Corporate tax in Barbados

Summary

Corporate Income Tax Rate (%)
General Rate 25
Manufacturing Companies 15
Rental Income from Residential Property 15
Branch of Nonresident Corporation (%) 25
Capital Gains Tax Rate (%) 0
Withholding Tax (%)
Payments to Nonresidents
Dividends 15*
Dividends from Untaxed Profits 25
Dividends from Foreign-Source Income 0
Interest 15*
Royalties 15*
Rents 25
Management and Technical Services Fees 15*
Payments to Resident Individuals
Dividends 12.5*
Interest 12.5*
Payments to Resident Companies
Dividends 0
Interest 12.5*
Branch Remittance Tax 10
Net Operating Losses (years)
Carryback 0
Carryforward 7

* This is a final tax.

Taxes on corporate income and gains

Corporate income tax. Companies and societies with restricted liability that are resident in Barbados are subject to corporation tax. Resident and domiciled companies are subject to corporation tax on their worldwide income, regardless of whether the income is remitted to Barbados. Resident companies that are not domi­ciled in Barbados are subject to corporation tax on income derived from Barbados and income from foreign sources to the extent that such foreign income is remitted to Barbados. Nonresident compa­nies carrying on business through a branch pay tax on Barbados-source income only. Income is considered to be Barbados-source if the property that constitutes the source is physically located in Barbados.

A company is considered to be resident in Barbados if its manage­ment and control are located in Barbados. The domicile of a company is based on the country of incorporation. Consequently, a company incorporated in Barbados is domiciled there.

Rates of corporate tax. All domestic companies, including branch­es of nonresident companies, are subject to tax at a basic rate of 25%. A 15% rate applies to manufacturing companies and to net income derived from the rental of residential property. Income derived from Barbados government securities by domestic com­panies is taxed at a rate of 12.5%.

A branch operating in Barbados pays an additional 10% on its after-tax profits if those profits are remitted or deemed to be remitted.

The following are the tax rates for companies established in the International Business and Financial Services Sector.

Types of companies Rate (%)
International Business Companies 2.5 reducing to 0.25 (a)
International Banks 2.5 reducing to 0.25 (a)
International Societies with Restricted Liability 2.5 reducing to 0.25 (a)
Exempt Insurance Companies 0
Exempt Insurance Management Companies 0
Qualifying Insurance Companies
General Insurance 1.75 (b)
Life insurance 0.35 (b)

a) These rates are effective for the 2013 income year and subsequent income years.

b) This is the minimum effective tax rate.

No tax is required to be withheld from the payment of dividends, interest, royalties, management fees and rents if paid to nonresi­dents by companies operating in the International Business and Financial Services Sector.

Foreign-currency earnings credit. Companies subject to the Income Tax Act may claim a tax credit with respect to foreign-currency earnings derived from qualifying overseas construction projects or qualifying overseas professional services, including qualifying insurance activities. The tax credit may reduce the effective tax rate to 0.35% or 1.75%, depending on the company’s activities.

Tax incentives. Tax incentives available in Barbados are described below.

Small Business Development Act. Under the Small Business Development Act, small businesses qualify for the following tax benefits:

  • Corporation tax rate of 15%
  • Exemption from withholding tax on dividends or interest paid
  • Exemption from import duty on plant and equipment
  • Exemption from stamp duty on the execution and registration of financial documents

Only income directly related to the business qualifies for the above tax benefits.

To qualify as a small business, a company must meet the follow­ing requirements:

  • Its authorized capital does not exceed BBD1 million.
  • Its annual sales do not exceed BBD2 million.
  • It does not have more than 25 employees.
  • It is not a wholly owned or majority-owned subsidiary in a group of companies.

Tourism Development Act. Under the Tourism Development Act, duty-free and income tax concessions are available for approved tourism projects and certain tourism entities. These concessions include the following:

  • Exemption from the payment of customs duty on specified items
  • Tax deduction equal to 100% of expenditure incurred with re­spect to the development of a tourism product, tourism research, an apprenticeship scheme or the organization and hosting of tourism exhibitions and trade fairs
  • Offset of approved capital expenditure against assessable income
  • An investment tax credit (subject to conditions)
  • Exemption from withholding tax on dividends paid to share­holders

Fiscal Incentives Act. A business that manufactures approved products may be deemed to be an approved enterprise under the Fiscal Incentives Act. An approved enterprise may be eligible for several tax incentives, including the following:

  • An income tax holiday for up to 11, 13 or 15 years
  • Relief from withholding tax on dividends paid during the tax holiday
  • Exemption from the payment of customs duty on imported items (including plant and machinery) for the manufacturing of an approved product

Special Development Areas Act. Under the Special Development Areas Act, persons carrying out work in designated special devel­opment areas in Barbados, as well as persons financing such work, are entitled to certain tax relief. An approved developer is entitled to a reduced corporation tax rate of 15% and exemption from certain taxes, such as the following:

  • Import duty, environmental levy and value-added tax on inputs for the construction of new buildings and the renovation or refurbishment of existing buildings
  • Charges on the repatriation of interest and capital
  • Land tax on the improved value of land
  • Property transfer tax on the initial purchase of property

Renewable Energy Incentives. Persons engaged in the develop­ment, manufacturing, installation or repair of renewable energy systems and energy-efficient products may be entitled to one or more of the following tax benefits if the required criteria are met:

  • Ten-year income tax holiday
  • Tax deduction of 150% for the following expenditure with respect to the generation, supply and sale of renewable energy, or the installation or supply of renewable energy systems or energy-efficient products:

— Interest paid on loans with respect to the construction or upgrading of a property

— Expenditure on the training of staff

— Expenditure on the marketing of products

— Expenditure on research and development

  • Ten-year exemption from withholding tax on dividends paid to shareholders

In addition, interest earned by financial intermediaries from financing the development, manufacturing and installation of re­newable energy systems and energy-efficient products is exempt from tax for 10 years.

Capital gains. Capital gains are not taxed in Barbados.

Administration. The fiscal (income) year is the period for which the accounts of the business are normally prepared. Tax is calcu­lated on the profits for the accounting period that ends during the fiscal year.

A corporation is required to determine its own tax liability and to prepare and file a corporation tax return. Corporations with year-ends from 1 January to 30 September must prepay tax by 15 Sep­tember and file their returns by 15 March of the following year. If the year-end is after 30 September, the tax must be prepaid on 15 December of the income year and on the following 15 March. The return is filed 15 June of the year following the income year. Each tax prepayment must be 50% of the previous year’s tax. Any balance of tax due is paid when the return is filed. Tax returns may be filed using the Barbados Revenue Authority’s electronic filing system.

The Revenue Commissioner of the Barbados Revenue Authority may levy a penalty of BBD500 plus 10% of tax payable and in­terest of 1% a month for failure to file a return and pay tax due, and a penalty of 10% and interest of 0.5% a month for failure to prepay corporation tax.

Dividends. Dividends received by a resident company from anoth­er resident company are not taxable.

Dividends received from a nonresident company are not subject to tax in Barbados if the Barbados company owns 10% or more of the share capital of the nonresident company and if the share­holding in the nonresident company is not held as a portfolio investment.

Foreign tax relief. A tax credit is allowed for taxes paid to foreign jurisdictions by Barbados resident companies on profits, income or gains earned from such foreign jurisdictions, regardless of whether Barbados has entered into a double tax treaty with the foreign jurisdiction. This credit is allowed up to the amount of the Barbados taxes payable on the income. An underlying tax credit is also allowed with respect to foreign dividends if the Barbados company owns at least 10% of the capital of the foreign company. Some form of unilateral relief may be granted on income arising from British Commonwealth countries that provide reciprocal relief.

Determination of trading income

General. Taxable income is determined on the basis of accounts prepared in accordance with International Financial Reporting Stan dards, subject to specific adjustments identified in the Income Tax Act.

Inventories. The authorities generally accept a method of valua­tion of inventory that conforms to standard accounting practice in the trade or business, provided it is applied consistently. Average cost or first-in, first-out (FIFO) are the generally accepted methods.

Provisions. Reserves or provisions of a general nature for doubt­ful accounts receivable are not allowable. However, write-offs of specific amounts or balances are generally allowed.

Tax depreciation. Depreciation and amortization reported in the financial statements are not allowed as deductions in calculating tax able income. However, a company may claim capital allow­ances. Annual allowances of between 5% and 331/3% are given on the original cost of fixed assets, calculated on a straight-line basis. An annual allowance of 100% is granted with respect to capital expenditure on software. An initial allowance of 20% is given on the cost of equipment. Industrial buildings qualify for an initial allowance of 40% and an annual allowance of 4% of the cost. An allowance of 1% is given on the improved value of commercial buildings. Fifty percent of expenditure on intellectual property is deductible over a 10-year period. In addition, 20% of expenditure on energy audits and the retrofitting of buildings or on the instal­lation of systems to provide electricity from sources other than fossil fuels is deductible over a period of 5 years.

An investment allowance of 20% is granted on the cost of capital expenditure on new plant and machinery to be used in a basic industry. A 40% investment allowance is granted for new plant and machinery to be used in manufacturing and refining sugar and in manufacturing products from clay and limestone. In addi­tion, manufacturing companies are allowed an annual allowance of 150% for assets used in the industry.

Persons who export products outside the Caribbean Community and Com mon Market (CARICOM) also qualify for an investment allowance of 40% of the cost of new plant and machinery pur­chased during the tax year.

The investment allowance is not deductible from the cost of the asset for the purpose of determining the annual allowance.

Relief for losses. Effective from the 2015 income year, losses may be carried forward seven years to offset income derived in those years. Losses may not be carried back.

Groups of companies. Group relief is no longer available, effective from the 2015 income year. Group consolidated returns may not be filed with the tax authorities.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
Value-added tax (VAT), on the supply
of goods and services in Barbados
and on goods imported into Barbados
Standard rate 17.5
Hotel accommodation and supplies related to tourism 7.5
Basic food items 0
Excise tax, on imports of vehicles; this tax is imposed in addition to the VAT 46.95 to 120
Import duty 5 to 20
National insurance contributions, on monthly insurable earnings up to BBD4,360; paid by
Employer 11.25
Employee 10.1
Self-employed individual 16.1

Miscellaneous matters

Foreign-exchange controls. Foreign-exchange controls in Barbados are administered by the Central Bank, which considers all appli­cations. Certain transactions and routine commercial matters are delegated to the commercial banks. The Central Bank generally allows the repatriation of funds previously registered as an invest­ment if it has been established that all local tax liabilities have been met. Certain types of entities operating in the Inter national Business and Financial Services Sector, such as offshore banks, exempt (captive) insurance companies, international business com­panies and international societies with restricted lia bility, are effectively exempt from foreign-exchange regulations with respect to their offshore activities.

Debt-to-equity rules. No thin-capitalization rules are imposed in Barbados.

Anti-avoidance legislation. Anti-avoidance provisions may be ap­plied to transactions between related persons that are not carried out at arm’s length and to artificial transactions if the primary purpose of the transaction is the reduction of taxable income.

Treaty withholding tax rates

The withholding tax rates in the table below apply to payments made to nonresidents of Barbados under the various treaties enter­ed into by Barbados. However, no tax is withheld from dividends, interest, royalties and management fees paid to nonresidents by International Business Companies or International Societies with Restricted Liability. In addition, International Banks and Exempt (Captive) Insurance Companies are exempt from the payment of withholding tax on dividends and interest.

 

       
  Dividends Interest Royalties
  % % %
Austria 15 (a) 0 0
Bahrain (w) 0 0/15 0
Botswana 12 (b) 10 10
Canada 15 15 10
CARICOM (c) 0 15 15
China 10 (d) 10 10
Cuba 15 (b) 10 5
Czech Republic 15 (s) 5 10 (u)
Finland 15 (a) 5 5
Ghana (e) 7.5 (a) 7.5 (f) 7.5
Iceland 15 (a) 10 (v) 5
Luxembourg 15 (g) 0 0
Malta 15 (h) 5 5
Mauritius 5 5 5
Mexico 10 (a) 10 10 (i)
Netherlands 15 (j) 5 5 (k)
Norway 15 (a) 5 5
Panama 11.25 (l) 7.5 (m) 7.5
Portugal (r) 15 (s) 10 5
Qatar 0 0 5
San Marino 5 (g) 5 (v) 0
Seychelles 5 5 5
Singapore 0 12 (v) 8
Spain 5 (t) 0 0
Sweden 15 (a) 5 5
Switzerland 15 – (n) 0
United Kingdom 0 0 0 (o)
United States 15 (a) 5 5
Venezuela 10 (h) 15 (p) 10
Non-treaty countries 15 (q) 15 15
    a) The rate is reduced to 5% if the beneficial owner of the dividends is a com­pany that owns at least 10% of the capital of the payor of the dividends.
    b) The rate is reduced to 5% if the beneficial owner of the dividends is a com­pany that owns at least 25% of the capital of the payor of the dividends.
    c) The Caribbean Community and Common Market (CARICOM) multilateral treaty has been entered into by 10 member states of CARICOM. The treaty follows a source-based model of taxation, with double tax relief typically provided in the form of an income exemption in the state of residence.
    d) The rate is reduced to 5% if the beneficial owner of the dividends is a com­pany (other than a partnership) that holds directly at least 25% of the capital of the company paying the dividends.
    e) This treaty has been ratified by Barbados only. Consequently, the provisions of the treaty are not yet in effect.
    f) The rate is reduced to 5% if the interest is derived by a bank that is resident in Ghana.
    g) The rate is reduced to 0% if the beneficial owner is a company (other than a partnership) that holds directly at least 10% of the capital of the company paying the dividends for an uninterrupted period of at least 12 months before the decision to distribute the dividends.
    h) The rate is reduced to 5% if the beneficial owner of the dividends is a com­pany that owns at least 5% of the capital of the payor of the dividends.
    i) The term “royalties” includes payments derived from the alienation of rights or property that are contingent on the productivity, use or disposition of such property.
    j) The rate is reduced to 0% if the beneficial owner of the dividends is a com­pany that owns at least 10% of the capital of the payor of the dividends and if the recipient of the dividends is a company resident in the Netherlands that is not subject to Netherlands company tax on the dividends.
    k) The rate is reduced to 0% for royalties paid for the use of, or the right to use, literary, artistic or scientific works, including royalties with respect to cinemat­ographic films, and films, discs or tapes for radio or television broadcasting.
    l) The rate equals 75% of the statutory nominal rate applicable at the time of the dividend distribution. It is reduced to 5% if the beneficial owner of the dividends is a company that owns at least 25% of the capital of the payor of the dividends.
    m) The rate is reduced to 5% if the interest is derived by a bank that is resident in Panama.
    n) The treaty does not contain an interest article. Consequently, the normal tax rate applies.
    o) The rate is 15% for royalties paid for motion picture or television films.
    p) The rate is reduced to 5% for interest paid to banks.
    q) The rate is reduced to 0% if the dividends are paid out of income earned from foreign sources.
    r) This treaty has been signed by both parties, but it has not yet been ratified. Consequently, the provisions of the treaty are not yet in effect.
    s) The rate is reduced to 5% if the beneficial owner of the dividends is a com­pany that directly owns at least 25% of the capital of the company paying the dividends.
    t) The rate is reduced to 0% if the beneficial owner of the dividends is a com­pany that directly owns at least 25% of the capital of the company paying the dividends.
    u) The rate is reduced to 5% for royalties paid for copyrights of literary, artistic or scientific works, including cinematographic films, and films or tapes for radio or television broadcasting.
    v) The rate is reduced to 0% if the interest is paid to the government of the other contracting state or any agency or instrumentality thereof, including the central bank of that contracting state (subject to certain restrictions).
    w) The treaty language is unclear and may be read either as providing an exemp­tion from Barbados withholding tax, or as providing no restriction of Barbados withholding tax. The government has not yet issued guidance as to the correct interpretation.