Barbados Prime Minister Announces Overhaul of Corporate Tax Structure, Potential Impact on Global Business
Prime Minister Mia Mottley announced changes to the corporate tax structure in Barbados, including a 9% tax rate and a top-up tax for multinational enterprises, aiming to comply with international tax rules. The changes will come into effect from January 1, 2024.
Prime Minister Mia Mottley on Tuesday announced an overhaul of the corporate tax structure that will see companies paying more taxes from next year – a move she admitted could cause the country to lose some of its global business.
Under the current tax regime, companies pay between one and two per cent. But as local authorities seek to comply with new international tax rules and ensure Barbados is not blacklisted, a tax rate of 9 per cent as well as a “top-up tax” for some multinational enterprises, and a tax rate of 5.5 per cent for some small businesses will take effect from January 1, 2024.
Delivering a ministerial statement in the House of Assembly on Tuesday, Prime Minister Mottley said the new tax rates will be applicable on the portion of profits earned from January 1, 2024, under the Income Tax Act, Chapter 73.
The changes come almost five years after she dismantled the previous tax structure and announced a convergence of the local and global tax rates in Barbados, with the rate for local firms being lowered from 25 per cent to a range of between 1 and 5.5 per cent, in line with the rates for global businesses.
The latest change in the local tax structure is in response to the Organisation for Economic Cooperation and Development (OECD) reform of international taxation, which includes a global minimum tax rate of 15 per cent due to take effect next year. Under the two-pillar tax reform, the OECD has proposed the Globe Anti-Base Erosion (GloBE) rules, which provide for a top-up tax on profits arising in a jurisdiction whenever the effective tax rate in the jurisdiction is below the 15 per cent minimum rate.
“There shall be a new corporation tax rate of 9 per cent, subject to the following regimes – one, a company whose gross income is currently below $2 million, and which is now registered as a small business under the Small Business Development Act, Chapter 318C shall be subject to a corporation tax rate of 5.5 per cent,” Mottley told Parliament.
“As of income year 2024, and with effect from January 1, 2024, a qualified domestic minimum top-up tax shall be introduced, consistent with the GloBE rules for in-scope companies. This qualified domestic minimum top-up tax shall apply to subsidiaries or permanent establishments of in-scope multinational enterprises constituent entities with an ultimate parent entity in a jurisdiction that has introduced an income inclusion rule or an under-tax profit rule. This means that a top-up tax will be imposed on such constituent entities to ensure they are subject to an effective tax rate of 15 per cent tax rate in accordance with the GloBE rules,” she explained.
The Barbados Revenue Authority (BRA) will be responsible for the qualified domestic minimum top-up tax, including the calculation of the tax base, collection and recovery of the tax.
Mottley noted, however, that the current tax rates of zero per cent for class one insurance companies and two per cent for class two insurance companies remain unchanged. The tax structure of between 1 and 5.5 per cent will also remain in place for the international shipping business, but the prime minister said after consultation with the sector next year, a decision will be made if a new tax structure should be adopted for 2025.
Mottley also announced that effective January 1, 2024, in-scope GLoBE companies will be required to pre-pay corporation tax on a monthly basis, from income year 2024.
“For income year 2025, and with effect from January 1, 2025, all other companies registered, with the exception of small businesses under the Small Business Development Act, will also be required to pre-pay corporate taxes on a monthly basis. This brings this jurisdiction in line with international best practice,” said Mottley, who indicated that about 72 per cent of the corporation taxes collected were from global business firms that made profits outside of Barbados.
“We have tried as a government to distribute the burden of taxation not just on those who live here 365 days, but those who visit here and those who domicile here in order for the conduct of their business. I hope that citizens deeply appreciate that the share of the tax burden carried by Barbadians is indeed shielded by the performance of these companies.”
Mottley promised a review of the reforms to be carried out over the next year.
“Further, we have articulated to the OECD the last time I met with them, that should there be any significant fall-off in revenue in our attempt to be compliant with the GloBE rules, we will argue strongly for compensation not for speculative losses, but for actual losses below where we are with the receipt of corporation taxes,” she said.
During her ministerial statement, the prime minister acknowledged that while the initial feedback regarding the change to the corporate tax structure has been generally positive, “we genuinely do not know where we will land until countries fully implement the rules”.
“The government remains therefore, in dialogue with the companies and service providers to ensure that over the next two to three months, we can persuade as many of them as possible to stay here and to mitigate the risk,” she said, adding that Invest Barbados will also be accelerating its investment promotion activities. “But we do believe that all will not leave and we do believe a continuous engagement with them can make the case for their remaining in Barbados.”
Mottley added: “I can say comfortably that the ones with whom we have interacted thus far, when I was in Canada, have all committed to wanting to work with us during this transition period and therefore to continue to pay taxes here.”
The prime minister said she will be meeting with OECD officials, as well as officials from the French private sector, in an effort to maintain and expand business from that jurisdiction.
She also promised that the government would be more aggressive in acquiring new business and would establish a “standing task force on product development”.
“I am satisfied that once we continue to cement these relations and accelerate initiatives . . . we can make it through this challenging time,” she said.
Meanwhile, Mottley, who is also the minister of finance, also announced a suite of changes to the corporate tax credit regime, which she said was designed to encourage economic growth, development and employment in strategic sectors.
She said the qualified refundable tax credit will be available for companies taxed at the rate of 9 per cent and companies subject to the qualified domestic minimum top-up tax.
A refundable qualified jobs credit for eligible payroll cost will be introduced on a sliding scale in financial technology, distillery and refinery, research and development in medical, scientific and engineering and other activities; and wholesale, distribution and trading without physical inventory or storage in Barbados.
A research and development tax credit will also be available to companies here that carry out basic, applied or experimental research in an effort to innovate and introduce new products and services approved by the minister of finance. It will be applied at a rate of 50 per cent of qualifying expenses.
Mottley also noted that work was being done to introduce a national development credit which will focus on investment in projects in the country for low-income housing, historic buildings, public medical facilities including hospitals and polyclinics, hospices, and public educational facilities up to the tertiary level.
Indicating that a special working group is to be established, she also noted that authorities will be working on developing a tax credit that will address environmental, social and governance issues, the details of which are expected during the national budget presentation in March next year.
