BVI and Canada: down to business — TIEA now effective

The Canada-British Virgin Islands (BVI) tax information exchange agreement (TIEA) came into force on 11 March 2014. The TIEA was signed in May 2013, and the effective date provisions are set out in article 13 of the agreement. The BVI is now party to 25 TIEAs.

The BVI-Canada TIEA is significant due to changes introduced to Canadian tax laws under the 2007 Canadian Budget, which provides beneficial tax treatment for business income repatriated from TIEA jurisdictions such as the BVI. It is understood that under Canadian law, active business income of a company resident in a TIEA jurisdiction is eligible for tax-free dividend repatriation to a Canadian parent as ‘exempt surplus’, thus allowing the Canadian parent to benefit from the BVI’s zero-rate corporate tax regime. Additionally, passive business income, such as interest received from another foreign affiliate resident and carrying on an active business in a third jurisdiction (also being a TIEA or double-taxation treaty jurisdiction) may also qualify as ‘exempt surplus’ so long as the amount is deductible in computing active business income of the first affiliate.

The BVI will now qualify as a ‘designated treaty country’, affording the BVI the same treatment as a country sharing a double-taxation treaty with Canada, with the added benefit of a zero-rate corporate tax regime (putting the BVI in a favourable position as compared to designated treaty countries with higher tax rates, such as Barbados). It is also noteworthy that the BVI does not levy any capital gains tax, stamp duty or withholding tax, unlike some of Canada’s double-taxation treaty partners…

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