Barbados Offshore Myths
There are many Barbados offshore myths and misunderstandings related to offshore companies situated on the island. The reason for this is generally due to big news items that relate to fraud and poor practices in other jurisdictions. The result is that people wrongly associate these poor practices in rogue, “black listed” offshore jurisdictions with the “white listed” country of Barbados.
As a result, it is a good idea to debunk the most common myths in order for investors to better understand the world class Barbados offshore sector.
Myth #1: Barbados is a Tax Haven
Many people think that because the island offers international businesses very low offshore tax rates that it is a tax haven, this is not the case.
According to the following statement by the Organization for Economic Co-operation and Development (OECD), Barbados is not a tax haven. The OECD states “Barbados will not be included in the list (of tax havens) because it has longstanding information exchange arrangements with other countries, which are found by its treaty partners to operate in an effective manner. Barbados is also willing to enter into tax information exchange arrangements with those OECD Member countries with which it currently does not have such arrangements. Barbados has in place established procedures with respect to transparency. Moreover, recent legislative changes made by Barbados have enhanced the transparency of its tax and regulatory rules.”
Basically, tax havens are involved in unregulated and secretive practices. Whereas, Barbados is committed to regulation and transparency that includes tax information exchange with treaty partners.
Myth #2: Barbados Offshore Companies are Sketchy
The Barbados offshore sector is strictly governed and regulated by various Acts and international tax treaties with foreign countries. There are strict Barbados offshore qualification requirements that must be met in order to register an International Business Company under local legislation as well as to meet tax treaty requirements with the foreigner’s country. If the company does not fall within these regulations, it will not be possible to establish the company in the first place.
Companies must file annual tax returns, have their annual financial statements audited by an accounting firm and may be required to share tax information on request with tax treaty partners. The regulation governing these international businesses is likely to be more thorough than those in the investor’s home country!
In fact, the results of a study conducted in 2012 give strong support to this view. The independent study was conducted by Professor Jason Sharman of Griffith University, Australia, a specialist in the role of offshore financial centres. Professor Sharman contacted 3,000 corporate service providers in both offshore and onshore jurisdictions to set up a “shell” company and test their compliance with the Financial Action Task Force’s Anti-Money Laundering regulations. His findings were very revealing: “OECD countries do a much worse job of collecting information on the prospective owners of ‘shell’ companies than their counterparts in offshore financial centres.” He singled out Britain and the United States as doing a poor job in meeting the global standard of transparency when compared to the offshore centres which were far more likely to be compliant in requesting and verifying the information required.
Myth #3: Offshore Businesses Damage My Local Economy
This has always been a sensitive topic with some advocates claiming that companies that move offshore hurt the local economy at home. As such, studies have been done to determine if this is the case for foreign direct investment (FDI) overseas.
A study titled “Offshore Financial Centers and the Canadian Economy” by Professor Walid Hejazi at the Rotman School of Management, University of Toronto on the topic quoted many previous studies to state that offshore financial centers “increased market access that results from having a presence in a foreign market, leading to increased exports from Canada … leading to increased employment and capital formation in Canada (See Brainard (1997), Lipsey and Weiss (1981, 1984), Hejazi and Pauly (2002,2003), Hejazi and Safarian (1999a,b,2001,2005)).”
The study also found that offshore centers lower the cost of capital which “helps Canadian companies compete more effectively in foreign markets”.
In addition, a recent report released in 2012 by Ernst and Young investigated the benefits provided by international finance centres to advanced economies. In particular, the study investigated the benefits that the Isle of Man offshore jurisdiction provided to the world economy and in particular, its close partner, the United Kingdom.
The report stated: “International Business Centres (IBCs) play a key role in contributing to investment, employment and growth in neighbouring countries in particular, and the global economy in general.”
John Hopes, Partner, Ernst and Young said: “The report demonstrates how the Isle of Man supports UK economy’s growth and its financial sector. This should not be underestimated. Our report clearly demonstrates the mutually beneficial relationship which exists between the Isle of Man and the UK.”
Myth #4: My Government Will Prevent My Company Moving Offshore
Foreign governments support Barbados offshore opportunities for their international companies that are very mobile and sensitive to tax rates. This regulated partnership ensures that these companies remain tied to their home country and remit profits back home. Professor Hejazi concluded that “low tax jurisdictions are very important to all countries, and this explains why during the 1980s and 1990s, almost every OECD country has adopted some type of preferential tax treaty with a low tax jurisdiction.” Further proof of this explanation can be seen by the fact that so many countries have signed Barbados offshore tax treaties.
Myth #5: Barbados Banks are Risky
The Barbados banking system is well-regulated and features some of the most respected Canadian international banks worldwide including RBC Royal Bank of Canada, CIBC FirstCaribbean International Bank and Scotiabank. The Central Bank plays a key role in monitoring operations and ensuring compliance resulting in a very robust financial system.
This conservative approach to the banking sector has paid off with the island’s banks all being able to withstand the worldwide economic turmoil unscathed. The system’s stability means that foreign investors can be confident that their funds are safe and protected.
Myth #6: The Barbados Workforce is Unskilled
Barbados has a very advanced education system and a highly qualified workforce. Primary, secondary and tertiary education are provided for the country’s citizens free of charge and the island boasts a university, college and polytechnic. There are qualified Barbados attorneys to provide legal guidance for setting up offshore within established tax treaties, skilled managers to provide offshore management services on the owner’s behalf as well as auditors with international designations working for the world’s largest auditing firms.
The island is designated a “Developed Country” by the United Nations, making it one of the few independent offshore business jurisdictions on the list. It also ranks 3rd in the Americas on the U.N. Human Development Index after only the U.S.A. and Canada. The local workforce is highly skilled and comparable to that found in leading developed countries around the world.
A Developed Offshore Sector
Many offshore jurisdictions are poorly regulated and attract businesses that are trying to evade taxation. Many of these popular myths are attached to these unscrupulous jurisdictions. These poor practices give highly respected international business jurisdictions like Barbados a bad name. Barbados offshore practices are amongst the best in the world, with all businesses following strict legislative guidelines and being required to fulfill their international tax obligations through compliance with tax treaties.
These important regulatory practices mean that businesses operating from the island greatly benefit by being able to pay low tax rates within the legal guidelines and the international tax treaties that are in place. These businesses can then remit profits to their home country while greatly reducing their international tax burden, which boosts their competitiveness in the global marketplace and increases shareholder wealth.