Barbados has built its reputation as an international business centre on the stated policy of seeking to attract companies that carry on substantial business operations. To this end, it has developed the type of physical and human resource infrastructure that is required to support this objective.
A number of developments over the last two years during the global economic crisis, that have placed the spotlight once again on international financial centres and the role that they play in the global economy, have made it even more important for investors to seek to provide substance to their international structures in order to be able to obtain the tax benefits that they seek.
For example, the tax authorities and the tax courts in a number of jurisdictions, notably China and Canada, have started to challenge the degree to which structures established in international financial centres, such as Barbados, meet their substance requirements. In the case of China, the tax authorities recently issued two tax circulars setting out their requirements with regard to the substance that an entity that is established in an overseas jurisdiction must possess in order for such entity to be able to obtain benefits under a double taxation agreement (“DTAâ€) between China and the foreign jurisdiction. The Chinese courts also ruled in favour of the Chinese tax authorities in two recent cases involving China’s DTAs with Singapore and Barbados, in which the Chinese tax authorities denied treaty benefits on the basis that the entities claiming the benefits did not have the requisite substance in Singapore and Barbados respectively in order to be regarded as residents of those countries for the purposes of the respective DTAs.
It is expected that the above approach will be adopted by many other jurisdictions as they seek to increase their tax yields in order to pay for the cost of bailing out their banking system as a result of the global financial crisis.
Consequently, in choosing a jurisdiction through which to carry out their international investments in the future, investors are likely to seek to utilise jurisdictions that can adequately support substantial businesses.
In this context, Barbados has a significant advantage over many other competing jurisdictions, for a number of reasons as outlined below. The main reasons are:
- The availability of a highly skilled human resource pool.
- A highly developed business infrastructure, including legal, banking, information technology and telecommunications services, as well as easy access to major financial markets with daily flights to London, Toronto and New York.
- An attractive tax regime as well as a wide network of double taxation and investment protection treaties.
- Because of its position as the jurisdiction of choice through which Canadian companies conduct their international investments, Barbados has significant experience of supporting companies with substantial business operations.
- The willingness of the Barbados government to provide the necessary business facilitation, through its various agencies, such as Invest Barbados, to make the process of establishing a business, or ones self and family, in Barbados relatively easy. Such processes include enlightened immigration policies which provide investors with the ability, where necessary, to relocate specially skilled employees to Barbados to establish or manage the business. In fact, the immigration policies and procedures are currently under review by the Government, with input from the private sector, with a view to making them even more business friendly and efficient. However, in practice, the experience of many investors has been that, over time, they have been able to replace their expatriate employees with a largely local work force, thereby creating significant cost savings.
From a private wealth perspective, changes to the laws in the UK relating to the taxation of individuals who are resident but not domiciled there, as well as the expected increase in personal taxation in many developed countries, has resulted in many high net worth individuals (“HNWIâ€) seeking to relocate to more favourable jurisdictions. Indeed a number of countries have been actively seeking to attract such individuals to relocate to their jurisdictions by offering them incentive packages.
The Barbados government has also recognised the opportunities presented by the current situation and has amended its income tax legislation designed to increase Barbados’ attractiveness to HNWIs and entrepreneurs. The result of these changes is that such individuals who become tax resident in Barbados can benefit from a favourable tax regime under which foreign income remitted to Barbados is subject to a low effective tax rate. Foreign income that is not remitted to Barbados is not subject to tax.
In addition, it is possible for such individuals to obtain benefits under Barbados’ double taxation treaty network, including reduced withholding taxes and exemption from tax on capital gains.
Finally, there are many other factors, in addition to those mentioned above, that make Barbados an attractive place in which to live, work and play. Such factors include, the high quality of life, created by the existence of a safe and secure environment, which is enjoyed by residents of Barbados; an active social scene; a wide variety of sporting activities and a vibrant and entrepreneurial local business community.