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Barbados Announces BEPS Compliance with Convergence of Tax Rates and Other Tax Changes

The Barbados Ministry of International Business and Industry has issued a release announcing that Barbados is now compliant with the requirements of BEPS Action 5 (Harmful Tax Practices) and is no longer under threat of a negative listing by the OECD. The compliance has been achieved through legislative changes enacted by the Parliament of Barbados in December 2018, including the convergence of international and domestic tax rates so that all companies, except insurance companies, are subject to regressive tax rates as follows from the 2019 income year:

  • 5.5% on all taxable income up to BBD 1,000,000;
  • 3.0% on all taxable income exceeding BBD 1,000,000 but not exceeding BBD 20,000,000;
  • 2.5% on all taxable income exceeding BBD 20,000,000 but not exceeding BBD 30,000,000; and
  • 1.0% on all taxable income exceeding BBD 30,000,000.

For insurance companies the rates are as follows from 2019:

  • 0% for Class 1 license holders (insurers of related-party risks)
  • 2% for Class 2 license holders (insurers and reinsurers of third-party risk)
  • 2% for Class 3 license holders (insurance brokers and managers)

Certain transition rules also apply. For qualified general insurance companies as of 17 October 2017 that were entitled to apply for the foreign currency allowance, a 2% rate on taxable income applies from the 2019 income year up to 30 June 2021 and for qualified life insurance companies meeting those conditions, the rate is 0.35% up to 30 June 2021.

Other changes from 2019 include:

  • The offset of carried forward losses to is limited to 50% of assessable income;
  • Past provisions on withholding tax on preference dividends paid by domestic companies are removed;
  • The general withholding tax rate on dividends is reduced from 15% to 5% and the general branch withholding tax is reduced from 10% to 5%;
  • Past exemptions for insurance companies are removed, including exemptions from prepayment by deduction, withholding on service payments, and withholding on dividends;
  • Nearly all deductible allowances and special credits are removed, except for the research and development allowance, the allowances for the arts and sport promotion fund and for environmental certification, and the general annual allowances for capital expenditure; and
  • The rules regarding foreign tax credits are amended to include the provision that the total credit for a year may not reduce the total tax payable to less than 1%.

Click the following link for the text of the legislation providing for the changes.

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