26.6- United States Tax Treaty with Barbados

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Following is a summary of the Convention Between the United States of America and Barbados for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (signed December 31, 1984) — key points and practical implications. Note: This is a summary only and does not substitute for the full treaty text or professional advice.

Key Facts

• The treaty was signed in Bridgetown on December 31, 1984.
  
  

• A protocol amending the treaty was signed on July 14, 2004.
  
  

• The treaty’s main purpose: to avoid double taxation for residents of one country earning income in the other, and to prevent tax evasion.
  
  

• It establishes which country can tax certain types of income, and sets limits on withholding taxes in many cases.
  
  

 Major Provisions

Here are key features of the U.S.–Barbados tax treaty:

• Resident vs. Source Country Taxing Rights
  The treaty clarifies when one country has primary taxing rights (source country) vs. the other (residence country) for business profits, dividends, interest, royalties, etc.
  
  

• Withholding Tax Rates
  The treaty sets maximum source-country withholding tax rates for certain types of U.S.-source income paid to residents of Barbados (and vice-versa for some cases). For example:
  
  

  • Dividends: Up to 5% for qualifying direct investment dividends; up to 15% for other dividends.
    
    

  • Interest: Up to 12.5% in the version signed 1984.
    
    

  • Royalties: Up to 12.5% maximum in the original treaty.
    
    

• Business Profits / Permanent Establishment (PE) Rules
  A resident of one country may only have its business profits taxed in the other country if it has a “permanent establishment” there (e.g., fixed place of business, dependent agent).
  
  

• Relief from Double Taxation
  Each country agrees to provide relief (such as foreign tax credits) so that the same income is not taxed twice.
  
  

• Limitation on Benefits / Anti-Treaty Shopping
  The 2004 protocol strengthened the “Limitation on Benefits” clause to prevent misuse of the treaty by entities with no real economic presence in Barbados.
  
  

• Exchange of Information & Administrative Cooperation
  The treaty contains provisions for exchanging tax information between the U.S. and Barbados to combat tax evasion. 

Practical Implications

• If you are a resident of Barbados earning U.S.-source income (or a U.S. resident earning Barbados-source income) this treaty may reduce the U.S. (or Barbados) withholding tax you pay — provided you meet treaty eligibility.
  
  

• Through the withholding‐tax caps and rules on business profits and PEs, the treaty helps make cross-border trade and investment between the two countries more efficient and tax-predictable.
  
  

• However, not all income is fully exempt; treaty benefits often require meeting conditions (residency, beneficial‐owner status, limitation on benefits, etc.).
  
  

• For U.S. persons, Internal Revenue Service Publication 901 provides guidance on how the treaty applies to residents of Barbados.
  
  

Important Notes & Limitations

• Simply being a resident of Barbados does not guarantee you qualify for all treaty benefits — you must satisfy the treaty’s requirements (e.g., beneficial-owner status for dividends/interest).
  
  

• The treaty does not eliminate all tax; it generally limits or reduces tax, but domestic tax laws of each country continue to apply.
  
  

• The 2004 protocol addressed anti-abuse measures (to avoid entities using Barbados as a conduit solely for tax reduction).
  
  

• The “saving clause” in U.S. tax treaties means the U.S. retains the right to tax its citizens and residents as if the treaty had not come into effect in certain circumstances.