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Bermuda News Weather Property Rentals Jobs Reviews Social
November 23, 2017
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Exempt Companies/International Business Companies


International Business Companies (IBCs) are the most common offshore corporate structure. In simple terms it is a limited liability corporation created under the legislation of a tax haven jurisdiction with certain restrictions on its business and management, most commonly:

*limitation on the amount of the corporation that can be owned by residents of the tax haven

* prohibition on the corporation carrying on business in the tax haven (and perhaps the region), other than as a part of its international business

* no or low tax rate


In some jurisdictions the tax free corporation is known by a different name, for example in Bermuda they use "Exempt Companies", Cayman uses "non-resident" companies.

Many jurisdictions have adopted the popular IBC. Most common jurisdictions for formation of IBCs include: Bahamas, Barbados, British Virgin Islands, Bermuda, Cayman Islands, and Panama. Panama is typically the cheapest jurisdiction for the incorporation of an IBC - however it has some stigma associated with being the cheapest. Then from least expensive to most expensive, typically BVI, Bahamas, Barbados, Cayman and Bermuda.

Use of an IBC in Active International Businesses:

Assume a Canadian corporation is consideration of expanding their current business outside of Canada. It may be possible to establish a bona fide active business in a low tax country that has a tax treaty with Canada, typically Barbados (2.5%), Cyprus (4.5%) and Ireland (10%).

Assume Barbados is selected:

* the Canadian Corporation creates a wholly owned Barbados IBC subsidiary corporation to carry on its international business

* active business income earned by the Barbados IBC would be subject to tax at the maximum rate of 2.5% (dropping to 1%)

* the IBC's active business income it is not subject to tax in Canada under the Foreign Accrual Property Income Rules (FAPI) - only passive income is subject to accrual taxation even though it is not actually received by the Canadian Parent Corporation

* the Barbados IBC can pay dividends to the Canadian Parent Corporation without further taxation - the result is a reduction of tax on international income of up to 37.5%