Barbados China Tax Treaty
The Barbados China Tax Treaty plays an important role in facilitating a strong international business relationship between the two countries. In fact, Barbados has established one of the most attractive investment relationships worldwide with China which minimizes a company’s international tax burden while also granting strong protections for assets invested in China.
The expansive Barbados tax treaty network means that other partner countries can register a Barbados offshore company to serve as a conduit through which to access the Chinese economy and repatriate profits from China, through Barbados, to the parent company.
The Barbados China Bilateral Investment Treaty (BIT) was signed in 1998 and was followed by the Barbados China Double Taxation Agreement (DTA) which was signed in 2000.
Barbados China Bilateral Investment Treaty
The Barbados China Bilateral Investment Treaty (BIT) serves to protect foreign direct investment made by residents of one country in the other country. The BIT offers protection from expropriation and includes a number of fair treatment clauses. It ensures that compensation for a loss of property is offered and provides for international arbitration to settle unresolved disputes between affected parties. In addition, the Barbados China Bilateral Investment Treaty provides for the transfer of returns on investments made.
The Barbados China BIT offers the asset protection and guarantees that foreign investors want when making a major investment in China. Companies located in third party countries are advised to use Barbados as their gateway into China as the BIT affords special protections and guarantees.
Barbados China Double Taxation Agreement
The Barbados China Double Taxation Agreement (DTA) is important for investors and businesses as it prevents double taxation between the two partner countries. This ensures that the same profits are not taxed twice, once by each country. The effect of the DTA is to minimize the international tax burden placed on companies operating in both jurisdictions. The maximum withholding taxes that can be charged by each country are governed by the agreement which also allows taxes paid in China to be deducted as tax credits in Barbados.
The Barbados China Tax Treaty applies withholding taxes as follows:
• Dividends: The withholding taxes charged by the Chinese on dividends paid to the Barbadian company shall not exceed 5% if the owner owns 25% or more of the company. In all other cases, the withholding tax shall not exceed 10%.
• Interest: The maximum withholding tax charged by the Chinese is 10%.
• Royalties: The maximum withholding tax charged by the Chinese is 10%.
• Capital Gains: There is no capital gains tax charged by the Chinese if the Barbadian company owns at least 25% of the equity.
Double taxation is eliminated as follows:
• Tax payable in China on profits or income from sources within China, qualifies as a credit against any Barbados tax payable.
• In the case of a dividend paid by a company that is a resident of China to a company that is a resident of Barbados, and which owns 10% of the capital, the credit shall also take into account the Chinese tax payable by the company paying the dividend in respect of the profits out of which such dividend is paid.
• Where a resident of China derives income from Barbados, the tax payable in Barbados shall be credited against the Chinese tax imposed on that resident. The amount of the credit however, cannot exceed the amount of Chinese tax payable.
Barbados Tax Benefits
Barbados does not charge withholding taxes on dividends, interest, royalties or management fees paid to non-residents. In addition, Barbados offshore companies pay only 2.5% down to 0.5% in taxes on profits. These low tax advantages combined with the Chinese tax treaties make Barbados the perfect location for international companies that want to conduct business in China.
Barbados Offshore Company Structures
The Barbados offshore company structures that can be registered include:
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Doing Business in China
Barbados offers international businesses the perfect route into China through its attractive tax treaties with the Chinese combined with the low tax structures that Barbados has in place for offshore companies.
The Barbados China Bilateral Investment Treaty offers companies that operate in China strong asset protection and measures that ensure fair treatment in the event of any disputes. The Barbados China Double Taxation Agreement assists companies in minimizing their international tax burden and offers investors an attractive means of repatriating their Chinese profits.
The combination of protections coupled with tax benefits makes Barbados the perfect launching pad from which to facilitate a business expansion into China.