Global Expansion For FinTech Companies: Unboxing Barbados’ Patent Box

In today’s highly competitive global economy, intellectual property has emerged as a highly charged issue for discussions on tax competition. However, beyond being a flashpoint, intellectual property is often a critical asset for FinTech companies. These companies, which thrive on innovation, often rely heavily on the creation, protection, and commercialisation of intellectual property, such as software, algorithms, and technological solutions. As these companies expand and innovate, managing tax liabilities while maximising profit margins becomes increasingly important. One effective strategy for achieving this is through the utilisation of a patent box regime.

Barbados is an emerging player in the FinTech space, having successfully attracted a number of companies by virtue of a balanced and prudent regulatory framework, and it continues to strategically carve its niche in these areas. Against this backdrop, Barbados has recently established a patent box regime that offers attractive incentives for companies to develop, retain and commercialise qualifying intellectual property within its shores. While traditionally associated with industries like pharmaceuticals and manufacturing, patent box regimes are increasingly recognised as valuable for FinTech companies. Many FinTech companies operate on a ‘software as a service’ (SaaS) or platform-based business model, whereby recurring revenue is generated from the use of their intellectual property. For instance, it is not unusual for a company to license its trading algorithm to financial institutions or for a technology firm to provide a cloud-based software platform. Such companies stand to derive significant benefits from the Barbados patent box regime, as discussed below.

Enhancing Tax Efficiency On Intellectual Property Generated Income

One of the most compelling benefits of the Barbados patent box regime for FinTech companies is the potential for significant tax savings. These companies often derive substantial income from intellectual property, including software, algorithms, platforms, and technological innovations. Under the Barbados patent box regime, income generated from qualifying intellectual property is taxed at a reduced rate of 4.5 per cent, which can lead to considerable tax efficiency.

The tax savings derived from the patent box regime can be reinvested into the business, enabling companies to fund further research and development, expand their market presence, or improve their product offerings. Early stage FinTech companies, which often operate on thin margins, will find the additional capital particularly useful for sustaining growth and maintaining a competitive edge.

Encouraging Innovation, Research And Development

Innovation is the lifeblood of the FinTech sectors. These industries are characterised by rapid technological advancements, with companies constantly seeking to develop new products, services, and solutions that meet the evolving needs of their customers, as well as to outpace competitors. The Barbados patent box fosters innovation by way of a regime which offers refundable tax credits for research and development.

With effect from the income year 2024, a company taxable in Barbados may claim a research and development credit of 50 per cent of eligible expenditure incurred after 1 January 2024 in relation to qualifying research and development activities incurred within the income year being claimed.

A company qualifies for the refundable tax credit where it is subject to corporation tax in Barbados and carries out qualifying research and development, such as activities undertaken in the field of financial technology, namely the development of:

• Code for new financial technologies and financial software applications or platforms.
• Functional enhancements and new capabilities for existing applications, designed to create a competitive advantage.
• Flexible, high-quality, and scalable rule engines to manage and automate complex business structures and data models.
• Specialised technologies which seek to enhance the safety, security, and efficiency of the financial service industry, such as artificial intelligence, voice recognition applications, or liveness recognition software.
• Cybersecurity enhancements for existing financial technology applications.

Notably, such activities are required to be systematic, investigative or experimental activities which are carried on wholly or mainly in Barbados, involve innovation and technical risk, and 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 or services.

By offering a refundable tax credit in this area, the regime creates a financial incentive for FinTech companies to allocate resources toward developing new technologies, algorithms, and software solutions. In the world of FinTech, which is characterised by speed, technological superiority is a key differentiator, and the ability to innovate at pace provides a significant competitive advantage.

Attracting And Retaining Top Talent

In the context of talent management, the Barbados patent box regime offers sound benefits for FinTech entrepreneurs. The regime offers a refundable tax credit for jobs in this sector.

From the income year 2024, a job credit may be claimed by an eligible company at a specified credit amount, based on the number of employees, that incurs eligible payroll expenditure after 1 January 2024 pursuant to a tiered credit system as below:

• Up to 50 employees, a credit equal to 25 per cent of eligible payroll expenditure.
• 51-100 employees, a credit equal to 50 per cent of eligible payroll expenditure.
• 101-150 employees, a credit equal to 75 per cent of eligible payroll expenditure.
• Over 151 employees, a credit equal to 100 per cent of eligible payroll expenditure.

Financial stability, supported by incentives in the manner offered by the patent box regime, assists companies to attract and retain top talent. In industries where skilled professionals are in high demand, the ability to offer competitive salaries, benefits, and opportunities for career growth is essential. In addition, the tax savings generated through a patent box regime can provide the financial flexibility needed to invest in human capital, further enhancing the company’s competitive position.

Gearing Global Expansion And Competitiveness

As FinTech companies mature, they often seek to expand their operations and customer base globally. The patent box regime in Barbados is a valuable tool in supporting this expansion by making it financially attractive to develop and commercialise intellectual property in a supportive environment, and creating a platform for expansion into other international markets.

Barbados offers an ever-expanding and strategic network of double taxation treaties (DTTs) with a number of countries such as Austria, Bahrain, Botswana, Canada, China, Cuba, Cyprus, Czech Republic, Finland, Iceland, Italy, Luxembourg, Malta, Mauritius, Mexico, Netherlands, Panama, Qatar, Rwanda, Seychelles, Singapore, Slovak Republic, Spain, Sweden, Switzerland, the UAE, the UK, the USA, Venezuela, and the Caribbean countries that constitute CARICOM, in addition to DTTs awaiting ratification for Ghana and Kenya. Separately, Barbados has bi-lateral investment treaties (BITs) with Canada, China, Cuba, Germany, Italy, Mauritius, Switzerland, Venezuela, and the UK, in addition to BITs awaiting ratification for Ghana and Belgium.

It is this network of DTTs and BITs, together with a suite of modern legislation, which creates enviable opportunities for designing structures that facilitate investments by technology entrepreneurs in other parts of the world. DTTs generally have the objectives of encouraging international trade and investment, preventing double taxation, and facilitating the exchange of information. BITs provide security and protection for foreign investment made by residents of one country in another country in relation to various issues of concern to international investors, such as expropriation, and ensures fair treatment.

Sounding Substance

The economic substance regime, which exists in Barbados as in many other international financial services centres, will apply in relation to intellectual property holding businesses that fall within the scope of a relevant activity. The test for economic substance prescribed in the economic substance framework has four limbs, and requires the following in relation to the conduct of the relevant activity by a resident company: 

• Direction, management and control of the relevant activity in Barbados.
• Having regard to the level of relevant activity: an adequate number of employees who are physically present in Barbados, adequate expenditure incurred in Barbados, and adequate physical assets in Barbados.
• Conduct of the core income generating activities in Barbados.
• Where its core income generating activities are carried out by another entity, the ability to monitor and control the conduct of that activity by the other entity.

A higher threshold for establishment of economic substance applies to intellectual property holding businesses.

Ahead Of The Curve In The Caribbean

The recent tax reforms introduced in Barbados mark a notable transformation in the country's tax system.  These adjustments are consistent with the spirit of the OECD's Pillar Two Rules by responding appropriately to profit shifting concerns, while fostering economic growth within Barbados and demonstrating its commitment to a value proposition grounded in substance. The establishment of a 9 per cent corporate tax rate (subject to specified exemptions) signals the jurisdiction staking its claim as a reputable mid-shore jurisdiction, and ensures that the tax framework remains competitive and equitable. The adoption of the qualified domestic minimum top-up tax at 15 per cent is consistent with international tax standards for multinational enterprises.

As the global economy becomes increasingly driven by innovation and technology, the strategic management of intellectual property grows as a business imperative. Moreover, in a highly competitive intellectual property marketplace, maintaining a competitive edge is crucial for FinTech companies.

The Barbados patent box regime can help these companies remain relevant by offering tax efficiencies, incubating research and development, and managing the talent that creates such intellectual property. In so doing, they are able to price their products and services more competitively, retain earnings or reinvest savings into business growth, and penetrate lucrative markets. For FinTech companies, a patent box regime offers a powerful tool kit for enhancing tax efficiency, encouraging innovation, supporting global expansion, and leveraging valuable intellectual property assets.

Tara E. Frater, TEP
Tara is Principal and Founder of FT Legal Attorneys-at-law in Barbados, specialising in FinTech, Corporate and Commercial, Finance, Securities Regulation, Trust & Estates, Immigration and Real Estate. Tara has extensive and high quality experience earned over 15 years from leading law firms in Barbados and the British Virgin Islands; and has been recognised in the Citywealth IFC Power Women Top 200 List for multiple years. Tara has contributed a number of articles to the STEP Journal, Barbados International Finance and Business Barbados. She is Director of Caribbean Blockchain Alliance, Former Chairperson of STEP Barbados and Former Director of Barbados International Business Association.