International Business Companies
An international business company or IBC is a company incorporated under the Companies Act and licensed under the International Business Companies Act, which carries on the business of international manufacturing, trade or commerce from within Barbados for customers who reside outside of Barbados.
There are also several IBC structures which can be used:
(a) Sales Company. Companies that wish to export their products to foreign markets can establish a subsidiary which is licensed as an IBC to perform foreign marketing and sales functions. The Canadian parent company may repatriate any profits derived from the marketing and sales activities on a tax-free basis as exempt surplus. Where the Barbados IBC has products manufactured outside of Barbados in accordance with Barbados’ specifications and sells the finished product on foreign markets, the Barbados subsidiary can keep the entire profit earned on the sale of the products, subject to paying the appropriate royalties to the extent that the Barbados IBC does not own the trademarks and know-how.
(b) Group Finance Company. It is advantageous for companies with foreign operations to use the Barbados IBC as a group finance subsidiary. The Canadian parent company can borrow in order to invest in shares of the Barbados IBC and claim an interest deduction in Canada. The Barbados IBC will make loans to other foreign affiliates of its Canadian parent to facilitate financing of their active business operations in various countries. The interest on the loans made by the Barbados IBC will be considered to be active business income under the Canadian foreign affiliate rules and can be repatriated to the Canadian parent on a tax-free basis.
(c) Intellectual Property Holding Company. A Canadian corporation may transfer all or some of its intellectual property to a Barbados IBC that will enter into licensing arrangements with third parties or subsidiaries operating in various markets. Subject to certain conditions being satisfied, such transfer of intellectual property to a Barbados company would generally allow for a portion of the profits that would otherwise be taxable in Canada to be taxed only in Barbados at a maximum rate of 2.5% and for such profits to be repatriated to the Canadian parent corporation on a tax-free basis.
(d) Holding Company. A Barbados IBC can be used as a foreign holding company for investments in various foreign subsidiaries. The use of a Barbados IBC as a holding company is worth considering investments in the following countries with which Barbados has entered into tax treaties: Canada, CARICOM (countries who are members of the Caribbean free trade zone) , China, Cuba, U.S., U.K., Finland, Luxembourg, Sweden, Norway, Mexico, Switzerland, Austria, Malta, Mauritius, Netherlands, Botswana, Venezuela. Under the Barbados tax rules, dividends received by a Barbados holding company from its foreign subsidiaries and capital gains resulting from the disposition of shares of its subsidiaries are generally exempt from Barbados taxation.
In addition, dividends paid by a Barbados company to a non-resident shareholder can be structured to be exempt from Barbados withholding tax. Dividends paid out of exempt surplus can be repatriated to the Canadian company on a tax-free basis. Furthermore, the use of a Barbados holding company can permit the deferral of the Canadian taxation of any capital gains resulting from the disposition of the shares of foreign operating subsidiaries.
Barbados IBCs are taxed on a sliding scale from 2.5% to 1% depending on the profits of the IBC. IBCs are entitled to foreign tax credits in relation to taxes paid outside of Barbados,subject to a minimum tax of 1% of taxable income.
IBCs are not subject to withholding tax on dividends, interest and other payments made to non-residents of Barbados or to another IBC. In addition, IBCs are not subject to capital gains tax and are exempt from ad valorem stamp duty (except on Barbadian real estate), exchange control, taxes on the transfer of any securities or assets other than real estate located in Barbados and taxes and duties on plant, machinery, raw materials, goods and other items imported into Barbados for use in the IBC's business. The benefits and exemptions available to IBCs are guaranteed for a period of 15 years.
IBCs must be licensed by the Ministry of International Transport and International Business to conduct international business and the IBC licence must be renewed annually on or before December 31. The annual licence fee is US$425. An IBC, must provide audited financial statements to the Ministry of International Transport and International Business if its gross assets or revenues of the IBC exceed US$500,000.