Barbados: Recent Developments In Taxation

The country has a stable democracy with a long history of peaceful governance and a well-functioning legal system. Its strong rule of law is beneficial for business security.

It also has a relatively high standard of living, and a diversified economy that includes sectors such as tourism, manufacturing, agriculture and financial services. The government continues to focus on economic diversification and sustainable development.

Barbados boasts a well-educated and skilled workforce, with many graduates from local and international universities, and continues to improve its ease of doing business, with efficient processes for business registration and company incorporation.

The island has always adhered to international standards for its governance, regulatory framework, and business practices. In recent times, the island sought to strengthen these by adopting new international concepts for taxation, the most recent of which are discussed below.

Corporation Tax Rates

During 2024, the Barbados Income Tax Act was amended to change the corporation tax rates from the tiered rates of 5.5 per cent down to one per cent, to a basic rate of nine per cent, with some exceptions. This headline rate is in line with the lowest tax rate in the European Union. The table below shows the current rates:

 

Type of entity	Applicable tax rates
All companies	9.0%
Qualified small businesses earning less than US$1 million	5.5%
Companies conducting international shipping	5% -1% rates unchanged
Insurance companies	0% and 2% rates unchanged
Companies generating income from qualifying intellectual property	4.5%

 

Changes In The Timing Of Prepayments

Also, the timing and computation of tax prepayments were changed to mirror that of more developed countries. Essentially, all companies must make monthly instalments of tax on the 15^th day of every month. However, qualified small businesses continue to make two installments of tax per year. These changes are shown in the table below:

Prepayments
Type of entity	Frequency	Due date	How computed
Qualified small businesses	· One prepayment for companies with year ends between 1 January and 30 September · Two prepayments for companies with year ends between 1 October and 31 December	· 15 September · 15 December current year and 15 March following year	· 50% of the prior year’s taxes payable · 50% of the prior year’s taxes payable
All companies	12 monthly payments	On the 15th day of every month commencing: ·   from 15 January 2024 for MNEs and ·   From income year 2025 for all other companies	9% times the taxable income for the income year before the preceding income year as disclosed in the corporation tax return filed

 

Tax Losses

The number of years for which a tax loss can be carried forward was reduced from seven years to five years, effective from income year 2025.

Group Relief

Group relief was reintroduced with effect from the 2025 income year, and allows the current trading losses of a surrendering company to be set off against the profits of a claimant company.

To benefit from group relief, the surrendering company and the claimant company must be in the same group, and one company must be a 75 per cent subsidiary of the other, or both companies must be 75 per cent subsidiaries of a third company. Every company engaged in group relief must be resident for tax purposes in Barbados. There are also additional requirements to be met.

Refundable Tax Credits

In keeping with familiar tax concepts in developed countries, refundable tax credits were introduced in Barbados in the form of a jobs credit and a research and development credit.

Jobs Credit

This is a refundable tax credit against taxes payable. The principal business of a company that is eligible for the jobs credit must be financial technology, or wholesale trade and distribution of goods, without physical inventory or storage in Barbados.

The jobs credit is tied to the number of employees as follows:

Number of employees	Amount of Jobs Credit
Up to 50	25% of eligible payroll expenditure
51 to 100	50% of eligible payroll expenditure
101 to 150	75% of eligible payroll expenditure
More than 151	100% of eligible payroll expenditure

 

A company eligible for the jobs credit must be up to date with its national insurance payments and filings and the payroll expenditure must be reasonable in the circumstances.

Research And Development Credit

A company can claim a research and development credit equal to 50 per cent of any eligible expenditure on qualifying research and development activities. To qualify for the research and development credit, the company must be subject to corporation tax and be carrying on qualifying research and development activities. 

Research and development activities include those in the following fields:

1. Medical sciences (basic medicine, clinical medicine, or health sciences).
2. Engineering and technology (civil engineering, electrical engineering, and other engineering sciences).
3. Natural sciences (mathematics and computer science, physical science, chemical science, earth and related environmental science, or biological science).
4. Financial technology (codes for financial technology and software applications, cybersecurity enhancements, functional enhancements to existing technology).

Qualifying research and development activities are defined as systemic, investigative, and experimental activities, which are carried on wholly or mainly in Barbados, and involve innovation and technical risk. The purpose of the activities must be:

1. For acquiring new knowledge for specific commercial application.
2. Developing, enhancing, protecting, maintaining and exploiting intellectual property.
3. Or creating new or improved materials, products, devices, processes, or services.

Intellectual Property (IP)

Barbados also embraced concepts designed to incentivise international businesses to locate IP activities here, by introducing what is known as a ‘patent box’. In essence, this is a tax incentive that allows eligible businesses to pay a reduced rate of corporation tax on profits generated from qualifying IP, such as, but not limited to, invention patents, copyrighted software, rights for the registration of industrial design, integrated circuit topography, medicinal or veterinary products, and new plant varieties.

Qualifying expenditures are incurred to develop, enhance, protect, maintain, and exploit IP, and such activities can be carried out in Barbados by the company, or outsourced to a local or foreign non-related party. The patent box rules also state how the income from that IP will be determined and taxed, using a nexus ratio which is designed to determine the portion of profits that is eligible for the reduced tax rate of 4.5 per cent, which is half the current corporate tax rate in Barbados.

Top-up Tax

Barbados was one of the early adopters of the Organisation for Economic Cooperation and Development’s (OECD’s) Pillar 2, through the passing of the Corporation Top-Up Tax Act, 2024-16 (Top-Up Tax Act). This introduced a minimum corporate tax rate of 15 per cent and Global Anti-Base Erosion (GloBE) rules to ensure that eligible Multinational Enterprises (MNEs) pay their fair share of tax in each of the jurisdictions in which they operate. To qualify, an MNE must have global revenue exceeding €750,000,000 as disclosed in its consolidated financial statement in at least two of the last four fiscal years.

Briefly, the Top-Up Tax Act requires computing the Barbados entity’s Effective Tax Rate (ETR) using qualifying income and qualifying covered taxes. Qualifying income is the financial accounting income or loss of the entity adjusted for certain items. Covered tax is the tax expense recorded in the entity’s financial statements, which is also adjusted for certain items.

Once the ETR is calculated and determined to be lower than 15 per cent, then a separate calculation is undertaken applying the tax rate, which is the shortfall between the 15 per cent rate and the ETR.  This separate calculation uses the entity’s qualifying income noted above, less substance-based income exclusions (or carve outs). These carve outs are for certain percentages of payroll costs and tangible assets held by the company. This yields what is referred to as the “excess profit” to which the top-up tax is applied. 

Further, once the total top-up tax is computed, adjustments for taxes paid in Barbados based on corporation tax returns filed, the jobs credit, and the research and development credit, for example, are taken into account to determine the net top-up tax payable.

It should be noted that Barbados’ Qualifying Domestic Minimum Top-up Tax is consistent with the GloBE Rules for in-scope companies. The Top-up Tax Act also provides ‘safe harbour’ rules for the Barbados entities in a group to which the Qualified Domestic Minimum Top-up Tax applies, subject to certain conditions.

Economic Substance

In 2019, Barbados’ low-tax classification necessitated the introduction of Economic Substance legislation.

Changing the corporation tax rate from the tiered rates to a flat rate of nine per cent for all companies except for qualified small businesses, insurance companies and those conducting IP business, brings Barbados to a position where it would no longer be classified as ‘low tax’ by the OECD. However, entities subject to the lower tax rates may still have economic substance requirements.

Barbados is committed to embracing international standards as recent changes in the island’s tax legislation show, while at the same time attracting international businesses looking to establish activities outside of their home countries.