Barbados
Limited Company
Barbados has been a popular jurisdiction for incorporating international businesses – especially for Canadians which enjoyed certain benefits under DTAs. However, the jurisdiction has also gone through several legislative amendments to avoid being classified as having a ‘harmful preferential tax regime’ by the OECD / EU.
Under these amendments, the International Business Companies (IBC) Act has been abolished, and the Societies with Restricted Liabilities Act has removed preferences to International Societies with Restricted Liability (ISRL).
IBCs and ISRLs licensed after October 17, 2017, have been converted to regular Barbados companies and societies, and are subject to local corporate taxation. Those incorporated and licensed before October 17, 2017, will be grandfathered until June 30, 2021 – at that point, they will need to be converted to regular Barbados companies.
Note that Barbados companies earning 100% of their income in foreign currency would be able to apply for a Foreign Currency Permit under the Foreign Currency Permits Act, 2018, to avoid capital controls under the Exchange Controls Act.
The Income Tax Act has been also amended. Since January 1, 2019, all Barbados entities, except those that are grandfathered are taxed on a sliding scale from 5.50% (for taxable income below BBD 1 million) to 1% (for taxable income over BBD 30 million). Previously, IBCs and ISRLs were subject to tax on a sliding scale between 2.5% and 0.25% and local companies were subject to tax at a 25% rate.
The insurance sector legislation has suffered notable changes as well. The Exempt Insurance Act has been repealed and the Insurance Act has removed provisions for Qualified Insurance Companies. Now, all companies providing insurance services will fall under the same legislation – which will provide three classes of licenses:
- Class 1 for insurance companies insuring related party risks – which are taxed at 0% on taxable income
- Class 2 for insurance companies insuring third parties risks – which are taxed at 2% on taxable income.
- Class 3 for brokers and managers – which are taxed at 2% on taxable income.
The International Financial Services Act has been also repealed and all financial institutions, whether dealing with local or foreign currency, will be regulated under the Financial Institutions Act. There are now four classes of licenses:
- Class 1 for local commercial banks.
- Class 2 for trust companies, finance companies, merchant banks and money transfer services.
- Class 3 for financial holding companies.
- Class 4 for foreign currency earnings banks, which will be granted an exemption from capital controls.
The International Trust Act has been replaced by the Trust (Miscellaneous Provisions) Act, removing restrictions for residents to take part. The Shipping Act has also been amended to remove ring-fencing elements. The Foundation Act is currently undergoing through several amendments as well.
Like other jurisdictions, Barbados has implemented economic substance requirements via the Business Companies (Economic Substance) Act, 2018. Companies conducting relevant activities such as financial services, insurance, fund management, headquarters, shipping, intellectual property holdings and equity holding companies, among others – will need to meet economic substance test requirements such as conducting its core-income generating activities within Barbados, having its control and management from Barbados, and having an adequate number of employees, expenditure and assets in Barbados according to their business activities.
Barbados Companies are vehicles often used for the business of making, processing, preparing or packaging within Barbados any product that is exclusively for export, broker, agent, dealer, seller, buyer or factor within Barbados of goods existing outside Barbados or of goods to be trans-shipped through or from Barbados, providing services which are to Barbados non-residents.
All in all, Barbados Companies are powerful tools for international trading and commerce, manufacturing operations and for investments in foreign subsidiaries.
Legal
Country code – BB
Legal basis – Common law
Legal framework – Companies Act
Company form – Company limited by shares
Liability - The liability of the shareholders is limited up to the amount of the shares they hold.
Share capital – There is no authorized share capital established, however, the usual authorized share capital is US$1,000, divided into 1,000 shares of US$ 1. The share capital may be expressed in any currency. There is no statutory requirement for capital to be fully or partly paid on incorporation. Shares may be issued in any class, as long as they are denominated in non-par value. Bearer shares are not permitted.
Shareholders – Barbados Companies may be formed by one or more shareholders, who can be either natural or legal persons, residents or non-residents. Details of shareholders are not publicly disclosed. Nominee shareholders are allowed.
Directors – At least one director is required, who may be a natural person or a legal entity, as long as the legal entity is registered in Barbados. Directors’ details are available to the public.
Secretary – The appointment of a locally licensed secretary is required.
Registered Address – A Barbados company must have a registered office in Barbados, provided by a licensed service provider.
General Meeting – Annual general meetings are mandatory, but can be held anywhere. The first annual general meeting must be held no later than 18 months from the incorporation of the Barbados IBC. Thereafter, annual general meetings should be held in intervals not more than 15 months.
Electronic Signature – Permitted.
Re-domiciliation – A foreign entity can be re-domiciled as a Barbados IBC, and vice versa.
Compliance – Barbados companies must keep accounting records, which may be kept in or outside Barbados. Companies are required to submit financial statements and tax return annually. Financial statements are not available to the public.
An audit may be required if gross revenue or company assets exceeds approximately US$2,000,000. Audit reports should be signed by a professional member of the Institute of Chartered Accountants of Barbados.
- Shareholders not disclosed
- Directors not disclosed
- Corporate shareholders permitted
- Corporate directors permitted
- Local director required
- Secretary required
- Local secretary required
- Annual general meetings required
- Redomiciliation permitted
- Electronic signature
- Annual return
- Audited accounts
- Audited accounts exemption
- Exchange controls
- Common law Legal basis
- 1 Minimum shareholders
- 1 Minimum directors
- USD 1 Minimum issued capital
- - Minimum paid up capital
- USDAny Capital currency
- Anywhere Location of annual general meeting
- 2017 AEOI
Taxes
Basis – Companies are taxed on their worldwide income.
Tax rate – All Barbados entities are taxed on a sliding scale from 5.50% (for taxable income below BBD 1 million) to 1% (for taxable income over BBD 30 million). Previously, IBCs and ISRLs were subject to tax on a sliding scale between 2.5% and 0.25% and local companies were subject to tax at a 25% rate.
Capital gains - Capital Gains are not taxable in Barbados.
Dividends – Dividends received from foreign entities may be tax-exempt, provided that the Barbados company holds at least 10% of the capital of the foreign entity the shares are not held as a portfolio investment.
Interests - Interest income is subject to taxation at standard rates.
Royalties – Royalty income is subject to income tax.
Foreign-source income – Foreign-source income is taxed at standard rates.
Withholding taxes – International business companies are not required to pay withholding taxes on their remittance of dividends, royalties, interest, management fees, fees, or other income paid by IBCs to persons outside Barbados.
Losses – Losses arising from taxable income may be carried forward for 9 years. Carryback of losses is not allowed.
Inventory - Inventory valuations are generally stated at the lower of cost and net realizable value. First in first out method (FIFO) or average values may be used for book and tax purposes. Last in first out (LIFO) is not allowed for tax purposes.
Anti-avoidance rules – Barbados has not enacted transfer pricing regulations, although revenue authorities may amend assessable income of a company where they deem that the main purpose of a non-arm's length transaction is to artificially reduce its assessable income. Thin capitalization and controlled foreign companies rules are not applicable.
Labor taxes – Employers and employees are required to make contributions to the National Insurance fund at 11.25% and 10.25 on employees’ monthly income, respectively, up to a maximum of insurable earnings of BBD 4,360 per month or BBD 1,006 per week.
Tax credits and incentives – A tax credit for taxes paid outside Barbados is usually available, provided that this does not reduce the company's corporate income tax rate in Barbados to less than 0.25%.
Barbados companies earning 100% of their income in foreign currency would be able to apply for a Foreign Currency Permit under the Foreign Currency Permits Act, 2018, to avoid capital controls under the Exchange Controls Act.
Personal income tax – An individual is tax resident in Barbados if spends more than 182 in Barbados in a tax year. Residents are taxed on their worldwide income, while non-residents pay taxes on their Barbados-source income.
The income tax rate is 16% on the first BBD 35,000 and 33.5% on the excess. Capital gains are not subject to taxation.
Other taxes – V.A.T. standard rate in Barbados is 17.5%. A rate of 8.75% is applied to hotel accommodation. An increased 22% applies to mobile phone services. There are several goods and services tax-exempt.
Real property tax is levied on building and lands on their property value. Tax rate ranges from 0.1% to 0.75%, being the first BBD 150,000 zero-rated. Certain transactions are subject to stamp duty. For transfer of real property is levied a 1% stamp duty.
There are no inheritance and wealth taxes in Barbados.
- Offshore Income Tax Exemption
- Offshore capital gains tax exemption
- Offshore dividends tax exemption
- CFC Rules
- Thin Capitalisation Rules
- Patent Box
- Tax Incentives & Credits
- Property Tax
- Wealth tax
- Estate inheritance tax
- Transfer tax
- Capital duties
- 5.5% Offshore Income Tax Rate
- 5.5% Corporate Tax Rate
- 0% Capital Gains Tax Rate
- 0% Dividends Received
- 0% Dividends Withholding Tax Rate
- 0% Interests Withholding Tax Rate
- 0% Royalties Withholding Tax Rate
- 0 Losses carryback (years)
- 7 Losses carryforward (years)
- FIFO Inventory methods permitted
- 10.10% Social Security Employee
- 11.25% Social Security Employer
- 35% Personal Income Tax Rate
- 17.5% VAT Rate
- 44 Tax Treaties
Country details
Barbados is one of the twelve countries that form the Caribbean Antilles. Its capital and the most populated city is Bridgetown.
Located in the Lesser Antilles, it is the most easterly of the islands, lying to the east of Saint Lucia and Saint Vincent and the Grenadines.
Spain conquered the island because that was where Columbus arrived on his first voyage in the 15th century. In the seventeenth century, the English turned the place into a colony of the United Kingdom. This situation remained until 1966 when its town declared independence on the 30 of November. That year he joined the UN and the Commonwealth of Nations.
It is a constitutional monarchy, with Isabel II as head of state and Governor General Elliot Belgrave as its representative on the island. Its population exceeds 290,000 inhabitants. The official language is English and its official currency is the East Caribbean Dollar (XCD), which is pegged to the US $ at 2.7: 1 ratio.
Barbados is one of the most developed countries in the Eastern Caribbean and has one of the highest per capita incomes in America.
Although the traditional Barbadian economy was based on the production of sugar, the main export commodity, currently tourism is its main economic activity, with tourists mainly from the United States and Europe.
At present, it has partially diversified its economy with industries such as manufacturing, construction, and mining.
Barbados is a CARICOM member and has concluded trade agreements with several jurisdictions, including the U.S., Canada, and the European Union.
The international business and financial services sector are one of the most important contributors to the economy of Barbados, given its business-friendly legal framework and its low tax regime.