Barbados Small Business Association Discusses Implications of New 5.5% Corporate Tax Rate for 2024
"Learn about Barbados Small Business Association's recent session discussing the new 5.5% corporate tax rate for small businesses effective 2024. Insights shared by Marilyn Husbands on compliance with international financial regulations."
Following the recent announcement by the Minister of Finance that a new rate of 5.5 per cent on the taxable income of a company will be applicable to small businesses from tax year 2024, the Small Business Association of Barbados recently held an educational session to discuss this new framework.
Marilyn Husbands of the Institute of Chartered Accountants of Barbados was invited to share her thoughts with small business owners on the new regime. The presentation’s underlying theme was one of compliance considering the international regulatory framework being adopted by countries globally.
The point was underscored by the presenter that the changing landscape in the global arena will affect businesses in Barbados, and the government in its effort to respond to international financial protocols is required to monitor business activity in the country. Husbands opined that there must be a line of sight for all businesses in keeping with international regulations.
The November 7 ministerial statement by the finance minister was discussed within the context of the Global Minimum Tax Deal agreed to by more than 140 countries. The new Barbados tax regime addressed tiered rates to be in effect from January 1 with the standard corporate tax rate increasing to nine per cent. However, the following categories were outside the scope of the new corporate rate – insurance companies, international shipping, in-scope multinational enterprises, and small businesses registered under the Small Business Development Act.
Specifically for the small business sector, the proposal is as follows:
A company whose gross income is currently below $2 million and which is registered as a Small Business under the Small Business Development Act, Cap. 318C, shall be subject to a corporation tax rate of 5.5 per cent.
It should also be noted that subject to the stated requirements, the small business is not owned or controlled by a company with share capital or annual sales above $1 million and $2 million respectively, or by a subsidiary of that company or by a larger group. The small business should also have no agreement for the payment of fees outside of the company for managerial or other services outside of normal business operations.
The issue of consternation for most small business owners is the process of registration to access the preferential tax rate. Beneficiaries are required to register as an Approved Small Business (ASB) pursuant to the Small Business Development Act.
The Act specifically gives power to the minister to determine an ASB:
“Where an application referred to in subsection (1), has been made and the Minister is satisfied that the business
(a) is a small business within the meaning of section 3(1); and
(b) carries on an activity which is of significant or substantial socio-economic benefit to Barbados, the Minister may by order declare the business to be an approved small business.”
This process requires the submission of the relevant application forms accompanied by the company’s incorporation documents, tax clearance certificate from the Barbados Revenue Authority, clearance from the National Insurance office, audited financial statements if gross assets or revenue exceeds $1 million, review engagement for the financial year preceding the year the application was made if gross assets or revenue do not exceed $1 million, a statement of projections for three years from an accounting organisation or a qualified accountant if the company has been in business for less than one year, and any other information requested by the minister.
Many small firms have described the aforementioned process as onerous. One common area of concern is the challenge encountered in receiving timely supporting data from other relevant government departments. However, as noted by the presenter, delays are often caused by incomplete information being submitted by business owners. The process should take approximately two weeks, while the confirmation of the statutory instrument should take a further two weeks.
Once the application has been approved, the confirmation is published in the Official Gazette and listed in the register of small businesses. Anecdotal information from business owners is that this process can take between three to six months.
Another component of this new regime that has taken many small business owners by surprise is the requirement to make monthly prepayments. It is expected that from income year 2025, all companies will be required to make monthly prepayments based on the previous year’s taxable income. Participants in the information session viewed this as a further burden to operations, requiring diligent cash flow management, which is in itself a challenge due to the uncertainty and unreliability of revenue streams.
The session discussed the trajectory of the business in relation to future cash flows, and the need by businesses to develop a strategy to ensure that the firm can protect its revenue flows. While the presenter underscored the significant socio-economic benefit provided by small firms to the development of Barbados, business owners were encouraged to pay attention to what was going on in the business environment and to remain compliant with laws and regulations.
Business Basics has been informed that since the Ministerial Statement, there has been much consultation among stakeholders on the proposed tax regime and amendments are expected to incentivise the sector to benefit from the new tax rate. The business community awaits with bated breath the 2024/25 Financial Statements & Budgetary proposals to be presented by the Minister of Finance on Monday.
The Small Business Association of Barbados (www.sba.bb) is the non-profit representative body for micro, small and medium enterprises (MSMEs).
