A key hub for captive insurers
Invest Barbados explains the island’s advantages as an international captive jurisdiction.
Barbados entered the captive insurance world in 1983 with the passing of our first piece of legislation governing captive insurance. This was boosted shortly afterwards with the signing of a Double Taxation Agreement (DTA) with the US in 1984, which drove captive formation and growth. Barbados is one of the top 10 captive insurance jurisdictions worldwide with more than 270 licensed captives, mainly from the US, Canada and Latin America.
Barbados is an attractive international captive jurisdiction for a number of reasons, including:
Workforce: A well-educated and skilled workforce teamed with developed infrastructure and a modern telecommunication system provide significant benefits to international corporations and individuals.
Our historical emphasis has been on skill transfer to our local people rather than relying solely on the importation of a foreign and transient workforce to fill positions in the captive insurance space. Engaging Barbados’ local workforce ensures that long-term relationships can be built with clients, avoiding the constant churn that results from an imported and transient workforce.
From a cost perspective, due to a favourable exchange rate and a larger local workforce, the cost of doing business in Barbados remains favourable relative to our competitors which have much stronger currencies and must pay foreign workers higher salaries to encourage them to relocate.
Immigration into Barbados from foreign countries in the captive insurance space is a quick and affordable process, with the Barbados Immigration Department being very receptive to skilled professionals in this space. As such, moving a foreign worker to Barbados remains an option if desired.
Stability: Barbados has a long history of political, social and economic stability.
Established on June 26, 1639, the parliament of Barbados is the third oldest legislature in the Americas and is among the oldest in the Commonwealth of Nations.
Independent: Barbados became independent from the UK in 1966. Legislators from the UK cannot influence our legislation and laws as they can in domiciles that are still under its jurisdiction.
Reputation: Barbados has fared well from the increased scrutiny and regulation of financial services by international organisations such as the OECD, which has determined that its regulations, tax and other bilateral treaties work effectively to provide adequate transparency and exchange of information to its trading partners.
It has earned a reputation as an appropriately regulated jurisdiction and is not on any of the so-called “blacklists”.
Competitive: Barbados company formation and licensing of insurance companies is cost-competitive and efficient. The overall cost of doing business in Barbados is far less than in many other international jurisdictions.
Attractive tax rates and low licence fees: Insurance companies are taxed based on the licence they hold. A class 1 licence (a company insuring related party business), is taxed at 0 percent on its earnings and pays an annual licence fee of $12,500.
A company with a class 2 licence (a company insuring third party risk), is taxed at 2 percent on the company’s net earnings and pays an annual licence fee of $25,000.
Barbados has built international relationships through an extensive network of 40 DTAs.
Tax treaty network: Barbados has a well-developed tax treaty network which provides attractive incentives and eliminates double taxation. If US-owned insurance companies in Barbados can meet the requirements of the US Tax Code, they may receive savings on withholding taxes on investment income on dividends, which countries without a tax treaty cannot benefit from.
It is worth remembering that Barbados has built international relationships through an extensive network of 40 DTAs which provide benefits to our partners and give Barbados a real advantage. Barbados has DTAs with several European countries including the UK and Spain, as well as with Canada and the US. In addition, Barbados has DTAs with a number of countries in Latin America, including Mexico, Panama and Venezuela, and is in various stages of negotiations with Costa Rica, Columbia, Chile and Brazil.
Barbados is pleased with the introduction of substance requirements as part of the OECD initiative to end exploitative tax practices.
Solvency: The solvency requirements in Barbados remain sensible. They are as follows:
First year: Assets must exceed liabilities by $125,000
After first year:
— Premium income of $750,000 or less: assets must exceed liabilities by $125,000
— Premium income up to $5,000,000: assets must exceed liabilities by an amount equal to 20 percent of the previous year’s premium income
— Premium income above $5,000,000: assets must exceed liabilities by an amount equal to 20 percent of the previous year’s premium income for the first $5,000,000 in premium income, plus an additional 10 percent of premium income earned above $5,000,000
For long-term insurance business, the solvency requirement is that assets must exceed liabilities.
Capital: The minimum capital for an insurance company writing all of its risk outside Barbados is $125,000.
Professional infrastructure: Our Financial Services Commission licenses Barbados management companies that are qualified to provide captive insurance management services to licensed insurance companies. This helps to ensure the provision of quality services.
The Big 4 accounting firms have offices in Barbados staffed with locals. The presence of these well-known firms deepens the level of trust that shareholders can place in an audit opinion. Our banking sector is dominated by three of Canada’s largest banks, some of which have been doing business in Barbados for more than 100 years.
Ability to easily meet economic substance requirements: As part of the OECD initiative, insurance companies operating in all international jurisdictions such as Barbados, which offer competitive tax rates, must implement substance legislation to prevent the use of shell companies being setup to exploit low taxation.
This initiative is in keeping with Barbados’ modus operandi. One of the main drivers of Barbados’ entry into the insurance industry was to create jobs as well as transfer skills, locally. Therefore, Barbados is pleased with the introduction of substance requirements as part of the OECD initiative to end exploitative tax practices and create a level playing field worldwide.
Ease of travel: Barbados has daily flights from Miami and New York, as well as London and Toronto, making it a convenient destination to reach for business. Barbados is a highly sought-after vacation destination, with nice hotels, world-class restaurants, fantastic golf courses, warm weather, and a welcoming people. It provides a safe place to visit and a highly enjoyable experience, perfect for mixing business and pleasure.
Section 831(b) of the IRC and Barbados
Under section 831 (enacted in 1986), stock and mutual property and casualty insurance companies compute their tax as provided in the Internal Revenue Code (IRC) section 11, subject to the special rules for calculating their taxable income.
Under section 831(b), small property and casualty insurance companies that meet the requirements, including a premium limitations amount, may elect to be subject to an alternative tax based only on taxable investment income. Under this alternative tax, the underwriting profits of the electing insurance company are exempt from federal income tax.
As a result of perceived abuses, Congress changed the requirement for qualification under section 831(b) effective for taxable years ending after December 31, 2016, and at the same time increased the premium limitation amount, now requiring an electing company to:
- Be an insurance company.
- Have net written premiums for taxable years that do not exceed $2.2 million.
- Meet the diversification requirements.
- Make an election to be taxed under section 831(b)
The diversification requirements were added by Congress as anti-abuse measures to address estate and gift tax evasion issues. Barbados supports the changes that were made by Congress so that any 831(b) incorporation does not carry out activity that could bring Barbados’ good name into question by attracting such entities.
To learn more about Barbados and setting up a captive insurance entity on the island contact Invest Barbados, the investment development Agency of Barbados, at info@investbarbados.org, or visit the website www.investbarbados.org
Click here to read Captive International's US Focus 2024 publication.
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