For Barbados tax purposes, a company is subject to tax depending on whether the company is resident and/or domiciled in Barbados. A company is considered to be tax resident in Barbados if its central management and control is located in Barbados whereas it is deemed to be domiciled in Barbados where it is incorporated in Barbados.
Barbados resident and domiciled companies are subject to tax on their worldwide income regardless of whether the income is remitted to Barbados, whereas a company that is tax resident but not domiciled in Barbados is taxed on income derived from Barbados as well as any foreign-source income that is remitted to Barbados. However, companies that are neither resident nor domiciled in Barbados are taxed only on income derived from Barbados.
The income of a company is the profit derived from that business or property in an income year. One notable exception relates to the taxation of dividends. The Barbados Income Tax Act (“BITA”) provides that where a Barbados company earns dividend income from a resident and in some cases a non-resident subsidiary, these dividends will not be subject to corporation tax in Barbados. In the case of a non-resident subsidiary, this provision applies only where the Barbados company holds more than 10% of the capital of the subsidiary other than as a portfolio investment.
Amounts expended by a company for the purpose of producing taxable income, are deductible in the calculation of its total taxable income for that year of assessment.
Determination of Trading Income
Taxable income is determined on the basis of accounts prepared in accordance with International Financial Reporting Standards, subject to specific adjustments identified in the BITA.
The authorities generally accept a method of valuation of inventory that conforms to standard accounting practice in the trade or business, provided it is applied consistently. Average cost or first-in, first-out (FIFO) are the generally accepted methods.
Reserves or provisions of a general nature are not allowable. Write-offs of specific amounts or balances are generally allowed, provided the Inland Revenue is satisfied that they are irrecoverable.
Depreciation reported in the financial statements is not allowed as a tax deduction in calculating the taxable income of a company. However, a company may claim capital allowances as set out in the BITA. In the first year of the acquisition of certain assets an initial allowance may be claimed. For example, an initial allowance of 20% is granted on the cost of equipment while industrial buildings qualify for an initial allowance of 40%. In other cases, an investment allowance may be available on the acquisition of certain assets. An investment allowance of 20% or 40% is available in respect of capital expenditure on plant and equipment to be used in certain industries, including where the taxpayer exports outside of the Caribbean Community and Common Market (“CARICOM”).
Annual allowances of between 5% and 33 1/3% are granted on the amount expended on the acquisition of fixed assets and are calculated on a straight-line basis. For example, an annual allowance of 4% is granted in respect of capital expenditure on industrial buildings. Fifty percent of capital expenditure on intellectual property is deductible over a 10-year period as an annual allowance. Additionally, manufacturing companies are allowed an annual allowance of 150% of the cost of on assets used in the industry.
Commercial Building Allowances
An allowance of 1% is given on the improved value for land tax purposes of commercial buildings or 10% where the building is registered with the National Trust.
The BITA allows for trading losses incurred by a company to be set off against other income arising in that income year. These losses may be carried forward for a period of nine years following the income year in which they were incurred. Losses incurred by insurance companies may be carried forward for a period of five years only. Tax losses may not be carried back.
Losses incurred by taxpayers may be set off against their assessable income for a period of nine years. However, losses incurred in respect of residential rents may be set off against other residential rental income only.
A member of a group of companies (the surrendering company) may surrender current trading losses to another member of the group (the claimant company) in an income year. The claimant company may then claim a deduction for these losses in calculating its taxable income.
To qualify for group relief, the surrendering company and the claimant company must be tax resident in Barbados and must be members of the same group throughout the fiscal year for which group relief is claimed. Two companies are members of the same group if one is a 75% subsidiary of the other or both are 75% subsidiaries of a third company. In determining whether a company is a 75% subsidiary of another company, share capital is excluded if profits from sales of such shares would be trading receipts of the direct owner of the shares. In addition, the parent company must be beneficially entitled to at least 75% of the profits available for distribution to shareholders of the subsidiary and to at least 75% of the subsidiary’s assets available for distribution to shareholders of the subsidiary on a winding up.
Trading losses may not be surrendered for group relief purposes if they include the following:
- The surrendering company’s capital allowances; and
- Expenses payable to a group member that are claimed as deductions but are not included in the income of that group member for the same fiscal year.
Group relief is available only if the claimant company has used its capital allowances and has offset any loss carryforwards against its current profits. A claim for group relief must be made within two years of the end of the surrendering company’s fiscal year, and must be consented to by that company.
Group relief is not available to international business companies, exempt insurance companies, societies with restricted liability, offshore banks and other companies granted special tax concessions. However, such relief is available for companies subject to the benefits under the Tourism Development Act or the Mutual Funds Act. Groups of companies that owe taxes or national insurance contributions are also ineligible for group relief.
The rate of tax applicable generally to both resident and non-resident companies in Barbados is 25%. However, there are some exceptions to this.
Insurance companies are also subject to additional taxes on premiums as follows:
|Insurance Company||Premium Tax Rate|
|Insurance company carrying on life insurance business||6% of the gross direct premium income on new business in that income year.|
|Resident insurance companies carrying on life insurance business||3% of the gross direct premium income for renewal business|
|Non-resident insurance companies carrying on life insurance business||5% of gross direct premium income for renewal business|
|Insurance companies carrying on property insurance business||4.75% of gross direct premium income|
|Insurance companies carrying on insurance business other than property insurance business||4% of gross direct premium income|
Foreign Currency Earnings Credit
It should also be noted that where a person carrying on business earns fees, premiums, payments or rewards in respect of qualifying overseas construction projects or qualifying overseas professional services and such amounts are paid in foreign currency, that person would be entitled to set off against the tax payable an amount as set out below:
|Profits from foreign currency earnings as percentage of total profits||Rebate of income tax as percentage of income tax on net profits from foreign currency earnings||Effective tax rate|
|Up to 20%||35%||16.25%|
|21% but under 41%||45%||13.75%|
|41% but under 61%||64%||9.00%|
|61% but under 81%||79%||5.25%|
|81% and over||93%||1.75%|
The qualifying construction projects include the construction, erection and installation of buildings, roads, drainage, electricity, water, gas, engineering projects, architectural services, management consultancy and technical and administrative services. The professional services that would qualify include technical and advisory services performed or supplied in relation to the establishment or maintenance of accounting systems, auditing systems, computer software systems, management consultancy, public accountancy services, administrative services, legal trust and corporate secretarial services, medical and dental services, e-commerce services, economic evaluation and research, engineering services (including contract supervision), architectural (including contract supervision) services, surveying, valuation and design or planning services.
Qualifying Insurance Companies
The reduced rates outlined above are also available to qualifying insurance companies. In light of the fact that at least 90% of the gross premium income of the company and the risks insured are foreign sourced, this type of entity will generally be taxed at the lowest rate of 1.75%.
The rates outlined above are also applicable to the export allowance which is a tax credit available to persons who have made export sales to a country outside of the Caricom. This allowance can be set off against the tax payable by that person. The BITA stipulates that the following activities are eligible for this allowance:
- the export of data processing services;
- the export or products of a company that purchases wholesale from a local producer exclusively for export; and
- the export of products of an industry or business, other than sugar in bulk or such other product as the Minister declares by order to be a traditionally export-oriented product.
A person entitled to the export allowance is also entitled to an investment allowance at the rate of 40% on capital expenditure incurred in that year on machinery or plant to be used in the business for some purpose other than resale, where that machinery or plant was new or was imported in Barbados for the first time by that person.
The BITA also provides that any assessable income earned by a company carrying on business in Barbados which provides services to the international business sector will be deemed to be foreign sourced earnings and will be subject to a credit at the rates outlined above.
 Company must engage in the construction of more than 15 houses at a sale price of less than BDS$150,000 each inclusive of land.Â The houses must be sold to persons acquiring their first dwelling house for use by those persons as their residence.