Barbados Offshore Qualification
Registering a Barbados offshore company offers great opportunities for individuals and international companies. These opportunities include a low tax rate of 2.5% and exemptions from withholding taxes on dividends, capital gains and royalties, all within a strong regulatory framework and large tax treaty network.
There are a number of factors to consider when evaluating the decision to register a Barbados offshore company. The following characteristics greatly increase the chances of qualification:
Tax Treaty Partner Country
It is advantageous if you are a resident of one of the countries that has a tax treaty with the island. There are currently 21 treaties in place covering a total of 30 countries. In addition, the country’s network of treaties is continuously expanding and talks are ongoing with 10 more potential partner countries. Please review the Barbados Tax Treaties page for a complete list of partner countries.
Tax treaties play a very important part in choosing the right offshore jurisdiction. A negotiated tax treaty means that there are rules in place between Barbados and the individual’s home country outlining how income earned internationally will be taxed. Without such an agreement, a situation may arise where the same income is subjected to double taxation – it is taxed by each country, effectively doubling taxes due. If a tax treaty is in place, then double taxation is avoided.
Tax treaties create appealing business opportunities between the two partner countries since they offer an established tax framework and provide business with formal guarantees about how income will be treated. This certainty means that investors can choose the best course of action to minimize their international tax burden and maximize returns.
International Business Operations
If you run a business that operates internationally, selling products or services to customers in another country, then it is likely that you will qualify to register an International Business Company (IBC). An IBC is the structure of choice for most offshore businesses.
An example of an international business operation in action would be a Canadian company that sells software products worldwide. It can register an international company to handle its sales to other countries, for example, to the U.S.A. and Britain. However, the new company is not allowed to handle sales to Canadian customers. Therefore, the offshore office will handle all international sales while the Canadian office will continue to handle Canadian sales. The international sales will only be subject to 2.5% tax on profits and can remit the remainder as tax-free dividends to its Canadian shareholders.
An International Business Company is licensed to conduct a wide variety of activities including international manufacturing, trade and commerce activities.
International manufacturing includes:
• The business of making, processing, preparing or packaging within Barbados any product that is exclusively for export
International trade and commerce activities include a broad range of functions such as:
• The business of being a broker, agent, dealer, seller, buyer or factor within Barbados of goods existing outside Barbados or of goods to be trans-shipped through or from Barbados
• The business of the selling of services which, if originating in Barbados, are to or for, or on account of, persons resident outside Barbados
• The business of providing from within Barbados a prescribed service for a company carrying on an international business
Barbados offshore costs need to be considered to ensure that opening an office is financially practical. The costs of doing so are generally very affordable due to the availability of offshore management service companies that will run the business on behalf of the owners.
A company only needs to make US $100,000 or more in profits from their international operations for the prospect of registering an offshore business to become attractive.
For example, a company making US $100,000 in profits with a 30% tax rate will be spending US $30,000 in taxes each year in its home country.
Registering the company in Barbados, with a low 2.5% tax rate, means that it now pays only US $2,500 in taxes, a savings of US $27,500 annually.
This company could hire a management service provider for an estimated annual cost of US $18,000. Therefore, a company of this size saves US $9,500 by reducing its tax rate.
A company with profits above US $100,000 will benefit further as tax savings become much larger while the corresponding costs increase only gradually.
There are legal requirements that must also be met in order to ensure that the new operation satisfies the regulations that govern International Business Companies on the island. In addition, it is highly recommended that the client retain a Barbadian offshore tax attorney to ensure full compliance with all requirements and regulations.
The main legal requirements include:
• The new company must be registered under Barbadian law and have a local address
• Required annual license fee of US $425
• An annual audit of the financial statements is required for companies with revenues and/or assets over US $1 million
• The company must not be in the business of trading goods and services nationally within Barbados
• It may not conduct business under other offshore incentive legislation
• Mind and management should be located at the Barbados office
The above list covers IBCs as they are the most popular offshore vehicle used. There are other Barbados offshore company types which will have different legal requirements and are discussed separately.
Get Your Free Barbados Offshore Evaluation Today!
The factors highlighted assist newcomers in deciding if there is a potential opportunity for them to move their business offshore. In addition to this guidance, every business should be evaluated on a case-by-case basis by someone with experience in the sector.
With over 18 years in the business, the Barbados Offshore Advisor is proud to offer a free evaluation for all readers. Just complete the Barbados Offshore Evaluation Form to receive personal feedback and advice on your situation. In addition to free advice, the Advisor operates his own management service company that can run your business for you and he will share his network of attorneys in order to provide qualified legal assistance.