Barbados offshore tax and legal regimes

Original Barbados legislation for the financial services sector dates from the Sixties, and the Government has pursued the creation of an international offshore financial centre with increasing vigour in the last 20 years. In 1989 the Government formed an Advisory Committee on International Business bringing the public and private sectors together, and the Committee has been effective in maintaining up-to-date legislation in a number of sectors including banking, insurance, shipping and trusts. At the end of 2005 in Barbados there were about 8,000 International Business Companies and 2,000 Foreign Sales Corporations, although these have largely lost their usefulness since the WTO ruled against US export tax subsidies. In 1997 the Government undertook a review of existing legislation in all offshore sectors, and this has led to a programme of legislative reform in a number of sectors.

Barbados Forms of Offshore Operation

Offshore entities are usually formed as limited liability companies or external companies and then take appropriate form depending on their purpose:

Other forms used are the Exempted Limited Partnership, the International Trust, the Shipping Management Company and the Society with Restricted Liability.

Barbados Tax Treatment of Offshore Operations

See Domestic Corporate Taxes for the general principles of Barbados corporate taxation, which also apply to offshore entities.

International Business Companies pay corporation tax as follows:

Taxable Profits, BDS '000	Rate of Tax, %
Up to 10,000	2.5
Between 10,000 and 20,000	2.0
Between 20,000 and 30,000	1.5
Over 30,000	1.0

The Minister may agree a different rate at his discretion, but it may not be less than 1%. Foreign tax credits are deductible, but only in so far as the tax paid stays above 1%.

An external IBC (incorporated outside Barbados) pays tax only on its local revenues. IBCs are exempt from stamp duty on transfers to other IBCs or non-resident persons; they are exempt from exchange control regulations; they are exempt from customs duties on goods and materials imported for their international business, and they are exempt from withholding taxes on payments of all types made to other IBCs or to non-resident persons.

The Minister may grant exemption from income tax on a proportion (usually one third) of the earnings of those IBC employees or sub-contractors who are essential to its business but are difficult to attract or retain.

Foreign Sales Corporations are exempt from corporation tax, from withholding tax on payments to non-residents, from customs duties on goods and materials imported for their foreign trade, from ad valorem stamp duties, consumption tax, and property transfer tax on the transfer of shares to non-residents. Their foreign trade transactions are exempt from exchange control, and they do not have to file tax returns.

A stamp duty of BDS10 is payable on documents, agreements, assignments, bills of exchange, bonds, covenants, debentures and deeds.

The Minister may grant exemption from income tax on a proportion (usually one third) of the earnings of those FSC employees or sub-contractors who are essential to its business but are difficult to attract or retain.

The US owners of Barbados Foreign Sales Corporations receive tax benefits under US Tax Reform Act 1984 and the subsequent Extra-Territorial Income Exclusion Act 2002. However, following rulings by the World Trade Organisation after complaints from the EU, this legislation was repealed in 2004.

Offshore Banks pay corporation tax on the same basis as an International Business Company (see table above). They are exempt from withholding tax on payments to nonresidents or other offshore entities, from customs duties on goods and materials imported for their offshore business, from estate duties on any of their shares, securities or assets owned by a non-resident, and from property transfer tax on the transfer of shares, securities or other assets. Their offshore transactions are exempt from exchange control, and they are exempt from ad valorem stamp duty.

A stamp duty of BDS10 is payable on documents, agreements, assignments, bills of exchange, bonds, covenants, debentures and deeds.

The Minister may grant exemption from income tax on a proportion (usually one third) of the earnings of those offshore bank employees or subcontractors who are essential to its business but are difficult to attract or retain.

Exempt Insurance Companies and registered holding or management companies are exempt from income tax, capital gains tax, withholding tax and all other direct taxes on profits or transfers of assets or securities for 15 years, and thereafter, 2% on the first US$125,000 of profits. They are also exempt from exchange controls, and putative investors in an exempt insurance company do not require exchange control permission for the investment. No tax filings need to be made.

A stamp duty of BDS10 is payable on documents, agreements, assignments, bills of exchange, bonds, covenants, debentures and deeds.

The Minister may grant exemption from income tax on a proportion (usually one third) of the earnings of those insurance company employees or subcontractors who are essential to its business but are difficult to attract or retain.

Exempted Limited Partnership: nonresident partners will be exempt from income tax, capital gains tax, withholding tax and all other direct taxes on partnership income attributable to them. An Exempted Limited Partnership may import duty- and tax-free all types of goods and materials that are exclusively for the use of the partnership.

International Trusts: Trusts are taxed as persons in Barbados, but an International Trust with nonresident settler and beneficiaries, and without Barbadian real estate assets, will at worst be taxed only on income remitted to Barbados; this is easily avoided, of course. If other Barbadian offshore entities are trust beneficiaries, they are treated as nonresident

Shipping Management Companies are treated as nonresident and are exempt from income taxes. Under the Shipping Incentives Act, which predates the Shipping Corporations Act, shipping companies involved in the operation or leasing of ships, or in shipbuilding, are entitled to a number of tax benefits, including freedom from import duty on ships and materials used in building or repairing them, exemption from tax for dividends paid to residents, reductions in taxes for dividends paid to nonresidents, and (at the Minister's discretion) full or partial exemption from taxes on profits. Shipping companies choosing to be incorporated in Barbados are eligible to tax on profits according to the following scale:

2.5% on all profits and gains up to US$5 million
2% on all profits and gains exceeding US$5 million but not exceeding US$10 million
1.5% on all profits and gains exceeding US$10 million but not exceeding US$15 million
1% on all profits and gains exceeding US$15 million

Societies with Restricted Liability: Exempt SRLs (ie those without Barbadian resident shareholders, without Barbadian investment assets, and not trading with residents) are taxed on the same basis as International Business Companies (see above); indeed a Barbados-incorporated IBC can convert itself into an SRL by special resolution, and a foreign (registered) IBC can do so by applying to the Registrar for a Certificate of Continuance as an SRL.

Barbados Taxation of Foreign Employees of Offshore Operations

This section refers to the taxation of foreign employees of offshore operations, see Domestic Personal Taxes for the general principles of individual taxation in Barbados, which also apply to the resident employees of offshore entities.

Foreign employees working in Barbados are taxed at normal rates and are subject to Barbadian exchange controls, but if their employer is able to take advantage of the special schemes described above, up to one third of their remuneration is paid tax-free and is exempt from exchange controls.

In 2006 the government introduced enhanced tax concessions for specially qualified individuals employed in the International Financial Services Sector, as follows:

Up to $150,000 per annum 35%
Over $150,000 but less than $500,000 50%
Over $500,000 60%

Barbados Exchange Control

There is exchange control under the Exchange Control Act 1967, applying to inward investment, local borrowing by foreigners, and remittance of funds abroad, although these are gradually being relaxed by the Central Bank. Transactions involving foreign investment are normally approved readily. Most types of offshore or nonresident entity and transaction are exempt from exchange controls, as described individually above.

Non-national residents of Barbados are allowed to maintain external accounts with authorised dealers, and may credit their (after tax) salaries to these accounts; 25% of these net amounts may be transferred overseas without specific approval.

In its 2007 financial statement, the government announced that all exchange controls relating to Caricom would be abolished by the end of that year. Eventually, all restrictions with respect to non-Caricom transactions are to be removed, although the 2007 statement specified no time frame for this.

Barbados Offshore Activities

The prohibitions on local activity applying to the different types of offshore entity are described in Forms of Company and Offshore Business Sectors; the following is a brief summary:

International Business Companies may manufacture for export and may trade in external goods and services; they can deal in Barbados freely with other IBCs; they may not deal with resident domestic banks;
Offshore banks can raise money externally but not domestically;
Exempt Insurance Companies cannot write domestic business;
Foreign Sales Corporations may not trade with resident persons;
Exempted Limited Partnerships and Societies with Restricted Liability can deal freely with other offshore entities, but may not do business with resident persons.

Barbados Employment and Residence

The employees of offshore entities in Barbados require 'Temporary Work and Residence (TRE) Permits', which are issued by the Central Bank. For this purpose, employees are categorized either as Executives or Non-Executives.

In effect, Executives are defined as senior management, and three only of them are permitted unless the Central Bank can be persuaded otherwise. The minimum age for an Executive is 24, and the minimum salary is US$12,000 pa.

Non-Executives are those foreigners employed in managerial, professional, administrative, technical and clerical positions. The employer must make an effort to recruit suitable local personnel. Permits are issued by the Ministry of Labour.

In both cases, a fair amount of documentation is required by the authorities. Permits are normally issued for 2 years, renewable for a further three years.

As the Caribbean Single Market develops, freedom of movement in the area is gradually improving. In late 2003, Head of the Barbados-based CARICOM Single Market Economy Unit Desiree Field-Ridley revealed that five categories of workers are now able to enjoy freedom of movement between member countries without the need for a work permit. Field-Ridley indicated that initially, artists, sportsmen, media workers, musicians and university graduates will be the first groups to benefit from freedom of movement. However, the CARICOM representative emphasised that the free movement of labour was designed primarily for those with specific contracts and is not intended to encourage long-term residency in other member countries. Nevertheless, it is the Caribbean community's stated aim to extend the rights to all citizens in the region Field-Ridley added.

It is also envisaged that individuals will be able to travel within the CARICOM region without the need for a passport when an ID card system is eventually introduced.

In an attempt to streamline the work permit and residency application process, the government announced in 2007 that as part of a new International Business Charter, it would introduce a single set of forms for work permits, student visas and spousal visas, thus making it easier for family units to relocate to Barbados and work in the international business sector.

This announcement was welcomed by the business and finance industry, which complained that the processing of work permits could take as much as six months before approval is granted.