Trading is part of the rich legacy of the Caribbean Islands and is close to the heart of every Caribbean entrepreneur. It is also a necessity, as gross national product is often modest and inter-Island specialization and co-operation can enhance the economic productivity of all involved. Next to traditional physical trading, e-commerce and fintech are mega-trends that fare well in the current lock-down and six-foot business environment. Various financial incentives are available to the Caribbean entrepreneur wishing to surf these new waves. There is even a new “kickstart-incentive”, helping restarting international entrepreneurs to trade-in crisis for new ventures.
When setting up shop as a trader, some considerations obviously are similar to starting any business. They may be viewed in a different light though, because of the international aspect of doing business. For liability- and tax reasons, it is recommended not to engage in these activities as a sole-proprietorship, but as an entity with limited liability. Experience has shown that some cultures are more litigious than others. Usually, the most appropriate form is the “besloten vennootschap”, which -if used correctly- in most cases shields the entrepreneur/now shareholder’s private assets from creditors. It generally also leads to a greatly reduced tax-rate.
Costs and benefits
Some initial and ongoing costs may be involved. The incorporation of this type of entity needs to be done by a civil-law notary, and a tax- and Chamber-of-Commerce registration needs to be made. Certain licenses may be needed (for establishing a business and possibly for the goods to be traded), and books and accounts have to be made and kept. But advantages outweigh these costs, by far. Additionally, it is imperative to draw up solid general terms and conditions of business and apply these to all transactions in a legally rigorous manner. These terms may also be registered at the Chamber-of-Commerce. This last option is often overlooked, but generally helps in enforcing the terms and conditions. Finally, appropriate (product-)liability insurance needs to be in place, covering all activities and maritime- or air transport insurance needs to cover these modes of transportation.
Room to move
There is, however, also room for improvement. Although there are sufficient banks on the Islands, banking costs, and particularly international payments, are relatively expensive. In an e-commerce business model, based on low cost/high-volume sales of products or services, these may become a dis-incentive. Common e-commerce banking services, such as PayPal, iDeal or Google Wallet, essential for making the e-commerce experience customer-friendly, are not always available. When planning to trade in physical goods, where holding real estate for clearance and storage or for office-space becomes a factor, ABB-tax on import and on construction, and real-estate tax, need to be considered.
Something to think about
There are a few commercial risks in international trading that may merit mentioning. Generally, there is the credit- or counter party risk. Counter-parties may default for insolvency reasons, or because they had a change of heart. Where these are many parties, paying small amounts for online goods or services, this risk may be appropriately diversified. When dealing with larger accounts, pre-payments, letters-of-credit or credit insurance may be the way to go. Similarly, foreign exchange risk and currency risk may make dealing with certain parts of the world less attractive.
Country- and political risk and even business ethics may be a factor. Tariff- and non-tariff trade barriers are in place, as do central bank exchange regulations. Bans on the sale of certain products may exist in specific countries and sanction lists are a fact of life.
Protecting intellectual property rights is another consideration. Every business needs to protect its tradenames, brands, service-marks and other proprietary information and inventions. Conversely, general privacy and data protection laws protect the rights of customers and thus need to be thought about. I did articles on these topics in earlier editions of this magazine.
The good news
The good news is that there are several incentives in place for international trade by Caribbean SMI entrepreneurs, and there is even a new measure intended to facilitate a re-start after Covid-19. The Dutch RvO (“Rijksdienst voor Ondernemend Nederland”) aims to promote a sustainable economic development of the Caribbean countries and parts of the Netherlands. It has a package available for entrepreneurs in this region, that is easily accessible through the website: english. rvo.nl/caribbean, and the App: Nl exporteert. It offers customized country information, business partner scans, starters information, subsidy schemes for demonstration projects, feasibility studies and investment preparation projects, partnering initiatives and trade missions.
This package mitigates a number of the risks mentioned above, such as counterparty and country risk and assist entrepreneurs in accessing markets, through a “voucher-system”. In response to Covid-19, RvO recently developed an impulse package to support international SMI-entrepreneurs during and after the crisis.