Invest Barbados

The Impact of CRS on Barbados' Trusts


The Common Reporting Standard (CRS) is part of a global standard initiated by the Organisation for Economic Co-operation and Development (OECD), introduced to facilitate the adoption of a common approach towards greater tax transparency among participating jurisdictions. More than 90 jurisdictions have committed to the CRS, with more than 50 early adopters.

Barbados, as an early adopter, is earmarked to begin the automatic exchange of information with partnering jurisdictions starting in 2017 for tax year 2016.

Reporting obligations under the CRS

Financial institutions (FIs) in Barbados will have specific due diligence and reporting obligations.  They will be required to gather sufficient data to correctly establish the tax residence of each individual and entity for which they hold “reportable accounts”, to determine whether the account holder is a “reportable person” (any entity or individual who is a resident of a country that is a signatory to the CRS).

Reportable accounts include accounts held by individuals and entities (including trusts, companies and foundations). There is also a requirement to look through passive entities to report on controlling persons.

The FI will then be required to obtain certain information for each reportable person and forward that information annually to the Barbados Revenue Authority. This information includes financial information on reportable accounts, i.e. interest, dividends, account balance or value, income from certain insurance products, sales proceeds from financial assets, and other income generated with respect to assets held in the account or payments made with respect to the account.

Entity classifications

Entity classification is a key factor of the CRS, since FI’s have reporting obligations for any “account” which is held by a reportable person, whereas non-financial entities (NFEs) do not have those obligations.

There are four types of FI classification:

•    Custodial institutions

•    Depository institutions

•    Investment entities, such as Trust Companies, Asset Management Firms, Trusts, Portfolio Holding Companies and Mutual Funds, and

•    Specified insurance companies (unless they present a low risk of being used for evading tax and are excluded from reporting).

An entity that is not a FI is necessarily a NFE. A NFE may fall into one of two categories:

  • Passive NFE, or
  • Active NFE.

An entity is an active NFE if less than 50% of its income is passive, and less than 50% of its assets produce, or are held for the production of, passive income.  In certain circumstances, investment entities residing in non-participating jurisdictions must also be treated as passive NFEs.

Classification of Trusts as FIs under CRS

A trust will be considered a FI, for example, where the trust is managed by a FI, such as a professional trustee, and more than 50% of its gross income consists of investing, or reinvesting and trading, in financial assets. Conversely, the entity would be treated as a NFE if it fails either of the above tests.

Reporting obligations for Trusts as FIs

A trust that is a FI must report on any account that is held by a reportable person. An account holder is any person in relation to such a trust that has an equity or debt interest in the trust. An individual who has made a loan to a trust would be considered an account holder with a debt interest.

For CRS purposes, “an equity interest is considered to be held by any person treated as a settlor or beneficiary of all or a portion of the trust, or any other natural person exercising ultimate effective control over the trust.”  Controlling Persons include the trustee(s), beneficiary(ies), and protector(s).

With regard to the treatment of beneficiaries, mandatory beneficiaries are considered to have an equity interest in the trust, and the value of such interest must be calculated and reported, in addition to the value of any distributions made to them during the reporting period. Discretionary beneficiaries must only be reported if they receive distributions from the trust, but only as to the value of such distributions.

Trusts as NFEs

A trust that is regarded as a NFE has no reporting obligations. However, where the trust holds a reportable account with a FI based in a participating jurisdiction, the FI will likely have a reporting obligation to the tax authority in its country of residence with respect that account.

The rules relating to the CRS, particularly with respect to trusts, are complex, and, although the OECD Commentary has been helpful in clarifying issues raised by participating jurisdictions, a number of areas of uncertainty in relation to the practical application of the rules still remain. The Barbados Government will shortly be enacting legislation to implement the CRS and will be issuing CRS Guidance Notes, which are expected to clarify some of the areas of uncertainty.  


Written by Amanda Lashley, Vice President - Trust Services, Cidel Bank & Trust

Source: Barbados International Finance & Business 2017