Expectations & Restrictions

Barbados has been encouraging foreign investors to set up businesses on the island for decades - well before it became known as a centre for international business. Indeed, the country offers foreign investors a variety of generous incentives and concessions, whether their businesses are in manufacturing, services, or the tourism industry.  Foreign investors should take full advantage of these incentives.

Barbados operates a fixed exchange regime with the Barbados dollar being pegged to the US dollar at 2:1.  As a consequence of a fixed rate regime, the Central Bank of Barbados regulates and controls the flow of foreign currency into and out of the island.  This means that there are central bank restrictions on borrowing from local financial institutions by foreign investors and foreign controlled corporations.

The Exchange Control Act, Cap.71 and various exchange control circulars issued by the central bank, sets 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 in the following situations:

1. To a Barbadian resident outside of Barbados, with no maximum limit
2. To a Caricom Single Market & Economy (CSME) resident to facilitate reasonable expenses with no maximum limit. This does not include real estate transactions.
3. To an active company operating in Barbados controlled by CSME residents, up to a maximum of $1.0 million per year. This does not include Real Estate transactions.

However, Central Bank permission is required for all other advances to non-residents.  The permission of the Central Bank is also required before a financing institution can lend money or issue securities to a non-CSME body corporate.  If the business you want to set up will be quite large - employing dozens of people and requiring millions of dollars in capital - you are strongly advised to meet with officials of the Central Bank and put them in the picture very early on in the process.  In any case, your professional advisors will work with you to ensure the process is done smoothly.

To apply for permission a letter should be sent in duplicate to the Central Bank providing the following information:

1. the name, present address and country of residence of borrower
2. the amount of the proposed loan/overdraft, indemnity or guarantee
3. the purpose for which the facility is required; and
4. the terms of the proposed advance including interest to be charged, and repayment arrangements.

If the permission is for a body corporate, the letter should also include:

1. most recent audited financial statements
2. the nature of the borrowers business
3. an up-to-date balance sheet detailing the movement since the audited figures. It should also include the capital and loans due to persons outside of Barbados.
4. details of the benefits expected (number of jobs, increase in exports) to the Barbadian economy as a result of the borrowing.

Anyone bringing capital into Barbados will have to register these funds with the Central Bank.  This will assist in repatriating the funds at a later date; Central Bank officials will need to understand the nature of the fund coming into the country. Is it working capital, Equity or a loan? 

If the money being brought in is the proceeds of a loan, then full details of the repayments, terms, etc. will also be required by the bank. This assists them in understanding the flows of foreign exchange.

If your business is expected to generate revenue in a foreign currency e.g. through exporting products, or perhaps a hotel development, you may be able to access a loan in foreign currency pegged for example to LIBOR which generally carries a lower rate of interest than Barbados dollar lending.  Permission of the Central Bank is required to borrow in a currency other than Barbados Dollars.  In the instance that you are able to borrow in a foreign currency you may be allowed to hold a percentage of your working capital in that foreign currency so that you will be able to make interest and principal payments more readily as they fall due. The primary advantage of borrowing in a foreign currency is that it will be a cheaper source of funding.

The Central Bank of Barbados will grant permission for businesses to hold US$ current accounts to facilitate payments in respect of their US$ borrowing and other payments e.g., imports, etc.  However, even with a US$ current account all external payments e.g., overseas wages or other payments, require the permission of the Central Bank before the remittance can be made.

One of the first things an investor looking to set up a business should do is seek financial advice. Advice on issues such as tax structuring is paramount, as this will determine how a bank will structure any lending to a borrower.  If as borrower, you decides to incorporate, this could have a significant impact on your eventual tax burden.  Additionally, your financial advisor will be able to navigate through the local banking sector and assistance with the preparation of any permission documents.

Depending on the type and size of project that you are thinking of pursuing, you may be eligible to receive special concessions from the Government of Barbados which can impact heavily on the overall profitability of the your company.  There are a number of real estate and hospitality projects which have received significant tax concessions, among other things, during the development, as well as years into the future.  You need to formally apply for these concessions and prepare a business case has to be presented to demonstrate their overall significance and impact on the development of the island's economy.

Q&A Contact

If you have a question about any information on this page please contact: advisoryinfo@bb.pwc.com