In continuation of its response to the Organization for Economic Cooperation and Development (“OECD”)’s Base Erosion and Profit Shifting (“BEPS”) Action 5 and the European Union (“EU”) Criterion 2.2 initiatives, Barbados is re-introducing economic substance requirements under the newly legislated Companies (Economic Substance) Act, 2019 (“the ESA”).
The Business Companies (Economic Substance) Act (Act 2018-41) which took effect from 1 January 2019, but the application of which was effectively deferred, is now repealed.
The ESA and its Regulations, in conjunction with the Barbados Economic Substance Guidelines – December 2019, provide the requirement that all resident companies must satisfy the Economic Substance Test (“ES Test”) in relation to the “relevant activity” it carries on and from which it derives income. The focus of the ES Test is the Core Income Generating Activities (“CIGA”) that are vital to the resident company’s business. The ES Test requires that CIGA must be carried on in Barbados, and that the company is directed, managed and controlled in Barbados in relation to that activity.