Barbados Venezuela Tax Treaty
The Barbados Venezuela Tax Treaty consists of both a Bilateral Investment Treaty and a Double Taxation Agreement.
These treaties create opportunities for investors wishing to access Venezuela because of the provisions for asset protection combined with low tax rates. These factors have made Barbados an important gateway through which business and investment flow into the South American nation.
The treaties also support attractive international structuring opportunities for Venezuelans with international businesses, investments and assets. The Venezuelan tax system is structured to tax Venezuelans based on their worldwide income. The use of a Barbados International Business Company (IBC) combined with the Barbados Venezuela Tax Treaty means that the income earned by the Barbados IBC is not taxable in Venezuela.
Barbados Venezuela Bilateral Investment Treaty
The Barbados Venezuela Bilateral Investment Treaty (BIT) offers strong protection for foreign direct investment made in Venezuela by international investors. The BIT provides protection from expropriation and includes fair treatment clauses. It ensures that compensation is offered by Venezuela in the event of a loss of property. The BIT also provides for the use of international arbitration to settle unresolved disputes between affected parties through the World Bank’s International Centre for Settlement of Investment Disputes. In addition, the payment of investments and returns out of Venezuela is guaranteed in the convertible currency in which the capital was originally invested.
Under the BIT, investment means every kind of asset invested in Venezuela including, but not limited to:
• Real estate and movable property, and other property rights such as mortgages, liens or pledges
• Shares, stock, debentures and any other form of participation in a company
• Claims to money or to any performance under contract having a financial value
• Intellectual property rights, goodwill, technical processes and know-how
• Business concessions to search, cultivate, extract or exploit natural resources
Returns are classified as amounts yielded by an investment including, but not limited to:
• Capital gains
Venezuela’s massive oil reserves have created opportunities for business and investment. However, the uncertain political climate means that investors must take care to ensure that their investments receive a number of strong international protections and guarantees. For this reason, it is extremely important for investors to register a company in a country, such as Barbados, that has a Bilateral Investment Treaty with Venezuela.
As such, Barbados has become a popular conduit for foreign investment flowing into Venezuela. International investors, and even Venezuelan investors, are advised to register a company in Barbados in order to safely invest in Venezuela.
Barbados Venezuela Double Taxation Agreement
The Barbados Venezuela Double Taxation Agreement (DTA) prevents double taxation between partner countries. This serves to minimize the international tax burden that investors and companies face.
Double taxation is avoided as follows:
• Venezuela tax payable on profits or income from sources within Venezuela shall be allowed as a credit against any Barbados tax computed by reference to the same profits or income.
• In the case of a dividend paid by a company which is a resident of Venezuela to a company which is a resident of Barbados and which holds directly at least 5% of the capital of the company paying the dividend, the credit shall take into account the Venezuela tax payable in respect of the profits out of which such dividend is paid.
• Where a resident of Venezuela receives income which may be taxed in Barbados, that income shall be exempted from Venezuela tax.
• However, if under the laws of Venezuela, a resident of Venezuela is subject to taxation in Venezuela on worldwide income then the provision above shall not apply. Instead, double taxation shall be eliminated by Venezuela allowing an amount equal to the income tax paid in Barbados to be deducted from the Venezuela tax on the income of that resident.
• Where income derived by a resident of Venezuela is exempt from tax in Venezuela, Venezuela may nevertheless, in calculating the amount of tax on the remaining income of such resident, take into account the exempted income.
In addition, the DTA outlines the maximum withholding taxes that can be charged. This means that dividends, interest and royalties can be paid out of Venezuela at lower, more attractive rates through the DTA.
The Barbados Venezuela Tax Treaty applies withholding taxes as follows:
• Dividends: The withholding tax charged shall not exceed 5% if the beneficial owner is a company which owns at least 5% of the capital of the company paying the dividends. In all other cases, the maximum withholding tax is 10%.
• Interest: The maximum withholding tax charged shall not exceed 5% in the case of banks. In all other cases, the maximum withholding tax is 15%.
• Royalties: The maximum withholding tax charged shall not exceed 10%.
Barbados Company Structures
Barbados offers a number of low tax structures that individuals and businesses can use depending on their needs.
Barbados company structures include:
Barbados Tax Rates
Barbados tax rates are very low. The tax rates for International Business Companies, Societies with Restricted Liability and International Banks begin at 2.5% and are reduced down to just 0.5% as income increases. Trusts are completely exempt from tax.
Barbados charges no withholding taxes on dividends, interest or royalties, with capital gains being completely tax exempt.
Barbados: A Centre for International Business
Barbados is a leading centre for international business because it combines low offshore tax rates with the benefits and protections afforded by international tax treaties.
The Barbados tax treaty network is especially important for investors that wish to invest in Venezuela. Investors from third party countries that have not signed a BIT with Venezuela may be well advised to register a Barbados offshore company to gain the additional asset protection and a guarantee of repayment of investments and returns out of Venezuela. In addition, the Barbados Venezuela Double Taxation Treaty lowers the withholding tax rates that Venezuela can charge on the dividends that leave the country.
Barbados is the jurisdiction of choice for international business with Venezuela.