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Barbados To Shutter IBC Regime, Remove Harmful Tax Provisions

by Mike Godfrey, Lowtax.net, Washington
16 November, 2018

Barbados's Minister of International Business and Industry, Ronald Toppin, has confirmed that the territory will soon repeal a number of tax measures that are considered to be contrary to new international standards on harmful tax regimes.

The changes are in response to the OECD's recommendations on BEPS Action 5. As a member of the BEPS Inclusive Framework, under the Action 5 "minimum standard" Barbados has committed to remove any "harmful" tax provisions from its domestic tax regime.

Toppin told a recent conference that the regime that established the international business company (IBC) form will be dismantled, the law repealed, and a raft of tax incentives used to lure IBCs will be removed – most significantly the foreign currency earnings credit.

The regimes enable Barbados-based companies to achieve a rate of domestic corporate tax on their profits of as low as 0.25 percent.

He confirmed, in comments reported in an article by Barbados Today, hosted on his Ministry's website, that Barbados will cease to issue IBC licenses and International Societies with Restricted Liability licenses.

An International Business Company (IBC) is a company that is licensed to carry on business in manufacturing, trade, or commerce from within Barbados for customers residing outside of Barbados. An IBC may therefore manufacture, process or otherwise prepare products for export outside of Barbados or provide services to non-residents of Barbados.

IBCs are subject to a tax rate of between 2.5 percent and 0.25 percent depending on profits. The effective tax rate can be reduced, but not below 0.25 percent, by foreign tax credits. Further, payments by IBCs to non-residents and other IBCs are not subject to withholding tax, and they are not subject to capital gains taxes or estate duties, they are exempt from stamp duty, except in respect of real estate situated in Barbados, and exempt from taxes and duties on plant, machinery, raw materials, goods, and other articles imported for use in their business.

Finally, IBCs can obtain tax relief for key personnel and they are exempt from taxes on the transfer of any securities or assets, other than the transfer of real property situated in Barbados.

Meanwhile the foreign currency earnings credit reduces the corporate tax paid by Barbados companies that earn income overseas. It covers a wide range of activities, such as international insurance business, construction, natural resources-related activities, the licensing or sub-licensing of intangible assets, and certain shipping services. The maximum credit available can reduce a company's corporate tax rate from 25 percent to 1.75 percent.

Toppin was reported as saying: "It is proposed that the Foreign Currency Earnings Credit will be abolished and that Barbados will be moving to a regime which will see the convergence of tax across all business entities. The details are still being assessed and various modules are currently being run. What I can state is that the new rate will remain competitive and ensure that those international businesses which are here will continue to benefit from certain incentives."

"I also have to announce that as of December 31, 2018, the Ministry of International Business and Industry, through its International Business Unit, will cease to issue International Business Company licenses and International Societies with Restricted Liability licenses. This will, in effect, close off these regimes as the IBC Act will be repealed and the SRL Act will be amended to give effect to the end of new International Societies," he added.

The Minister also announced that a new regime would be rolled out in January 2019, "which would seek to maintain, as far as possible, the current benefits to the industry."

"Again, the details will be taken to Cabinet, hopefully, next week. What I will say is that, shortly, we will be announcing the nuances of the transition process and two new vehicles that will be used to traverse this global arena," he concluded.

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