Barbados has long been a popular destination with high net worth individuals (“HNWIs”) who visit the island on vacation. Many too have found it a pleasant place to retire. More recently, Barbados’ premier international business and financial services sector has brought HNWIs to our shores. In an effort to enhance its attractiveness to HMWIs as a jurisdiction to live and or work, Barbados has immigration policies which are designed to work in tandem with its existing income tax system and exchange control regime for HNWIs. These immigration policies were recently enhanced.
New Immigration Policies
The Honourable Minister of Finance and Economic Affairs, Mr. Chris Sinckler, in the delivery of his Financial Statement and Budgetary Proposals for 2012 and 2013, announced new immigration policies for HNWIs. Specifically, the Minister proposed that Special Entry and Reside Permits (“SERPs”) be made available to certain qualifying HNWIs and their dependents, thereby allowing such persons to enter and reside in Barbados with little or no restrictions. These SERPs may either be granted for an indefinite period or for a fixed period, depending on the particular category the individual falls under.
In order for an individual to qualify as a HNWI, he/she must have assets of not less than US$5 million. The HNWI may be required to submit copies of his income tax returns and/or audited financial statements of net assets to show that he/she continues to meet the US$5 million threshold. A person may also qualify once they have made an investment in Barbados of US$2 million or more in either property or other investments, and such investment was funded in foreign currency sourced outside of Barbados.
The categories of permits and the corresponding fees are as follows
|Persons holding assets of not less than US$5 million who are over 60 years and retired||These individuals are eligible for indefinite SERPs||US$5,000 per person for an indefinite SERP|
|Persons holding assets of not less than US$5 million who are under 60 Years and retired||These individuals are eligible for temporary SERPs which are valid until they reach the age of 60. Once certain requirements are met, they would be entitled to an indefinite SERP||US$3,500 for a term up to 60 years|
|Persons holding assets of not less than US$5 million who are over 60 years and who wish||These individuals are eligible for an indefinite SERP on payment of an additional work permit fee||US$5,000 for an indefinite SERP plus US$15,000 for an indefinite work permit or; US$5,000 for an indefinite SERP plus US$1,500 a year for a work permit|
|Persons holding assets of not less than US$5 million who are under 60 and wish to be||These individuals are eligible for an indefinite SERP and additional fees for multiple long-term work permits||US$3,500 for indefinite SERP plus US$20,000 for an indefinite work permit or; SERP US$2,000 a year for annual work permit|
|Persons holding assets of not less than US$5 million and who intend to function as nonexecutive||These individuals are eligible for an indefinite SERP on payment of an additional work permit fee||US$5,000 if over 60 for indefinite or; US$3,500 for persons under 60 SERP plus US$500 per year for a work permit|
|Persons who have invested US$2M or more in Barbados||These individuals are eligible for a SERP for a period of five years.||US$5,000 for a five-year permit|
|Dependents of HNWIs|
|Spouses||These individuals are eligible for an indefinite SERP||US$150|
|Minors||Minor children, while permitted to accompany their parents will not, as minors, be granted an indefinite special entry permit but rather they will be granted a special entry permit for a period of five years or a term until the age of eighteen whichever is less. Student visas will be automatic for this period.A dependent’s permanent status as an adult will depend entirely on the circumstances of the dependent and not simply on the basis that they resided in Barbados as accompanying minors.||US$1501|
Barbados’ Income Tax Rules for HNWIs
Under Barbados Income Tax Act (“BITA”), an individual who is both resident and domiciled in Barbados is subject to tax on his worldwide income whereas an individual who is resident in Barbados but not domiciled therein, is liable to pay income tax on his Barbados sourced income as well as on any income from foreign sources that is remitted to Barbados.
Generally, a Barbados resident individual pays income tax at a maximum tax rate of 35%. However, Barbados’ tax legislation provides for a foreign currency earnings rebate (“FCER”) in respect of any foreign income remitted to Barbados by a Barbados resident individual, irrespective of his country of domicile. This rebate is given in the form of a rebate of income tax, expressed as a percentage of the income tax on the foreign earnings, thereby lowering the individual’s effective tax rate significantly.
The table below illustrates how the FCER is computed and the resulting effective tax rate using the top marginal tax rate of 35%:
|Foreign Currency Earnings (“FCE”) as a % of total earnings||Rebate of income tax as a % of income tax on FCE2||Effective rate of tax|
|Over 20% but under 41%||45%||19.25%|
|Over 41% but under 61%||64%||12.60%|
|Over 61% but under 81%||79%||7.35%|
Therefore, HNWIs who have relocated to Barbados and remit foreign income to the island can reduce their tax payable on the foreign income by a substantial amount. For example, a HNWI who does not earn Barbados source income and repatriates US$100,000 to Barbados would be entitled to a rebate of 32.55% of income tax (i.e. the standard tax rate of 35% times the rebate permitted of 93%).
It should be noted that in addition to the availability of a FCER, Barbados does not impose capital gain tax or inheritance tax. Furthermore, Barbados has favourable double taxation treaties, which, when combined with the foregoing tax incentives, can produce some interesting tax planning opportunities for HNWIs.
Below is a list showing the countries with which Barbados has double taxation agreements:
Austria, Bahrain, Botswana, Canada(a), CARICOM(b), China(a), Cuba(a), Finland, Iceland, Luxembourg, Malta, Mauritius(a), Mexico, Netherlands, Norway, Panama, San Marino, Seychelles, Singapore, Spain, Sweden, Switzerland, United Kingdom(a), United States(a), Venezuela(a)
- Also bilateral investment treaties
- Antigua & Barbuda, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, St. Kitts & Nevis, St. Lucia, St. Vincent and the Grenadines and Trinidad are signatories to the CARICOM Treaty.
Barbados’ Exchange Control Regime for HNWIs
For over 40 years, Barbados has had an exchange control regime. However, the island continues to liberalise its exchange controls, with the Central Bank of Barbados (“Central Bank”) granting full authority to Barbados’ commercial banks for most major transactions.
These controls apply to both companies and individuals. A HNWI who resides in Barbados for a period of less than three years3 can establish a foreign currency account with a bank in Barbados and deposit any foreign funds brought into Barbados on this account, thereby dispensing with the need to convert such amounts into Barbados dollars. Also, the HNWI can make payments overseas from his foreign currency account without the prior approval of the Central Bank.
Beyond the three-year period, there are certain limitations as to the amount of foreign currency which the HNWI can maintain.
However, a blanket waiver to hold foreign currency accounts can be sought from the Central Bank.
While the immigration, tax, and exchange control framework is certainly advantageous to HNWIs, it is noteworthy that Barbados has other attributes which make it a high-quality jurisdiction. These attributes include its well-developed infrastructure, state-of-the-art telecommunications technology, economic and political stability, the presence of international schools and of an international airport with daily flights to major cities such as London, Miami and Toronto. All of these factors create an environment that is conducive for HNWIs to live and/or work in Barbados.
1 Per dependant
2 This rebate only applies to foreign currency earnings and not income derived from Barbados.
3 An individual who resides in Barbados continuously for three years or more is regarded as a resident of Barbados for exchange control purposes.