BARBADOS: COUNTRY AND FOREIGN INVESTMENT REGIME

Barbados Geography

Barbados lies north of Trinidad in the eastern Caribbean. The land area which is relatively flat, covers 431 sq km. The tablelands rise in a series of terraces to Mount Hillaby at 336m. The area in the north east is rocky, eroded by a strong surf. There are no permanent rivers and the rest of the island is coral limestone. Natural coral reefs surround clear seas and beaches of white sand.

The climate is mild subtropical. December - June is the dry season, tempered by cooling north-east trade winds. The wet season is humid and hotter but still generally pleasant due to sea-breezes.

Barbados lies on the southern edge of the West Indian hurricane zone; recently no hurricanes have been reported. Sugar cane and food crops are cultivated in rural areas. There is a rich diversity of tropical flora. Natural wildlife has largely been displaced by sugar cane but a Wildlife Reserve was established in 1985.

The capital is Bridgetown, which is the only sea port. Other towns are Speightstown and Holetown; there is extensive coastal tourist development. The Grantley Adams international airport has direct flights to US, Caribbean and European destinations.

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Barbados Population, Language and Culture

The population is approximately 285,000 (2009), with quite high population density. About 90% of the population is of African descent, with 4% being European and 6% of Asian or mixed origins. English is the official language; English Creole is also widely spoken. The Protestant and Roman Catholic religions are dominant. The population has high levels of education and literacy.

After temporary occupations by Arawaks, Caribs and the Spanish, Barbados was claimed for King James I of England in 1625. Between 1627 and 1640, British colonists brought labourers from Britain and some African slaves to cultivate tobacco, cotton and indigo. Sugar plantations were introduced in the 1650s and by 1685 the population was around 50,000. By the end of the 18th century there were 745 plantations worked by over 80,000 African and African descended slaves.

Deplorable working conditions led to slave riots in 1702 and 1816. In 1833/4 slavery was abolished throughout the British Empire; the plantations were then worked by Asian indentured labourers.

During the global depression in the 1930s conditions in Barbados were so bad that island-wide riots took place. A British government enquiry revealed huge inequalities within the island and in 1940 some economic aid came from the UK under the Colonial Development and Welfare Act.

The Barbadian House of Assembly dates from 1639 but was largely a tool of the plantation owners who continued to dominate the country into the 20th century. From 1940 the franchise began to be widened, and two popular political parties evolved, the Barbados Labour Party (BLP) under the leadership of Grantley Adams, and, later, the Democratic Labour Party led by Errol Barrow. These two parties have since alternated in power, as political rights and the structure of the economy have gradually improved.

Barbados was a member of the separatist Federation of the West Indies but became an independent sovereign state within the Commonwealth on its own account in 1966.

Barbados considered joining NAFTA, but is more likely to remain within the Association of Caribbean States as a Caribbean single market and economy develop. In January, 2006, Barbados was one of six Caricom member states which formally signed a declaration of their governments' compliance with the provisions of the Treaty establishing the Caricom Single Market and Economy (CSM). Heads of government signed a document entitled 'Declaration by Heads of Government of the Caribbean Community marking the coming into being of the Caricom Single Market'. These Member States entered into Single Market arrangements on 1 January 2006.

Most member states of CARICOM had signed up by 2008. It will be a while however before the CSME represents much more than token integration. Initially, freedom of movement for certain categories of people, and some mutual reductions of customs tariffs are the main features of the new grouping. Moves towards a common currency, a regional stock exchange and other economic measures will take longer to achieve.

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Barbados Government

Barbados is a parliamentary democracy based on the Westminster model. The Queen of England, as Head of State, is represented by a Governor-General.

The House of Assembly has 30 members, elected for a maximum period of 5 years under universal suffrage. The Prime Minister is the leader of the largest party, and his cabinet is appointed by the Governor-General based on his recommendations. There are 21 Senate members, twelve of which are appointed by the Governor-General on the advice of the Prime Minister, a further two on the advice of the Opposition Leader and the remaining seven at the Governor-General's discretion. The last elections held in January 2008, saw the DLP, led by David Thompson, end the BLP's bid for a fourth successive term in government, taking 20 seats in the 30-seat House of Assembly.

Amendment to the Constitution may be decided by Act of Parliament passed by both houses, except for 'entrenched' clauses which require two-thirds majorities in both houses. These clauses relate to citizenship, rights and freedoms, the Governor-Generalship, composition of Parliament and its sessions, prorogation and dissolution, general elections, senatorial appointments, the Executive Authority of Barbados, the judicature, civil service and finance.

The legal system is based on English precedents, except that the written Constitution is superior to Parliament; there is a High Court and a Court of Appeal. In certain cases appeal lies to the UK Privy Council; but creation of a Caricom Court of Appeal is imminent, which will be located in Trinidad and Tobago and will supersede the Privy Council.

In September, 2003, Barbados's attorney general, Mia Mottley explained that: "Since 1998 we have been planning and working for this court...it has taken some four or five years for us to reach this point. We have gone through carefully and steadfastly, a whole set of arrangements in relation to the establishment of this court."

Inauguration of the Caribbean Court of Justice (CCJ), originally set for November, 2004, was postponed until 2005, as a result of the failure of three Caribbean countries to pass the relevant legislation. Translation of the treaties relating to the CCJ and Single Market and Economy (CSME) into national law is a pre-condition of the loan agreement reached with the Caribbean Development Bank for the funding of the Court.

The CCJ began hearing cases in March 2005.

Barbados Economy and Currency

Barbados experienced economic problems in the 1980s, partly due to politically-motivated populist economic policies which were unsuccessfully resisted by international organisations. After an IMF structural adjustment package, growth returned in the mid-1990s.

Barbados has been partially successful at diversifying its economy away from sugar, which still dominates trade. The crop was sold largely to the EU at a preferential tariff under the Lome Convention. However this regime came to an end in 2006, and the EU's replacement scheme was not nearly as generous.

Tourism has been a success story, accounting for 15% of GDP and half of foreign exchange earnings. There has been a considerable amount of light industrial development, and the high-technology sector is beginning to expand rapidly. Barbados has some indigenous energy, and could hope to be self-sufficient one day. The Government has consistently supported the development of an offshore financial services sector, and this is now the second biggest contributor of foreign exchange after tourism.

GDP per head (2009) is about USD18,500 at PPP (among the higher Caribbean figures). Inflation has been under control, but unemployment is a black spot: after reaching as high as 25% during the early 1990s as the IMF austerity programme bit, it had fallen to 11% in 1999, and by 2006 had decreased to 7.6% - the lowest rate for some years. By 2008 however, unemployment had begun to grow again, reaching 8.1% that year, and increasing to just over 10% in 2009.

The events of 9/11 hit the Barbadian economy hard, and the economy contracted in 2002 mainly due to a 3% decline in tourism. Growth returned in 2003 at 2.2%, and the economy has been growing at a solid pace since. Growth in 2007 was 3.3%, but it fell to 1.5% in 2008, unsurprisingly. The economy contracted by 5.3% in 2009 in the wake of the global financial crisis.

Much of the island's economic exuberance up to 2006 was due to preparations for the cricket World Cup, held in March, 2007. Tourism has also recovered well: during 2006, real tourism output grew by an estimated 2.5%, reversing the 2.2% decline experienced in 2005, as a rise in long-stay tourism more than outstripped a fall-off in cruise passenger arrivals.

The official unit of currency in Barbados is the Barbadian dollar. The rate of exchange is currently at BDS2 to US$1.

There is exchange control under the Exchange Control Act 1967, applying to inward investment, local borrowing by foreigners, and remittance of funds abroad. Transactions involving foreign investment are normally approved readily. Most types of offshore or non-resident entity and transaction are exempt from exchange controls (see Offshore Legal and Tax Regimes).

Between 2003 and 2006 preparations for the Caribbean Single Market included a gradual dismantling of many aspects of foreign exchange control.

The DLP government of Prime Minister David Thompson, elected in Janaury 2008, has also pledged to continue the liberalisation of capital controls to encourage growth in the financial services sector.

In 2005 the government acted to cut the country's deficit and high debt levels. Budgeted spending was set to rise by 1.6% to BBD2.4 billion, including investment to prepare for the country's hosting of the 2007 Cricket World Cup; but revenue was estimated to rise by 9% to produce a primary surplus, helped by an increase in VAT receipts to more than BBD900m, and sales of government assets including BBD66m from the sale of shares in the Insurance Corporation of Barbados and BBD100m from the sale of the government's interest in the GEMS hotel project.

The government’s fiscal position improved in 2006, as the deficit, estimated at 1.7% of GDP, was about 2.7 percentage points lower than that of 2005. A decline in the economy led to a widening in the fiscal deficit from 6.4% of GDP in 2008, to 8.4% in 2009. The government has announced that it will introduce a programme to reign in the deficit to closer to 2% of GDP.

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Barbados Entry and Residence

All visitors to Barbados require a valid passport. Nationals of CARICOM member states, the UK, and the USA, Canada and some Commonwealth countries can travel directly to Barbados with acceptable proof of nationality and identity (a valid passport and/or original birth certificate with national photo identification) and may be admitted for a period not exceeding three months. All visitors are required to have onward or return tickets.

Recent information from the Immigration Department indicates that CARICOM skilled nationals are required to arrive in Barbados with return airline tickets until they have been formally registered with the Immigration Department as such. The registration process can take up to four weeks to complete, and includes submitting to the Immigration Department a registration form (available at the Immigration Department or at the BIDC), along with the following documentation:

Non-residents need work permits; these are issued quite readily and are usually processed in about six to eight weeks. Certain CARICOM nationals can live and work in Barbados without a work permit. There are no statutory restrictions on the number of foreign employees on the payroll of a company at any time, but employers are required to establish that the position in question cannot be filled satisfactorily by a resident or national of Barbados. A long-term work permit is valid for up to three years. The cost per approval is approximately BDS3,600 -$4,000. Short-term work permits are valid for up to six months and are necessary for company personnel entering the country to assist with the setting up of the operation and training employees. Approval will cost approximately BDS600.00.

Non-residents may purchase real estate in Barbados with foreign currency that has been registered with the Central Bank.

As the Caribbean Single Market develops, freedom of movement in the area is gradually improving. In late 2003, Head of the Barbados-based CARICOM Single Market Economy Unit Desiree Field-Ridley revealed that five categories of workers are now able to enjoy freedom of movement between member countries without the need for a work permit. Field-Ridley indicated that initially, artists, sportsmen, media workers, musicians and university graduates will be the first groups to benefit from freedom of movement. However, the CARICOM representative emphasised that the free movement of labour was designed primarily for those with specific contracts and is not intended to encourage long-term residency in other member countries. Nevertheless, it is the Caribbean community's stated aim to extend the rights to all citizens in the region Field-Ridley added.

It is also envisaged that individuals will be able to travel within the CARICOM region without the need for a passport when an ID card system is eventually introduced.

In February 2007, Barbados was one of the ten countries belonging to the Caribbean Community (CARICOM) to introduce the 'Single Domestic Space.' Established to facilitate easy movement during the ICC Cricket World Cup 2007, persons belonging to the single domestic space are able to move from country to country without having their passports stamped, but must present their completed forms to immigration officials.

In an attempt to streamline the work permit and residency application process, the government announced in 2007 that as part of a new International Business Charter, it would introduce a single set of forms for work permits, student visas and spousal visas, thus making it easier for family units to relocate to Barbados and work in the international business sector.

This announcement was welcomed by the business and finance industry, which had complained that the processing of work permits could take as much as six months before approval is granted.

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Barbados Business Environment

Barbados has a stable and well-organised business environment, with a reasonably diverse set of professional services reflecting growth of the financial sector in recent years. Telecommunications are modern.

Foreign investors and investment are welcomed (see below); the Barbados Industrial Development Corporation provides various types of assistance.

There is a wide variety of corporate forms available for most purposes (see Forms of Companies) and the legislative structure is flexible and liberal. Within offshore forms, taxation is very light; onshore, it can be quite high.

With high unemployment and a well-educated work-force, there is good availability of labour; but employment legislation is quite strict compared with many offshore jurisdictions, due partly to Barbados' troubled social history.

The Government's encouragement of the informatics sector means that there is better than average availability of computer services and professionals. Barbados is probably a good place in which to base e-commerce operations.

The level of privacy and confidentiality is only moderate (see Double Taxation and Other International Treaties). There are a number of routes by which foreign investigators can breach confidentiality; fiscal crimes are covered as well, unusually for an offshore jurisdiction.

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Barbados Stock Exchange (BSE)

The Barbados Stock Exchange, although not large, has been moderately successful. In February 2007, the BSE had 26 local listings and a number of international companies including 7 banks. Its market capitalisation was BDS9.9 bn, with cross listings to other Caribbean markets also capitalised at BDS11 bn. However, in 2008 market capitalization fell by 28% from BDS19 billion to BDS13.5bn. In early 2010, market capitalisation was BDS11.3bn.

From July 2000, operations at the BSE became fully computerised, increasing the efficiency and security of the market. Certificates for shares which are to be traded must be deposited with the Central Securities Depository (CSD) at the Central Bank of Barbados.

The original trading facility, the Securities Exchange of Barbados (SEB), was established in 1987, under the Securities Exchange Act, Cap 318A, of 1982. The BSE was re-incorporated on August 2, 2001 simultaneously with the enactment of the Securities Act 2001 -13, which repealed and replaced the original Act of 1982. However, the BSE remains a privately owned, non-profit organization. On July 4, 2001 the BSE switched from the manual, open outcry method of trading, to electronic trading using the order-routing method.

In anticipation of the Caribbean Single Market, the BSE has rapidly been developing links with other regional exchanges, particularly those of Jamaica and Trinidad and Tobago.

In August, 2003 the Central Bank announced an increase in the transaction limit imposed on the Barbados Stock Exchange from BDS3 million to BDS5 million. For transactions above this, however, approval will still be needed from the Central Bank. "This limit applies to the purchase and sale of shares and securities cross-listed and cross-traded on any of the stock exchanges in the Member States of CARICOM but does not include government securities," the Central Bank explained, continuing: "Also, effective July 15, 2003, commercial banks in Barbados may, without the prior approval of the Central Bank, approve applications up to a limit of BDS250,000 in respect of investment transactions in private sector unlisted equities in CARICOM countries."

Then in January, 2004, the Central Bank of Barbados announced that investments in certain corporate securities will no longer have to be referred to the bank, in line with a general process of investment liberalization taking place across the Caricom region. "Effective January 15, 2004, all investments in corporate securities in the form of equities cross-listed and cross-traded on the stock exchanges in CARICOM may, without limit, be approved by the Barbados Stock Exchange without reference to the Central Bank of Barbados. However, this authority does not include any government securities cross-listed and cross-traded on these stock exchanges."

In April, 2005, BSE decided to allow shares listed on the bourse to move in one cent increments. The new rules had been in the pipeline for some time and are an attempt by the BSE to harmonise with other exchanges in the region, such as Jamaica and Trinidad.

In June, 2005, BSE reduced the length of time it takes to settle stock transactions. Previously, share transactions were settled on a T+5 basis. According to General Manager, Marlon Yarde, the exchange wants to reduce this settlement cycle to T+3, a move he says will improve risk management by decreasing the likelihood of default on a transaction that is in the process of clearing.

The T+3 system is currently used by the Jamaica Stock Exchange, and it is the other exchanges in the region are also aiming to reduce the length of their settlement cycles.

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Barbados Import of Foreign Capital

See Offshore Legal and Tax Regimes for the exemption of offshore activities from Exchange Control.

A non-resident or foreign investor must register funds with the Central Bank that are to be used to make investments into shares or debt of companies incorporated in Barbados (and there are controls over their subsequent repatriation).

Central Bank permission is required for a non-resident (Barbadian or otherwise) to buy real estate in Barbados; permission is usually given if the funds are foreign and if the money is received in Barbados.

In June, 2003, the Central Bank of Barbados announced that the country’s commercial banks may, without its prior consent, approve all investment transactions in private unlisted equities in CARICOM countries. The new measures were effective from June 1 2004 and are in accordance with the general liberalisation of exchange controls so as to facilitate the execution of foreign exchange transactions in the CARICOM region.

According to the Central Bank, commercial banks are required to request and examine the relevant supporting documentation to ensure authenticity (e.g. sale/purchase agreements, proforma of the investment transactions, confirmation slips, etc.) and to document details of the parties to transactions.

Effective from the same date, commercial banks in Barbados may also approve applications to transfer funds from Barbados to CARICOM countries in respect of personal loans, maintenance and financial assistance without reference to the Central Bank. Where Authorised Dealers are not satisfied with the authenticity of transactions, they must be referred to the Central Bank of Barbados.

As a result of change in 2006, Barbadian residents and CARICOM nationals resident in Barbados who earn foreign exchange may hold foreign currency accounts with a limit up to the equivalent of BDS20,000 without exchange control permission provided the accounts are funded by foreign exchange of at least BDS50,000 annually. For limits in excess of BDS20,000 exchange control permission will be required.

Effective February 1, 2006, returning Barbadian nationals may hold foreign currency accounts with a limit up to the equivalent of BDS100,000 provided the funds credited to such accounts represent foreign currency earnings from abroad in the form of pensions, rental income, interest, dividends or other foreign income.

In its 2007 financial statement, the government announced that all exchange controls relating to Caricom would be abolished by the end of that year. Eventually, all restrictions with respect to non-Caricom transactions are to be removed, although the 2007 statement specified no time frame for this.

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Barbados Investments by Foreigners

The Barbadian Government introduced a wide range of investment incentives applying broadly to manufacturing industry offered by the Barbados Investment and Development Corporation. Some of these are as follows:

Another incentive announced in 2007 removed VAT on the importation of raw materials and packaging for registered exporters earning at least 40% of their revenues from export sales.

The government also announced in its 2007 financial statement an extension of the tax holiday period by another 5 years where approved manufacturers invest a specified level of capital over the previous three years. This measure takes account of the fact that approved manufacturers, nearing the end of their 15 year tax holiday, invest heavily to replace aging equipment or upgrade existing equipment.

The statement also proposed: extending the list of approved products eligible for fiscal incentives to include the botanicals industry and medical transcription services; the establishment of an import/export financing facility; the creation of an Export Promotion Agency; the sale of long leaseholds to manufacturers in industrial estates; and the establishment of a Medial Transcription Training Centre.

The Industrial Incentives (Factory Construction) Act 1965 (as amended) provides for extensive tax benefits to be given to certain companies that construct factory premises.

Manufacturing companies in Barbados are able to take advantage of several international trading treaties or conventions to which the country belongs, including:

In May, 2005, Barbados' Minister of Tourism and International Transport, Noel Lynch said Barbados was seeing unprecedented levels of investment in its tourism sector as a result of the Tourism Development Act 2003, which has attracted substantial amounts of capital since it was passed.

Under the Act a total of 11 new hotels accounting for 406 rooms have been developed, with extensions and renovations to 10 other hotels, representing an investment of $306.7 million, resulting in an additional 483 rooms and 442 new jobs. New multi-purpose developments include 100 hotel rooms and 605 villa rooms and are expected to generate 506 jobs on completion of the projects.

The need for greater hotel capacity was given greater urgency as the country prepared to host the quarter final matches and the final match of the Cricket World Cup in 2007. The total room requirement to accommodate Barbados’ regular visitors as well as anticipated fans of the Cricket World Cup was approximately 12,000 rooms against a stock of 8,000 rooms.

Mr Lynch urged the region to accelerate the creation of the long-mooted Regional Stock Exchange to encourage the formation of regional capital markets which could increase the flow of investment into tourism.

The Act allows investors in tourism projects to benefit from write-off of capital expenditure and 150% of interest costs. There is also exemption from import duty, value added tax and environmental levy in respect of furniture, fixtures and equipment as well as building materials, supplies and equity financing.

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