Proposed amendments to the Business Companies (Economic Substance) Act are being reviewed by the Organization for Economic Cooperation and Development’s (OECD) Forum on Harmful Tax Practices, and negotiations on these amendments are also being held with the European Union (EU).
This is according to Director of International Business, Kevin Hunte, who was speaking during a recent consultation for Corporate Trust Service Providers at the Savannah Hotel, Hastings, St. Michael.
It was the fourth consultation organized by the Ministry of International Business and Industry, held to sensitize stakeholders within the sector.
Mr. Hunte said Barbados, along with 11 other jurisdictions, enacted legislation requiring corporate entities conducting specific activities to have adequate Economic Substance.
He noted that when Barbados’ tax reform took effect on January 1, 2019, the country became a “no or nominal tax jurisdiction” for the first time.
“Barbados’ tax rate has converged for the domestic entities and international entities, and we now have one domestic tax band, 5.5 per cent to 1 per cent. What that meant internationally, according to the OECD or EU, is that we are now called a no or nominal tax jurisdiction.
“We now have to have certain things in place to ensure we do not engage in the erosion of profits from other countries due to taxation. So, the main thing that has to be introduced is something called the Substance Requirement. And basically what substance is, is that where you have companies carrying on relevant activities, and the act defined what those activities are, they must be a real presence in Barbados,” he explained, reiterating that companies’ central management and control must be located here.
Mr. Hunte stated: “The guidelines provide that a Barbados incorporated company will be treated as resident in Barbados for the purpose of the Economic Substance Act; unless it can demonstrate to the satisfaction of the authority that it is a tax resident and subject to tax in another jurisdiction.”
As result, companies must have adequate premises whether owned or leased; an adequate number of full time, qualified employees and board directors.
Meetings must also be held on island; minutes must be taken and key decisions that would lead to actions that generate income must be done here. Entities will also have reporting obligations in relation to their compliance with the Economic Substance Requirements.
He said because many of these types of service providers were based in Barbados, the consultation was necessary so they could be made aware of the requirements.
In addition, they needed to be sensitized about the new standards and changes to ensure they complied with the anti-money laundering regime.
Mr. Hunte added that penalties could be imposed for failure to provide the required information and for operating a legal entity in breach of the Economic Substance Requirements. The penalties are fines, imprisonment and/or being struck-off the register.
“In order to maintain protection, Barbados is committed to ensuring that we are known as a compliant jurisdiction whilst yet creating a business environment which is globally competitive and attractive,” Mr. Hunte said.