Barbados has entered into a new double taxation agreement with Hong Kong, a move the government said will deepen financial ties and attract greater Chinese investment here, Minister of Finance Ryan Straughn has told Barbados TODAY exclusively.
“In short, it increases the network of tax treaties, making Barbados an even better place for Chinese investment,” he said on Monday.
“In practical terms, a tax treaty with Hong Kong establishes a stable framework for taxing cross-border investments. It typically reduces or caps withholding taxes on dividends, interest and royalties, clarifies which country has the right to tax different types of income, and ensures that the same profits are not taxed twice.”
The treaty also provides formal mechanisms to resolve disputes between tax authorities and limits the risk of inconsistent treatment, he added.
“Taken together, this materially improves the economics and predictability of cross-border transactions. Lower tax leakage, combined with greater legal certainty, makes it easier for international groups to structure investments, financing and holding activities. In practice, access to a treaty network is often an important factor when investors choose where to locate regional or intermediate platforms.”
Given Hong Kong’s role as a primary gateway for Asian — in particular Chinese — outbound investment, such a treaty would facilitate the use of Barbados within these structures, both for direct investment flows and as an intermediary platform into third markets, Straughn explained.
Daily Tax News, published by experts Wolters Kluwer and VitalLaw digital services on Monday, revealed details of the deal. Withholding tax on payments of interest will be liable to a maximum withholding tax rate of five per cent, it said. For royalties, the rate will be capped at three per cent for royalties paid for the use of, or the right to use, eligible intellectual property as defined under Hong Kong’s Inland Revenue Ordinance, Chapter 112, or qualifying intellectual property as defined in Barbados’ Income Tax Act.
The publication pointed out that any tax paid by Hong Kong residents in Barbados will be allowed as a credit against the tax payable in Hong Kong in respect of the same income.
The deal includes provisions intended to counter tax base erosion and profit shifting.
The new agreement includes a preamble that states that the Double Tax Agreement (DTA) is not intended to create opportunities for tax evasion or avoidance, or treaty shopping. Further, the agreement includes provisions to counter treaty abuse, prevent the artificial avoidance of permanent establishment status, neutralise the effects of hybrid mismatch arrangements, and improve dispute resolution mechanisms.
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