For many years, Barbados has asserted a value proposition of sun, sea and sand to those who vacation on our shores. For the persons who will eventually leave or perhaps even forfeit the beach in search of investment opportunities, another value proposition arises: Barbados is always open for business. The welcoming environment for investment and business operation is underpinned by a tax regime that offers many attractive benefits and rests on pillars of simplicity, fairness, adequacy, and transparency.
Beginning and ending with simplicity, the Barbados regime does not impose tax on capital gains. Moreover, there are no exit, wealth, inheritance or gift taxes. Moving to the sphere of income taxes, companies not carrying on insurance business are subject to corporation tax at graduated rates of 5.5% down to 1% depending on their level of income. Most attractive to many multinationals is that income exceeding USD15 million is taxed at 1%.
Entities carrying on insurance business are subject to corporation tax according to the class of license they hold. Class 1 licensees that underwrite related party business are subject to tax at 0%. Class 2 licensees that underwrite third-party risks are subject to tax at 2%. Finally, Class 3 licensees, including insurance intermediaries, brokers, insurance management companies and insurance holding companies are subject to tax at 2%.
In addition to low rates of corporation tax across all industries, domestic tax legislation makes provision for a participation exemption which allows dividends received by a Barbados company from non-portfolio, nonresident subsidiaries to be exempt from corporation tax. In calculating the income which will be subject to tax in Barbados, a domestic credit is allowed for foreign taxes paid by Barbados resident companies on amounts to be taxed in Barbados. This credit is allowed up to the amount of the Barbados taxes payable on the income, but it cannot reduce the total tax payable by the Barbados entity for that year to less than 1% of its taxable 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.
Addressing one of the ultimate concerns for investors, the Barbados tax regime elevates its advantages once more. The country acknowledges that a return on investment maintains value with the investor’s ability to receive/ benefit from that return. Therefore, domestic legislation exempts dividends paid from foreign sourced income from withholding tax once remitted to a nonresident of Barbados. For those who opt to finance investment into Barbados via debt, interest paid to non-residents of Barbados is also free from withholding tax.
While there is no doubt that the headline rates of tax in a jurisdiction can be a deal maker or breaker for investors, Barbados acknowledges that the transactional taxes which arise with business operations are an important consideration as these have the potential to impact return on investment. Local indirect and transactional taxes such as Value Added Tax (VAT), Property Transfer Tax (PTT) and Stamp Duty (SD) are applicable in Barbados, with the VAT standard rate being 17.5% and PTT at 2.5%. SD is document determined and, in that regard, international investors often encounter the 1% duty applicable to assignments etc. While these taxes and duties are important for the sustenance of a small island economy like Barbados, there are opportunities for investors to mitigate their impact.
With effect from 1 January 2019, Barbados introduced a Foreign Currency Permit (FCP) available to entities that earn 100% of their income in a foreign currency. Among the benefits for FCP holders are:
• Exemption from ad valorem stamp duty
• Property transfer tax exemptions
• Exemption from payment of VAT and duties on the importation of plant, machinery and raw materials
• Income tax concessions for specifically qualified employees.
Direct benefits aside, for a tiny 166 square feet island, the ability to network with other countries with similar principles is paramount. Barbados’ treaty network is ever expanding and includes 40+ double-taxation agreements which are extremely advantageous. For the investor who wants to utilize Barbados resident entities to do business in other countries, these treaties provide the opportunity to:
• Create certainty on tax treatment of income and gains arising from crossborder investments
• Reduce/eliminate withholding taxes on certain types of income
• Eliminate double taxation of income.
Finally, in addition to a robust domestic tax framework and an expansive international tax treaty network, Barbados continues to ensure its presence, participation and contribution at a global level. As a member of the Organization for Economic Corporation and Development’s (OECD) Inclusive Framework, Barbados steadfastly commits to fair taxation and the elimination of Base Erosion and Profit Shifting. In recent years, the introduction of Economic Substance requirements for entities with geographically mobile businesses has reaffirmed the country’s pledge to provide a well-regulated, respected, yet attractive jurisdiction of choice for investors.
In the midst of an evolving global tax environment, Barbados remains agile, attractive and as always, open for business.