New measures are coming to attract investment to Barbados after Government increases corporate tax effective this month.
This was communicated to the business community in recent correspondence from the Ministry of Finance, Economic Affairs and Investment.
A December 15, 2023 letter from the ministry stated: “In addition to the tax reform, new measures will be announced in March 2024 to promote investment in Barbados, particularly in the field of sustainable investments, including in the blue and green economy, related to financing the fight against the climate crisis and new risk assurances.”
Legislative changes are imminent to facilitate the corporate tax changes, specifically an amendment to the Income Tax Act “to make provision for the reform of corporation tax in Barbados and other related matters”, and a Corporation Top-up Tax Bill to “make provision for the establishment of an effective tax rate of 15 per cent for a qualifying entity through the imposition of a top-up tax”.
In November, Prime Minister Mia Amor Mottley announced the changes to Barbados’ corporation tax regime in line with the country’s commitment to enforcing a global minimum tax from this month.
Last month, the Ministry of Finance invited the business community and others to submit written comments on the draft legislation to facilitate the implementation of planned corporate tax reform. This related specifically to the amendment to the Income Tax Act and the introduction of the Corporation Top-up Tax Bill.
Interested parties had until January 5 to give feedback, which could include “technical drafting comments as well policy comments . . . on all aspects of the draft bills to the extent they serve the policy purpose of improving doing business in Barbados, attracting more activities and jobs in full compliance with international tax standards.
“The Government of Barbados will carefully review the comments and draw on them as appropriate to improve the legislation which is expected to be adopted by the end of January 2024,” the December 15 letter stated.
“The Government of Barbados is determined to ensure a conducive business environment for domestic and global businesses, which includes full compliance with international standards, appropriate levels of taxation and compatible tax incentives to foster growth and employment in the country.”
Government said the objective of the tax reform “is to modernise the corporate tax system, to ensure that it is conducive to doing business in Barbados while ensuring full compliance with international tax standards”.
The changes to corporate tax include that companies operating in Barbados will be subject to a new corporate income tax rate of nine per cent. Small business companies, which are those with annual revenue below $2 million, “will remain subject to a lower rate of 5.5 per cent and insurance companies will continue to be taxed at zero per cent or two per cent depending on their classification”.
Mottley said in November that the Global Anti-Base Erosion Model Rules were “designed to ensure that large multinational enterprises pay a minimum effective tax rate of 15 per cent on the income arising in each jurisdiction in which they operate, through the application of a system of top-up taxes in other jurisdictions (an Income Inclusion Rule and/or an Under Taxed Payment Rule and/or a Qualified Domestic Minimum Top-up Tax)”.
She added: “Where, for example, profits earned by a group subsidiary located in Barbados are taxed at an effective rate of only five per cent, then the new rules will come into play from 2024.
“With the global minimum tax rate of 15 per cent, the jurisdiction where the parent company is based will have the right to charge an additional ten per cent in taxes on the subsidiary’s profits. This will ensure that even those profits located in Barbados are ultimately subject to an effective tax rate of 15 per cent.”
To help cushion the blow of the higher corporate tax, Government will be offering jobs, credit, and research and development tax credits that will be “offset against any other tax liability for a period of four years”.
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