Barbados

The Barbados Foundation: Building a Firm Cornerstone for the LatAm Market


By Melanie Jones, Partner, and Tara E. Frater, TEP, Partner, Lex Caribbean, Barbados (29/08/2017)

Barbados is jurisdiction which offers a unique value proposition and is prized by wealth planners in certain quarters for its extensive double taxation treaty network.

To date Barbados has double taxation treaties with 37 countries which provide multiple tax planning opportunities: Austria, Bahrain, Botswana, Canada, China, Cuba, Czech Republic, Iceland, Finland, Luxembourg, Malta, Mauritius, Mexico, Netherlands, Norway, Panama, Qatar, San Marino, Seychelles, Singapore, Spain, Sweden, Switzerland, United Arab Emirates, United Kingdom, United State of America, Venezuela, and the 10 Caribbean countries which constitute CARICOM. 

The market for Barbados entities and arrangements is international in scope (including Asia, North America, particularly Canada, and Europe). More recently there has been a surge in demand for structures for use in the Latin American market, primarily driven by Barbados double tax treaties with Mexico, Venezuela and Panama. In this context, Barbados’ bilateral investment treaty with Venezuela has been particularly useful, as it aims to protect international investors seeking to invest in Venezuela through an international special purpose vehicle.

It is against the background of the increasing opportunities in the Latin American market that Barbados has recently brought into force its Foundations Act, which permits the creation of foundations. The key features of the legislation are outlined herein.

The Framework of the Barbados Foundation

A foundation is a hybrid of the concepts of a company and a trust, and tends therefore to appeal to persons from civil law jurisdictions who may be less comfortable with the trust concept but more familiar with the concept of a company.

Under the legislative framework, a foundation is established as a separate legal entity. The assets are transferred by the founder to the foundation and are held by the foundation for the benefit of the beneficiaries of the foundation and for the attainment of its purposes pursuant to the terms of the charter and/or by-laws. As with the foundation legislation to be found in other jurisdictions, no shares in the foundation are issued and the foundation as such does not have an owner – thus dispensing with the question of who should own the foundation. However, on a dissolution of the foundation, the persons who are entitled to its assets are the persons so identified in the charter and/or by-laws. The affairs of the foundation are managed by a foundation council through the councillors, at least one of whom must be resident in Barbados. A guardian may be appointed whose duty is to supervise the management and conduct of the affairs of the foundation by the councillors.

A foundation is required to have a secretary and certain records and information must be maintained with the secretary and at the registered address. The councillors, guardian(s) and secretary are subject to an express duty to act honestly, in good faith and in the best interests of the foundation, its beneficiaries or purposes and to exercise the care, diligence and skill which a reasonably prudent person would be expected to exercise in comparable circumstances. A founder may reserve certain powers to himself or confer these powers on any other person, such as the power to direct or approve the investment activities; the amendment of the charter or by-laws; the appointment or removal of a councillor or guardian; and the rights, entitlements and restrictions of beneficiaries.

The legislation includes conflict of laws provisions relating to the transfer of assets to a foundation, the capacity of the founder, and the rights of beneficiaries – in which issues often arise in the context of challenges under forced heirship laws brought by disgruntled heirs. In terrorem provisions are expressly permitted, so that a beneficiary who brings a challenge concerning a foundation may forfeit his interest or rights thereunder. Separately, it is possible to prohibit the alienation or disposition of assets available for distribution to a beneficiary by bankruptcy, insolvency or liquidation; or the seizure, sale, attachment or taking into execution by process of law of such assets.

A foundation may exist perpetually or for a specified period, and the legislation includes provisions for mobility so that a foundation may be continued out of Barbados and a foreign foundation may be continued into Barbados. There is a minimum threshold of US$5,000 for the value of assets held by a foundation and information and documents maintained in relation to a foundation are not a matter of public record. It is anticipated that a favourable tax regime will be prescribed in relation to the proposed foundation legislation.

Conclusion

Barbados presents an array of opportunities and advantages for high net worth individuals and entrepreneurs generally – not least of which is our reputation as a substantive clean jurisdiction with appropriate regulation. The Foundation Act demonstrates the jurisdiction’s continuing commitment to providing attractive and relevant solutions for an international clientele.