DTAs And Barbados Entities

Double Taxation Treaties (DTA’s) allow corporations to open up a subsidiary in Barbados in order to assist with their expansion outside of their home country by having active business income from foreign operations potentially taxed at a much lower rate in Barbados. This allows companies with international sales the ability to compete with companies located in lower corporate tax jurisdictions.

Parent corporations would most likely establish an active company in Barbados that fall under the many company structures which exist under various Barbados legislation including:

• Barbados Domestic Business Company, created under the Barbados Companies Act (amended in 2001 & 2004)

• International Business Company, created under the International Business Companies Act, 1991 and the Barbados Companies Act (amended in 2001 & 2004)

• Barbados Society with Restricted Liability (“SRL”) and International Society of Restricted Liability (“ISRL”) are variations of the IBC and RBC respectively and are created under the Societies with Restricted Liability Act 1995

An IBC is created under the International Business Companies Act, 1991 and provides:

• exemption from Barbados exchange control

• income taxed on a reducing scale starting at 2.5% to a minimum of 1%

• the opportunity to buy back its own shares or reduce its stated capital

An IBC is not permitted to carry on business in Barbados which would provide goods or services to the residents of Barbados and may require an audit.

An RBC is created under the Companies Act (amended in 2001 & 2004) and may utilise all benefits provided for under the DTA’s including reduced withholding taxes. The income from an RBC is taxed at a rate of 25% and may require an audit.

Both an IBC and RBC may have:

• a single shareholder and director

• corporate directors and secretaries

• no minimum capital required

• no tax or duties on capital

• no local tax on capital gains

• Members (quota holders) instead of shareholders in the traditional corporate entity

• Managers instead of directors in the traditional corporate entity

• two members are permitted

• one manager is permitted

• may be allowed to move into Barbados from another jurisdiction

• maximization of foreign tax credits

• ‘Limited life’ to maximum of 50 years

The requirements for operating an ISRL in Barbados are that the company must have and continuously maintain a registered office and registered agent in Barbados.

A captive insurance company is created under the Exempt Insurance Act 1983 and provides the following features:

• low capitalisation requirements

• flexibility of using GAAP accounting versus statutory accounting

• strong infrastructure of professionals to provide services

• lower premium taxes (1.6% taxable income – property & casualty/ 0.35% investment – life)

• flexible investment policy permitted

• loan-backs to parent permitted (assuming all parties are financially sound)