Barbados USA Tax Treaty
The Barbados USA Tax Treaty plays an important role in defining the international business relationship between the two countries.
Barbados has a longstanding Double Taxation Agreement (DTA) with the United States of America dating back to 1984. Two additional Protocols to this DTA were signed in 1991 and 2004 respectively to ensure that the original DTA remains current and up-to-date with shifting policies and current practices.
DTAs are used by partner countries to prevent profits from being unreasonably taxed twice by each country. These agreements define how the profits will be taxed in each jurisdiction to ensure that both countries are able to fairly share the tax revenues. This is done by allowing the foreign country where the income is earned to charge a withholding tax, while the resident’s country offers a matching tax credit in order to reduce the tax payable. The maximum withholding tax rates that can be charged are negotiated between the partner countries in reaching a treaty agreement. The agreements also provide for the exchange of tax information related to the taxes withheld at the source.
Tax treaties allow individuals, business owners and investors to clearly understand the international tax implications for their cash inflows allowing them to plan accordingly. This clarity facilitates business, trade and investment between partner countries.
Barbados USA Double Taxation Agreement Details
The Barbados USA Tax Treaty applies withholding taxes as follows:
• Dividends: The withholding tax shall not exceed 5% if the beneficial owner is a company which owns at least 10% of the voting stock of the company paying the dividends. In all other cases, the withholding tax shall not exceed 15%.
• Interest: The withholding tax shall not exceed 5%.
• Royalties: The withholding tax shall not exceed 5%.
Double taxation is avoided as follows:
• The income tax paid to the United States qualifies as a credit against the Barbados tax on income.
• In the case of a dividend paid by a company that is a resident of the USA to a company that is a resident of Barbados which owns at least 10% of the voting stock, the credit will consist of the income tax paid to the USA.
In the United States of America:
• The income tax paid to Barbados qualifies as a credit against the United States tax on income.
• In the case of a dividend paid by a company that is a resident of Barbados to a company that is a resident of the USA which owns at least 10% of the voting stock, the credit will consist of the income tax paid to Barbados.
The Barbados USA 1st Protocol includes numerous detailed examples of international business ownership structures, substantiality and business trading relationships that will qualify for treaty benefits as well as various examples of those that will fail to qualify.
The Barbados USA 2nd Protocol consists of detailed updates and information defining the rules and tests that will be used to determine residential status. Companies deemed to qualify as a resident are entitled to qualify for all benefits under the treaty convention.
View the Barbados USA 1st Protocol
View the Barbados USA 2nd Protocol
Barbados Tax Rates
Barbados international business companies pay low tax rates of 2.5% down to 0.5% on income earned. In addition, there are no withholding taxes on dividends, royalties and interest earnings. Capital gains are also tax exempt.
A Regulated Jurisdiction
The Barbados tax treaty network is expansive with over 30 partner countries. These treaties reinforce Barbados’ responsible approach to strengthening international business ties.
As such, the island was formally recognized as a well-regulated center for international business and finance through its inclusion in the OECD’s “white list” in April 2009. This inclusion meant that the island was recognized as a jurisdiction that has substantially implemented the internationally agreed upon tax standard. Meeting this standard means that Barbados provides for the full exchange of information on request in all tax matters with partner governments. As a leading jurisdiction, Barbados values transparency over secrecy and continues to be committed to meeting international standards.