Barbados guide 2016: Banking and business
Model of excellence: Barbados’ professional business services industry is admired by many Western nation states.
Reputations are complex things: hard to create and tricky to maintain. Warren Buffett once said they could take 20 years to build, but that it requires just five ill-advised minutes to destroy all your hard work.
If that is true, Barbados long ago decided to take to heart the advice of the great Sage of Omaha. In the half-century since announcing independence from the UK in November 1966, this island, a gem in the bluest reaches of the western Atlantic, has built a business and finance environment that is the envy of many countries.
During that period, it signed bilateral investment treaties with countries ranging from the UK to China and Germany to Canada. These accords ensure that any company or institution operating in or through Barbados is guaranteed a fair hearing at an independent court of arbitration if a deal or investment goes wrong. Politicians in the capital, Bridgetown, have also, over the past 45 years, finalized double-taxation agreements (DTAs) with 36 countries and agreed terms with another six, including the UAE, Rwanda and Italy.
DTAs ensure that an investor from one of those countries can reduce its rate of corporation tax, so long as it is willing to locate business in Barbados and to export a large share of its output. Barbados has also signed tax information exchange agreements (treaties that promote international cooperation over tax matters) with five countries. It has also signed up to the Convention on Mutual Administrative Assistance in Tax Matters, first developed jointly by the OECD and the Council of Europe, and is due to ratify this shortly, making Barbados one of the treaty’s early sovereign adopters.
This is a formula that has served Barbados well for decades, yet the nation’s top legislators are constantly working to perfect the model. Marlon Yarde, managing director of the Barbados Stock Exchange (BSE), underscores the importance of “ensuring that none of us rest on our laurels”, a view shared by many on the island. Jeremy Stephen, president of the Barbados Economic Society, applauds the willingness of Barbadian diplomats to “continue travelling the world, signing double-taxation agreements with lesser-known jurisdictions with very bright futures, such as Rwanda. DTAs offer investors, including multinational corporations in those countries, the chance to access a global financial network that they previously had difficulty accessing in a favourable manner.”
This ability to put itself at the heart of the financial world is key to explaining the island’s continuing resilience. Bridgetown will never be London or New York – or even Toronto or Frankfurt – but it is blessed with a host of other attributes, most notably a low corporate tax rate, an excellent educational system (the literacy rate is above 98%), and a large contingent of white-collar talent, from bankers to lawyers to auditors. It also boasts a high quality of life, predicated on a pristine environment, a high standard of living, an excellent climate, and low rates of crime and corruption.
And low tax doesn’t mean no tax. Barbados has long shied away from the tax-haven tag. It does things the right way, adhering to international rules and norms, and has always submitted to the rigorous scrutiny of global rule-setting bodies such as the OECD’s Global Forum and the Financial Action Task Force. “Our international business and financial services sector continues to thrive due to its longstanding platform of compliance and transparency,” says Dustin Delany, managing partner at Delany Finisterre, a Bridgetown-based international law firm.
Barbados is proud of its place on the OECD’s White List of jurisdictions that adhere scrupulously to internationally agreed tax standards. In an era when the tax records of everything from funds and listed corporates to charities and wealthy individuals is under acute scrutiny, this matters. “Legitimate interests continue to come to Barbados,” says Delany. “In recent years, we have seen a multitude of legitimate businesses migrate” here. The BSE’s Yarde notes that Barbados has a tax-treaty network that offers investors a variety of tax-efficient vehicles through which international business can be conducted.
DeLisle Worrell, governor of the central bank of Barbados, also notes that the country’s continuing success can be explained by the integrity of its institutions. He says the process of determining whom the island wants to go into business with is simple. “We are interested in working with people and institutions that employ Barbadians, add value, and pay their taxes,” he says. “It’s not about putting your name on an office door but in employing people here. Firms know that they come here to manage their tax spend, but also to base themselves in an international business hub that can help them increase their global efficiency.”
The Barbadian government, notes the BSE’s Yarde, is determined to transform the island into an “international financial wealth and management centre of choice in the Western hemisphere”. He adds that the island remains “committed to enhancing its reputation as a stable, modern and cost-effective jurisdiction for commerce”. Sir Trevor Carmichael, chairman of Bridgetown-based Chancery Chambers, one of the leading legal minds in the Caribbean, highlights the private trust industry as being likely to become a “new and vigorous area of growth complementing international business companies and captive insurance companies”.
Barbados consistently ranks highly in the World Economic Forum’s Global Competitiveness Report. It ranked third region-wide in the latest Euromoney Country Risk rankings, published in June 2016, thanks in large part to its robust banking system, stable currency and political system, rosy economic outlook, and low level of economic risk. “Investors,” notes the BSE’s Yarde, “are offered an array of attractive options, including the International Securities Market – a new bourse hosting global stocks, bonds and funds – tax-efficient business structures for manufacturing/services and the Special Entry Permit for high-net-worth individuals.”
Then there is the simple fact that Barbados is, by dint of its unspoiled environment and depth of white-collar talent, a very pleasant place to do business. “Barbados is not just an international business centre, it is an international gathering spot,” says Delany. “There are residents from all corners of the globe who have come to Barbados to live and work. This diversity and the exchange of cultures, practices and the like allow a more comprehensive approach to not just the conduct of business, but life itself. Barbados has something for everyone.”
Undoubtedly, challenges remain. Like most Caribbean nations, Barbados’ prospects are linked to those of First World Western nations; when they stumble, it does too. Another concern is that of de-risking – the threat of global lenders or corporates fearing being exposed to the accusation of tax avoidance and thus taking their money out of Barbados and the wider region.
Many in Bridgetown are advocating a strengthening of Barbados’ onshore banking sector, and further deepening its financial relationship with the wider world. Chancery Chambers’ Carmichael says the government should “seriously consider once again establishing a locally owned commercial banking institution with an appropriate capitalization and international marketing reach”.
It’s another great and wise idea: don’t count against it happening.