Barbados has a well established track record as a hub for international businesses. The country offers foreign investors a variety of generous incentives and tax concessions. In recent years a number of real estate and hospitality projects have received significant tax concessions, which were particularly beneficial during their development stages. To be eligible for concessions, a complete application package must be submitted along with a detailed business case outlining the projected impact on the island’s development.
The Barbados dollar is pegged to the US dollar by a 2:1 exchange rate. This peg has lent a tremendous amount of stability to the Barbadian economy over the years; however, it requires the Central Bank of Barbados to tightly regulate and control the flow of foreign exchange into and out of Barbados. As a consequence there are restrictions on domestic borrowing by foreign entities.
The Exchange Control Act, Cap.71 and various exchange control circulars issued by the Central Bank, set out the parameters for local borrowing by non-residents and local borrowing by companies/branches controlled by non-CSME residents. According to these circulars, advances (loans, overdrafts, etc) may be made by authorised dealers without Central Bank permission solely in the following cases:
- To a Barbadian resident outside of Barbados, with no maximum limit
- To a Caricom Single Market & Economy (CSME) resident to facilitate reasonable expenses with no maximum limit, excluding real estate transactions.
- To an active company operating in Barbados controlled by CSME residents, up to a maximum of BB$1.0 M per year, excluding real estate transactions.
Central Bank permission is required for all other advances to non-residents. The permission of the Central Bank is also required before a local financing institution can lend money or issue securities to a non-CSME corporation.
If it is your intention to establish a business in Barbados that will require significant amounts of capital and engage in frequent foreign exchange transactions, then you are strongly advised to meet with officials from the Central Bank of Barbados to inform them of your intentions at the outset of the process. These meetings can be quite useful since they help to define the expectations of both parties, particularly if your business will require frequent transfers of foreign exchange.
In order to apply for permission to borrow from a local institution, a non-resident must send a letter in duplicate to the Central Bank of Barbados providing the following information:
- the name, present address and country of residence of borrower;
- the amount of the proposed loan/overdraft, indemnity or guarantee;
- the purpose for which the facility is required; and
- the terms of the proposed advance including interest to be charged, and repayment arrangements.
For corporations, the letter should also include:
- the most recent audited financial statements;
- the nature of the borrower’s business;
- a recent balance sheet detailing any changes since the last audited figures. The balance sheet should also include details of the capital and loans due to persons outside of Barbados; and
- details of the benefits expected (number of jobs, increase in exports) to the Barbadian economy as a result of the borrowing.
Funds brought into Barbados should be registered with the Central Bank of Barbados since it will assist in the future repatriation of funds. All declarations must clearly state the nature and purpose of funds being brought into the country (e.g. loan proceeds to fund construction). If funds brought into the country are the proceeds of a loan, then full details of the repayment terms will also be required by the Central Bank. These details will assist the Central Bank’s personnel in understanding the flow of foreign exchange.
If your business is expected to generate revenue in a foreign currency, you may be able to access a loan that is denominated in that foreign currency. These loans will often be pegged to LIBOR or another international benchmark and have lower interest rates than loans denominated in Barbados dollars. Permission of the Central Bank is also required to borrow in a currency other than Barbados dollars. If granted permission to borrow in a foreign currency, you may also be allowed to hold a percentage of your working capital in that currency.
The Central Bank of Barbados often grants permission for businesses to hold US dollar current accounts to facilitate payments in respect of their US dollar borrowing and other payments. Nevertheless, Central Bank permission is required for all external payments, prior to processing.
To navigate the intricacies of the local tax and financial system, prospective investors should seek the advice of qualified financial consultants. Financial consultants can help to guide you through the various processes to obtain permission to operate a business in Barbados as well as advise and assist in the preparation of documents required to obtain concessions. Consultants can also provide help on tax structuring issues, which are of upmost importance, particularly for incorporated entities.