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Barbados: a shining market for captives

Communications professional Geralyn Edward on why Barbados o­ffers a competitive domicile for captives looking to shield against geopolitical risks and rising premium costs.

There is a continued push towards captive formations in the insurance industry, as geopolitical developments including the war in Ukraine, supply chain interruptions, inflation and rising interest rates are all converging.

The result is that companies in Latin America, North America, Europe and emerging African markets are finding shelter in the tremendous benefits of self-insurance.

Increasingly, they are looking to find competitive domiciles like Barbados to establish their captives, in an effort to limit exposure to these growing risks and rising premium costs.

This Eastern Caribbean island is not new to the sector. A mature but dynamic domicile with a rich history in the insurance and captives arena, Barbados has long proved its worth to Canadian and American corporates, both of whom have been established there for over four decades.

This is also evidenced by the more than CAN$45 billion that Canadians have invested in Barbados, with captives responsible for a significant portion of that investment.

Ranked seventh among global captive players, its own commercial and life insurance industry, however, dates back to 1840, as the country continues to attract all forms of international insurance business.

As risk managers reassess their options in a hardening commercial insurance market, Barbados has emerged as a most desirable choice. But how has this vacationers’ paradise carved such a distinguished niche for itself?

The island’s tradition of political and social stability, sophisticated telecommunication infrastructure and educated workforce are well known. A combination of other factors also works in Barbados’ favour. Importantly, they are anchored in a regulatory framework that is enabling and encourages high levels of compliance, and all of this is supported by a truly competitive tax structure.

Wayne Fields, president of the DGM Financial Group, a chartered accountant for over five decades, assesses Barbados’ current posture. He points to the surprisingly high level of mind and management available on the ground to the sector.

Indeed, companies benefit from a cadre of experienced professionals while the country continues to produce highly trained professionals in accounting, law, finance, compliance, trust and tax services, as well as supporting skills sets in administration and corporate client services.

“With the implementation of substance requirements, we now have a major opportunity and advantage over many of our competitors. This belief is founded on our historical emphasis on skills transfer to our local people rather than relying solely on the importation of a foreign and transient workforce to fill these positions,” Fields stated.

He added: “The cost of doing business in Barbados remains favourable relative to our competitors which have much stronger currencies and must pay foreign workers high salaries to encourage them to relocate. Furthermore, engaging Barbados’ local workforce ensures that long-term relationships can be built with clients, avoiding the constant churn that results from […] a transient workforce.”

When it comes to the establishment of captives, Barbados’ main regulator, the Financial Services Commission (FSC), has made incorporation swift and compliance for captives relatively simple.

Barbados is a low tax regime with the maximum corporation tax rate of 5.5%. However, capital gains are not subject to tax in Barbados.

The tax rates for international insurance companies including captives range from 0%-2% depending on which of the three classes a captive is incorporated.

Furthermore, establishing a captive is relatively cost effective with an annual registration fee for core companies of $25,000. The minimum capital requirement for an insurance company writing all its risk outside of Barbados is $125,000.

There are also some soft pull factors that contribute to the appeal of Barbados as the ideal jurisdiction for captive management services.

When captives are established in the island, they do so among a fraternity of vibrant international business companies with a thriving international insurance community.

Operating under the umbrella of BIBA, the Association for Global Business, captives receive special focus with spotlight on the sector through the annual Barbados Risk & Insurance Management (BRIM) Conference.

Speaking of which, plans are well and truly underway for next year’s edition of the BRIM conference, which is scheduled for 23-24 March 2023, and where some of the world’s foremost thought leaders and senior executives converge to share ideas and stay in the loop on developments affecting the industry.

Carmel Haynes, BIBA’s executive director, stated: “The enormous value of Barbados’ expanding captive insurance industry, the potential for further growth, emerging insurance risks, key economic and regulatory developments and digital advancements are some of the areas on which BRIM focuses.”

Apart from the regulatory framework, tax structure and vibrant insurance community of Barbados-registered global captives, companies are also drawn to the added value of the island’s extensive network of double taxation agreements and bilateral investment treaties.

These highly-effective agreements have been negotiated over many years with some 40 jurisdictions. This makes Barbados’ treaty and agreement network among the most extensive in the world.

From that platform, an important gateway has been created for new entrants from Latin American and African markets seeking strong, well-regulated domiciles to establish their captive insurance companies.

Double taxation treaties have been established with Mexico, Panama and Venezuela, while Barbados is in negotiations at various stages with Costa Rica, Colombia, Chile and Brazil as well as with several other jurisdictions in Africa and Southeast Asia.

Invest Barbados, the economic development agency of the government of Barbados, headed by CEO Kaye-Anne Brathwaite, provides the launch pad for smooth access to administrative information on investment in Barbados.

The team at Invest Barbados, with offices strategically located in gateway cities of Toronto, New York and London, takes investors through the steps for accessing standards regulations incentives, laws and business conditions of the island.