Thinking beyond borders
An individual is liable to tax in Barbados based on their taxable status. A resident and domiciled person is liable to tax on their worldwide income. A person resident but not domiciled is liable to tax on income derived in Barbados and amounts remitted to Barbados. A non-resident person is taxed on income derived from Barbados only. Income derived from various sources and categories are aggregated and the tax thereon computed. There is a progressive tax rate on taxable income. Taxable income is assessable income, less allowable deductions.
The key considerations for business travelers exercising employment in Barbados are the determination of residency and the obtaining of a work permit before commencing employment.
Under the provisions of the Income Tax Act of Barbados (ITA) an individual is resident in Barbados in an income year when they spend more than 182 days in Barbados in that income year, or is ordinarily resident in Barbados in the relevant income year. An individual is considered to be ordinarily resident in Barbados in an income year if they have a permanent home in Barbados and have given notice to the Revenue Commissioner that they intend to reside in Barbados for a period of at least 2 consecutive income years, including the current income year.
Permanent home means accommodation in Barbados, which is permanently available for the use of the person in question, but does not include accommodation retained for his/her use in Barbados solely as a vacation property. The ITA does not define domicile but makes reference to the calculation of assessable income for a person who is resident but not domiciled.
Resident taxpayers are taxable on their worldwide income. Income from various sources and categories are aggregated and the tax thereon computed. Non-domiciled residents (companies and individuals) are subject to tax on income derived from Barbados and on foreign-sourced income, provided the income is remitted to Barbados. Non-residents are subject to tax on income derived from Barbados only.
The assessable income of residents includes income from business, profession, property, offices, employment and, specifically, dividends and interest arising outside Barbados such as royalties, annuities, directors’ and other fees, retirement allowances and partnership profits. However, some categories of income are subject to final withholding tax at the source.
Taxable income is assessable income less allowable deductions. The income tax rates are 16 percent on the first 35,000 Barbados dollars (BBD) (17,500 US dollars (USD)) of taxable income and 33.5 percent thereafter.
There is a basic personal allowance of BBD25,000 (USD12,500). The personal allowance is BBD40,000 (USD20,000) for pensioners who are 60 years of age or over and receive a pension. An allowance of BBD3,000 (USD1,500) annually is also available in respect of a spouse who had no income for the income year, was wholly supported by and lived with the taxpayer in the year. In addition, an allowance of BBD1,000 (USD500) is available in respect of the support of each of (but not more than) two children of the taxpayer.
However, for a non-resident, no deductions or allowances in respect of the calculation of assessable income shall be made in respect of income or the production of income not derived from Barbados.
Under the provisions of the National Insurance and Social Security Act of Barbados (the Act), any person over the age of 16 years and under pensionable age, who is gainfully employed in Barbados under a contract of service, is required to be insured under the Act. The rates of national insurance contributions for employees are 10.10 percent and for employers 11.25 percent, up to a maximum insurable earnings of BBD4,650 (USD2,325) per month from income in the year 2017.
Where a reciprocal agreement exists between Barbados and an individual’s home country, the individuals may apply to continue paying social security in their home country and be exempt from contributions in Barbados.
For employees, the tax year is the calendar year. Individuals are required to file an income tax return on or before 30 April of the year following the income year, where their assessable income is greater than BBD25,000 (USD12,500). Note that spouses are taxed separately and there is no option for joint taxation.
A wages tax system applies in accordance with which the employer deducts tax whenever any payment of remunerations is made to an employee. Under the provisions of the ITA, every person paying to any other person salary or wages shall deduct or withhold there from such amount as is prescribed, and shall (at such time as is prescribed) pay the amount deducted or withheld to the Commissioner as a prepayment of tax for the person to whom that amount would otherwise have been paid.
The rate of tax for individuals is 16 percent of every complete dollar of taxable income up to and including BBD35,000 (USD17,500); and 33.5 percent of every complete dollar of taxable income above BBD35,000. This amount is to be deducted from salary and remitted to the Barbados Revenue Authority within 15 days after the period to which it relates.
National Insurance Scheme (NIS)
The employee’s national insurance contribution should be deducted from salary and remitted along with the employer’s portion to the NIS office within 15 days after the period to which it relates.
Under the provisions of the Immigration Act of the laws of Barbados a person who is not a citizen, permanent resident, etc., may not in engage in any occupation or accept employment without having first obtained a written permit for the purpose granted by the Minister. Additionally a person may not engage or employ another person who is not a citizen, permanent resident, etc., unless there is a work permit in force in relation to that other person and for the purpose of that engagement or employment.
Barbados has introduced a Special Entry and Reside Permit (SERP) which is generally valid for 5 years. However, where the applicant is 60 years or over, the SERP should be indefinite. The SERP is available to non-resident individuals with special skills needed in the country and non-resident individuals who own substantial property in Barbados and their dependents. The value of the property or investment to be used to qualify an applicant for SERP status is BBD4 million (USD2 million) or more and the investment must have been purchased with funds sourced outside Barbados and not be subject to any mortgage.
Non-residents are required to apply for a work permit in the form or manner prescribed. The application is usually made by the entity who will employ the individual. In addition, the fees in respect of the application, grant and renewal of the work permit are to be paid by the applicant.
Double taxation relief may be obtained either under domestic law or by tax treaty.
Barbados has 38 double taxation treaties in force with other countries including the multi-lateral Caribbean Community (CARICOM) Treaty, which is counted as 10.
The term ‘permanent establishment’ is defined as a fixed place of business, through which the business of an enterprise is wholly or partly carried on.
Under the provisions of the ITA, where services are contracted (directly or indirectly) to be performed in Barbados by non-residents other than by way of carrying on business through a fixed base, the individuals in Barbados who are under a contractual liability to pay for those services shall withhold the prescribed amount from the gross earnings of those non-residents and shall immediately thereafter (or at such other time as the Commissioner prescribes) pay to the Commissioner the amount withheld as payment in full of the tax payable in respect of those earnings.
Under the provisions of the Value Added Tax Act, a person is required to register for value added tax (VAT) purposes if they supply goods and services in Barbados in the course of a business or other “taxable activity”, and if their annual taxable supplies are BBD80,000 (USD40,000) or more. Registration allows a person to recover all or part of their input tax incurred on purchases for use in their taxable activities. There are plans to raise the threshold to BBD200,000 (USD100,000), but legislative support has not surfaced.
A company carrying on international business is not required to be registrable for VAT purposes. Any VAT suffered is refundable on filing of the VAT return on the prescribed form. The company has up to 2 years within which to file the VAT returns, which must be accompanied by original receipts.
The VAT rate applicable to standard rated taxable supplies is currently 17.5 percent. There is a concessionary rate of 7.5 percent for hotel accommodation and the VAT rate on certain mobile services is 22%. Certain supplies are zerorated and exempt supplies are not subject to VAT.
Where a transaction of purchase and sale to which a person carrying on business in Barbados is a party:
In addition, where the main purpose of a transaction is the artificial reduction of the assessable income of a person, then in calculating the assessable income of the individuals participating in the transaction, that transaction shall be disregarded or be deemed to be modified, whichever is more appropriate to achieve the effect that the transaction no longer results in the artificial reduction of the assessable income of that person.
The legislation relating to data protection has not yet been enacted. However, it is expected that the Act will provide for the regulation of the collection, keeping, processing, use or dissemination of personal data; the protection of the privacy of individuals in relation to personal data; and matters related thereto.
Barbados has exchange control rules. Residents and non-residents are allowed to carry out foreign currency transactions but must first seek the permission of the Exchange Control Authority of the Central Bank of Barbados. Direct investment in Barbados by a non-resident investor is allowed, but this must be registered with the Exchange Control Authority. No one, other than an authorized dealer, is permitted to hold foreign currency in Barbados without the permission of the Exchange Control Authority.
All residents and non-residents and/or domestic companies are required to seek the permission of the Exchange Control Authority for any transaction in which any one of the parties is a non-resident individual or legal entity.
Amounts withheld under NIS are not deductible. In addition, a disbursement or expense for the support of that person or their family, or for any other domestic or private purpose, is not deductible in calculating assessable income.