Barbados' New Corporate Tax Regime: Challenges and Potential Impact on Investment and Economic Growth
Barbados' new corporate tax regime faces challenges, with potential for growth. BIBA assesses the impact of recent tax legislation on investment and economic development, highlighting both promise and uncertainties.
Barbados’ revamped corporate tax regime will present some challenges and many of the measures “have promise and potential”, but only time and effort will tell their full impact on the country’s investment and economic growth.
That is the assessment of BIBA, the Association for Global Business as outlined by president Jamar Arthur-Selman in response to the passage in the House of Assembly of the Corporation Top-up Tax Act, 2024 and the Income Tax (Amendment) Act, 2024.
BIBA believes that there are some parts of the legislation “that we must reserve judgement on as it is too early to address success or impact”.
“BIBA can confirm that although there will be some challenges that necessarily come with the changes and initiatives, many of them do have promise and potential,” Arthur-Selman said. “Whether they can be translated into real growth for Barbados and new business is not only a matter for time to tell, but also dependent on the effort of not only government, but also the effort of the private sector as well to both use the initiatives and drive the use of the initiatives and changes to their clients.”
“Against what we hope will be an improving environment of business facilitation in Barbados, the added options that the new legislation provides would appear to be a base on which government can continue to layer other initiatives to help push Barbados forward and increase our value-added offering for persons seeking to operate businesses in Barbados,” he added.
The BIBA president examined the corporate tax changes, including the change in the corporate tax rate to nine per cent for all companies – unless a company falls into one of the exempted categories where the rate remains the same or goes to a 5.5 per cent flat rate.
He reiterated the organisation’s previous position that this “did have its advantages”.
“Firstly, there are some global double taxation treaty partners who have begun the process of renegotiating treaties with Barbados in light of what is to come and other treaty partners who have also taken the independent decision to blacklist countries with tax rates lower than a certain percentage, which can have several negative consequences,” Arthur-Selman elaborated. “Norway and the Netherlands are two such countries, and the expectation is therefore that the higher tax rate of nine per cent would give Barbados leverage in new treaty negotiations and allow existing treaty relationships to be re-affirmed quickly; and such minor negative listings to be removed or avoided entirely.”
He added: “Barbados has never been a zero-tax jurisdiction but considered a low tax jurisdiction, therefore one argument was that a corporate tax rate that was high enough not to be considered ‘low’ by international standards but low enough to be reasonable to both local and global businesses operating in Barbados could potentially reduce the level of constant regulatory pressure which the island faces and sometimes fails to meet.
“Finding that rate however is not easy but once implemented the change in perception and reduction in ‘over regulation’ can begin.”
The attorney, business executive, and accredited director noted to that end that “we are informed that with Barbados moving to nine per cent we will now be able to seek the necessary approvals from certain global regulatory bodies to recognise Barbados as a jurisdiction with a regular tax rate and no longer be considered a ‘low tax’ jurisdiction”.
He pointed out that “this new classification could potentially permit a relaxation, although not full removal, of certain regulatory requirements which low-tax jurisdictions have to comply with, which have been burdensome on government, the private sector and clients doing business in Barbados for the past few years”.
The official also reminded that “the new rate of nine per cent is still much lower for domestic businesses than the previous higher rate of 25 per cent; and the new legislation also permits some relief to qualifying small businesses who could potentially have their tax rate remain as low as 5.5 per cent”.
One significant point of interest for BIBA is the new tax rates and related initiatives in terms of their “potential impact on global businesses operating in and from Barbados”.
“We must never forget that the global business sector contributes generally more than 70 per cent of all corporate tax revenue for Barbados and in some financial years this can be much higher,” Arthur-Selman said.
“In short, therefore, if an increase in the tax rate allows us to be in a better position internationally and is not a deterrent to global businesses of substance here who pay most of the corporate tax, it could be a solution.
“Equally Barbados also needs new initiatives that can drive economic growth and therefore implementation of incentives together with tax changes can be a good counter balance. Therefore, the question is whether these changes and initiatives will result in a positive outcome for Barbados and what signs have we seen since the announcement of these measures.”
With respect to the nine per cent tax rate, the implementation of the Qualified Domestic Top-up Tax (QDTT) and the implementation of the effective tax rate of 15 per cent for certain qualifying multinational enterprises, the BIBA official shared that “feedback from our members indicates that the response has been mixed”.
“We have seen some global businesses leaving or preparing to leave Barbados; others deciding to stay for various reasons; and others establishing new companies in Barbados already for 2024. Therefore, time will tell whether the overall outcome will be positive, negative or flat for the year 2024 and into 2025,” he stated.
“However, it must be noted that it would appear at least in the short term the impact on Barbados’ corporate tax revenue could be positive as we understand that certain multinational enterprises have already begun pre-paying corporation tax at a rate of nine per cent effective from January 2024 and other qualifying Multinational Enterprises are prepared to pay some higher rates due to the application of the QDTT.”
Arthur-Selman also observed that “since the release to the public for consultation, the government has added some new initiatives not previously included”.
This included what has been termed a “patent box regime” to encourage research, development and innovation and which may allow certain companies to apply a lower corporate tax rate of 4.5 per cent on income from qualifying intellectual property.
BIBA’s understanding is that this “could potentially have the desired effect of driving some business to Barbados and therefore it is to be generally welcomed”, but its president said they were “mindful that there is a lot of competition with similar incentives in larger developed countries and therefore again Barbados’ overall value proposition must be strong to make this a success”.
“We also note that another initiative not previously included is the return to “group relief” being offered which, subject to various restrictions and qualifications, will allow an entity in a group with trading losses to be set off, by way of relief from corporation tax, against the profits of another entity in the same group,” he said.
“Groups that qualify for this relief will of course welcome this reform, and it does have some reasonable potential to drive investment and new establishment of corporate operations in Barbados.”
Regarding the Jobs Credits and Research and Development Credits Government is offering, Arthur-Selman called these “a welcome addition to the incentives for businesses that Barbados has to offer”.
He observed, however, that “the credits have however been met with some criticism as to whether even higher rates would have been more attractive to companies.
BIBA’s position is that “this must be balanced against what is possible within the framework that Government is operating in”.
“Nonetheless there is the potential for the credits to be taken advantage of at the existing levels and they may still drive new business as well as act as a buffer for existing businesses whose tax rates have now increased to a level that are more palatable where other incentives that can be applied to reduce the net effect,” Arthur-Selman said.
