As previously notified in January 2024, Barbados was in the process of completing legislative steps to change its corporation tax rates, implement the 15% Global Minimum tax, change the frequency of tax pre-payments for Companies and implement a system of tax credits for payroll expenditure and research and development activities.
Since our previous update the legislation has been passed and is effective in many areas from January 1, 2024 and includes additional incentives such as group relief and a “Patent Box” regime.
Here we share an in-depth overview of the the latest legislative changes regarding corporation tax and new incentives in Barbados for 2024:
New Legislation
The following two (2) pieces of legislation have now been approved by the House of Assembly and the Senate and are in full force and effect having been assented to by the President of Barbados on May 21, 2024 with a commencement date of May 24th but with most measures effective from January 1, 2024:
- Income Tax (Amendment and Validation) Act, 2024 (which amends the Income Tax Act, Cap. 73); and
- Corporation Top-Up Tax Act, 2024
The main changes that should be highlighted from these laws are as follows:
New Tax Rates Confirmed
Effective income year 2024, commencing January 1, 2024 the corporation tax rate is 9%. However; there are some exceptions to the rule as outlined below:
i) Companies registered as an approved small business under the Small Business Development Act, Cap 318C and whose gross income does not exceed USD1M will be taxable at a rate of 5.5%;
ii) Companies earning income from International shipping will continue to be taxed at a rate of max 5.5% down to a minimum of 1.0% based on the existing sliding scale in place prior to the passing of the new laws;
iii) Licensed insurance companies will continue with their existing taxable rate based on their class of insurance at rates of either 0% or 2%.
iv) Companies that are part of an “in-scope MNE Group”[1] whose ultimate parent entity or immediate parent entity is located in any jurisdiction which has not implemented top-up tax legislation which provides for the group to pay at least a 15 per-cent tax rate in each jurisdiction where the group operates; then such companies will continue to be taxed at a rate of max 5.5% down to a minimum of 1.0% based on the existing sliding scale in place prior to the passing of the new laws .
The Top–Up Tax
Barbados has implemented a QDMTT or Qualified Minimum Top-Up Tax to ensure that qualifying[2]companies of certain in-scope groups have an effective tax rate of 15%. Therefore, by law (and subject to any exceptions within the law or the applicability of any transitional safe harbour) qualifying companies to whom the new legislation relates shall have an effective tax rate of 15% for fiscal years commencing on or after January 1, 2024 and for every subsequent income year.
New IP Patent Box Regime
The Patent Box refers to a regime where the tax on income earned from certain qualifying intellectual property is calculated at a rate below the regular statutory corporation tax rate. This is used to encourage research, development and innovation.
In Barbados with effect from income year 2024 the income from such qualifying intellectual property may be 4.5% subject to an election made by the company and qualifying intellectual property includes copyrighted software, rights to invention patents, rights from the registration of industrial designs and integrated circuit topography among others. Such qualifying intellectual property having been created, developed or improved by a person with respect to corresponding research and development.
Introduction of New Tax Credits
The introduction of Qualified Refundable Tax Credits allows companies in specified sectors to seek a refundable credit once it meets certain requirements. In short with effect from income year 2024 and subject to any applicable restrictions and qualifications in the legislation; credits will be available as follows:
i) A “Jobs Credit” can be claimed by certain eligible companies (companies whose principal business are in the financial technology and wholesale distribution sectors); where eligible payroll expenditures are incurred after January 1, 2024 and the company engages a specified number of employees. This means:
- for up to 50 employees, a credit equal to 25 per cent of
- eligible payroll expenditure;
- 51 to 100 employees, a credit equal to 50 per cent of eligible payroll expenditure;
- 101 to 150 employees, a credit equal to 75 per cent of eligible payroll expenditure;
- more than 151 employees, a credit equal to 100 per cent of eligible payroll expenditure.
The jobs credits are payable (a) firstly by offset against other tax payables such as national insurance (social security), corporation tax and VAT and (b) failing that may be settled by bond/debenture/other long or short-term government debt instrument; and (c) lastly if offsets or debt instruments are not appropriate the credits may be settled in cash or cash equivalents within 4 years from the date the company satisfied the condition to receive the credit.
ii) A “Research and Development Credit” can be claimed of 50% of eligible expenditure incurred after January 1, 2024 in relation to qualifying research and development activities which are systematic, investigative or experimental activities which are (i) carried on wholly or mainly in Barbados; (ii) involve innovation and technical risk; and (iii) are carried on for the purpose of:
- acquiring new knowledge with a view to that knowledge having a specific commercial application;
- developing enhancing, protecting, maintaining, and exploiting intellectual property assets;
- creating new or improved materials, products, devices, processes or services.
Such activities include but are not limited to activities in the field of medical sciences; engineering and technology; natural sciences; and financial technology
The research and development credits are payable (a) firstly by offset against other tax payables such as national insurance (social security), corporation tax and VAT and (b) failing that may be settled in cash or cash equivalents within 4 years from the date the company satisfied the condition to receive the credit.
Re-Introduction of Group Relief
Group relief has been re-introduced and allows the current trading losses of a surrendering company (a company that suffers a trading loss and surrenders it to another company) to be off set, by way of relief from corporation tax, against the profits of a claimant company (a company which utilise the trading losses of a surrendering company) whether in whole or in part, if, throughout their respective accounting periods both companies are members of the same group.
Two companies are members of the same group if
i) One is 75% subsidiary of the other or
ii) Both are 75% subsidiaries of a third company
There are other various restrictions and qualifications in the legislation, however please note that importantly that group relief is applicable where each company is resident in Barbados; for income year 2025 it applies generally, but for income year 2024 it applies with respect to a company that has trading losses brought forward from income years prior to income year 2024 and such losses are in excess of USD$50 000 000; and group relief is not available to companies that benefit from special tax rates or exemptions and as such only companies subject to the new 9% tax rate can take advantage of group relief.
Monthly Tax Prepayments
As noted in our previous update, the policy note issued by the Barbados Revenue Authority in January 2024, in support of the legislation now passed, requires companies to prepay corporation tax monthly based on the taxable income from the income year before the preceding income year as disclosed in the company’s previous tax return. Previously, prepayments were made twice per year and therefore the monthly frequency should be considered in detail from a company’s cash flow perspective. Please also note the following:
- From income year 2024 monthly prepayments only apply to a company which is part of an “in-scope MNE Group”, the ultimate parent entity or intermediate parent entity of which is located in a jurisdiction that has implemented top-up tax legislation which provides for in-scope MNE groups to pay at least a 15 per cent effective tax rate in each jurisdiction where such groups operate.
- From income year 2025 all companies will move to monthly prepayments.
- Prepayments are due by the 15th day of each calendar month.
Barbados is one of today’s leading global financial services centres, and with deep insights into local tax, legal and business issues, Centralis continue to provide proactive and responsive service solutions to meet our client’s business, corporate secretarial, economic substance, management, and accounting needs.
If you would like to know more about the recent legislative changes in Barbados, and how our team can help you, please reach out to Jamar Arthur-Selman, General Manager of Centralis (Barbados) Ltd. (jamar.arthur-selman@centralisgroup.com).
Disclaimer
The information contained in this above in this document is intended for informational purposes only and Centralis (Barbados) Ltd. makes no warranty, representation or guarantee of any kind with respect to the contents of this document or with respect to its timeliness, accuracy, completeness or otherwise. The content of this document is not intended to and does not constitute legal or tax advice and any reader should rely solely on independent legal, tax, accounting or other relevant advice. No service provider-client relationship is intended and will not be created by the use of the information provided in this document and the submission of any queries related thereto.
[1] means a multinational enterprise group with a consolidated revenue of Euro 750 000 000 or more in the consolidated financial statements of the ultimate parent entity in at least two of the four income years immediately preceding the tested income year which is income year 2024
[2] An entity located in Barbados being a constituent entity of an MNE Group and that MNE group has an annual revenue of €750 000 000 or more in the consolidated financial statements of the ultimate parent entity in at least 2 of the 4 fiscal years immediately preceding the tested fiscal year; and the entity is not otherwise excluded under the act