The Government has established a separate Ministry to facilitate the development and expansion of the international business sector.
In addition to incorporated entities, persons can organize another legal entity known as the Society with Restricted Liability (SRL). While not a “company” the SRL has many characteristics similar to the limited liability company.
An SRL has the characteristics set out below:
Beginning in October of 2017 the OECD, through its Forum on Harmful Tax Practices (FHTP) required Barbados to revise its tax regime in several ways. In addition to abolishing the special incentive vehicles previously offered to conduct exclusively offshore business, there have been requirements to implement economic substance requirements as a result of the reduction of the country’s standard domestic corporation tax rate.
The Companies (Economic Substance) Act (“The Act”) took effect from 1 January 2019. The Act and its accompanying guidelines require a resident entity that earns income from carrying on relevant activities (see list below) to satisfy an economic substance test in relation to that activity. Note that these economic substance rules took effect for grandfathered international entities (e.g., IBCs and ISRLs) on 1 January 2021.
In order to meet the economic substance requirements entities, including a partnership formed in Barbados which is carrying on one or more relevant activities, will be required to show that, for each relevant activity that it carries on, the core income generating activities of the entity are conducted in Barbados and the company is directed, managed and controlled in Barbados in relation to that activity. This would take into account various factors such as the number of employees, premises used in the business, etc.
Entities that conduct relevant activities must demonstrate compliance by filing an annual economic substance declaration with the Ministry of International Business. Entities that do not conduct relevant activities are not required to comply with the legislation but are however required to file a declaration which would be limited to confirming that the entity conducts no relevant activities.
The list of relevant activities currently includes:
Effective 1 January 2019 all entities which earn 100% of their income in foreign currency are entitled to receive a Foreign Currency Permit (FCP) allowing them the following benefits where certain requirements are met:
Companies and individuals who are resident and domiciled in Barbados for tax purposes are subject to income tax on their worldwide income whether or not the income is remitted to Barbados. Persons who are resident but not domiciled in Barbados are taxed on their income derived from Barbados and on any overseas income remitted to (or from which a benefit is received in) Barbados. Non-residents are taxed only on income derived from Barbados.
At the time this publication was prepared, corporations (including Foreign Currency Earning Banks) are taxed in accordance with the rates illustrated in the table below.
In addition, insurance companies are taxed in accordance with the table illustrated below based on the Class of licence which the company obtains (see discussion above regarding classification of insurance licences).
There are no capital gains taxes levied in Barbados, and gift, inheritance, and estate taxes are not applicable. Property transfer tax applies to the transfer of property situated in Barbados at a rate of 2.5%. This includes real estate as well as certain leasehold interests and shares. Stamp duty is also payable on instruments executed in Barbados, which relate to any property situated in Barbados or to any matter or thing done or to be done in Barbados. Generally, stamp duty at the rate of approximately 1% is applied to instruments executing the sale of real estate.
Barbados has joined the two-pillar plan to reform international taxation rules. Under Pillar 2, the inclusive framework members have agreed to introduce a global minimum corporate tax rate of 15%, and Global Anti-Base Erosion (GloBE) rules provide for a coordinated system of taxation intended to ensure that MNEs with global revenue exceeding EUR750 million pay a fair share of tax in each of the jurisdictions where they operate. It does so by imposing a top-up tax on profits arising in a jurisdiction whenever the effective tax rate, determined on a jurisdictional basis, is below the minimum rate. The GloBE rules are not mandatory but have been agreed to as a “common approach.” This means that jurisdictions are not required to adopt the GloBE rules, but if they choose to do so, they agree to implement and administer them in a way that is consistent with the agreed outcomes set out under those rules. Even if they do not implement the rules, agreement on a common approach means that one jurisdiction accepts the application of the GloBE rules by another with respect to MNEs operating in their jurisdiction.
Against this background, the Prime Minister of Barbados, the Hon. Mia Amor Mottley S.C., M.P. signaled on 7 November 2023, the following main revisions to the corporate tax regime in compliance with Pillar Two.
At the time this publication has been prepared, a Policy Note and draft legislation to provide detail and give effect to these proposals have not yet been released.
Individuals are subject to income tax at the rate of 12.5% on taxable income up to and including US$25,000, and 28.5% on taxable income exceeding US$25,000. Resident individuals earn the first US$12,500.00 (and first US$ 20,000.00 in case of individuals who is 60 years of age or over and in receipt of a pension) of their annual income tax free as personal allowance.
There are no capital gains taxes levied in Barbados, and gift, inheritance, and estate taxes are not applicable. Property transfer tax applies to the transfer of property situated in Barbados at a rate of 2.5%. This includes real estate as well as certain leasehold interests and shares. Stamp duty is also payable on instruments executed in Barbados, which relate to any property situated in Barbados or to any matter or thing done or to be done in Barbados. Generally, stamp duty at the rate of approximately 1% is applied to instruments executing the sale of real estate.
Barbados introduced a value-added tax on January 1, 1997. Generally, value-added tax is levied at the rate of 17.5% on all goods and services supplied in Barbados, and on goods imported into Barbados. However, there is provision for specific zero-rated and exempt goods and services that would not attract the value-added tax. VAT is included in the final price the consumer pays for goods and services. Effective 1 January 2020 the VAT rate for hotel accommodation and certain supplies related to tourism, increased from 7. 5% to 10%. Additionally, the supply of mobile services of voice, data, and text messaging attracts an enhanced VAT rate of 22%.
In 2019 The Value Added Tax Act was amended to apply VAT to online purchases from overseas vendors where the good or service purchased will be consumed in Barbados. Effective 1 December 2019 these overseas vendors are required to charge and collect VAT and remit it to the Barbados Revenue Authority by the 21st January, April, July and October of each year. Official guidance on the application of this process has not yet been issued by the Barbados Revenue Authority.
In July 2018, a room rate levy was imposed on all tourist accommodation including apartments, guest houses, hotels, vacation rental properties and villas.
Effective April 1, 2019, the room rate levy is as outlined below
In July 2018, a product development levy was introduced and applied to direct tourism services. Effective April 1, 2019 the levy is applied at the rate of 3.75% of the cost of the Direct Tourism Service.
Shared Accommodation Levy
A 10% Shared Accommodation Levy also applies to all fees charged for shared accommodation by providers of such (e.g. AirBnB, Home Away, and others).
Barbados has entered into Double Taxation Agreements (DTAs) and bilateral investment treaties with the countries as indicated in the table below.
The Barbados/Slovak Republic DTA was signed on October 28th, 2015. Barbados and the Slovak Republic have completed their ratification procedures. Barbados is awaiting official notification from the Slovak Republic on the determination of the date for entry into force of the Agreement.
The Protocol to the Barbados/Republic of Mauritius DTA was signed on December 6th, 2017. Barbados and Mauritius have completed their ratification procedures. Barbados is awaiting official notification from Mauritius on the determination of the date for entry into force of the Agreement.
Three (3) DTAs and one Protocol await ratification and are outlined below:
The Barbados/Ghana DTA was signed on April 22nd, 2008. Barbados has completed its ratification procedures and awaits official notification from Ghana on the status of their ratification procedures.
The Protocol to the Barbados/Botswana DTA. This was signed on September 4th, 2014. Barbados has completed its ratification procedures and awaits official notification from Botswana on the status of its ratification procedures.
The Barbados/Kenya DTA was signed on December 11, 2019 and is awaiting ratification.
Three (3) initialled DTAs with Malaysia, Belgium and Vietnam are awaiting signature.
In January 2018, Barbados signed on to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Sharing (MLI). Barbados has deposited its Instrument of Ratification for the Multilateral BEPS Convention which has entered into force on April 1, 2021.
Countries indicated with an asterisk (*) above are also signatories of a Bilateral Investment Treaty (BIT) with Barbados. This combination of double taxation, investment treaties and tax incentives make Barbados unique within the Caribbean and particularly attractive to foreign investors.
**According to an update from the Norwegian government on the status of its tax treaties, it was decided by Royal Decree on 9 June 2023 to terminate the tax treaty with Barbados with effect from 1 January 2024.
As indicated in the previous table, in addition to its extensive network of DTAs, Barbados also has BITs with several important jurisdictions. These BITs provide benefits and protections for cross border investments including:
Note that Barbados has also entered into a BIT with Germany. BITs are also pending with Ghana and Luxembourg and are awaiting ratification
Special trading arrangements have been entered into with other jurisdictions. These can be summarised as follows:
Allows products manufactured in Barbados and other CARICOM member states to be exported among member countries free of customs duty, provided all qualifying conditions are met. In addition, CARICOM has already signed or is currently negotiating trade agreements with the Bahamas, Colombia, Costa Rica, Cuba, Dominican Republic, and Venezuela.
Among other things this agreement removes all quotas and tariffs from Caribbean exports to the EU, with the exception of sugar and rice, both of which will be liberalized over time. The EU has also agreed to open up new markets for Caribbean companies and professionals offering services to Europe, and to permit young services professionals to gain work experience in the European market.
Caribbean countries which are signatory to the agreement have agreed to gradually open their markets to European exports over the next 25 years.
Duty free export of some products to the USA market.
CaribCan (Caribbean-Canada)
Duty free export of some products from the Commonwealth Caribbean into the Canadian market.
Buying and selling property in Barbados
There is no restriction on the purchase of property in Barbados by persons who are not citizens or permanent residents. These funds must be registered with the Central Bank of Barbados and the permission of the Exchange Control Authority obtained for the sale or purchase of property by a non-resident whether such non-resident is a Barbadian citizen or not.
The sale of property by all persons including citizens or permanent residents is subject to a property transfer tax of 2.5% plus approximately 1% stamp duty. However, the first US$75,000 of the sale proceeds is exempt from Property Transfer Tax provided that there is a building on the property. Attorney’s fees for both the seller and the purchaser are on a sliding scale generally ranging between 1% and 2% depending the sale price of the real estate.
Note that this is only the minimum fee that may be charged.
Note that in the case of registered land the minimum fee for the sale of registered land is 2/3 or 1/3 of the cost for a normal conveyance (above) depending on if acting for vendor or purchaser. However, the vast majority land on the island is not registered as yet.
The real estate agent’s commission fees are normally 5% of the sale. Both fees are subject to 17.5% VAT. A deposit of 10% is typically due upon the signing of the purchase agreement with the balance payable on completion of the purchase.
