Most investors seeking to use Barbados as an international financial and business centre typically believe they must set up an International Business Company (IBC) to do so. Depending on the nature of their business, however, a Regular Barbados Company (RBC) may be a better choice.

The Island's domestic tax laws offer several benefits – and a good deal of flexibility – to investors, including multinationals. To begin with, the RBC enjoys access to all of the double taxation agreements that make the island such an attractive jurisdiction, which is not always the case with an IBC.

Another major benefit that Barbados' domestic tax laws offer to investors using the RBC is the opportunity to do business locally as well as internationally. An IBC, on the other hand, cannot trade locally – all of its clients must be outside Barbados. In essence, an investor whose company offers a product or service the local market needs has the best of both worlds with the RBC.

Of course, the revenue earned locally will be taxed at the local corporate rate of 25%, but if the international side of the business is the real revenue generator, the effective tax rate can drop significantly, thanks to the Foreign Currency Earnings Credit (FCEC).

Through its domestic tax regime, Barbados offers the FCEC as an incentive to all RBCs to bring in foreign currency - the more they bring in, the bigger the tax saving. The FCEC applies to companies in a wide range of industries including construction, education, investment management, e-commerce, shipping, oil and gas, mining, licensing of intellectual property and several others. Furthermore, it also applies to personal wealth, i.e. to foreign currency that individuals bring into Barbados.

The tax credit ranges from 35% to 93%, and applies to the foreign portion of the taxable profits. If that portion accounts for 81% or more, the FCEC will be at the 93% maximum.

For example, annual taxable profits of $1,000,000 earned by the RBC would result in a tax bill of $250,000 under the local regime. But if 85% of those profits ($850,000) were attributable to foreign earnings, then $150,000 would be taxed at the domestic rate of 25%, which amounts to $37,500.

The maximum FCEC of 93% is then applied to the tax of $212,500 that would normally be payable on the remaining $850,000 and, as a result, a credit of $197,625 is allowed, which leaves $14,875 to be paid on the foreign income. This amount, $14,875, when added to $37,500, brings the total tax payable to $52,375. In this example, the effective tax rate achieved is 5.24%.

Dividends also get favourable treatment under the domestic tax regime. For example, dividends paid to the RBC, whether from another RBC or a foreign company, are not generally subject to tax. Also, if the RBC pays dividends out of its foreign income to a non-resident, these dividends are not subject to withholding tax.

In addition, Barbados does not impose tax on capital gains. For example, the gain on the sale of shares or a subsidiary, or other assets such as intellectual property, would not form part of a RBC's taxable profits.

In summary, Barbados' domestic tax regime does not tax capital gains and offers a favourable tax treatment of dividends. In addition, the RBC enjoys the benefits of being able to do business locally, which an IBC can't do, and unlike an IBC it enjoys unlimited access to Barbados' network of tax treaties. For some investors wanting to set up in Barbados, this can mean the best of both worlds.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.