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, althoughy
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:
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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 BDS$10 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 BDS$10 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 BDS$10 is payable on documents,
agreements, assignments, bills of exchange,
bonds, covenants, debentures and deeds.
The
Minister may grant exemption from income tax
on a proportion (usually one third) of the earnings
of those insurance company employees or subcontractors
who are essential to its business but are difficult
to attract or retain.
Exempted
Limited Partnership: nonresident partners
will be exempt from income tax, capital gains
tax, withholding tax and all other direct taxes
on partnership income attributable to them.
An Exempted Limited Partnership may import duty-
and tax-free all types of goods and materials
that are exclusively for the use of the partnership.
International
Trusts: Trusts are taxed as persons in Barbados,
but an International Trust with nonresident
settler and beneficiaries, and without Barbadian
real estate assets, will at worst be taxed only
on income remitted to Barbados; this is easily
avoided, of course. If other Barbadian offshore
entities are trust beneficiaries, they are treated
as nonresident
Shipping
Management Companies are treated as nonresident
and are exempt from income taxes. Under the
Shipping Incentives Act, which predates the
Shipping Corporations Act, shipping companies
involved in the operation or leasing of ships,
or in shipbuilding, are entitled to a number
of tax benefits, including freedom from import
duty on ships and materials used in building
or repairing them, exemption from tax for dividends
paid to residents, reductions in taxes for dividends
paid to nonresidents, and (at the Minister's
discretion) full or partial exemption from taxes
on profits.
Shipping companies choosing
to be incorporated in Barbados are eligible
to tax on profits according to the following
scale:
2.5%
on all profits and gains up to US$ 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.
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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%
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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.
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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.
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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.
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