Mutual funds in Barbados are governed by the Mutual Funds Act Cap 320B. A mutual fund is classified as a registered unit trust, a company, a partnership or a society which has been granted a licence by the Financial Services Commission of Barbados to carry on mutual fund business in or from Barbados. Entities primarily engaged in any industrial, commercial or charitable enterprise cannot be considered mutual funds. Mutual funds are required to pay an annual licence fee.
Mutual funds are entitled to:
- Hold equity interest in the form of shares and the pooling of investor funds with the aim of spreading investment risks and enabling investors in the mutual fund to receive profits or gains from the acquisition, holding, management or disposal of investment
- Invest pooled resources in securities, in accordance with the mutual fund investment policies and objectives; and
- Issue or offer for issue shares or units for sale that entitles the purchaser or holder of the shares or units:
- to receive, on demand or within a specified period after demand, an amount representing the holders' proportionate interests in the net assets of the mutual fund;
- to withdraw at any time part or all of the investment in the funds; and
- to withdraw, at any time, investment by submitting shares or units in the case of an open-ended fund.
Total number of Mutual Funds
As of December 31, 2011 the total number of licensed mutual funds including sub-funds was 23 (Source: Financial Services Commission).
Advantages of locating a mutual fund in Barbados
The benefits of operating a mutual fund in Barbados include:
- Licensing and sensitive information is kept confidential
- Exemption from property tax with respect to transactions concerning the acquisition or transfer of shares in mutual funds
- Exemption from Stamp duty with respect to transactions concerning the acquisition or transfer of shares in mutual funds
Establishing a Mutual Fund
An application for a licence to administer a mutual fund must be made to the Financial Services Commission. The applicant must have stated equity capital of at least US$500,000 or the equivalent in a currency approved by the Financial Services Commission. The application fee for the Mutual Fund Licence is US$5,000. The application fees for a general administration licence and restricted administration licence are US$5,000 and US$2,500 respectively.
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Why Establish a Trust in Barbados?
There are several advantages to setting up a trust in Barbados:
- An offshore trust is exempt from all Barbados taxes and duties and is not subject to any exchange control requirements
- No registration or filing requirements for an offshore trust therefore confidentiality is easily maintained
- International Trusts are subject to tax only on its Barbados-source income and any income remitted to Barbados. Not subject to any control requirements
- Trusts are permitted for non-charitable purposes provided such purpose is specific, reasonable and capable of fulfillment. A protector must also be appointed to enforce the trust
- Income paid to the beneficiary before the end of the calendar year of which is earned will not be taxed. Capital gains earned by the trust are not subject to tax.
- Exemptions from exchange control where the trust has foreign assets, beneficiaries resident outside of Barbados and deals primarily in foreign currency
- No withholding tax on distributions made by the trust to non-resident beneficiaries.
- Fraudulent disposition provisions protect the rights of existing creditors and certain deferred future creditors
- Barbados incorporated International Business Companies and International Banks can be beneficiaries
- International trusts may conduct commercial ventures
- There are no minimum capital requirements
- Interest may be fixed or discretionary
Number of Trusts in Barbados
As of December 31, 2008, there were a total of 130 trusts licensed in Barbados.
Trusts are licensed by the Central Bank of Barbados. Only non-Barbados residents can be creators or settlors of trusts unless it is a domestic trust.
Forms of trusts
There are three types of trusts in Barbados, International, offshore and Domestic trusts.
- International Trusts – The International Trust Act Cap 245, 1995 S3 (1) (ITA) describes trust as the legal relationship created when assets have been placed under the control of a trustee for the benefit of a beneficiary or for a specified purpose. An international trust may only be created by instruments in writing. This written trust deed must specify that the ITA applies. An international trust has a lifespan of 100 years if not sooner terminated in accordance with the terms of the trust instrument. This does not apply to a purpose trust or a trust established exclusively for charitable purposes. Such trusts may continue in force without any limit as to time. The rule of law known as the rule against perpetuity does not apply to an international trust. An international trust is deemed to be non-domicile in Barbados for tax purposes, and therefore, will be subject to tax only on its Barbados source income and on its overseas income that is remitted to Barbados.
- Offshore Trusts - An offshore trust is regulated by the International Financial Services Act Cap 325, 2002. It is a business accepting trust from persons resident outside of Barbados from prescribed persons amounts of money in foreign currencies in foreign securities or both, foreign personal property or foreign movable property or foreign real property or foreign immovable property. There are no registration or filing requirements. The perpetuity period of trust can be up to 80 years for an Offshore Trust. Offshore Trusts are exempt from all Barbados taxes and duties and free of any exchange control requirements. Offshore trusts are generally not entitled to treaty benefits because they are not subject to tax in Barbados.
- Domestic trusts – Domestic trusts are regulated by the Trustee Act Cap 250, 1985. There are no registration or filing requirements. If the trustee is a Barbadian resident and the trust deed does not specify that it is an international trust then a domestic trust is created. Barbados tax is payable on income not paid to the beneficiary before the end of the calendar year of which it is earned. Capital gains earned by the trust are not subject to tax. There are exemptions from exchange control where the trust has foreign assets, beneficiaries' resident outside of Barbados and deals primarily in foreign currency. Domestic trusts are entitled to treaty benefits under the DTAs.