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Barbados to revise IBC corporate tax regime next month

Monday, 26 November, 2018

Barbados is about to repeal its international business company (IBC) regime because it is considered by the OECD to be 'harmful' to international tax competition.

Barbados IBCs are licensed to carry on business from within Barbados for non-resident customers. Registration as an IBC enables companies to pay a nominal rate of corporate tax: between 0.25 and 2.5 per cent. The regime has succeeded in attracting new investment and business activity to the country, especially as payments by IBCs to non-residents and other IBCs are exempt from withholding tax, stamp duty, capital gains taxes, inheritance tax, import taxes and most asset transfer taxes.

However, the OECD considers the system breaches the rules it has developed under its Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS) initiative to prevent jurisdictions offering 'preferential tax regimes' designed to attract firms conducting exclusively foreign business. It considers that such regimes undermine the corporation tax revenues of developed countries. The European Union's Code of Conduct Group (CCG) on Business Taxation is also likely to disapprove of the regime for the same reasons when revising its blacklist of uncooperative jurisdictions at the end of 2018.

In October 2017, the OECD named Barbados as a jurisdiction with a 'harmful' preferential tax regime. Barbados responded by promising to enact new legislation by October 2018.

The new legislation has not yet appeared, but Barbados's Minister of International Business and Industry, Ronald Toppin, has now confirmed that no further licenses for IBCs or International Societies with Restricted Liability (ISRLs) will be issued as of 31 December 2018. The existing foreign currency earnings credit will also be removed.

New incentives will instead be offered to international businesses through a tax regime to be rolled out in January 2019. It is not clear whether Barbados will be able to carry out its original plan to 'grandfather' new IBCs and ISRLs already established under the current regime until June 2021, but Toppin said Barbados will be moving to 'convergence of tax across all business entities'.

He promised that the new rate of business tax 'will remain competitive and ensure that those international businesses which are here will continue to benefit from certain incentives.'

The details are still being assessed and will be discussed in Barbados' cabinet this week.