15 Mar 2012Blog

The offshore company as a vehicle of real estate ownership in Barbados

by Annette Linton, Senior Associate, Clarke Gittens Farmer

Clarke Gittens Farmer logoIt is common for non-nationals and non-residents seeking to purchase real estate in Barbados to purchase the property through a company incorporated outside of Barbados (an offshore company) rather than purchasing the property in their individual capacities or through a company incorporated in Barbados.

Some of the general benefits of purchasing through an offshore company are:

  • Asset Protection
  • Lawsuit Protection
  • Taxation (varies depending on your jurisdiction)
  • Financial Privacy

However, one of the main reasons that persons choose to use an offshore company as a vehicle through which real estate in Barbados is purchased is the potential for tax savings on a subsequent resale of the property.

When real estate is owned through an offshore company the owners have the option to sell their shares in the offshore company in the company’s country of incorporation, rather than sell the real estate in Barbados. The benefit is that the sale of shares in the offshore company will not attract Property Transfer Tax or Stamp Duty in Barbados as the sale is not happening in Barbados.

On a sale of real estate in Barbados the seller must pay Property Transfer Tax and Stamp Duty. The rate of Property Transfer Tax on a sale of land alone is 2.5% of the sale price or the site value shown on the land tax bill, whichever is higher. Where a building is included in the sale, the first BDS$150,000.00 is tax free. Stamp Duty is charged at the rate of BDS$10.00 for every BDS $1,000.00 of the sale price.

Property Transfer Tax and Stamp Duty are also payable by the seller when shares in a Barbados company are sold. Property Transfer tax is charged at the rate of 2.5% of the sale price of the shares or on the value of the shares, whichever is higher. The shares are valued with reference to the value of company’s assets. The rate of Stamp Duty on the sale of shares is BDS$10.00 for every BDS $1,000.00 of the sale price.

While there are benefits to using an offshore company as a vehicle for property ownership, these benefits must be weighed against the costs and responsibilities of incorporating and maintaining the company.

Setting up and maintaining an offshore company – country of incorporation

Choosing the right jurisdiction to form the company, based on your specific needs, is a critical first step.

The advice of an attorney qualified to practice in the country in which you wish to incorporate should be sought to confirm:

  1. whether a company incorporated in that jurisdiction can be used for the purpose of owning real estate in Barbados;
  2. the steps and legal requirements for setting up the company;
  3. fees and charges for setting up the company;
  4. the legal requirements for maintaining the company once incorporated;
  5. any annual maintenance fees;
  6. any taxes that may be payable in the country of incorporation, in particular on the sale of the shares in the company; and
  7. the steps, legal requirements and the cost to wind up the company.

In some countries the process of setting up and maintaining a company is relatively simple while in others it is a more complex process. The set up procedure and costs will vary from country to country.

Once the company is incorporated, its registration must be maintained in the country of incorporation. In most jurisdictions some form of annual licence fee or registration fee must be paid to keep the company on the register. Failure to pay these fees can lead to penalties being charged and the company being struck off the register.

In addition, when considering where to incorporate you must investigate the potential tax liabilities in the intended country of incorporation.

Registering and maintaining the offshore company in Barbados

A company incorporated outside of Barbados must be registered in Barbados as an ‘external company’ under the Companies Act Cap. 308 of the laws of Barbados before it can own real estate in Barbados.

Registration involves the submission of a Statement in the form prescribed by the Companies Act to the Registrar of Companies setting out basic corporate information including:

  • the name of the company, and the company number;
  • the jurisdiction where the company was incorporated;
  • the date of its incorporation;
  • the manner in which it was incorporated;
  • the period, if any, fixed by its corporate instruments for the duration of the company;
  • the extent, if any, to which the liability of the shareholders or members of the company is limited;
  • the undertaking that the company will carry on in Barbados;
  • the date on which the company intends to commence any of its undertakings in Barbados;
  • the authorized, subscribed and paid-up or stated capital of the company, any number of shares that the company is authorized to issue and their nominal or par value, if any;
  • the full address of the registered or head office of the company outside of Barbados;
  • the full address of the principal office of the company in Barbados; and
  • the full names, residential addresses and occupations of the directors of the company.

The Statement is submitted along with:

  • a Statutory Declaration by two (2) directors of the company that verifies on behalf of the company the information set out in the Statement;
  • two (2) certified copies of the corporate instruments of the company;
  • a Statutory Declaration by an attorney-at-law that the requirements of the Companies Act has been complied with;
  • a Power of Attorney and a Consent to act as Attorney in the prescribed form empowering a person resident in Barbados to act as attorney of the company for the purpose of receiving service of process in all suits and proceedings in Barbados and all lawful notices;
  • Certificate of Compliance or Good Standing issued by the Registrar of Companies for the country of incorporation.

The fees payable to the Registrar of Companies to register as an external company in Barbados are around $3,055.00 BBD ($1,527.50 USD). Legal fees may vary from attorney to attorney.

Once the offshore company has been duly registered as an external company in Barbados, the registration must be maintained.

To maintain the registration of an external company:

  1. Annual returns must be filed; and
  2. Notice of any corporate changes must be filed.

Annual returns

Annual returns must be filed at the Companies Registry together with the prescribed fee of $100.00 BBD ($50.00 USD) no later that April 1 of each year for the year ended December 31 of the previous year.

A company that fails to file an Annual Return within the prescribed time is liable to pay a penalty of $ 10.00 BBD ($ 5.00 USD) for every day during which the default continues. Every director and officer of the company who knowingly and willfully authorizes or permits the default to continue is also liable to pay the penalty. In addition the Registrar of Companies may strike off the register any external company that neglects or refuses to file an annual return.

Notice of Corporate Changes

Where there are changes in the company, such as:

  • a name change,
  • a change among the directors,
  • the objects of the company have been altered or the business of the company has been restricted, or
  • the corporate instruments of the company have been changed to reflect a fundamental change,

a company must within 30 days after the change has been made, file with the Registrar of Companies notarially certified copies of the documents by which the changes were made or ordered.

If notice of a change is not filed within 60 days after the change has been made the registration of the external company will cease to be valid and an application must be made to the Registrar of Companies to revive the registration of the external company. The fee payable to the Registrar for a certificate of revival of registration is $ 1,500.00 BBD ($ 754.00 USD), this is in addition to legal fees and the other attendant costs such as the cost of advertising the notice of revival.

Taxes

The following taxes are payable in Barbados by an external company which owns real estate:

  • Annual Land Tax
    • Unpaid land taxes are a charge on the property and the Land Tax Department can sell property to recover land tax arrears.
  • Corporation Tax
    • If a profit is derived from the rental of the property, there is a corporation tax of 25% of every complete dollar of the taxable income.

Taxes may also be payable in the jurisdiction where the company is incorporated as well as the place of residence of the shareholders and or directors. It is important to obtain proper legal and tax advice to determine the full tax implications of using the offshore company.

Sale option

Sale of the shares in the offshore company

By using the offshore company as a vehicle to own real estate in Barbados, the owners can sell their shares in the company. In selling their shares they will transfer ownership of the offshore company to the buyer.

However in order to sell the shares, the company must be kept in good standing. A purchaser will require a certificate of Compliance or of Good Standing from the Registrar of Companies in both the country of incorporation and in Barbados certifying that the company is in good standing. To obtain the certificate all of the company’s filings must be up to date and all annual fees paid. If there have been any lapses in the corporate filings or payment of annual fees, these must be brought up to date prior to the transfer of the shares and any penalties paid. If the company has been struck off the register an application will have to be made to revive the registration of the company.

The corporate records of the company, including minute books, share registers and accounts should also be kept up to date as a purchaser will want to ensure that the corporate records are in order.

In addition all relevant corporate and land taxes must be paid up to date.

Failure to keep the company’s registration properly maintained or failure to keep the corporate records and taxes up to date could result in increased costs to the owners when they seek to sell their shares and delay completion of the sale.

Sale of the real estate in Barbados

One always has to bear in mind that not all potential purchasers may want to take up the responsibilities of maintaining an offshore company and the real estate may have to be sold in Barbados.

The sale of the real estate by the company in Barbados will attract Property Transfer Tax and Stamp Duty in Barbados.

Further, if the company was set up for the sole purpose of owning the real estate that is now being sold, the owners of the company will now have to consider winding up the company.

In Barbados the process to cancel the registration of an external company is as follows:

  1. A notice of cancellation is filled with the Registrar of Companies;
  2. Clearance certificates are obtained from the VAT Division, Commissioner of Inland Revenue and National Insurance offices and these are submitted to the Registrar of Companies in support of the notice of cancellation;
  3. All company filings and payments have to be brought up to date; and
  4. The Registrar of Companies then issues a letter of cancellation.

The process of winding up the company in the country of incorporation will vary from country to country and is one of the factors that must be investigated prior to deciding whether property ownership through an offshore company is the right option.

Clarke Gittens Farmer is a commercial law firm, providing legal services for both domestic and international corporate and private clients. The firm has a reputation for high quality work in property, banking, corporate, commercial and business law areas. The firm is the Barbados member of Lex Mundi, the world’s leading association of independent law firms.
The information provided in this article is not comprehensive and is not intended to constitute professional legal advice.
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