Over the past two years, the Barbados Government has adopted a proactive rather than reactive approach, along with a sense of urgency, in making changes to legislation governing its international business sector.
Some might say it has been ‘future-proofing’ this vital sector through a balancing act: complying with requirements laid down by the Organisation for Economic Cooperation and Development (OECD) and the European Union (EU), while at the same time retaining the island’s attractiveness to foreign investors.
For example, on 1 January 2019 the Government embraced the concept of tax convergence. It took down the ‘ring fence’ that had allowed international businesses to enjoy several incentives, including lower tax rates, that were not available to local companies.
Today, there is a single corporate tax rate regime, and after the grandfathering provisions expire on 30 June 2021, there will be no such entity as an International Business Company (IBC) or an International Society with Restricted Liabilities (ISRL).
These types of entities will now be considered Regular Barbados Companies and Societies and will be able to enjoy the benefits of such. For example, they will now be able to do domestic business in Barbados and can also access the country’s network of tax treaties with some 40 countries.
Foreign investors won’t be disadvantaged by the structure of a ‘local’ company.
Furthermore, since they can apply for a foreign currency permit if they earn 100 per cent of their income in a foreign currency, they can retain many of the non-tax benefits previously enjoyed. In other words, foreign investors won’t be disadvantaged by the structure of a ‘local’ company. As for the new ‘converged’ tax rate, it is only marginally higher than that previously paid by IBCs and ISRLs.
More recently, the Government has moved quickly to implement economic substance legislation, known officially as the Companies (Economic Substance) Act. Today, any company wishing to do business in Barbados must demonstrate that its business is genuine; that is, it employs people here, is managed from here, and occupies physical premises, among other things. What is more, it will be tested to ensure that it meets the requirements and penalized if it doesn’t.
But the Government has been doing more than simply revamping its tax regimes through new legislation. It has also been taking steps to ensure that the public sector and its bureaucracies can keep up with the changes.
Faced with immutable deadlines for legislative change imposed by international watchdogs, small countries that operate as international financial centres are often hard-pressed to respond in a timely manner because of lack of resources and specific skill sets. Barbados is no exception, and delayed responses in the past have landed the island on blacklists.
To reduce the likelihood of this happening in the future, the Government has been tapping experience and skills within the international business sector. For example, in revamping its tax regime the Government turned to tax experts from leading professional services firms, leaders within the Barbados International Business Association, as well as other key stakeholders for help in drafting legislation and regulations. Additionally, it has recruited from the international business sector to fill positions within key government agencies, and weak spots have been addressed through training. In essence, there is now a clear understanding at the top level of government that the hands- on experience residing in the sector is a must-have for bureaucracies to function speedily and effectively.
This recognition of private-sector thinking and the pursuit of efficiency are spreading beyond government agencies involved in international business. Across the public sector spectrum, a digital transformation is taking place to enable individuals and businesses to interact with several government departments online.
Led by its Ministry of Innovation, Science and Smart Technology, the Government is aiming to digitize the entire public service and has pledged to establish a special bureau within the ministry to drive this. It has also set up a public-private sector cyber security working group to help the country protect itself against cyber threats.
The ultimate goal is for Barbados to become a ‘digitally enabled nation’, one in which e-commerce and information technology are not exotic concepts but everyday realities.
The ultimate goal is for Barbados to become a ‘digitally enabled nation’, one in which e-commerce and information technology are not exotic concepts but everyday realities. In effect, it will easier, safer, more efficient and more affordable for firms to do business with the state.
This is a work in progress, but it will benefit international investors. Doing business here and working here will become easier.
If there is one area that still needs more emphasis and greater impetus, it is the need for Barbados to have a louder voice on the world stage. There is no point in building better mousetraps if we don’t tell people about them, and we must always be prepared to defend our integrity as an international business and financial centre.