous Provisions) Act and will be amended, along with the Shipping Act, to remove all elements of ring fencing.

In addition to the above measures, other changes are expected to take effect soon after January 1, 2019, including amendments to the Foundations Act.