Barbados Summary

Barbados is a high tax nation that has double taxation treaty agreements that may result in tax rates to an offshore company of 1.5%, it is not considered a tax haven currently on a whole. Barbados has preferred quality to quantity, and has developed a remarkably wide range of offshore formats to suit all tastes. A good US tax treaty and the Foreign Sales Corporation legislation (now repealed) have particularly encouraged US interest; Canada has also been a traditional partner and has a tax treaty with Barbados. The offshore insurance sector is as big as the BVI's, and there are 40 offshore banks. Barbados is extremely picky about who it will do business with, and probably stands in better with the OECD than many OIFCs, although it is nervous about current developments. There is a stock exchange, fully computerised as from July 2000, with a central depositary; but mutual funds have not yet developed strongly. Barbados could becoming an e-commerce centre if it plays the right cards - so far the Government doesn't seem sufficiently aware of the full potential.

Barbados Offshore Company

The Companies Act 1982 legislates companies in Barbados, modelled on the Canadian Business Corporation Act. Company forms available under the Act are limited liability companies, mutual insurance companies, and companies without share capital (for non-profit purposes). Most offshore operations in Barbados make use of the limited liability company form, and then take offshore status under one of the enabling pieces of legislation, including the International Business Companies Act 1991, the Foreign Sales Corporations Act 1984, and the various specialised financial company forms.

Companies are formed under the Companies Act by submitting Articles of Incorporation, Notices of Directors and Registered Address and Request for Name to the Registrar of Companies. The Registrar issues a Certificate of Incorporation, and the company exists as from the date of the Certificate. Incorporation usually takes two or three weeks; shelf companies are not available. Generally, the Barbados incorporation process is amongst the most bureaucratic and inefficient of all tax havens, requiring fees to be paid by certified check and mailed only. Barbados has no flexibility for wire transfers or courier delivery used by other nations, except Nigeria.

Barbadian companies need to have a registered office, and must keep various documents there, including minutes of directors' and shareholders' meetings, registers of shareholders and debenture holders, and accounting records. There needs to be a company secretary. Annual returns are not required; neither are audits unless total assets exceed BDS$1m, and they do not have to be filed.

Barbados Double Tax Treaty with Canada and USA

Barbados has a small number of double tax treaties, but the US and Canadian treaties in particular are extremely favourable for certain types of investor.

As of 2006, Barbados has 14 tax treaties with the following countries: The Caribbean Common Market (CARICOM), the United States, Canada, United Kingdom, Finland, Norway, Malta, Sweden, Switzerland, Cuba, Venezuela, China, Mauritius and Botswana. Treaties with Austria and the Netherlands are expected to be signed shortly.

The Barbados - Canada tax treaty, dating from 1980, was extensively revised in 2002. A key article of the amended agreement, is an improvement to information exchange provisions. The Canadian Revenue Agency is also seeking to crack down on a number of tax evasion schemes designed to exploit loopholes in the original treaty, so another important change was the inclusion of provisions for Canada to tax capital gains when assets are clearly shifted from one country to another solely for the purposes of capital gains tax avoidance. The Canada - Barbados tax treaty requires a the Canadian company to be mid-sized with a physical office and 5 personel in Barbados; engaged in selling goods or services (not investment income), and be completely transparent with CRA, who has shown delight in undoing unqualified companies. Canada's former Prime Minister and Finance Minister, Paul Martin, uses Barbados for his Canada Steamship Company to avoid Canadian taxes, plus Panama registration on the ships.

The Barbados/US tax treaty dates from 1984, and was accompanied by an exchange of tax information agreement (see Other International Agreements below). The treaty creates opportunities for 3rd country investors in US real estate, and is also attractive to US manufacturers. Many US investors are exempted from US accumulated earnings tax on Barbadian profits - this is a rare feature in US tax treaties. A protocol to the US treaty signed in 1991 lowered withholding rates and introduced new 'limitations on benefits' rules.

The US treaty was further amended in 2004 in what was said to be an attempt to counter tax evasion. The second protocol to the 1984 treaty was co-signed by US Treasury Secretary John Snow and Barbadian Industry and International Business Minister, Dale Marshall. "The Protocol we are signing today is a demonstration of both the strength of our relationship and the commitments of our respective governments to keeping the tax treaty's provisions up to date in light of economic developments," commented Snow on the new agreement. The Treasury Secretary went on to explain: "The focus of the agreement is the modernization of the anti-treaty shopping provisions, which are the central mechanism for ensuring that the benefits of our income tax treaty go exclusively to bona fide residents of Barbados and the United States. The agreement contains modifications necessary to address concerns about inappropriate exploitation of treaty benefits, including the potential for the unintended use of the treaty by US companies that purport to migrate their corporate structures. The agreement further ensures that the treaty operates to accomplish its intended purpose of addressing double taxation and cannot be used inappropriately to eliminate all taxation altogether." The protocol was ratified by the US Senate in November, 2004, although some tax experts expressed unease that certain new provisions have found their way into the treaty without being fully reviewed. Judith P. Zelisko, president of the Tax Executives Institute (TEI), whilst supporting the bulk of the new agreement, pointed to concerns over rules expanding the Limitations on Benefits provision to the US treaty network "without thorough analysis." However, Zelisko conceded that despite these reservations, "on balance we agree that ratification of the Barbados Protocol is in the best interest of the country and the business community".

A treaty with Malta was signed in December, 2001. A treaty with Mauritius was signed in September, 2004.

As a result of the treaty with China, signed in 2000, Barbados has emerged as the leading jurisdiction for offshore Wholly Foreign Owned Enterprise (WFOE) holding companies in China. Under existing law, payments of dividends by a WFOE to its foreign owners are free of Chinese withholding tax. Payments of interest to foreign lenders are subject to withholding at 20%, typically reduced to 10% under applicable tax treaties. However, where a taxpayer qualifies for benefits under the Barbados-China treaty, dividends are taxed at a rate not exceeding 10%, interest 5% and capital gains 0%. According to the government of Barbados, the tax treaty with China and its utility in attracting foreign investment to Barbados represents an endorsement of its strategy to expand opportunities for international and pan-Caribbean business in Asia.

Advanced treaty negotiations are underway with Italy, while negotiations have been completed with the Netherlands and Austria, with arrangements currently being made for their signature.

Technical discussions on the opening of negotiations have also been held with the Republic of Ireland, Brazil and South Africa. More agreements are expected to be concluded in the near future.