Like many of the islands in the Caribbean, Barbados was for a time a British colony. First settled in 1627, for decades it received more immigrants than the fledgling colonies of mainland North America. When sugar cultivation began in 1640, the island was demographically transformed: 800 of its 30,000 residents were of African descent in 1644, compared to 50,000 of a total 65,000 56 years later, in 1700. The intensive cultivation of sugar cane set apart the West Indies and Britain's Asian possessions, which earned their keep with busy ports, but in the cups of sweet English tea that became popular in eighteenth century, the goods traded by both were combined.
Parts of Barbadian society pushed for independence as early as 1884, by trying to join the newly formed Canadian Confederation, but the island did not gain full independence until 1966 and its British origins, along with its early links to Canada, continue to define Barbados. The island remains a Commonwealth realm, like Canada and Australia. Queen Elizabeth is its symbolic head of state, and it was through the Commonwealth that its relationship with Canada took shape. The two shared an influential governor, Sir Francis Hincks, but only began a formal exchange when the Canadian Trade Commissioner Service established an office in Barbados in 1907. Canadian banks followed, with the Royal Bank of Canadaopening its first branch on the island in 1911, the Canadian Imperial Bank of Commercein 1920, and Scotiabank in 1956. Canada and Barbados tightened their already strong financial links in 1980, by signing a double taxation agreement, decades before Canada signed similar agreements with other offshore financial centers in the region.
As a result of this special relationship, roughly 75 percent of the companies in Barbados' international financial community are Canadian. The island is said to have developed its regulatory structures in line with Canadian rules and reporting standards and monetary flows between the two are significant - so significant that Barbados is the third largest destination for Canadian direct investment abroad, while Canada is Barbados' largest source of foreign direct investment.
That picture changed somewhat last year, when taxation agreements between Canada and a number of Barbados' neighbors - including Bermuda, the Bahamas and the Cayman Islands, all of which are themselves offshore financial centers - came into effect. "The Barbados international business sector," wrote Charles C. Gagnon, Tax Partner at the Montreal based firm BCF, "needs to reinvent itself to meet the current challenges and take advantage of new markets to promote its future growth." Mr Gagnon has a point, because unlike its neighbours, Barbados is not a zero tax jurisdiction. "A swift move to a zero rate elective environment may be the only answer," he continued, that will "allow [Barbados'] international business sector to compete on a level playing field with other offshore jurisdictions for new business, not only from Canada but from other parts of the world."
Freundel J. Stuart, the Prime Minister of Barbados, disagrees. "Barbados offers all the legal vehicles that other offshore centers offer and it offers much more," he said in interview with Asia Outbound last year. The prime minister was nevertheless careful to distinguish Barbados from its neighbors, by emphasizing the island's depth and experience. Speaking directly to Chinese investors, he said Barbados could offer "Chinese entrepreneurs both tax efficiency and market access benefits," which made it better suited to "sophisticated Chinese investors who have moved beyond solutions merely aimed at parking their money offshore with no plans of growing their portfolios or investing in businesses of substance offshore."
"Perhaps most importantly for the sophisticated Chinese investor," said Mr Stuart, "is Barbados' experience and long history of supporting international business and financial service companies, especially in the North American markets. This experience is not just in the private sector but is buttressed by the government regulatory authorities who have experience in securing and protecting the interests of the investors."
As a result of its longstanding relationship with Canada, international business is the second largest industry in Barbados, after tourism, and the island's existing laws and infrastructure made it the first jurisdiction in the Caribbean to be recognized as fully compliant with the OECD's tax treaties. The capital, Bridgetown, is home to the Caribbean's third largest stock exchange, which is gradually being integrated into a single, region wide exchange, and for investors interested in doing a substantial part of their business in Barbados - instead of merely "parking their money," to borrow Mr Stuart's phrase - the island is also an excellent place to recruit capable employees. It was placed fifth in the Americas and 47th in the world in the UN's 2011Human Development Index, becauseof its world class education system, based on the British model. Together, compulsory schooling for children from age 5 to 16 years old and free university combine to produce a highly skilled, English speaking work force.
Barbados has a range of legal vehicles to offer investors, the most popular of which is the International Business Company (IBC). Among the benefits of these vehicles are a tax rate of between one and two percent on business profits; exemption from withholding taxes on dividends, interest, royalties, fees or other income paid to a non resident of Barbados; credit for taxes paid outside Barbados; exemption fromimport dutyand VAT on goods required for business; selected services provided at zero rated VAT; exemption from transfer taxes and stamp duties on shares or other assets held by an IBC, excluding real estate located in Barbados; zero tax on dividends received from a foreign subsidiary in which a Barbados based company owns at least a 10 percent share, as well as freedom from exchange controls.
The special relationship shared by Barbados and Canada might have made the island nation complacent, for a time, because it does not have a network of double taxation agreements as extensive as a number of other offshore financial centers. The government is now working hard to correct that, by negotiating new double taxation agreements, and a handful are awaiting approval. Nineteen already exist, with Canada, the United States, the United Kingdom, Botswana, Cuba, the Caribbean Community (Caricom), Sweden, Mexico, Panama, Venezuela, and China, which signed the agreement in 1986, making it one of the both countries' oldest tax treaties. On top of these tax treaties, Barbados has signed a number of investment protection agreements, with Venezuela, China, Canada, Cuba and Ghana, among others, ensuring that it can defend the rights of its investors abroad.
At first glance, Barbados makes the most sense for Chinese investors who need a conduit into Canada. Many do, because Canadian real estate and Canadian schools are both extraordinarily popular with China's wealthy elite, but the island should probably be regarded as an offshore center of greater substance. The loopholes being closed by the OECD are making zero tax jurisdictions less sustainable, as well as increasing the importance bringing substance to an offshore investment, which requires readily available, skilled labor a well-established infrastructure. Offshore financial centers may be still staging posts of a kind, but the expeditions prepared in them have grown exponentially in sophistication, so perhaps it makes sense that the most sophisticated island makes the best base.
