A tax exchange agreement between the Bahamas and Canada has come into force, providing Canadian firms with incentives to set up offices in the Bahamas, according to the law firm Higgs & Johnson.

The TIEA, signed in June, allows inter-corporate dividends to be made and held tax-free by a Canadian parent firm, as long as it retains the dividend. The funds become taxable on distribution.

“Once this agreement enters into force it will extend exempt surplus treatment to dividends paid to a Canadian parent corporation by its foreign affiliates resident and actively carrying on business in the Bahamas, allowing such dividends to be exempted from tax in Canada,” said Bahamian deputy prime minister Brent Symonette, on signing the agreement.

The Bahamas has now signed 28 TIEAs, including with the US, the UK, China, Japan, Australia, Argentina, France and Mexico.