(Barbados Nation) A massive corporate tax ease is coming for Barbadian companies. After raising the standard corporation tax rate from 25 to 30 per cent effective last month to generate an additional $57 million in tax revenue, Government has changed course as it moves to dismantle a 40-year tax regime by next month to avoid “severe” international sanctions.
It means that the majority of companies will now pay between one per cent and 5.5 per cent on taxable income, and Prime Minister Mia Amor Mottley is urging these entities to pass on some of the benefits.
She said Government’s revenue would not be impacted by the new schedule of taxes. In its recent third quarter review, the Central Bank said Government earned $159.6 million in corporate taxes between April and September.
Under the new regime, international business companies and domestic entities would pay the same tax rates, but Mottley said Barbados would “remain among the most competitive of those countries that levy taxes”.
The Prime Minister announced the major tax policy change in a Ministerial Statement in the House of Assembly on Tuesday. Minister of International Business Ronald Toppin announced several related legislative changes last week.
Mottley said Government was forced to act after the last administration, “in the dead of night”, made commitments to the Organisation for Economic Cooperation and Development (OECD) to remove any distinction between domestic and international taxes by December 31.
“This left us just a few months to change over a tax system that has been developed over 40 years, mid-air, while we were at the same time restructuring our economy . . . . This was another act that threatened to weaken the Barbados economy . . . but we will turn this into an opportunity.
“This Government is not one for hiding from difficult decisions or avoiding difficult decisions. We must play the hand that we were dealt.”
While domestic companies now pay a corporate income tax rate of 30 per cent, registered small businesses and manufacturers, and approved developers in special development areas, pay a 15 per cent rate. International business companies, international banks and international societies with restricted liability now pay corporate tax rates of between 0.25 per cent and 2.5 per cent, while captive insurance companies are tax exempt.
Regarding the new corporation tax rates, the Prime Minister said “all entities (excluding intellectual property entities) licensed before October 17, 2017, will be grandfathered (exempted) and in this way all of the benefits enjoyed by these entities will remain.
“The tax rate applicable to these entities for taxable income in excess of $30 million will, however, now be one per cent, in line with the minimum rate I will now announce on convergence,” she added. The Minister of Finance said all other corporate entities not benefiting from exemptions would be taxed on the following sliding scale:
• up to $1 million of taxable income – 5.5 per cent;
• between $1 million and $20 million of taxable income – three per cent;
• between $20 million and $30 million of taxable income – 2.50 per cent; and
• over $30 million of taxable income – one per cent.
The three classes of licences to be created under the amended Insurance Act, would have tax rates ranging from zero to two per cent. Also, tax losses available for offset in an income year would be restricted to 50 per cent of taxable income.
“With these new tax rates, I lay down a challenge to domestic companies that there must be benefits to the country of sharply lower corporation tax rates. Barbadians will expect these benefits be in the form of higher local investment, more enfranchisement of employees and better pay,” Mottley said.