Barbados
Double-Tax Treaties
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 2007, Barbados had 18 tax treaties, including with the
following countries: The Caribbean Common Market (CARICOM),
the United States, Canada,
Austria,
United Kingdom, Finland, The Netherlands, Norway, Malta,
Sweden, Switzerland, Cuba, Venezuela, China, Mauritius and
Botswana. Discussions between Barbadian and Japanese officials
over the possibility of a tax agreement took place in August
2006, and Barbados has also explored negotiations for a
double tax treaty with India.
Barbados
has signed treaties with Ghana and Luxembourg, and these
are awaiting ratification. Barbados has also initialed treaties
with Italy, Spain and Vietnam. Discussions are continuing
towards finalization of similar conventions with other nations,
including Belgium, Brazil, Chile, Czech Republic, Iceland
and India.
Barbados inherited
treaties with Switzerland, Sweden, Norway and Finland from
the UK, but only the Swiss treaty survived - the other three
were replaced with more modern treaties with low rates of
withholding, tax-sparing provisions, and limitations on
treaty-shopping. The Canadian treaty, dating from 1980,
also includes limited tax-sparing provisions. The Finnish
treaty has a 51% local ownership limitation of benefits
rule, but IBCs and other offshore entities are specifically
excluded from the rule, thus giving them access to treaty
benefits.
In
the 2008 budget, Prime Minister David Thompson
told parliament that more urgency will be placed on the
negotiation of additional double taxation treaties and bilateral
investment treaties between Barbados and other countries.
"Particular
emphasis will be placed on negotiations with the countries
of Latin America and Asia so that we have a network of treaties
that straddles all major countries and positions us to compete
with jurisdictions that have an extensive network of double
taxation treaties," he announced.
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 then 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 agreement.
He 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.
The Canadian
treaty 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. However, the changes
do not appear to have been signed or ratified, and so are
not in force.
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, the rates are 5% for dividends and
10% for interest.
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.
Technical
discussions on the opening of negotiations have also been
held with the Republic of Ireland, Brazil and South Africa,
while Barbados has also explored the possibilty of new agreements
with Slovakia and the Seychelles (the latter of which has
entered into force). More agreements are expected to be
concluded in the near future.
In December 2009, the governments of the Netherlands
and Barbados signed a protocol which amended the convention
on the avoidance of double taxation that they share, in
order to quash tax treaty abuse.
The
protocol in question amends the convention to prevent
Dutch taxpayers from using the treaty to transfer dividends
free of tax to a third country through the Caribbean territory.
Upon approval by both governments, the original treaty,
in force since January 1, 2008, will be thus revised. The
new text also stipulates a tax rate of no more than 15%
on dividends, and contains more stringent parameters on
eligibility.
In
February 2010, Barbados signed a Protocol to amend the existing
Double Taxation Agreement with China.
BACK
TO TOP
Barbados Tax-Sparing Provisions
A tax-sparing
provision has the effect that if tax is 'spared' ie exempted
in Barbados, then it is credited against an investor's tax
liability in his home country (the treaty counterpart) as
if it had actually been paid in Barbados. There are tax-sparing
provisions in the treaties with Finland, Norway, Sweden
and Canada, although the Canadian treaty excludes International
Business Companies and similar entities from treaty benefits.
BACK
TO TOP
Barbados Table of Treaty Rates
The table gives
the rates of withholding tax applying to payments made from
Barbados to residents of the treaty countries listed. NB:
These percentages are given for general guidance only -
tax treaties are complex, and reference should be made to
professional advisers before any action is based on the
information given.
|
Country |
Dividends |
|
Interest
(note 3)
|
Participation
< 10% (note1)
|
Participation
> 10% (note 2) |
| United
States |
15% |
5% |
5% |
5% |
| Canada |
15% |
15% |
15% |
10% |
| United
Kingdom |
nil |
nil |
15% |
15% |
| Switzerland |
35% |
35% |
n/a |
nil |
| Finland |
15% |
5% |
5% |
5% |
| Norway |
15% |
5% |
5% |
5% |
Malta |
5% |
5% |
5% |
5% |
| CARICOM |
15% |
15% |
15% |
10% |
| Notes:
(1) |
The rate of withholding applies if the receiving company
owns less than 10% of the capital of the paying company
|
| (2) |
The rate
of withholding applies if the receiving company owns
10% or more of the capital of the paying company |
| (3) |
There are
a number of conditions attached to the 5% withholding
rates under the US treaty; in the case of Barbados the
withholding tax on royalties applies only to royalties
on films. |
From
income year 2007 and onwards, dividends derived by Barbadian
resident companies, including international business companies,
will be exempt from tax in Barbados on dividends from an
overseas company where the Barbados resident is a shareholder
representing at least 10% of the capital of the overseas
company and the shares are not held as a portfolio investment.
It
was also announced in 2007 that payments by a resident Barbados
company to non-resident shareholders out of foreign source
income are also exempt from withholding tax.
BACK TO TOP
Barbados
Other International Agreements
Bilateral
Investment Treaties: Barbados has concluded or is negotiating
Bilateral Investment Treaties with the UK, Germany, France,
Italy, the US, Venezuela, Switzerland, Canada, Cuba and
other countries. The terms of these treaties vary considerably,
but general effect of such a treaty is to strengthen bilateral
intellectual property protection, to give benefits to nationals
working in treaty partner countries, and to give trading
advantages.
Caricom
and the related Association of Caribbean States are moving
towards the creation of a single market, the creation of
a common currency, the establishment of a regional Court
of Appeal to replace the Privy Council, (which many of these
states retain from colonial days as the final court of appeal)
and a possible joint application to join NAFTA. It will
be a while however before the CSME represents much more
than token integration. Initially, freedom of movement for
certain categories of people, and some mutual reductions
of customs tariffs will be the main features of the new
grouping. Moves towards a common currency, a regional stock
exchange and other economic measures will take longer to
achieve.
Tax Information
Exchange Agreement: This agreement with the United States,
which was signed in 1984, provides for the exchange of tax
information in connection with the operation of the Double
Tax Treaty between Barbados and the US. It is more specific
than the exchange of information and mutual assistance provisions
that are usually included in double tax treaties.
According to the OECD, as of March 12, 2010, Barbados was
a jurisdiction which has 'substantially implemented the
agreed international tax standard' and has therefore attained
a place on the OECD's so-called 'white list.' Countries
must have entered into at least 12 Tax Information Exchange
Agreements in order to be placed on the 'white list.'
The Foreign
and Commonwealth Judgements (Reciprocal Enforcement) Act
1922 provides the basis for the Governor-General to
allow local enforcement of foreign judgements if the foreign
country in question reciprocates.
The Proceeds
of Crime Act 1990 allows the Attorney-General to order
a local investigation to assist foreign investigators when
money laundering or (importantly) fiscal crime are suspected.
More than most offshore jurisdictions, Barbados is willing
to mount such investigations into fiscal crime (tax evasion,
in other words); however, it is not clear how this law has
been implemented in practice, or whether the Barbadian authorities
have been willing to respond to 'fishing expeditions' by
foreign tax authorities.
In July, 2005,
CARICOM
heads of government agreed a Mutual Legal Assistance Treaty.
Prime Minister of Antigua and Barbuda, Baldwin Spencer,
said that the purpose of the Treaty is to increase cooperation
in mutual legal assistance among Caribbean countries in
respect of serious criminal matters and to combat criminal
activity.
Under
the Treaty, countries will be allowed to provide assistance
in identifying and locating persons and objects; taking
evidence or statements from persons; obtaining the production
of judicial or other documents and examining objects, sites
and premises. Further permitted measures of assistance include
the temporary transfer of persons in custody to appear as
witnesses; executing searches and seizures; tracing, seizing,
freezing and confiscating the proceeds or instrumentalities
of crime and facilitating the personal appearances of witnesses.
Trinidad
and Tobago Prime Minister Patrick Manning said that the
leaders had approved all the proposals put forward by a
Prime Ministerial sub-committee on crime and security that
met recently in Trinidad and Tobago.
"Basically,
crime and security portfolio is being elevated in CARICOM
to the status of health, agriculture or any other areas
of responsibility and that is so because more and more,
issues of crime and national security are assuming greater
and greater importance in the region", he said.
Manning
said that the committee had also recommended the establishment
of a Council of Ministers responsible for National Security
and Law Enforcement as well as a number of other committees
including the Policy Advisory Committee of technical people
at the level of permanent secretaries to further develop
the region's response to the crime and security situation.
"We
believe by these arrangements we have taken the issue of
crime and security one step further to a significantly higher
place, giving it, the requiste attention it deserves in
the context of the aspirations and concerns of citizens
of the various countries of the region," Manning said.
The
countries signatory to the Treaty include Antigua and Barbuda,
Barbados, Dominica, Guyana, Jamaica, Montserrat, St. Kitts
and Nevis, St. Vincent and the Grenadines, Suriname and
Trinidad and Tobago.
BACK
TO TOP
LAWANDTAX-NEWS.COM
