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Barbados' Tax Regime

 

Effective 1 January, 2019,  Barbados became one of the first countries in the Caribbean to converge its domestic and international tax rates, and to implement its revised tax regime, thereby fulfilling its commitment to be compliant with the Organisation for Economic Cooperation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) Action 5 Initiative addressing harmful tax practices. Following are the Acts that have been repealed, amended and newly enacted, as well as key information on the revised tax regime.

 

Repealed Acts:

 

 

Amended Acts:

 

 

New Acts:

 

 

For the full list of legislation related to the business sector click here.

 

 

Grandfathering of Qualified Companies


Barbados  has introduced a grandfathering policy in which an old rule continues to apply to some existing entities that meet specific criteria while the new rules will apply to all future cases. Those that do not meet the criteria will be subject to the rules of the new regime.

 

  

International Business Companies (IBCs) and International Societies with Restricted Liability (ISRLs).

 

IBCs and ISRLs not holding intellectual property (IP) and licensed before October 17, 2017 qualify for grandfathering to June 30, 2021.  The applicable tax rate for the grandfathered entities, for taxable income in excess of US$ 15 million, is 1.0%, in line with the minimum converged rate.

Table 1: Tax Rates - Grandfathered Entities

 

Taxable Income US$  Rate %
Up to $5 million  2.50
Above $5 million to $10 million  2.00
Above $10 million to $15 million  1.50
Above $15 million  1.00


Intellectual Property Entities


An IP IBC or ISRL licensed as at June 30, 2018 and holding IP assets as at October 17, 2017, or IP Assets acquired after October 17, 2017, under certain conditions, will qualify for grandfathering to June 30, 2021.


Other Companies


Entities that were licensed after October 17, 2017 will be transitioned into the new regime and subject to corporation tax at the rates as set out at table 2.  These entities will automatically become Regular Barbados Companies (RBCs) and Societies with Retracted Lability (SRLs) and will be able to conduct business locally, regionally and internationally. Those companies with 100% of their earnings in foreign currency will receive a Foreign Currency Permit (FCP) giving them substantially the same benefits enjoyed previously.


For fiscal years commencing on or after  January 1, 2019, all corporate entities, excluding those that are grandfathered and insurance entities, will be taxed on the following sliding scale:

Table 2 - Tax Rates

 

Taxable Income US$ Rate %
Up to $500,000 5.50
Above $500,000 to $10 million 3.00
Above $10 million to $15 million 2.50
Above $15 million  1.00

 


Insurance Entities


Effective January 1, 2019, three classes of licenses came into existence for the insurance sector as follows:

 

  • Class 1: Insurance companies which restrict the business they can underwrite to related party Business.  These insurance companies     will be taxed at zero.  
  • Class 2: Insurance companies which can underwrite risks of third parties.  These companies will be taxed at a rate of 2%.
  • Class 3: Includes brokers, intermediaries, insurance management companies, insurance holding companies, etc.  These entities will be taxed at a rate of 2%.  


Corporate entities carrying on international insurance business and licensed before October 17, 2017 will be grandfathered until June 30, 2021.


Financial Institutions


All financial institutions are licensed under the Financial Institutions Act which provides for four classes of licenses as follows:

 

  • Class 1: Commercial Banks
  • Class 2: Trust Companies, Finance Companies, Merchant Banks and money or value transmission service providers
  • Class 3: Financial Holding Companies
  • Class 4: Financial Institutions qualifying for a Foreign Currency Permit (FCP)  


Financial institutions carrying on international business and licensed before October 17, 2017 will be grandfathered until June 30, 2021.  Entities not grandfathered are subject to corporate tax at the rates set out at Table 2.


Allowances and Benefits


Only the following allowances are provided for under the Income Tax Act from fiscal years beginning on or after January 1, 2019:

 

  • Annual capital allowances
  • Renewable energy allowances, and
  • Research and development allowances

Tax Losses


For fiscal years commencing on or after January 1, 2019, tax losses brought forward and available for offset are restricted to 50% of taxable income in any income year.  


Foreign Currency Permit 

 

All entities that earn 100% of their income in foreign currency, from January 1, 2019, are entitled to receive a FCP affording them similar benefits previously enjoyed by IBCs and ISRLs. These are:

 

  • Exemption from exchange control
  • Exemption from withholding tax on payment of dividends to non-residents
  • Exemption from withholding tax on all other payments to non-residents
  • Exemption from payment of stamp duty and property transfer tax
  • Exemption from payment of value added tax and duties on importation of plant, machinery and raw materials
  • Income tax concessions for specially qualified individuals for a period of three years

Requirements


-    An FCP must be renewed annually as follows: for companies incorporated between January 1 and June 30 – no later than June 30; for companies incorporated between July 1and December 31 – no later than December 31

-    An Annual fee of US $500, if not paid within three business days of the renewal date, will result in automatic expiration of the FCP

-    Declaration by a director/manager to be filed with the Ministry of International Business and Industry, on or before the anniversary date, certifying that a corporation tax return for the previous year has been filed with the Barbados Revenue Authority and confirming that 100% of the income earned was in foreign currency

-    All FCP holders must retain a Corporate and Trust Service provider duly licensed under the Corporate and Trust Service Providers Act

 

Click here for further information on obtaining an FCP.  Download the FCP application forms here.


Foreign Tax Credit


All entities may elect to take a credit in respect of taxes paid to a country other than Barbados provided that such an election does not reduce the tax payable in Barbados to a rate less than 1% of the taxable income in any one year.

 

 

Click here for further information on the Practice Direction, effective 2019.

 

How do I establish a new business (RBC) or (SRL)?

 

 

 




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