Barbados Tax Treaties

Barbados has a strong international reputation as a well regulated, offshore jurisdiction. It has earned this reputation by establishing an extensive tax treaty network with other countries. This treaty network provides the legislative framework that reinforces the attractive tax incentives offered to offshore companies located on the island.

The focus of these treaties has always been one of that has stressed transparency as opposed to secrecy. Tax treaties allow for tax information exchange and cooperation on tax enforcement issues between governments and tax authorities. The island’s treaty network and its responsible approach to international business have earned it a spot on the coveted OECD “white list” of offshore business locations. This acclaim has provided both the country and the companies registered here with a competitive advantage over others that operate in less reputable jurisdictions.

The tax treaty network consists of three types of tax treaties: Double Taxation Agreements, Bilateral Investment Treaties and Tax Information Exchange Agreements.

Double Taxation Agreements

Double Taxation Agreements (DTAs) have been the Barbadian government’s preferred approach in negotiating tax information and exchange provisions with other countries.

The term “double taxation” refers to a situation where the same income is taxed by two countries – the one in which the individual or business is a resident as well as the foreign country where the income was earned.

Relief from double taxation can be offered through various methods. Barbados generally prefers the use of tax credits, where a Barbados resident that pays tax overseas is offered a foreign tax credit to reduce the Barbados tax payable on the same income. Alternatively, some partner countries prefer the exemption method, where the resident’s income that was taxed in Barbados will then become exempt from taxation in the resident’s country. The chosen method and the details of its implementation are outlined in the specific Double Taxation Agreement between Barbados and its partner country.

Double Taxation Agreements also outline the maximum withholding taxes that can be charged between partner countries.

DTAs help to govern the process through approved and consistent policies that are clearly laid out between the governments of the two countries. This process makes business opportunities between the two countries more appealing as the tax framework is well established and the players know the rules by which they will be governed regarding their earnings. These agreements also benefit the two governments involved through the process of tax information exchange which helps to prevent tax evasion.

Barbados currently has 21 DTAs in force with 30 countries as the multilateral CARICOM agreement covers 10 countries in the region.

The 21 Double Taxation Agreements are with:

• Austria
Botswana
Canada
• CARICOM
China
• Cuba
• Finland
Luxembourg
Malta
Mauritius
Mexico
• Netherlands
• Norway
Panama
Seychelles
Spain
• Sweden
• Switzerland
• United Kingdom
United States of America
Venezuela

The signed Double Taxation Treaties that are awaiting ratification are with:

• Bahrain
• Czech Republic
• Ghana
• Iceland
• Portugal

The initialed Double Taxation Treaties that are awaiting signature are with:

• Belgium
• Italy
• Vietnam

Barbados is continuously expanding and strengthening its network of DTAs. Currently, talks are at various stages ranging from commencement to finalization with Bahrain, Brazil, Chile, India, Liberia, Qatar, San Marino, Singapore and the United Arab Emirates.

Bilateral Investment Treaties

Barbados has several Bilateral Investment Treaties (BITs) in place with other countries which further enhance its appeal by protecting foreign direct investments made by residents of one country in the partner country. BITs provide the protective framework that allows foreigners to invest with confidence. To do this, BITs lay down a number of guarantees such as protection from expropriation and fair treatment clauses as well as the option for international arbitration in the event of a serious dispute.  Compensation for losses are also provided for as well as the free transfer of returns on investments made.

BITs are very useful for investors who wish to use Barbados as a gateway to enter countries which may be deemed riskier due to the possibility of government action or expropriation.  If the foreign country’s government was to nationalize the business, the investors could file an international arbitration claim with the World Bank’s International Centre for Settlement of Investment Disputes (ICSID).  This allows to company to ensure that its assets are protected and that it is not subjected to unfair treatment.

There are currently 8 Bilateral Investment Treaties in place with:

Canada
China
• Cuba
• Germany
• Italy
Mauritius
• Switzerland
• United Kingdom
Venezuela

Tax Information Exchange Agreements

Tax Information Exchange Agreements (TIEAs) are signed to promote international cooperation in tax matters through the exchange of information between signatories.  TIEAs were developed by the OECD Global Working Group on Effective Exchange of Information as a means of addressing harmful tax practices which were caused by the lack of effective information exchange relating to tax matters between countries.  As such, TIEAs were developed as a legal instrument to facilitate this exchange.

Barbados has traditionally supported the exchange of information relating to tax matters through DTAs, many of which were established and in place for decades before the OECD’s move towards TIEAs.  In this regard, Barbados has been an international leader in pursuing tax information exchange.  In keeping with international standards and best practices, Barbados has been willing to sign TIEAs with other nations with which a TIEA is the preferred form of agreement.

The signed Barbados Tax Information Exchange Agreements that are awaiting ratification are with:

• Denmark
• Faroe Islands
• Greenland

The initialed Tax Information Exchange Agreements that are awaiting signature are with:

• France
• Germany

A Strong, Expanding Tax Treaty Network

The many tax treaties provide investors with confidence, guarantees and protections that complement the attractive Barbados offshore tax rates offered to businesses registered on the island. Treaties and legislation have played an important role in the establishment of the island’s reputation as a leader in the offshore sector. With many additional treaties continually being negotiated with more partner countries, Barbados’ attractiveness as an offshore business hub continues to rise to new heights.

A strong treaty network is a very important consideration when selecting an international business hub.  A treaty network helps to prevent double taxation on international operations and provides the rules by which profits can be remitted to the home country from the international arm.

Barbados offers low taxes for international businesses and has tax treaties in place to give these businesses formal guarantees of how their income will be treated as it moves around the globe. This certainty allows investors to take the best course of action to reduce their international tax burden and maximize returns.