In a race to meet commitments to comply with the demands of the world’s richest nations, the lucrative regime that created international business companies (IBCs) is set to be dismantled, the law repealed, and a raft of tax incentives used to lure IBCs here are to be removed, Minister of International Business and Industry Ronald Toppin announced Thursday.
Chief among them is the abolition of the Foreign Currency Earnings Credit and the issuance of International Business Companies licenses and International Societies with Restricted Liability licenses.
“It is proposed that the Foreign Currency Earnings Credit will be abolished and that Barbados will be moving to a regime which will see the convergence of tax across all business entities. The details are still being assessed and various modules are currently being run. What I can state is that the new rate will remain competitive and ensure that those international businesses which are here will continue to benefit from certain incentives,” Toppin announced.
Under the Foreign Currency Earnings Credit companies would get a rebate of income tax as a percentage of income tax on their net profits from foreign currency earnings.
“I also have to announce that as of December 31, 2018, the Ministry of International Business and Industry, through its International Business Unit, will cease to issue International Business Company licenses and International Societies with Restricted Liability licenses. This will, in effect, close off these regimes as the IBC Act will be repealed and the SRL Act will be amended to give effect to the end of new International Societies,” he said.
The Minister also announced that a new regime would be rolled out in January 2019, “which would seek to maintain, as far as possible, the current benefits to the industry”.
“Again, the details will be taken to Cabinet, hopefully, next week. What I will say is that, shortly, we will be announcing the nuances of the transition process and two new vehicles that will be used to traverse this global arena,” said Toppin.
Toppin said the decision to remove the tax incentives and other changes were born out of the need for Barbados to fulfill its commitment to the club of the world’s richest industrialized nations, formed under the Organization for Economic Corporation and Development (OECD) – one of the most vocal critics of the region’s offshore business and financial services industry.
The OECD’s Base Erosion and Profit Shifting (BEPS) initiative designed to prevent companies from using planning or tax strategies to avoid taxation or to reduce tax burden in their country by engaging in tax evasions or migrating intangibles to lower tax jurisdictions.
Barbados is widely considered a transparent and low tax jurisdiction, but according to the OECD, the country has, under what it refers to as the Action 5 Report, one of four minimum standards left to be implemented in order to become fully compliant with the new profit shifting prevention project.
The Action 5 process should address preferential tax regimes, which allows for BEPS, and should also include commitment to transparency through the compulsory spontaneous exchange of relevant information on taxpayer-specific rulings.
Toppin told the opening of the Barbados International Business Association’s (BIBA) International Business Week conference at the Lloyd Erskine Sandiford Centre that the process had given Barbados “cause to examine the excess reliance on tax incentives and subsidization”.
“The BEPS process has re-emphasized the importance of state-to-state relationships and the cooperation between states that is necessary to promote effective tax and other information exchange practices.
“Barbados’ commitment to implementing Action 5 of the BEPS project, as well as the ongoing economic recovery transformation programme, have caused us to critically examine our systems with a view to understanding how they contribute to Barbados’ overall competitiveness or the lack thereof, and improving them,” Toppin told participants of the two-day conference, which is being held under the theme Riding the Curl, Future Forward.
Barbados must never be seen as turning a blind eye to the concerns of other states, said the Minister, adding that “experience has taught us time and time again that no man is an island”.
He added that international business and financial services centres such as Barbados should not have an “over-reliance” on tax incentives in order to attract business, and that it was imperative that serious efforts be spent on “reinvigorating and diversifying Barbados’ offering of weightless services.
“I speak here directly of the development of indigenous capacity, driven by innovation and technology that will be necessary in order to create businesses of substance,” said Toppin.
Pointing out that the proposed changes were subject to Cabinet approval, Toppin said it was necessary for Barbados to transition “from an international business sector mindset to a global business ethos.
In apparent anticipation of an imminent shift in the IBC climate, the president of BIBA, Julia Hope, said the association was reviewing its strategy, goals and value proposition as it helped offshore companies get ready for changes affecting the industry.
Indicating that the time had come to promote the jurisdiction as “brand Barbados”, Hope said there were a number of factors that were critical to the country’s success in gaining and maintaining international business.
“[Brand Barbados] is a concept – political stability, ease of doing business, good regulatory environment, integrity and lifestyle – these are all key factors,” said Hope, who stayed away from commenting on the BEPS development.
But earlier this week, Hope said she was confident the country would make the right decisions and make any necessary changes within the deadline.