The Four Types of Trusts in Barbados
Barbados Domestic Trusts — are regulated by the Trustee Act. If the trustee is a Barbadian resident and the trust deed does not specify that it is an international trust then a domestic trust is created. The Trust may have more than one trustee but the majority of trustees must be resident in Barbados. The trustees can be individuals or a trust company licensed under the Financial Institutions Act, Cap 324A. These trusts are taxable in Barbados, paying tax on the worldwide income earned by the trust which is not distributed to the beneficiary before the end of the calendar year in which it was earned. In general the taxation of trusts in Barbados is governed by section 40 of the Income Tax Act, which provides that the trust property and income arising there from be deemed to be a separate individual. Therefore, the trust is taxed as an individual, separate and apart from the trustee. At present, the income tax rates on income are: 25% on the first BDS$24,200.00 and 40% on the balance. The capital gains earned in the trust are not taxed. If the beneficiaries are resident outside of Barbados and the trust holds foreign assets, exchange controls do not apply. There is no requirement to register the Trust and the perpetuity period is 80 years. Domestic trusts are entitled to treaty benefits under Barbados’ many double taxation agreements. Use of the treaties may reduce or even eliminate tax in the other treaty jurisdiction.
Trusts in Barbados are often utilised by wealthy families and certain corporations for:
- Tax and estate planning;
- Asset and creditor protection;
- Business succession;
- Probate avoidance;
- Avoidance of forced heirship requirements;
- Protection against foreign exchange controls or public sequestration;
- Possible deferral and/or reduction of personal income taxes, capital gains tax and wealth, inheritance and/or death duties for the Settlor;
- Corporate Governance;
- Flexibility in dealing with assets in multiple jurisdictions; and
Barbados International Trusts — are regulated by The International Trust Act. These trusts are created by instruments in writing only and must specify that The International Trust Act applies. At least one trustee must be resident in Barbados, the settlor must be a foreign person or entity and the beneficiaries must be non-residents of Barbados. The perpetuity period is 100 years, with the exception of charitable or purpose trusts and these trusts are registered with the International Business Unit however this information is not available to the public. The rule against perpetuities does not apply to International Trusts. As an international trust is considered a non-domicile of Barbados for tax purposes, it is not subject to tax in Barbados on foreign source income. Tax will be payable only on its Barbados source income and on its overseas income that is remitted to Barbados. As these trusts are not subject to income tax in Barbados, they are generally not entitled to the benefits under the Barbados double taxation agreements.
Some of the most attractive aspects of The International Trust Act are the provisions related to asset protection, as well as the strengthened protection against forced heirship provisions. Barbados included the non-recognition of foreign judgments, and protection against creditors within the Act. Generally, creditors have three years in which to set aside the terms of a trust, but can only do so if they can establish the intent to defraud.
Barbados Purpose Trusts — are regulated by The International Trust Act. These trusts do not name specific beneficiaries, but instead state an attainable purpose. The purpose of the trust may be charitable or non-charitable. These trusts are often used for business purposes. All other benefits and requirements noted above for International Trusts apply.
Barbados Offshore Trusts — is created when the Trustee is licensed under the International Financial Services Act and it does not specify that The International Trustee Act applies. The settlor and beneficiaries are non-residents of Barbados and the trust assets consist solely of foreign assets. There are no registration requirements and the perpetuities period is 80 years. These trusts are exempt from all Barbados taxes and duties and are not subject to exchange controls. Offshore trusts are generally not entitled to treaty benefits under the Barbados double taxation agreements.
Proposed amendments to the International Trust Act
In early May, 2009, David Thompson, the Prime Minister and Minister of Finance for Barbados presented the annual statement of financial and economic policies. In speaking, he also made some proposals to amend some existing laws.Â Mr. Thompson stated that as a member of the global economy, Barbados is subject to the downturn in the current environment and warned Barbadians not to expect any drastic improvement anytime soon.Â He reinforced this pessimistic view when he stated that, “…no one knows what lies beyond the bend… we have not seen the bendâ€.
Mr. Thompson did propose methods to expand Barbados economy when he stated that the International Trust Act should be amended. Â He argued that these changes would create greater financial avenues and to allow Barbados to remain competitive with other offshore jurisdictions, not only within the region, but throughout the World.Â He stated that when the proposed amendments were made and local service providers conducted their marketing efforts, such actions would allow Barbados to remain at the forefront of international business.
The suggested amendments to the International Trust Act that the Prime Minister proposed include:
- Allow the creation and regulation of Private Trust Companies;
- Clarify the definition of the term “trust businessâ€;
- Better define the spectrum of services offered by service providers under the banner of “trust servicesâ€;
- Provide for the central registration of all International Trusts; and
- Provide guidelines for the licensing of trust companies and identification of the principles involved in the transaction.