Barbados has an enviable record as a tax treaty jurisdiction which offers scope for legitimate international tax planning and secondly as a venue for the safe deployment of internationally mobile capital. Its double tax treaties offers an array of benefits, which provide tax-planning opportunities to investors who are seeking to minimise their global tax exposure.
The presence of its treaties reflects a consistently expanding internationalism. The yearly contribution of Barbados' international business sector now exceeds $130 million, and represents approximately 59% of all corporate taxes. It has accounted for approximately 12% of total government revenues since the year 2005. Currently, international business companies and exempt insurance companies in particular, continue to manifest significant increases; and large insurance and global reinsurance structures continue to establish and relocate their centres of operations in Barbados. Indeed, international business companies have shown significant increases over both periods of the liquidity crisis and the international recession. From licence fees alone, Barbados now collects yearly in excess of $6 million. It is clearly accelerating benefits from an international sector, which may safely be seen to be outperforming in a recessionary environment. Indeed, Barbados was accorded an appropriate accolade when the OECD in its report "A Progress Report on the Jurisdictions Surveyed by the OECD Global Forum in Implementing the Internationally Agreed Tax Standard" recognised it as the only independent Caribbean nation which had substantially implemented the internationally agreed tax standard. Furthermore, Barbados has now long met the OECD requirements for the exchange of information on request in all tax matters. It has been recognised in the Global Competitive Report with an overall competitiveness rating of third for Latin America/The Caribbean and 44th worldwide; its soundness of banks is 4th in Latin America/Caribbean and its availability of latest technologies is 2nd in Latin America/Caribbean and 29th worldwide.
In addition, Barbados has been given international endorsement by agencies such as United Nations Development Program, which ranked it as 4th worldwide out of 177 countries in terms of literacy; and the Human Development Report has been consistently ranked it as 1st in Latin America and the Caribbean and 37th worldwide out of 179 countries in its human development index. Transparency International in its corruption perceptions index has ranked Barbados as 2nd in Latin America/Caribbean and 22nd worldwide out of 180 countries. These solid institution building and retaining features have enured to the benefit of Barbados in the recessionary environment and have allowed its planners to continue to explore and carve out new niche areas along with strengthening its existing foundations. They have all served as a buttress to the expanding tax treaty network.
Barbados' tax treaties offer benefits, which provide tax-planning opportunities to investors who are seeking to minimise their global tax exposure. Most of Barbados' treaties allow for reduced withholding tax rates on dividends, interest and royalties. Many of its treaties also contain tax-sparing provisions. In addition, the interaction of the Permanent Establishment (PE) and Business profits Articles of Barbados' treaties offer protection to Barbadian resident companies from exposure to taxes on business profits earned in another treaty country. The treatment of capital gains is often important to international investors since, in some of Barbados' treaties, the right to tax certain gains lies with the state where the seller is resident. Hence, in cases where the seller is resident in Barbados and since Barbados does not impose tax on capital gains, no tax is therefore payable in either Barbados or in the other treaty countries.
A number of the treaties also contain a limitation on benefits provision. Such a provision prohibits treaty benefits from being applied to offshore companies, which benefit from a special tax regime or prevent non-residents of a treaty country from enjoying benefits of a treaty. The revised limitation on benefits article of the renegotiated Barbados-US tax treaty excludes special incentive companies from benefiting from the treaty provisions applicable to dividends, interest and royalties. However, this treaty still has advantages for these companies, principally under the Business Profits Article. There are also benefits for individuals. Barbados' more recently concluded treaties, including the treaties with China and Cuba, do not prohibit the use of special incentive entities from obtaining treaty benefits. These treaties provide significant tax-planning opportunities to investors wishing to minimise their costs when repatriating income from their investment. The treaties with China and Cuba contain favourable provisions, which make Barbados an attractive jurisdiction through which investments into China and Cuba can be channelled. Increasingly and steadily, Barbados is being used for legitimate Cuban investment.
Barbados' treaty with Mexico contains areas replete with great planning opportunities using withholding tax and dividend provisions. It also contains the special provision which allows a resident of either contracting state to take a tax deduction, subject to any conditions provided under the income tax laws of that state, for donations to any organisation qualifying as a charitable institution under the income tax laws of the other contracting state. The relevant article allows the competent authorities to consult each other so as to agree on whether an organisation qualifies as a charitable institution under the laws of either Mexico or Barbados. With the increasing global importance of philanthropy, this provision holds great possibilities for the charity sector in both jurisdictions and it may be used carefully and creatively.
The Barbados tax treaty record is stellar and exemplary; it matches great promise with solid performance.