Barbados as a Captive Insurance Domicile
Historical Barbados was settled by the British in 1627 and remained a British colony until 1966. It boasts the second oldest parliament in the British Commonwealth and is governed by a strong Westminster-style parliamentary system . The island maintains an enviable record of economic and social stability. The Government of Barbados passed its first Exempt Insurance Act in 1983, as […]
By Richard Ince
June 30, 2010
By Winston Edghill (Own work) [CC-BY-SA-3.0 or GFDL], via Wikimedia Commons Historical
Barbados was settled by the British in 1627 and remained a British colony until 1966. It boasts the second oldest parliament in the British Commonwealth and is governed by a strong Westminster-style parliamentary system . The island maintains an enviable record of economic and social stability.
The Government of Barbados passed its first Exempt Insurance Act in 1983, as the growth and development of an International Business sector was perceived as a logical step in the diversification of a local economy almost exclusively dependent at the time upon tourism and agriculture. Development of an International business sector was well suited to the island’s economy, as it was non intrusive, not harmful to the physical environment, provided a number of skilled job opportunities and did not require significant land resources.
International business is today a fast growing sector and generates significant foreign income. It also works synergistically with tourism, which has encouraged development of a sophisticated services infrastructure, including regular airline service, excellent restaurants, quality accommodations and reliable telecommunications.
Development Path
Barbados chose to develop its International sector on the basis of a network of International Double Tax Treaties with many industrialized countries. Consequently, the island is not a tax haven, but a regulated, fully transparent low tax domicile for international business.
The island’s regulatory environment has consistently met or exceeded all International Best Practise Standards.
Recent development
Since 1983, the Barbados International Insurance sector has grown to become one of the top five domiciles worldwide, and the leading domicile of choice for Canadian parented captives. Over 400 captives have been registered on the island since 1983, about a third of which are of Canadian origin.
In 1998, the Insurance (Miscellaneous Provisions) Act (1998) became law. This Act achieved a significant level of convergence between the Barbados International and Domestic Sectors, which is considered a beneficial objective by International Financial Bodies. It created the QIC (Qualifying Insurance Company), a truly domestic International Insurance company with most of the regulatory requirements of a domestic insurer, including taxation, but subject to significant tax relief where more than 90% of the insurer’s premium income emanates from foreign sources, and is derived from extra-regional risks.
In 2001, Protected (Segregated) Cell Company and Branch Office Legislation were added, providing a full complement of options, and reinforcing Barbados’ position as a leader among world captive insurance domiciles.
Barbados will also co-operate with several other domiciles to facilitate redomiciliation of companies in or out of the domicile.
Other Benefits
With its ideal year-round climate, highly developed infrastructure, high academic standards and mature business environment, Barbados also boasts a skilled and available labour force, high quality rental accommodations (both personal and business), an open, virtually unrestricted real estate acquisition policy, and significantly lower operating costs than any of its major competitors in the region.
Cost of utilities such as water and electricity are also very competitively priced.
Barbados Fact Sheet
| Minimum Capitalization: | BB$250,000 (US$125,000) – Capitalization may take the form of cash or financial guarantees |
|---|---|
| Exchange Rate: | BB$2.00 = US$1.00 Fixed rate |
| Types of captives: | EIC – Exempt Insurance Company – A limited – tax company organized under the Exempt Insurance Act (1983) QIC – A locally organized (Qualifying) Insurance Company under the Barbados Insurance Act which writes in excess of 90% non-CARICOM risk. |
| Tax: | EIC Currently enjoy a 15 year tax exemption, pay an annual fee of – BB$20,000 QIC – 40%, however if over 90% of the captive’s premium income/risk is from non-CARICOM sources, a foreign currency tax credit applies, reducing the net effective tax rate to 2.63% |
| Tax Treaties: | Botswana, Canada, CARICOM, China, Cuba, Finland, Mexico, Netherlands, Norway, Sweden, Switzerland, U.S., United Kingdom, Venezuela, others under negotiation |
| Relevant Legislation: | Exempt Insurance Acts, 1983, 1996 Insurance Act – 1998 Amendments Insurance (Miscellaneous Provisions) Act 1998; Protected Cell and Separate Accounts Legislation, Branch Office Legislation, Companies Act |
| Investment Restrictions: | Special permission obtainable for admission as assets – any loans to related parties, principally where captive plans do not include writing of Third Party Business |
| Supervision/Regulation: | Government regulation by office of Supervisor of Insurance – Ministry of Finance Straightforward legislation – Strong element of self-regulation. Local Managers Association: Barbados International Business Association (BIBA). |
| Financial Reporting: | Annual within six months of Financial Year-end, and Auditor’s Certificate of solvency. No separate Solvency Audits |
| Exchange Control: | None on funds of EIC or QIC |
| Legal Advisors: | Excellent. UK , Commonwealth trained Attorneys |
| Accountants: | Excellent – Canadian, US and UK Standards. Most Major International Accounting Firms represented. |
| Banking: | Excellent – Most major Canadian banks represented. Citibank, Butterfield’s. Several private offshore banks also established that accept Third Party investments. There is no legal requirement for a Barbados bank account. |
| Board Composition: | There is no legal requirement for local directors. Local directors presence is preferable, particularly where mind and management are critical to the business plan.Several local Companies provide Corporate Secretarial services, as admissible under the Act. The minimum composition is one Barbadian resident director and Secretary. |
| Meetings: | No legal requirement for meetings in Barbados. At least one meeting per year in Barbados is recommended. Meetings by Conference Call originating in Barbados are acceptable provided the number of resident Barbados directors equals or exceeds overseas directors at meeting. |
| Finance: | Accounts are normally held in the Offshore Business division of the bank of the client’s choice. This may be in Barbados or some other location that is suitable to the company’s operations and legal structure. Authorized signatures on accounts are at the discretion of the Board. |
| Use of Clients Funds: | No onerous restrictions apply to the use or movement of client’s funds. Movement of Exempt funds worldwide from Barbados is unrestricted. |
| Cancellation: | Captive may be compulsorily wound up by High Court on application of the Supervisor, if in breach of solvency or unable to pay its debts.The captive may also be continued, merged or amalgamated into another captive in another domicile, or accept continuations, mergers or amalgamations from other domiciles, on the approval of the Supervisor. |
| Start-up: | An application providing basic information on the proposed operation, accompanied by a business plan, is required as the basis for setting up. An actuarial report may also be required. From initial filing of the plan to final approval may take less than four weeks. |
Suggested Critical Path to Captive Formation
Week 1
Selecting a Barbados Captive Insurance Manager as a first step will facilitate the selection of other local service providers, such as :Attorney; Auditors, Bankers
- Select a name and, through attorney, apply to Barbados Registrar for a name reservation (US$15.00 fee)
- Complete and submit an Exempt Insurance Application form to Barbados Supervisor of Insurance for approval (US$250.00 fee)
To include:
- Application form
- List of directors
- Business Plan
- CV’s of non-local directors
- Auditors and managers
- Selected name of the company
Week 2
- On receipt of Barbados Supervisor’s confirmation, instruct attorneys to form the Company
Approve Memorandum and Articles of Association.Advance payment to Attorney to cover:- Exempt Co. First Annual fee – US$10,000 annual
- Company registration fee – US$250
- Attorney’s incorporation costs – approx US$15,000
- Managers formation fees – from US$2,500
Week 3-4
- Incorporation of the company
- Open bank account in the name of the company – Available for deposits only until the bank mandate is agreed at the first board meeting.
- Payment of share capital – This should be paid into the account opened in the name of the captive
- Insurance Licence Issued by the regulatory authority
- Incorporation and first board meetings of the company
Summary of Barbados Domicile Costs
1.
| Start up costs | US$ |
|---|---|
| Legal incl initial license and Application Fees | Fr. $20,000 |
| Auditor’s Fees – Opening Balance Sheet | $1,000 – $1,500 |
| Management Company Organizational/Start-up Fee | $2,500 – $15,000 |
2.
| Running Costs – Annual | US$ |
|---|---|
| Local Directors (Min 2)*. | Fr. $2,500 |
| Corporate Secretary * | Fr. $3,000 |
| Legal – Routine | $2,000 – $3,000 |
| Auditor | Fr. $7,500 |
| Annual License Fee /tax | $10,000 |
| Management Company Annual Fees | From $5,000 depending on level & type of activity |
| Other Miscellaneous Expenses (Stationary, Bank checks tel/fax, entertainment, travel, etc) | Fr. $2,500 |
* Anticipates AGM and approx. one to two other meetings/year.
NB – Cell Structures
Costs quoted above are for the set-up of a ‘stand alone’ captive structure and do not apply to individuals cells.
A Cell is a segregated part of a particular type of captive called a Segregated Cell Company (SCC).
Costs and fees for a cell usually comprise a flat set-up fee, which may range from US$2,500 plus an annual ‘Rental’ fee for the use of the captive structure. This will vary significantly from approximately US$15,000-$20,000 and up. This fee will be geared to cover all running costs of the cell.
Richard Ince
Richard Ince CIP CRM - Account Manager, CGM Gallagher Insurance Brokers (Barbados) Ltd. is a seasoned Barbados insurance manager and consultant with over thirty five years experience, over half of which have been in the international insurance field. In addition to an extensive underwriting and risk management background in Barbados and Canada, he spent several years in local insurance company management as well as a GM/Director of Barbados operations for a leading international Insurance consultancy. Richard has accumulated a wealth of experience in the Barbados International Insurance Sector through his involvement with a number of innovative programmes , including: * Setup of one of the first local insurer-owned Captive Managers in Barbados * Setup and management of major captive operations for US, Canadian, European and Caribbean corporations and Fortune 1000 companies * Setup of some of the earliest Segregated (Protected) cell and Separate Account structures in the domicile * Provision of Barbados domicile representation for US Insurance Intermediaries * Provision of management and captive consulting services in Canada for Barbados-based Insurance Group. A past president of the Insurance Institute of Barbados, Barbados International Insurance Asssociation (BIIA) and Vice-President of the Barbados International Business Association (BIBA), Richard is a regular presenter at conferences and seminars and has published a number of articles on the Barbados International Insurance Sector, including in both the 2008 and 2009 editions of ‘Business Barbados'. Richard holds a Chartered Insurance Professional (CIP) designation from the Insurance Institute of Canada and a Certificate in Risk Management (CRM) - Global Risk Management Institute.
