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Barbados: Types of Company

Foreign Sales Corporation

The US Tax Reform Act of 1984 enabled US companies to open 'Foreign Sales Corporations' (FSC) in a number of offshore centres, giving tax benefits to the US holding companies; Barbados is one of those countries.

A Foreign Sales Corporation normally takes the form of a limited liability company (see above). The governing legislation is the Foreign Sales Corporation Act 1984. FSCs are only permitted to operate with customers outside the Caricom area, and such sales are termed 'foreign trade transactions'. FSCs are licensed by the Ministry of Trade and Commerce; an FSC must:

  • be incorporated under the Companies Act;
  • carry on 'foreign trade transactions' as its principal activity;
  • be owned by non-Caricom residents.

The definition of 'foreign trade transactions' was loosened to permit some trading with Caricom by the Foreign Sales Corporation (Amendment) Act 1994. Barbados also introduced the 'shared' FSC under which a number of smaller US companies can club together to operate through an FSC, thus reducing costs.

After payment of an application fee of BDS200, the license application itself is accompanied by the Certificate of Incorporation, certain other documents, and a license fee of BDS1,000 (companies with turnover below BDS10m) or BDS2,000 (companies with turnover above BDS10m). Similar fees are payable annually on renewal of the license. There are substantial local tax advantages for FSCs, as well as the beneficial US treatment itself (see Offshore Legal and Tax Regimes).

In 1999, the WTO ruled against the US FSC legislation, in response to a complaint from the EU. After a long series of appeals and counter-appeals, the US finally accepted defeat in 2002, and the FSC legislation was repealed in 2004, along with a temporary replacement regime called the Extra-Territorial Inclusion Act, which had also been ruled illegitimate.



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