Barbados: Firewalling For The Future

The evolution of Barbados as a domicile for the practice and routing of international business has been one with historical significance. In the colonial era of the eighteenth and nineteenth centuries, Barbados was at the centre of the transatlantic trade in the high-priced commodity of sugar. So lucrative was that trade, and such was the enormity of fortunes made in Barbados and England, that some have likened the era to the oil lobby and global financial explosion of the nineteen eighties.

More recently, Barbados has built on the ‘double taxation treaties’ which it inherited at its Independence from Britain in 1966. From the mid-nineteen eighties, it has re-crafted an international business regime unique to its inherited treaties, which boasts its domestic characteristics of being a high quality labour supplier across the board, within an island environment that continuously embraces and refines the quality of life standards of its first world business partners. Hence, during the decade of the eighties, it introduced its first two world class residential golf and tennis developments; they set a standard and style that has resonated up to the present day with the attendant jurisdictional benefits.

The jurisdiction has therefore been able from these early days to easily meet the mind and management criteria, or central management and control criteria, of its double tax treaties as sought for by its treaty partners. For with world class local labour available, a flexible work permit policy, suitable and highly appropriate living conditions and business premises, the criteria represented a set of marketing tools for use by the jurisdiction as it turned its gaze to fulfilling and expanding its successful international business model.

As the regulatory standoff has emerged with the Organisation for Economic Co-operation and Development (OECD), the Financial Action Task Force (FATF), the Financial Stability Forum, and their later successors, has grown and expanded to other club members, Barbados has been able to avoid the worst grades at the start, but has never been able to avoid the full censure as the regulatory challenges have continued to present day.

Today's Landscape

Present day presents new and heightened ongoing challenges which call for careful analysis and planning. The ongoing analysis involves the review and study of the global growth industries, such that strategies may be developed which incorporate the possible use of Barbados – albeit in varying sizes of involvement as capacity allows in the originating jurisdiction, and in Barbados as host country.

The new business areas of focus must however be identified, recognising that in some cases the demand will require research and development, not only in a raw operational sense, but also the more discrete tax and financial understanding and deployment of the tools, which allow the product to reach market in as optimal a manner as possible.

Digital education represents one such area, and as recently as 2019 was estimated as worth US$ 12.6 billion as an industry with an expected increase to over US$ 130 billion by 2023. With industries such as LinkedIn, Coursera and Pluralsight, it is an industry face well-recognised and transparent and allows easy market access for evaluation. The proliferation of online courses will go hand-in-hand with the continuing development and deployment of the various technologies, allowing for expansion of potential opportunities for transaction and business structuring.

With digital education, the natural flow of healthcare predictive analytics is expected to manifest continued exponential growth. Globally, hospitals will continue to invest in new video and integrated operating room equipment.

Not related substantively, but as part and parcel of this current international development and financial expansion ethos, solar energy continues to generate significant investment on both research and development levels, matching the increased global environmental awareness which underpins its continuing business expansion. The steady individual use of green energy and the emergence of small cities will continue to supplement the universal call for "climate change" and the various sub industries will develop with the attendant research development and operations flowing globally.

Remodelled Tax: The Mature Response

Barbados, at this juncture, stands poised to recalibrate its international business sector and take advantage of these new industry opportunities. As an "early adopter," it has responded to Pillar 2 global minimum tax by introducing legislation which brings it in full compliance. As of 23 June 2023, it has agreed to implement the Two Pillar solution to address the tax challenges arising from the digitalisation of the global economy.

The new legislation introduced on 7 November 2023 by way of Ministerial Statement, not only makes the necessary changes in tax for compliance with the new standard, but also adverts to exceptions which from a policy perspective hold promise. Hence, small businesses of a certain type will enjoy a corporation tax rate of 5.5 per cent. As far as Insurance Business is concerned, the existing Barbados corporate tax rates of 0.0 per cent for Class 1 insurance business and 2 per cent for a Class 2 and Class 3 insurance business will remain the same.

As regards international shipping, Barbados will continue to tax it under the existing tax regime of 2019. Presently, international shipping is excluded from the Global Anti-Base Erosion (GLOBE) rules and Barbados proposes to continue to tax shipping under the tax regime introduced in 2019.

Shipping as an international business industry has over the years been established and consolidated as a specialised niche area for Barbados by a small group of tax practitioners with shipping tax and corporate knowledge and interest. The jurisdiction's leaders have recognised the (benefits) previously and continuing from this relationship; and while the jurisdiction will review in 2024 whether a new shipping tax regime should be introduced, it will no doubt be with full consultation with the relevant shipping interests and the specialist advisers.

Barbados' newly introduced act of compliance with increased tax rates is also proposed to be balanced by a system of tax credits aimed at ensuring that Barbados remains a jurisdiction of choice for internationally mobile capital. Hence, certain tax credits will be introduced to act as stimuli to investment and employment in key strategic business sectors. The new credits satisfy the requirements of a Qualified Refundable Tax Credit and are structured to be consistent with the GLOBE Rules.

The proposed tax credit will be available to entities subject to a corporation tax rate of 9 per cent and those which are subject to the Qualified Minimum Domestic Top Up Tax. These tax credits will be offset against any other tax liability of the entity for a period of four years. The tax credit recognises the new technologies and their potential presence in future structures. Hence, a tax credit by way of job creation has been introduced for eligible payroll costs for specified activities in the sectors of FinTech activities; wholesale distribution and trading without physical inventory or storage in Barbados; and research and development in medical, scientific, engineering, information technology, artificial intelligence, distillery and refinery sectors, and such other activities as may be determined by Ministerial Order.

Furthermore, entities in those sectors are eligible to qualify for the qualified job credit. It will be calculated on the average payroll costs on a sliding scale, but the maximum average qualified job credit will not exceed 300 per cent collectively. The sliding scale is as follows: First 50 employees a credit of 75 per cent; 51-100 employees of a credit of 175 per cent; 101-150 employees a credit of 300 per cent; 151-200 employees a credit of 400 per cent; 200+ employees a credit of 475 per cent.

Research And Development: Towards the End Game

The Research and Development Credit is also available. As a credit of 50 per cent on qualified expenses, it will be made available to any entity in Barbados which carries on basic research, applied research, or experimental research activities, geared towards innovating and introducing new products and services approved by the Minister of Finance by Ministerial Order (qualifying R&D activities). This tax credit is available to entities conducting the qualifying research and development activities in the sectors of medicine, science and technology, finance, information technology, including Artificial Intelligence; distillery or refinery; or any other industry added by Ministerial Order.

Qualifying expenses will include expenses for plant, equipment, materials and assets used in the course of the qualifying R&D activities, as well as outsourcing and local overhead expenses incurred in support of these activities.

This Research and Development Credit strikes at the core of the immediate future of Barbados' international business, and indeed the future of the jurisdiction as a whole. For it must be the anchor of a vigorous effort to establish as soon as possible in collaboration with the University of the West Indies, a Research and Development Park embracing all of the new technologies brought together under a comprehensively worked out business model/plan with global appeal and administered locally.

With such a new entity, Barbados would have fulfilled its dream as a premier small island international business centre, linking its university and its graduates to wider opportunities, and taking a revised ‘Welcome Stamp’ ethos to high possibilities with additional spill over to significant local infrastructural development. As a jurisdiction, Barbados has continued to consider René Dubos' invocation; as a mature planning jurisdiction, it also has the scope to plan and manage for the future, the introduction of an optimised international business park will be the prize.

Sir Trevor Carmichael KC
Sir Trevor Carmichael, KA,LVO,KC. was born in Barbados and educated at Harrison College and the University of the West Indies, Mona, Jamaica. After pursuing post graduate studies in the United States, he was called to the United Kingdom Bar as a member of the Middle Temple in London and the Barbados Bar in December of 1977. He is a member of the International Bar Association, the Inter-American Bar Association and a Committee Member of the Inter-American Bar Foundation as well as an associate member of the Canadian Bar Association. He holds membership in the International Tax Planning Association, the International Fiscal Association and was one of the parties responsible for establishing a Barbados Chapter of the International Fiscal Association of which he is Charter President. He is the Barbados Country Chairman of the International Litigation Committee on Business Law of the International Bar Association and a former Deputy Secretary General of the International Bar Association. He is a Life Fellow of the Institute for Advanced Legal Studies in the United Kingdom, a Life Member of the Commonwealth Magistrates and Judges Association and a member of the International Law Association.