Business Barbados - 2023 Edition

on the amount of foreign transactions available to residents and non- residents. A 2% foreign exchange fee is charged on purchases of foreign currency and payments related to foreign currency transactions, provided the transaction is not made from a foreign currency account. Residents are allowed US$10,000 for personal travel, and a higher limit for business travel. Foreign nationals working in Barbados may operate an external account, which can be credited with foreign currency from specific sources, provided that they are not classified as residents. The Government is seeking to liberalize the Exchange Control regime with a phased approach. As a part of this process, in August of 2019 the Central Bank of Barbados issued guidance allowing all resident individuals and companies to open foreign currency denominated bank accounts locally, and to hold foreign currency which they have earned in Barbados or abroad. Corporate Law The Barbados Companies Act, which came into effect in 1985, is modelled on the Canada Business Corporations Act. The procedure for incorporating a company is simple and efficient. A company can be established by either residents or non-residents without a license or other authorisation, unless one is seeking to obtain a Foreign Currency Permit or intends to become licensed as an Insurance company or financial institution. There is a minimum of one director required. The names and addresses of the directors must be filed at the Corporate Registry. There is no limit on the amount of authorised share capital and shares are without par value. A company can carry on any type of legal activity, unless its articles of incorporation specifically provide otherwise. INCENTIVES FOR INTERNATIONAL BUSINESSES The Government has established a separate Ministry to facilitate the development and expansion of the international business sector. In addition to incorporated entities, people can organize another legal entity known as the Society with Restricted Liability (SRL). While not a “company” the SRL has many characteristics similar to the limited liability company. An SRL has the characteristics set out below: • Limited liability • Perpetual duration • The rights, powers and privileges of an individual • Stipulation that the transfer of quotas in a society will not confer on the transferee the right to become a member or participate in the management of the society without the written consent of all the members. Organisation for Economic Co-operation and Development (OECD) Considerations Beginning in October of 2017 the OECD, through its Forum on Harmful Tax Practices (FHTP) required Barbados to revise its tax regime in several ways. In addition to abolishing the special incentive vehicles previously offered to conduct exclusively offshore business, there have been requirements to implement economic substance requirements as a result of the reduction of the country’s standard domestic corporation tax rate. Economic Substance Requirements The Companies (Economic Substance) Act (“The Act”) took effect from 1 January 2019. The Act and its accompanying guidelines require a resident entity that earns income from carrying on relevant activities (see list below) to satisfy an economic substance test in relation to that activity. Note that these economic substance rules took effect for grandfathered international entities (e.g., IBCs and ISRLs) on 1 January 2021. In order to meet the economic substance requirements entities, including a partnership formed in Barbados which is carrying on one or more relevant activities, will be required to show that, for each relevant activity that it carries on, the core income generating activities of the entity are conducted in Barbados and the company is directed, managed and controlled in Barbados in relation to that activity. This would take into account various factors such as the number of employees, premises used in the business, etc. Entities that conduct relevant activities must demonstrate compliance by filing an annual economic substance declaration with the Ministry of International Business. Entities that do not conduct relevant activities are not required to comply with the legislation but are however required to file a declaration which would be limited to confirming that the entity conducts no relevant activities. The list of relevant activities currently includes: Foreign Currency Permit Effective 1 January 2019 all entities which earn 100% of their income in foreign currency are entitled to receive a Foreign Currency Permit (FCP) allowing them the following benefits where certain requirements are met: • Exemption from exchange control • Exemption from payment of ad valorem stamp duty and property transfer tax • Exemption from payment of value added tax and duties on importation of plant, machinery and raw materials • Income tax concessions for specifically qualified individuals TAXATION Companies and individuals who are resident and domiciled in Barbados for tax purposes are subject to income tax on their worldwide income whether or not the income is remitted to Barbados. People who are resident but not domiciled in Barbados are taxed on their income derived from Barbados and on any overseas income remitted to (or from which a benefit is received in) Barbados. Non-residents are taxed only on income derived from Barbados. Corporations (including Foreign Currency Earning Banks) are taxed in accordance with the rates illustrated in the table below. • banking business • insurance business • fund management business • finance and leasing business • headquarters business • shipping business • holding company business • intellectual property holding business • distribution and service centre business • such other activities as may be prescribed Taxable Income (US) Rate % Up to $500,000 5.5 Above $500,000 to $10 million 3.0 Above $10 million to $15 million 2.5 Above $15 million 1.0 127 BUSINESS BARBADOS 2023 B U S I N E S S B A R B A D O S F A C T F A C T S G U I D E 2 0 2 3