What makes some jurisdictions more attractive than others for doing business?
There are many countries in the world where doing business proves difficult. While there are some jurisdictions that are more facilitative than others, there remain distinct differences between even these jurisdictions making some more favourable than others. When the comparative factors are examined, it is clear that Barbados has a strong position when it comes to being a regional hub for doing real business.
Evidence of Barbados’ position is seen in the fact that Barbados has several headquarter companies on its corporate register. In addition, the island attracts a high level of foreign direct investment, particularly from Canada and the United States. This is testimony to the fact that the island has certain characteristics that are conducive to the carrying on of business successfully.
But what makes Barbados so attractive?
To do real business, it is necessary to have a sound and respected legal framework that will establish the parameters for doing business. Also vital is balanced regulation to ensure the implementation and enforcement of the legislated standards. The jurisprudence in Barbados is based on statutes and the English common law and, to date, the regulation of business has been carried out in a balanced way.
One part of the legislative framework that makes Barbados so attractive is the provision of certain tax incentives. This is done particularly to encourage foreign direct investment including the export of goods and services, which inevitably facilitate the operation of substantive businesses. For example, to encourage exports, real businesses may be established as international business companies or international societies with restricted liabilities. These entities may engage in the manufacture of goods for export or in the transhipment of goods. These entities may also provide services to non-residents of Barbados. Where, however, a company wishes to engage in both local and foreign business, to encourage the foreign business, there are certain tax credits available in the form of the export allowance or foreign currency earnings tax credit.
Barbados’ customs regulations are also quite facilitative. This is because international business companies and international societies with restricted liabilities are allowed to import certain assets free of customs duty subject to certain restrictions. Also, companies that engage in the importation of products for export may make use of an in-bond scheme where duties related to products are paid only where such products are released for local consumption. These arrangements encourage real business activity and Barbados is seen as attractive for international warehousing and distribution operations.
Another reason why Barbados stands out as a regional hub for real business is its expanding double taxation treaty network. Normally, where no such treaty network exists, business activity undertaken by a resident of one state in another country is likely to be subject to withholding tax. If, on the other hand, it is found that sufficient presence of a permanent nature is established in the other jurisdiction, the entity is likely to be taxed on its net income at the prevailing corporation tax rate in that country. Barbados’ double taxation treaty network is certainly advantageous, as such treaties often provide for reduced withholding tax rates and even stipulate certain thresholds before an entity may be said to have a permanent presence in a country so as to render it taxable there. Treaties have been concluded not only with our major trading partners such as Canada, US and the UK, but have also been established with Austria, Botswana, China, Malta, Mauritius, Mexico, Panama, Netherlands and the Seychelles, for example. In total, Barbados has concluded 21 treaties including the Caricom Treaty, which is a multilateral double taxation treaty with several territories within the English speaking Caribbean.
The Caricom Treaty is particularly significant as it allows for the tax-free repatriation of dividends between member states. It also provides reduced withholding tax rates on interest, management fees and royalties that may be applicable in certain member states. Under the Treaty the recipient of such income suffers no further tax.
It must be admitted that substantive business is difficult without a capable and easily accessible workforce. Barbados stands tall in this regard for, according to UNESCO, Barbados has a literacy rate ranked close to 100%. This is not surprising given that education is compulsory between the ages of 5 to 16 and most Barbadians take advantage of the free university education offered via the University of the West Indies. This has generated a full cadre of professionals including lawyers, doctors, engineers and accountants that may be needed by real businesses. This compares favourably with other Caribbean locations where accessibility to a well-trained work force is difficult.
Also of significant importance is the infrastructural support needed to conduct real business. Again, Barbados can support global business not only in a virtual world but also in the real world. This is seen in the technological capabilities within Barbados as well as the corporate and financial resources. An example is the banking sector where many Canadian banks have a substantial presence in Barbados.
The combination of Barbados’ location, legal and regulatory framework, tax incentives and treaties, as well as its skilled workforce and infrastructure, make the island the perfect regional hub for conducting real business.