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BARBADOS
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DOUBLE TAX TREATIES
TAX SPARING PROVISIONS
TABLE OF TREATY RATES
OTHER INTERNATIONAL AGREEMENTS
RELATED INFORMATION


International Agreements

 

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.

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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.

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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




Royalties
(note 3)



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.

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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.

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LINKS IN THIS SECTION
DOUBLE TAX TREATIES
TAX SPARING PROVISIONS
TABLE OF TREATY RATES
OTHER INTERNATIONAL AGREEMENTS
RELATED INFORMATION

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