BARBADOS INTERNATIONAL FINANCE & BUSINESSInternationally Respected. CHANCERY HOUSE High Street, Bridgetown, BarbadosTel: + (6) - Fax: + (6) - For over forty years, Chancery Chambers has been providing comprehensive legal services in Barbados and across the globe. Our relationships with firms worldwide ensure informed service. Special practice areas include: Banking and Finance, Mergers and Acquisitions, Trusts and Estate Planning, Charities, Insurance, and Environmental Law and Policy. Learn more about us at www.chancerychambers.com Globally Connected, 62019 BARBADOS INTERNATIONAL FINANCE & BUSINESS | 3 ContentsSponsors Barbados International Finance & Business magazine is a publication of Invest Barbados (IB). IB is grateful to the international business community and the service providers for their support on the editorial committee and in contributing articles. We also thank the following sponsors: International Business Brookfield International Bank Inc. Chancery Chambers Dentons Delany Deloitte Ernst and Young First Provider KPMG Platinum International Business Solutions Inc. PricewaterhouseCoopers International Insurance SRS Strategic Risk Solutions (Barbados) Wealth Management CIBC FirstCaribbean International Bank Cidel Bank & Trust Inc. DGM Financial Group J&T Bank and Trust Inc. InterCaribbean Legal 05Message from the Prime Minister 07Engaging the World 08The Impact of BEPS on the International Shipping Sector and Potential Business Opportunities for Barbados 09 Is Ring Fencing Really Harmful? 11Barbados: Adapting to Change 14International Business Opportunities: Barbados and China 16Life in International Business: An Evolutionary Consciousness 18 Has Barbados Found the Middle Path Approach to Foreign Investment? 22 Local Innovation, Global Offering – Distributed Ledger Technology, Digital Assets and Barbados 26 The Barbados Insurance Renaissance- Creating Opportunities for Economic Development 28How Legislative Changes Have Made Barbados the Island of Choice for International Wealth Management 32 Simplifying Trusts in Barbados: Highlights of the New Regime 34A New Era in Barbados' Corporate Tax Framework 36Barbados: A World Class Jurisdiction For International Financial and Estate Planning 38Raising Funds and Doing Business in the Digital Age: A Barbados Perspective 40Am I capable? A Barbados Perspective on the Vulnerable Individual 44Prospero’s Island: Post- Brexit and Beyond-The Barbados Stock Exchange Investment Opportunities Crafted Through UK HMRC Recognition 46... and so much more 04Welcome to the 2019 Edition 12Cryptocurrencies, Blockchain Technology and the Real Property Market: The New Age 20Tax Convergence Brings Benefits for Foreign Investors 24 Barbados’ Insurance Industry – OECD Compliant, Looking to the Future 30 Quantitative Tightening and Fed Policy 42Investment Strategies for a Global Downturn4 | 2019 BARBADOS INTERNATIONAL FINANCE & BUSINESS Welcome to the 11 th edition of Barbados International Finance & Business. Barbados’ journey as a preferred domicile for global business progressed during 2018 with Barbados receiving confirmation that it has met international standards of tax transparency, fairness and the combating of financial crime such as tax evasion. Barbados continues to cooperate with the OECD to meet ongoing requirements, while maintaining open dialogue with the EU and working towards improving standards. Also, during 2018 Barbados converged its corporate tax regime and introduced a new law requiring companies to pass an economic substance test in order to qualify as resident for tax purposes. This revised tax regime should deliver a competitive advantage to Barbados, while the economic substance test entails demonstrating local physical presence and economic activity via, for example, staff, office space and expenditure. Barbados, with its double tax treaty network, well-regulated business environment, global communications network, modern infrastructure, pool of graduates from the University of the West Indies and focus on improving ease of doing business, is well positioned to capitalise on these competitive advantages and benefit from the growth in demand for domiciles of substance. On behalf of the editorial team, I invite you to consider the attractive value proposition Barbados will offer your organisation, when you make it your domicile of choice. Welcome to the 2019 Edition With very best wishes James GardinerINTERNATIONAL BUSINESS | 5 It is with much pleasure and some excitement that I welcome you to the 2019 edition of this magazine. In December 2018, my Government grasped an opportunity to converge our domestic and international taxes and do away with ring fences and special regimes. We are one of the first countries in the region and beyond to do so. Among OECD-compliant, non-zero tax jurisdictions, Barbados now has the lowest corporate tax rates in the world for any business – local or international. We made a choice to look out, not in. The world is our business and our business is the world. I look to the future with excitement and enthusiasm. My government is working hard to create a more diversified, knowledge-based, world-beating economy that comprises the export of high-value professional services in our financial, business and tourism sectors and also in new high-tech and creative sectors. We have a renewed purpose to engage the world. We have recently revised and strengthened the country’s suite of business legislation. Our new Planning and Development Act has collapsed the time frame to a decision of just 16 weeks, down from more typically 100 weeks, and a new disposition to development. We no longer say “no” with little explanation, but a “provisional no”, with a list of actions that if accepted would immediately turn a “no” into a “yes”. We are working on a system of approvals for fiscal incentives that will now take just a few days rather than several months. We are completely reorienting and modernising the public sector through the digitisation of processes, permits and records. In addition to our sustained attention to traditional sectors, Barbados is open to all other sectors that have the potential to advance the nation’s development through high-skilled, high-wage activities. Innovative and promising sectors such as medical tourism, global education services and Fintech, are among some of the exciting opportunities that my government fully embraces. Barbados recently welcomed to its shores the acclaimed Ross University School of Medicine, a subsidiary of the US-based Adtalem Global Education, and the fourth such institution currently operating in the country. The Government has a goal of the country becoming fossil- fuel free by 2030 and this has dramatically spurred private investments in solar energy and battery storage. The country already has one of the highest numbers of electric cars and charging stations per capita. The island is home to the first blockchain start-up in the Caribbean, Bitt Inc. The jurisdiction has since attracted a number of other fintech companies and we launched one of the first regulatory sandboxes in the region last October to fast track the regulation of new products. Equally important, is preserving Barbados’ appeal as an ideal place to live and play as well as work. We are reinforcing and building on important brand attributes including the country’s high quality of life, educated workforce, political and social stability, as well as both personal and cyber security. We know that it is our people, with their unique charm, intellectual curiosity and friendly, welcoming spirit that makes Barbados the gem that it is. Barbados is becoming better equipped, better prepared and better poised to play a leading role in the ever evolving global business sphere. This can only be achieved with all hands on deck; both public and private sector working in collaboration. The degree of social partnership in Barbados is legendary and it is a result of strong collaboration across Government, business and labour unions that we were able to launch a steep economic adjustment programme last year that is already bearing fruit. In just one year our debt to GDP ratio has fallen from 175% to 125%, a decade of fiscal deficits has been reversed into the first surplus in a long while and our foreign exchange reserves have almost trebled. Our dollar and social services are once more safe and sound. Together, we will realise our vision of Barbados as a premier centre for global business. Come, join us! MESSAGE FROM THE HON. MIA AMOR MOTTLEY, Q.C., M.P., PRIME MINISTER OF BARBADOS The Hon. Mia Amor Mottley Prime Minister of BarbadosCONTRIBUTORS Technical Review: Ben Arrindell Editorial Committee: James Gardiner Caroline Gardiner Sandra Payne Wayne Kirton Jannette Babb Authors: John Williams Invest Barbados jwilliams@investbarbados.org Javier Lemoine PricewaterhouseCoopers Javier.lemoine@bb.pwc.com Gregory Smith Deloitte gsmith@deloitte.com Stefan Mayers DGM smayers@dgmgroup.com Lily Dash Hannah Properties Ltd ldash@hannahproperties.com Nancy Carroll McCarthy Tétrault LLP ncarroll@mccarthy.ca Sir Trevor Carmichael Chancery Chambers chancery@chancerychambers.com Robert Simmons Dentons Delany robert.simmons@dentons.com Maria Robinson Ernst & Young maria.robinson@bb.ey.com Marlon Yarde Barbados Stock Exchange marlon.yarde@bse.com.bb Terry Belgrave Barbados Stock Exchange terry.belgrave@bse.com.bb Kester Guy Financial Services Commission info@fsc.gov.bb | kguy@fsc.gov.bb Lanette Taylor Financial Services Commission ltaylor@fsc.gov.bb Louisa Lewis-Ward KPMG louisaward@kpmg.bb Paul Jenkins CIBC First Caribbean paul.jenkins@cibcfcib.com Ryle Weekes Cidel Bank & Trust rweekes@cidel.com Carlos Stevenson Cidel Bank & Trust cstevenson@cidel.com Liza Harridyal-Sodha Harridyal-Sodha & Associates liza@lizalaw.com Nicholas Hughes BDO nhughes@bdo.bb John McLeod Forvest Group j.mcleod@forvestgroup.com Tara E. Frater F T Legal Tara.Frater@ft-legal.com Karen Perreira InterCaribbean Legal Kperreira@intercaribbeanlegal. com Elliott Barrow RBC Wealth Management elliott.barrow@rbc.com Kevin Armstrong RBC Wealth Management kevin.armstrong@rbc.com Caroline Kerswell Chancery Advocates ckerswell@chanceryadvocates. com Darren Stark Anchor Counsel Corporation info@anchorcounsel.com Paul Surrey The Contact Hub paulsurrey@gocontacthub.com Roland Haggins Aion Foundation roland@aion.network Cidel Bank & Trust cstevenson@cidel.com Debbie McDonald Alexandria Trust Corporation Debbie.McDonald@ Alexandriatrust.com Veron Lake Ross University Veron.Lake@adtalem.com Ian Hutchinson Blue Financial Group info@thebluefinancialgroup.com Design & Layout: Blueprint Creative Inc. Barbados International Finance & Business 2019 Edition Published by Invest Barbados Barbados: (246) 626.2000 Toronto: (416) 214-9919 New York: (212) 551-4375. Email: bifb@investbarbados.org I www.investbarbados.org © Copyright Invest Barbados 2019. All rights reserved. No part of this publication may be reproduced or transmitted in any form or any means, or stored in any retrieval system of any nature without prior written permission of the copyright holder. The views expressed in this magazine are those of the contributors, and not necessarily those of Invest Barbados. The information provided in this magazine is meant as a guide only and does not amount to professional advice. INTERNATIONAL BUSINESS | 7 Welcome to the 2019 edition of the Barbados International Finance and Business Magazine! The past year has been one of change and renewal. At the domestic level, the new administration has taken on the task of refocusing and transforming the economy through the implementation of several bold initiatives, including the introduction of a new corporate tax regime. Globally, uncertainty around Brexit, ongoing issues related to Base Erosion and Profit Shifting (BEPS), de-risking and AML/KYC requirements continued to occupy the attention of investors, regulators and practitioners in particular. This notwithstanding, Barbados continues to build on the steady progress achieved over the years. Effective 1 January 2019, Barbados, among other actions, converged its corporate tax regime in response to the BEPS Action 5 Initiative regarding harmful tax practices. We anticipate that new paths will be charted in 2019 and that, buoyed by a more competitive tax regime, Barbados companies will seek to expand the range of global services offered from the country. Invest Barbados looks forward to ongoing collaboration with the industry in promoting the country’s enhanced value proposition in our main markets of Canada, USA and the UK, as well as in Latin America, in particular, Mexico and Colombia as well as in Africa and Asia, specifically China. As we engage the world, our primary objective will be to secure additional global business of substance in those sectors where Barbados maintains a strong competitive advantage. Specifically, we will target wealth management, insurance, information communication technology and niche manufacturing, among others. At the same time, we are redoubling our efforts in other growth sectors, including the burgeoning area of global education services. Additionally, medical tourism which has been identified as offering significant potential for Barbados, continues to engage our attention. The renowned Barbados Fertility Centre, a Joint Commission International accredited facility, is just one example of the quality service that is being delivered from the country; the type of quality which Barbados intends to replicate in the provision of other specialty medical tourism/health services. Our aim is to ensure that as a country, we deliver on high performance. The vast potential of the fintech industry and its multiple applications – from stocks and bonds to real estate- are addressed in a number of articles in this edition of the BIF&B. Following the establishment of Bitt, a domestic blockchain start-up, international companies such as the Aion Foundation, Shyft and Polymath have set up operations in Barbados. As the relevant authorities seek to further enhance the regulatory framework, with the recently introduced sandbox regime, Invest Barbados continues to identify additional opportunities to promote the country’s value proposition in this area and to ensure sustained development of the domestic fintech sector. Strengthening our financial infrastructure is but another opportunity we embrace. We will therefore, along with key partners, review the challenges currently facing the sector and design solutions which reposition Barbados as a premier centre for global business. Additionally, we will aim to attract digital first banks over the medium term. Business facilitation remains high on the agenda. Through Invest Barbados’ active customer care programme, existing clients are assured of the Corporation’s ongoing commitment and support in addressing their respective needs. Invest Barbados also continues to collaborate with other public and private sector stakeholders to improve the ease of doing business in the country and, therefore, applauds the government’s initiative to fully digitise certain critical processes and procedures aimed at simplifying and streamlining several important business functions. Once implemented, the new systems are expected to further enhance the country’s ability to attract and retain businesses of substance. Improving transparency is also an identified important benchmark. Currently ranked 2 nd in Latin American and the Caribbean, and 25 th in the world, according to the Transparency International Corruption Perception Index, it is anticipated that with full digitisation and greater transparency in vital processes, Barbados’ ranking in this index will improve. Invest Barbados looks forward to working with our strategic partners in achieving this and similar objectives aimed at improving the country’s global competitiveness. We invite you, our valued readers, clients and partners to peruse the articles in this publication. Invest Barbados also extends a special invitation for you to grow with us, as we engage the world! John Williams Chairman Engaging the World8 | 2019 BARBADOS INTERNATIONAL FINANCE & BUSINESS The Impact of BEPS on the International Shipping Sector and Potential Business Opportunities for Barbados by Javier Lemoine The OECD’s Base Erosion and Profit Shifting (BEPS) project is being implemented through a mixture of domestic legislation and amendments to international treaty obligations. Although the shipping industry is not the primary target of the BEPS project, it is being affected by the new laws and policies recently introduced by the members of the Inclusive Framework. Set out below are some of the relevant actions impacting the international shipping sector. Action 6 - Prevention of treaty abuse This action restricts the availability of double taxation treaty benefits, in circumstances where the company claiming the benefits of the treaties have limited connection, or economic substance, in the jurisdictions in which those treaty benefits are being claimed. The relevance of this is strengthened by the fact that the adequate exercise of central management and control, within a jurisdiction, is no longer sufficient for the purposes of establishing economic substance. Action 7 - Artificial avoidance of permanent establishment This action affects the way international shipping companies have structured their business models in the past. Generally, international shipping companies segregate ship owning, managing, chartering and operating activities, in order to limit their exposure to civil liabilities. These business models can now lead to the creation of additional permanent establishments around the world. As a result, shipping companies are now redesigning their existing business models towards simplification, centralisation and digitisation. The relevance of this is strengthened by the fact that permanent establishments are high on the agenda of tax authorities around the world, which is resulting in more profits being taxed in onshore jurisdictions. Action 8 - Transfer pricing to align with value creation This action is aimed at allocating taxable profits in line with value chain creation within the group and is resulting in disagreements regarding whether value is created by the risk capital invested in a shipping company, or by the human capital involved in the management or chartering arm. Shipping companies are currently monitoring how international financial centres (IFCs) address those external challenges in an efficient manner. As an IFC, Barbados offers a wide range of business opportunities for the sector due to a number of attributes, including the following: Tax treaty network Barbados has a tax treaty network comprising 40 countries, with the majority of these treaties based on the OECD model. Article 8 of the OECD model treaty provides that profits from the operation of ships in international traffic should be taxable only in the country in which the effective management of the enterprise is situated. By means of double taxation agreements containing this article, shipping companies may, in many cases, ensure that the majority of their shipping income is only taxed in their country of tax residence, even if they have a permanent establishment in another country under the ordinary rules. Attractive corporate tax rates The announcement of new corporate tax rates on a reverse sliding scale of 5.5% to 1% for fiscal years beginning 1 January 2019, is very attractive for the international shipping sector. No capital gains taxes Another key benefit to the shipping industry is the absence of capital gains taxes in Barbados. Barbados continues to demonstrate its ability to remain an attractive jurisdiction for the shipping sector, while instituting the necessary measures to comply with OECD and EU requirements. *INTERNATIONAL BUSINESS | 9 Is Ring Fencing Really Harmful? by Gregory Smith The Organisation for Economic Co-operation and Development (OECD) developed guidelines on “Harmful Preferential Tax Regimes", to discourage the spread of preferential tax regimes, and encourage countries with such regimes to eliminate them. Among others, the Exempt Insurance regime in Barbados was identified as potentially harmful, and the country chose to commit to change, rather than seek to defend the existing structures. This article examines the question: “Is ring-fencing really harmful?” It is worthwhile to examine the OECD’s stance with respect to the issue of ring-fencing and its alleged negative impacts. The OECD argues that ‘harmful’ tax regimes have ring-fenced select, substantial revenue generating activities, allowing them to be subjected to either low, or no taxation. Ring-fencing may take a number of forms, including: • a regime may explicitly, or implicitly exclude resident taxpayers from taking advantage of its benefits • enterprises which benefit from the regime may be explicitly, or implicitly prohibited from operating in the domestic market The OECD argues that, since the regime’s “ring- fencing” effectively protects the sponsoring country from the “harmful effects” of its own incentive regime, that regime will have an adverse impact only on foreign tax bases. They further argue that some preferential tax regimes are partly, or fully insulated from the domestic markets of the country providing the regime. The fact that a country feels the need to protect its own economy from the regime, by ring-fencing, provides a strong indication that it has the potential to create harmful spillover effects. While legislation in Barbados may meet the criteria, established by the OECD, to be classified as facilitating ring-fencing, it is useful to do some analysis to determine whether the effects, as suggested by the OECD, are harmful. The OECD, in its first report on “harmful tax competition”, claimed that low, or zero tax rates could be “harmful”, if used in conjunction with other “harmful practices”, such as: • Ring-fencing • Lack of transparency • Lack of information-sharing between tax authorities • Shifting resources, and hence economic activity, away from high and towards low-tax countries. The fact that OECD members, Switzerland and Luxembourg, refused to endorse the initial report, on the grounds that it described their laws allowing “ring- fenced” low tax rates as being harmful, is noteworthy. This argument is essentially saying that low taxes are “harmful” because they attract mobile productive resources from high-tax countries. Resources typically move to where their general overall rate of return is the highest, and tax treatment is only part of the long list of variables which will be taken into consideration by investors. To say that a jurisdiction’s low taxes are “harmful”, because they shift mobile resources in their direction, is much the same as saying that low wages in, say, China are “harmful”, because they shift resources, and hence economic activity, away from high-wage Europe to low-wage China. Such things constitute competition, but it is not harmful competition, because it does not distort the overall allocation of resources. Thus, as far as wage differentials are concerned, China, for example, attracts resources into labour-intensive industries, while Europe attracts resources into capital- intensive sectors. Far from being inefficient, this shift of resources is generally considered to be positive and in line with comparative advantage. …captives from the North American market, in particular, the source of the vast majority of Barbadian captive business, are not normally formed for tax reasons, but for either risk-management purposes and/or business-to-business efficiencies/ regulatory arbitrage, etc., as is fully understood by regulators.Next >