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Barbados Eligible For Dividend Tax Benefits, Says IRS

by Amanda Banks, Tax-News.com, London

22 November 2006


The United States Internal Revenue Service (IRS) has ended uncertainty by adding Barbados to the list of countries eligible for reduced tax rates on dividends paid by foreign corporations under the 2003 Jobs and Growth Tax Relief Reconciliation Act, the government of Barbados has announced.

The government stated that following three years of uncertainty concerning IRS treatment of the Barbados-US Double Taxation Agreement, the IRS has confirmed that Barbados is a "satisfactory" jurisdiction, able to enjoy the benefit of reduced withholding rates of 15% on dividends paid to individual shareholders from either a domestic corporation or a qualified foreign corporation.

Although dated October 30, 2006, the IRS Notice indicates that with respect to Barbados, the effective date for the accrual of this benefit is as of December 20, 2004.

The Barbadian government said that the important reclassification had come about as a direct result of the successful conclusion of a Second Protocol to the 1984 Barbados-US treaty. This Protocol was signed in July 2004 and entered into force shortly thereafter, on December 20, 2004.

The Second Protocol is intended to ensure that the treaty operates to accomplish its intended purpose of double taxation and the prevention of fiscal evasion with respect to taxes on income.

Barbados has a growing network of international tax treaties. At present these include agreements with Canada, China, Cuba, Venezuela, Malta, Mauritius, Botswana, the United Kingdom, Finland, Sweden, Switzerland, Norway and the Caribbean Community (CARICOM).

A treaty with Austria has been signed and awaits ratification, while it is expected that a Barbados-Netherlands treaty will be signed and enter into force shortly.

A comprehensive report in our Intelligence Report series giving background tax and residence information on many of the key offshore jurisdictions is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report4.asp

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