Barbados Luxembourg Tax Treaty
The Barbados Luxembourg Tax Treaty brings together two of the leading low tax jurisdictions worldwide. This benefits the international financial services sector by giving investors access to more opportunities.
The Barbados Luxembourg Double Taxation Agreement came into full effect on January 1st, 2012.
Barbados is a leading international business and financial services jurisdiction located in the Caribbean, while Luxembourg is a leader in investment funds, banking and reinsurance in Europe. The withholding tax rates outlined in the tax treaty are generally zero, meaning dividends, interest and royalties do not attract any withholding taxes. The absence of withholding taxes allows these two low tax jurisdictions to open up further investment opportunities to investors situated in either jurisdiction. Luxembourg can now serve as an important jurisdiction for Barbadian investors that want to invest in Europe. The zero withholding tax on interest payments also creates interest earning opportunities for European investors wishing to invest in Barbados.
Double Taxation Agreements (DTAs) are put in place in order to prevent double taxation. In Barbados, this is done by allowing the taxes paid in Luxembourg to be deducted as tax credits. In Luxembourg the method varies in that it allows the income taxed in Barbados to be granted a tax exemption. Both methods prevent the same profits being taxed twice.
DTAs outline the maximum withholding taxes that can be charged by the partner countries.
Barbados Luxembourg Double Taxation Agreement Details
Withholding taxes are applied as follows:
• Dividends: The withholding tax is 0% if the beneficial owner is a company which owns at least 10% of the capital of the company paying the dividends. In all other cases, the maximum withholding tax is 15%.
• Interest: The withholding tax is 0%.
• Royalties: The withholding tax is 0%.
Double taxation is avoided as follows:
• Tax payable in Luxembourg on profits or income shall be allowed as a credit against any Barbados tax computed by reference to the same profits or income.
• Where a resident of Luxembourg derives income or owns capital which may be taxed in Barbados, Luxembourg shall exempt such income or capital from tax.
• However, in order to calculate the tax on the remaining income or capital of the resident, Luxembourg may apply the same rates of tax as if the income or capital had not been exempted.
Barbados Tax Rates
Barbados tax rates for offshore businesses are extremely competitive starting at 2.5%. These are further reduced on a sliding scale right down to just 0.5%. Some Barbados offshore structures also benefit from complete tax exemption.
There are no taxes on capital gains. As well, there are zero withholding taxes on dividends, interest and royalties, making the island a leading international business and financial hub.
Large Tax Treaty Network
The Barbados tax treaty network benefits both investors and businesses worldwide with over 30 treaty partners. The expansive treaty opens doors, creating opportunities and improving access to markets worldwide. These treaties create an attractive tax environment based on clarity and certainty between partners, which in turn creates a strong framework for the facilitation of international business and the flow of capital around the globe.
The Barbados Luxembourg Tax Treaty provides a strong additional to both countries’ tax treaty networks.