The Evolution of the Global Business: Barbados as a Global Services Centre

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It is important to preface this piece by stating that Barbados has always been a jurisdiction of substance and high standards when it comes to facilitating Global Business. Notwithstanding this, the way in which adopted global policy has dictated the means of doing business has transformed or better worded, enhanced Barbados’ position as a Global Services Centre (herein ‘GSC’).

Traditionally, Barbados has been known as an offshore jurisdiction or an International Financial Center (herein “IFC”). It among other developed and developing jurisdictions, has competed to be the best at providing a favorable Investment climate by offering a flexible, dynamic and nimble approach to regulating business within its jurisdiction. This has effectively enabled a wide array of professionals to conceptualize advanced structuring options which maximize the profits and wealth of their clients and businesses.

However, Barbados enhanced its approach to facilitating global business by not only being an advantageous jurisdiction to hold wealth, but to also repatriate wealth from. At current, Barbados has forty plus double tax treaties (herein ‘DTT’) and other bilateral agreements which enhance the benefit of various tax structures. These agreements further strengthened not only the image of Barbados as a place to do business, but that doing business in Barbados is acceptable to contracting states of the various treaties.

Unfortunately, a number of global organizations and superpowers, most notably the European Union and the Organisation of Economic Cooperation and Development (herein ‘OECD’), took concerned notice of the estimated two third of the world’s wealth being parked offshore within the Caribbean. As a result, Caribbean IFCs such as Barbados, quickly garnered the unfair reputation of being tax havens and thereafter in the global business community became cumbersome to associate with corporate structure strategies. This sentiment was further compounded by means of blacklisting jurisdictions, as doing business from or with parties from blacklisted jurisdictions became increasingly difficult.

The prescribed medicine has come in many forms over the years and most recently through the OECD’s Base Erosion and Profit Shifting Action Plan (herein ‘BEPS Action Plan’). Here, the OECD posited that fundamental changes are actively required to prevent double non-taxation, as well as cases of no or low taxation associated with practices that artificially segregate taxable income from the activities that generate this income. This rhetoric was clearly targeted towards IFCs and in order for them to be taken off of these negative lists, they would have to expressly agree to and implement policy intended to carry out BEPS Action Plan objectives. Specifically, the removal of preferential tax regimes which were deemed to be contributors to harmful tax practices and the implementation of legislation which would force corporate entities to illustrate management and control from within Barbados which was intrinsically linked with the income generated.

Following the dismantling of all preferential regimes and tactically converging its corporation tax regime to an across the board low tax regime, the next step for Barbados was to implement an Economic Substance Regime (herein ‘ES Regime’). In brief, this regime was introduced by way of The Companies (Economic Substance) Act, 2019-43. It focuses on Barbados resident companies which conducted specific relevant activities, and it requires these entities to illustrate that the core income generating activity is being managed and controlled from within Barbados.

Arguably, this approach is not one which is revolutionary to Barbados, but rather an enhancement of the approach already practiced. For example, entities which had to illustrate tax residency to benefit from the previously mentioned DTTs and other foreign tax administrator requirements have over the years put similar measures in place to ensure that their entities for all intents and purposes were considered as resident in Barbados. The new approach however, forces Barbados into the role of GSC, as the ES Regime standards requires a variety of services to be provided to these entities to meet the necessary substance. Consequently, Barbados must be a one-stop shop for the companies that it hosts as resident companies and the jurisdiction must position itself to be able to provide a multiplicity of services to meet this demand.

In sum, Barbados has had to move away from the passive nature of being an IFC to the more active and all-encompassing position of a GSC. Fortunately as prefaced, Barbados has illustrated that it is capable of meeting global business demands and though this approach is of a foreign derivative, Barbados is fine-tuned to remain an attractive jurisdiction for the global business community.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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