The Caricom region continues to burgeon with development and opportunities, in no doubt led by its diverse economies and sectors. Barbados is one of the region’s prime examples of diversity; renowned for its tourism sector, it also possesses a strong international business and financial sector, ripe for foreign direct investment. The attraction of Barbados is not limited only to investors outside the region, however, but equally to T&T residents who, with the benefit of rights created under the Revised Treaty of Chaguaramas (the RTC), are well positioned to consider expansion of their business interests into the jurisdiction.
To do so, however, would require an understanding of the tax and corporate regimes operating in Barbados. This article aims to briefly introduce some key concepts in Barbados, and how the RTC supports an inflow of investment.
As a starting point, it is important to note that Barbados is a member of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) and has aligned its tax policies with international standards. In doing so, Barbados has decided to undertake a balancing exercise of continuing to offer incentives to investment, while ensuring compliance with global tax regulations.
The consequence of this is the repeal of certain favourable tax regimes, the implementation of substance requirements, and the incorporation and adoption of a minimum tax rate regime. The manner in which Barbados has performed this balancing exercise is admirable, as the remaining framework has remained cognisant of the distinctions between small island states and OECD countries, but creates a corporate environment that fosters transparency, certainty and sophistication.
In Barbados, investors can choose from a variety of corporate entities, each tailored to specific business needs and objectives. For these purposes, this article will discuss only companies and branches, as the international business companies and societies with restricted liability regimes were effectively abolished since 2018, with only existing entities retaining certain rights and benefits up to 2021.
A company that is resident in Barbados is subject to corporate income tax in Barbados. The worldwide income of resident companies is required to be declared and accounted for, in order to compute their tax liability. On the other hand, companies that are not resident in Barbados are subject to corporate income tax only on the income that is derived from Barbados, and income that, although derived from foreign sources, are nonetheless remitted to Barbados. In the case of a branch of a non-resident company, income derived by the branch is subject to corporate income tax on the income that accrues in Barbados.
As of the January 1, 2024, Barbados commenced its introduction of OECD/G20 BEPS regime into its tax laws. Companies that are resident in Barbados are now subject to corporate income tax at the rate of 9 per cent on its taxable income.
This is subject however, to certain exceptions, namely:
(a) A company whose gross income is BBD$2,000,000 or less; and
(b) A company that is registered as an approved small business. In either case, the corporate income tax rate remains at 5.5 per cent of their taxable income.
The major introduction is the incorporation of the OECD’s/G20 BEP’s global minimum tax rate, which imposes a tax rate of 15 per cent on certain qualifying entities within a multinational group. If the effective tax rate of the qualifying entitles within a multinational group is below 15 per cent in income year 2024 and going forward, a “top-up tax” payment may be imposed. There are a number of factors that must be satisfied in order for an entity to be considered a qualifying entity, but the minimum factors are that the entity is part of a multinational group that has an annual revenue of €750,000,000 or more, in at least two out of the four income years preceding.
International shipping companies and companies that are part of a multinational group where its ultimate parent company has not implemented “top-up tax” legislation, will be taxed at the following rates:
• 5.5 per cent on taxable income up to BBD$1,000,000;
• 3 per cent on taxable income exceeding BBD$1,000,000 but which does not exceed BBD$20,000,000;
• 2.5 per cent on taxable income exceeding BBD$20,000,000 but which does not exceed BBD$30,000,000;
• 1 per cent on taxable income exceeding $30,000,000.
There is also a 4.5 per cent rate of tax on income that is generated from intellectual property that has been created, developed, or improved by a person with respect to corresponding research and development, and a separate tax regime altogether for insurance companies.
While corporate income tax rates in Barbados may appear to be much lower in comparison to T&T, it should be noted that Barbados resident companies that derive income from certain specified activities (referred to as “relevant activities”), are required to satisfy a test called an “economic substance test.”
A Barbados resident company that does not pass the economic substance test will be liable to fines and penalties up to BBD$300,000, and if it continues to fail the test, may be struck off the Barbados Companies Register.
Relevant activities that require the economic substance test to be undertaken include banking business, insurance business, fund management business, finance and leasing business, headquarters business, shipping business, holding company business, intellectual property business and distribution and service centre business. A company that engages in any of these activities will be required to satisfy the economic substance test.
The economic substance test is two-tiered in the sense that it requires an examination of whether:
(a) the Barbados resident company conducts its “core income generating activities” in Barbados, and
(b) the company is directed, managed and controlled in Barbados, in relation to that activity.
With respect to “core income generating activities,” a resident company is considered to conduct such activities where, having regard to the level of income derived from that activity:
• There is an adequate number of qualified full-time employees in relation to that activity in Barbados;
• There is an adequate number of employees who are physically present in Barbados in relation to that activity;
• There is adequate operating expenditure incurred in Barbados; and
• There are adequate physical assets in Barbados.
Further, a company is considered to be directed, managed and controlled in Barbados where:
—The board of directors of the company hold meetings in Barbados at an adequate frequency having regard to the amount of decision-making required at that level and there is a quorum of directors physically present;
—The minutes of the board meetings record the making of strategic decisions of the company at the meeting;
—The directors of the company have the necessary knowledge and expertise to discharge the duties of the board; and
—The minutes of all board meetings and the records of the company are kept in Barbados.
This direction, management and control test is not the typical test to determine whether a company is resident in Barbados. Rather, a company can be a Barbados resident company regardless of management and control, including, simply if it is not tax resident in any other jurisdiction. A branch may also be subject to the economic substance test if it is registered in Barbados, but not regarded as tax resident in its jurisdiction of incorporation. Proving place of residence will be on the company in question.
Certain qualifying companies, such as a company that only holds shares and earns dividends and capital gains, may be entitled to be subjected to a reduced economic substance test, due to the limited scope of substance that holding companies are expected to have.
Separate and apart from the domestic framework relating to companies, Barbados has entered into double taxation treaties with a number of countries including Canada, China, Cyprus, Italy, Luxembourg, the Netherlands, Norway, Panama, Spain, Switzerland, the United Kingdom, USA, and Caricom member states. The traditional aim of double taxation treaties is to provide relief from being subjected to tax (twice) on the same income, by different countries.
The Caricom Double Tax Treaty is just one benefit intended by the RTC to foster regional integration. Indeed, under the RTC, Trinidadian nationals can freely move to Barbados, with a view to establishing operations, moving capital and investment, and trading in goods and services.
Through these rights, Trinidadians can engage in any activity undertaken by self-employed persons of a commercial, industrial, agricultural or artisanal nature, and to create and manage economic enterprises including organisations for the production of or trade in goods of the provision of services.
The consequence of RTC protections also entitle Trinidadian nationals to similar treatment under the law that is afforded to Barbados nationals. One corollary is that there is no need for a T&T national to obtain a work permit in order to work in Barbados, even if other non-Barbados nationals are ordinarily required to be regulated for immigration purposes in order to engage in work. Note however that there will be notice requirements in order to verify that the T&T national is entitled to the right.
For T&T national desirous of investing, purchasing assets, or conducting business abroad, Barbados offers an attractive and welcoming environment with numerous advantages. It presents local investors with a well-rounded opportunity for growth, offering a stable political environment, a robust legal system, and a supportive business climate. With the right planning and professional advice, investing and doing business in Barbados can yield substantial benefits Trinidadian investors.
