With political stability, a good economy, a long reputation as a financial jurisdiction and extraordinary natural beauty, it’s a wonder why Barbados is
not more popular as a captive domicile.
After enjoying many years of having an exclusive tax treaty with Canada, Bermuda and the Cayman Islands signed a tax information exchange agreement (TIEA) with
Canada in 2011. Since then, Barbados has been pushing to market itself with South America and is working on its captive legislation.
Bombardier has had its captive on the island for 23 years. The transportation company originally participated in a Barbadian rent-a-captive as it was only covering
property risks in-house. The structure, called Rentford, had 10 participants but has since been dismantled. Daniel Desjardins, Bombardier’s senior director for global risk management and
insurance, says that after an expansion in the late 80s and early 90s his department thought it was “time to start flying with its own wings”.
USA Risk Group manages 23 captives in Barbados. Its president, Gary Osborne, says he loves the stability of staff, government and economy. “It has been
independent for over 40 years. Governments have come and gone and there has been a consistency of treatment for this industry,” he says, arguing its biggest downside is being a little
further away than most other domiciles.
Tax agreements
Barbados has enjoyed a long and fruitful relationship with Canada since the two countries signed a tax treaty in 1980. However, last year the Cayman Islands and
Bermuda’s TIEAs came into play.
Many raised concerns that Barbados would lose its main source of captive insurers. Towner Management is one of the principal captive mangers on the island. Ricardo
Knight, president of The Towner Management Group, believes a tax treaty is a much fuller arrangement: “While a tax treaty has an information exchange clause, that would just be one
component in it. It would also address trade issues, for example with cultural exchanges, it may give benefits such as favourable rates on withholding tax, premiums, royalties or interest
between mature countries.”
Desjardins says: “There are more alternatives out there right now for a Canadian company. Obviously Bermuda and Cayman are more attractive with their recent
TIEAs. There’s parity now between what Barbados, Bermuda and Cayman have to offer.” But he adds: “When you look at a mature captive like ours and all of the time and effort that
we have been spending in structuring the captive and all of the infrastructure that is implemented and working very well, it is quite a monumental task to dismantle all of this to change venue
and to not gain a lot at the end of the day.”
Knight says that despite there now being a level playing field there is really no advantage to Bermuda or Cayman over Barbados with regard to Canadian captives. He
argues it is naïve to think that because, due to a level playing field being reached in terms of tax, Barbados is now on par with Bermuda and Cayman.
However, he says the domicile is still ahead for Canadian business. “We have had the advantage for many years and we have had the opportunity to fine-tune and
do what we what do well for a long time, so unless our service levels or infrastructure, from a governmental perspective, are reduced in quality I don’t see why we wouldn’t still be
the domicile of choice for Canadian captives.”
New markets
Osborne describes Barbados as becoming an ‘afterthought’ domicile that would often only be recommended to companies headquartered in Canada. However, he
says: “We try and look at it now for our smaller US private companies. I would recommend BVI and Barbados as the best two options for them.”
Since Canada created TIEAs with Bermuda and the Cayman Islands, Barbados has been marketing itself further afield, particularly in South America. Barbados has a tax
treaty with Venezuela and Mexico. Wayne Fields, president and CEO of Amphora Bank, says he has seen new Barbadian captive formations from Mexico. He adds: “There’s no restriction in
Barbados on writing any risk, so you can do any type of captive business in Barbados.”
There are now also regular flights between Brazil and Barbados. Knight says: “We have 30 or 40 tax treaties now. Tax treaties have trade benefits rather than
just being information exchange agreements. It’s a recent thing for jurisdictions to enter into tax agreements but we’ve been doing it for many years.”
“There’s a very efficient network from The Time you deposit your business plan to the time it is approved by the local
authorities” Daniel Desjardins
Benefits
Osborne says he has not seen any redomiciliations since the TIEAs were signed by Bermuda and Cayman. “The most recent ones we have seen were US captives,” he says. This may be because
there’s a relatively competitive cost structure in Barbados. “The auditor’s fees and providers are less than Bermuda for example, partly because Barbados doesn’t have the
same kind of expat community,” says Osborne.
Desjardins was instrumental in originally establishing Bombardier’s captive in Barbados. He chose the jurisdiction because it was the best financial package for Canadian companies at the
time. He says: “We try to benchmark domestic costs every third year; we haven’t found some great disparity. From a cost perspective there’s no disadvantage to us leaving
Barbados and also despite being a Canadian company our balance sheet is in the US dollar.” Fields says the island is “substantially cheaper than other domiciles around the
world”.
The Barbadian regulators also have a reputation for being very efficient. Desjardins says: “Over the years we have had to expand our licence to write employee benefits and life for example
and the whole thing took all of 30 days. There’s a very efficient network from the time you deposit your business plan to the time it is approved by the local authorities.”
New legislation
There is an ongoing modernisation of the financial commission in Barbados. Part of this is the involvement of the private sector, employing service providers such as captive managers and
actuaries, to advise on the supervising of the insurance industry. Knight is the chairman of a joint policy working committee that is currently working on legislative changes that are expected to
come out at the end of the first quarter of 2012.
Osborne says: “It is more of a complete rewrite of the financial sector than just captive insurance. It’s a modernisation entwined with some of the international standards.
There’s still a clean-up to be done with a couple of changes.” Knight says the proposals “allow some tightening and clarity on certain regulations and they improve the
marketability of the jurisdiction”.
Osborne believes regulators are also working on clarifying cell legislation and captive fees structure. USA Risk Group was partially responsible for putting this idea forward to the regulators. A
‘one size fits all’ approach to captive fees exists at the moment, and the government is looking at tightening its cost structure, according to Osborne. He says: “It
doesn’t matter if you are a million-dollar captive or a hundred million-dollar captive, the government fees are all the same. It is not a huge number but it means Barbados is more expensive
than some of the other offshore domiciles for a small programme.”
An indigenous workforce
Due to Barbados being a long recognised financial centre, the island has trained a long line of service providers, such as accountants and lawyers, in its local university, connected to the
University of London. The jurisdiction’s good education system has created a skilled workforce for the financial sector. “We have employees who would be on accounts for eight to nine
years so there’s a level of continuity in the business, unlike Bermuda or Cayman,” says Knight. Osborne agrees: “People have their own Bajan accountants and audit firms; they
don’t rely on expats so there’s not the same cost. You don’t need to pay high wages to attract people from country to country. There’s poverty but there’s a
relatively robust economy, professional jobs are high-standing and there’s a large population to fill them.”
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