Barbados Canada Tax Treaty
Barbados and Canada have a very strong business relationship and a mature tax treaty that has been in place for decades. Canadian companies that register a Barbados offshore company are able to benefit from low international tax rates. As such, Canada is a major player in the Barbadian offshore sector with many Canadian companies registering their international business arm on the island. In fact, Canada provides the island’s largest source of foreign direct investment.
Tax Advantages for Canadian Companies in Barbados
There are major tax advantages and benefits available for Canadian companies that register an International Business Company (IBC) to serve as their foreign affiliate in Barbados.
Barbados offshore taxes rates are very low, ranging from just 2.5% down to 0.5% of income earned. Barbados does not charge any withholding taxes on dividends, interest, royalties or management fees paid to the Canadian parent company or Canadian shareholder. In addition, capital gains are tax exempt in Barbados.
Furthermore, a Barbados IBC is classified as a “foreign affiliate” of the Canadian parent. This means that the dividends remitted to Canada from Barbados are considered an “exempt surplus” in Canada and are non-taxable according to Canadian tax laws.
These rules mean that a Canadian company would pay just 2.5% or less of its income in taxes in Barbados and be allowed to remit the remainder to Canada tax-free.
Barbados Canada Double Taxation Agreement
The original Barbados Canada Double Taxation Agreement dates back to 1980, being revised in 2002 to make it more current and strengthen the information exchange provisions that have become an important part of today’s international business landscape.
The main function of the Double Taxation Agreement (DTA) is to avoid double taxation, eliminating a situation where the same profits are taxed twice as they are earned in a foreign country and then again when they are remitted to the parent company’s country of residence. Through the allowance of tax credits between partner countries, the international tax burden on companies and investors is effectively minimized.
The DTA also governs the maximum withholding taxes that can be charged.
The Barbados Canada Tax Treaty applies withholding taxes as follows:
• Dividends: The withholding tax shall not exceed 15%.
• Interest: The withholding tax shall not exceed 15%.
• Royalties: The withholding tax shall not exceed 10%.
Double taxation is avoided as follows:
• Tax payable in Canada shall be deducted from the Barbadian tax payable on such income, profits or gains.
• In the case of a dividend paid by a company that is a resident of Canada to a company that is a resident of Barbados which owns at least 10% of the voting power, the credit shall take into account the tax payable in Canada in respect of the profits out of which the dividend was paid.
• Tax payable in Barbados shall be deducted from the Canadian tax payable on such income, profits or gains.
• For the purpose of computing Canadian tax, a company resident in Canada shall be allowed to deduct, in computing its tax payable, any dividend received by it out of the exempt surplus of a foreign affiliate resident in Barbados.
Barbados Canada Bilateral Investment Treaty
The Barbados Canada Bilateral Investment Treaty provides Canadian investors with a strong, protective framework to safeguard their investments on the island, further enhancing its attractiveness as an international business destination.
To successfully operate a foreign affiliate and legally benefit from the low tax rates available, the company must satisfy the regulations in place. These regulations include both Canada Revenue Agency’s demands as well as the local laws that govern IBCs.
The following requirements and recommendations must be met to help ensure its legitimacy:
• The Barbados company must have substance and form to be recognized as a legitimate international business:
o It must be registered as an IBC
o Mind and management must be located on the island
o The majority of the Board of Directors should be non-residents of Canada
o Board meetings should be held in Barbados
• It is restricted from trading and selling goods in Barbados and in Canada, but may sell them worldwide
• It is not allowed to have employees working in Canada
• Companies with over US $1 million in revenues or assets must be audited annually
The costs associated with registering an IBC are relatively low when compared to the benefits received.
• Registration fee – US $425
• Incorporation costs/legal – Approximately US $1,500 to US $5,000
• Annual license fee – US $425
• Corporate secretarial fees – US $2,500
• Annual audit fee – US $5,000
• Annual management/accounting fees – US $18,000 to US $50,000
Getting your international business set-up and running smoothly is a breeze with free assistance and advice from the Advisor. If you want to explore the opportunities available for registering an offshore business, follow these steps:
• Get a free offshore evaluation from the Advisor to determine company eligibility
• Connect with a recommended Canadian international tax attorney to ensure that the Canadian business structure is setup in accordance with Canadian regulations while effectively minimizing its international tax burden
• Register your Barbados business with the help of a Barbadian attorney
• Use the Advisor’s professional management services to run your business or his contacts in human resource consulting to hire full-time staff for a large operation
Getting started is easy once you have the right contacts on the island, so talk to the Advisor today!
Other Offshore Company Types
There are many other Barbados offshore company types available to Canadian investors in addition to the popular International Business Company that has already been discussed. The availability of many international business vehicles makes the island a top choice for a variety of offshore ventures. Other company types that can be registered include:
• Offshore Insurance including Exempt Insurance Companies (EICs) and Qualifying Insurance Companies (QICs) that can serve captive insurance and international reinsurance needs
Canadian Banks in Barbados
As further testimony to the strong trade and business relationship between the two countries, there is a strong Canadian offshore banking presence on the island with RBC Royal Bank of Canada, Scotiabank and CIBC FirstCaribbean International Bank being major players in the Barbados banking sector. Canadian banks account for 78% of the 50 international banks registered on the island.
Businesses are free to open accounts in multiple currencies including Canadian dollars, U.S. dollars, United Kingdom pounds, Euros and Barbadian dollars. In addition, there are no exchange controls in place.
The flexibility offered by these banks and their familiarity with Canadian business eliminates much of the concern involved when banking in other foreign countries.
Barbados: A Second Home for Canadian Business
The business relationship between Barbados and Canada is so strong and well developed that the island is truly a second home for Canadian business. In fact, Barbados is the third largest destination for Canadian investment after the U.S. and U.K., accounting for 9% of all Canadian foreign direct investment, which is truly remarkable given the island’s size.
Signs of Canadian investment are everywhere on the island, from a strong Canadian banking presence, to familiar Canadian company names on buildings. There are over 1,100 Canadian companies registered in Barbados, accounting for over 30% of the total number of offshore companies on the island. There are also a large number of Canadians living on the island acting as managers and staff, as well as high Canadian tourist arrivals as owners and Canadian Board members visit the island for Board meetings and holidays. Canadians represent 75% of the international financial community on the island.
Barbados offers Canadian business a familiar, regulated and recognized jurisdiction from which to expand and grow internationally. These are invaluable qualities when evaluating an offshore jurisdiction.