BRIDGETOWN, Barbados, November 20, 2018 (CMC) – The Barbados government announced, today, plans to provide a hefty reduction in corporation taxes for businesses, and urged them to share the benefits with citizens.
Prime Minister, Mia Mottley, told Parliament that her seven-month old administration would reduce the corporation taxes, from 25 to as low as between one and 5.5 percent.
She said the development means that local businesses will now be operating, here, on a level playing field with their international counterparts, following government’s decision to overhaul its tax regime to be compliant with the Organisation for Economic Co-operation and Development (OECD).
Mottley said that in keeping with a commitment, made earlier this year by the former government, to remove tax incentives to the international business sector, her administration had decided that the domestic corporate tax rate would be reduced by as much as 20 percent, while ensuring the country is still globally competitive.
She said the OECD’s Base Erosion and Profit Shifting initiative means “it is no longer possible for us to have a preferential regime without incurring severe sanctions”.
“Simply put, it is no longer possible to do what we have been doing for 40 years; that is, making a distinction between the taxation of companies, operating internationally and those acting locally, without there being severe sanctions that will affect our capacity to grow at this challenging time,” said Mottley, adding that while the commitment was ill-timed, it was necessary to follow through, for the sake of the country’s reputation.
She said from January 1, 2019 all corporate entities in Barbados would be taxed on a sliding scale. Businesses, with taxable income of up to one million dollars, will pay 5.5 percent. Corporations with taxable income up to BDS$20 million will be charged a rate of three percent, while those that earn up to BDS$30 million will pay 2.5 percent.
Mottley said that those companies, with taxable incomes of more than BDS$30 million, will pay one percent. Currently Barbados’ corporation tax ranges from five to 25 percent. All entities (excluding IP entities) licenced before October 17, 2017, will be grandfathered, and in this way, all of the benefits enjoyed by these entities will remain.
Mottley told legislators that it came down to either raising international business rates or lowering the domestic rate. But she made it clear, her expectations that the tax cut to local businesses should redound to the benefit of all Barbadians.
“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, adding that the Insurance Act will be amended to provide for three classes of licences.
She said Class One will include insurance companies insuring related party risks, which will pay a licence fee and be taxed at zero percent; while Class Two will include all other insurance companies, which insure and or reinsure risk of third parties, and will be taxed at a rate of two percent on taxable income.
Class Three will include brokers, managers and the like and will also be taxed at two percent on taxable income.
Mottley said that the only allowances provided under the Income Tax Act that will be permitted, will take effect from fiscal year, commencing January 1, 2019, will be annual capital allowances, renewable energy allowances and research and development.
Additionally, tax losses available for offset in an income year will be restricted to 50 percent of taxable income.
She said all entities may elect to take a credit, in respect of taxes paid to a country other than Barbados, provided that such an option does not reduce the tax payable in Barbados to a rate less than one percent of the taxable income in any one year.