Barbados Budget Offers International Tax Incentives
by Bruce Zagaris
Date: Jun. 12, 2009
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Barbados Prime Minister and Minister of Finance David Thompson has presented the 2009 budget, which contains several significant international tax provisions.
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Barbados Prime Minister and Minister of Finance David Thompson on May 18 presented the 2009 budget, which contains several significant international tax and regulatory provisions.
Thompson noted that GDP fell 2.8 percent in the first quarter of 2009, primarily as a result of the decline in tourism, reducing output in both traded and nontraded sectors. For the 2007-2008 financial year, the actual fiscal deficit was 3.7 percent. The estimated deficit for 2008-2009 is 5.1 percent. The government's strategy to stabilize the economy is to increase foreign borrowing, improve efficiency, and eliminate waste in the pubic sector.
Some of the budget's more notable provisions are summarized below.
International Business
Thompson said Barbados welcomes and supports multilateral activity to rebuild the failed international financial markets through stronger international tax cooperation. He pointed out that Barbados has been expanding its network of tax treaties, including the enforcement component, for many years and will continue the accelerated expansion of its tax treaty network.
The budget calls for Barbados to amend the International Trust Act to permit the creation and regulation of private trust companies. The amendments would include a definition of the term "trust business" to clarify the scope of trust services that service providers can offer. A central registration system would be set up for all international trusts, and guidelines would be issued on the licensing of trust companies and the identification of the principals involved in trust transactions.
In 2007 the Income Tax Act was amended to make Barbados a more attractive jurisdiction for the creation of holding companies. Thompson has proposed amendments to the Property Transfer Tax Act and the Stamp Duty Act to include the transfer to a nonresident of shares of a company with assets that consist solely of foreign shares, foreign securities, and other foreign assets and income derived solely from sources outside Barbados.
Other amendments to those acts would provide tax exemptions for transfers by both Barbadian and non-Barbadian resident shareholders. Concerning exchange controls, Thompson said holding companies would benefit from exemptions similar to those enjoyed by international business companies and regular Barbados companies that conduct only "international business."
The budget also would exempt Barbadian resident companies, including companies licensed to operate in the international business sector, from tax on dividends derived from a "substantial shareholding" in an overseas company.
To further strengthen Barbados's attractiveness as a holding company jurisdiction, a withholding tax exemption would be granted for dividends paid by a resident company to nonresident shareholders out of foreign-source income earned by the company.
Individuals Resident but Not Domiciled
Thompson explained that the Income Tax Act provides that an individual who is resident but not domiciled in Barbados is subject to tax on income derived from local sources and on foreign income that is remitted or deemed remitted to Barbados. As proposed, the ITA would be amended to reduce the effective rate of income tax that such individuals would be required to pay on their foreign income and to enable an individual who becomes domiciled in Barbados to claim the foreign currency earnings credit for his income derived outside of Barbados. The proposed incentive would potentially increase the amount of personal income tax revenue generated for the Barbados government.
Shipping Services
Thompson also announced that the Shipping (Incentives) Act would be amended to include game/sports fishing. Customs-duty-free concessions would be extended to any company engaged in commercial shipping and boating in the tourist industry (including game/sports fishing) for fishing rods and reels; safety equipment such as life rafts, satellite tracking systems, flares, fire extinguishers, life jackets, satellite navigational systems, and depth sounders; and VHS, SSB, and AM radios. The benefit would apply for 10 to 15 years.
The Shipping Corporations Act also would be amended to:
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permit the incorporation of shipping corporations that are offshore (in terms of requisite authority) and are domestic;
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remove the restriction that a director may not be a resident of Barbados; and
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amend the purposes of the act to include, for example, the registration of incorporated and unincorporated bodies for expanded shipping activities.
The main goal is to enable the incorporation of a company to operate bareboat charters and to allow for the registration of external companies as well as companies owning a ship registered in another jurisdiction. In addition, the amendment would enable a shipping corporation incorporated in another jurisdiction to be registered as an external corporation.
Financial Services Commission
The Barbados Financial Services Commission (FSC) would be established in the first quarter of 2010. The government says the establishment of the FSC is critical and should be at the forefront of Barbados's efforts to ensure the sustainability of its financial services industry.
While the Central Bank would retain regulatory oversight for the banking sector, the FSC would have responsibility for all nonbanking activities in Barbados, regardless of the source of investment. Hence, it would have jurisdiction over domestic and international nonfinancial business activity.
Essentially, the FSC would determine whether practitioners are fit and proper to conduct financial services; set standards for continuing education; and hear, adjudicate, and take any appropriate disciplinary action against professionals who have been identified in complaints.
Analysis
The initiatives to strengthen holding company activities will enable Barbados's international financial services sector, which has a lot of business because of its treaties, to attract even more investment. The proposal to attract persons resident but not domiciled in Barbados capitalizes on the fact that many professionals already make Barbados their base of operations for a variety of activities, thereby formalizing that trend.
The effort to broaden the use of shipping services and the Shipping Corporations Actwill revitalize the use of Barbados for shipping. And the decision to establish an FSC illustrates Barbados's commitment to cutting-edge financial regulation, despite the adverse impact of the financial recession.
Bruce Zagaris, partner, Berliner Corcoran & Rowe, Washington
Tax Analysts Information
Jurisdiction: Barbados
Subject Area: Budgets
Corporate taxation
Customs duties
Foreign source income
Individual income taxation
Legislative tax issues
Treaties
Trusts and estates taxation
Author: Zagaris, Bruce
Tax Analysts Document Number: Doc 2009-13313
Tax Analysts Electronic Citation: 2009 WTD 111-6