Focus on Barbados Budget

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Budget commentary cont’d Comment The Barbados Income Tax Act provides that where a person, including a company or an individual, carrying on business in Barbados derives assessable income from fees in respect of qualifying overseas professional services, in computing the tax payable on such income, a FCEC would be applied against the tax otherwise payable. In an effort to stimulate the productive sector, it has been proposed that the range of qualifying overseas professional services eligible for the FCEC be expanded to include exploration, extraction and other mining, oil and gas activities, licensing and sub-licensing of intellectual property and shipping services. Currently, the majority of the double taxation treaties that Barbados has with its major trading partners, including Canada, the United States and the United Kingdom, contain provisions which prohibit entities with special incentives, such as IBCs and ISRLs, from taking advantage of either all of or some of the benefits of these treaties. Therefore, investors seeking to provide the above services outside the Caricom market can alternatively set up a regular Barbados company to claim treaty benefits and also take advantage of the FCEC provided under the Barbados Income Tax Act. As a result, a person may be able to substantially reduce his overall tax liability. The table below illustrates how the FCEC is calculated for a company. Profits from FCE as a % of total profits Rebate of income tax as a % of income tax on net profits from FCE Effective Tax Rate 20% and under 35% 16.25% 20% but under 41% 45% 13.75% 41% but under 61% 64% 9.00% 61% but under 81% 79% 5.25% 81% and over 93% 1.75% <strong>Focus</strong> on Barbados Budget 2012 8
Budget commentary cont’d The calculation is based on a pro-rated formula as follows: FCE x P TE FCE – Foreign currency earnings TE – Total gross earnings from all sources P – Net profits from all sources Therefore, depending on the level of foreign currency earnings derived by a Barbados company from outside of Barbados and Caricom in respect of the provision of qualifying overseas professional services, the FCEC can reduce its Barbados corporation tax payable to a low effective rate of tax. Example A qualifying oil and gas exploration company, engaged in the provision of services to companies outside of the Caricom market, has foreign currency earnings of $30,000, net profit before tax of $15,000 and total gross earnings of $50,000. Based on the above formula, the FCEC is calculated as follows: 30,000 x 15,000 = 9,000 = 60% of total profits 50,000 Note that the FCEC is 64% rebate on income tax, therefore: Tax on foreign currency earnings – $9,000 x 25% (tax rate) =$2,250 Rebate of income tax – 64% [$2,250 x 64%] =$1,440 Immigration The Minister of Finance has proposed a number of immigration policies which will allow certain qualifying non-nationals to obtain special entry permits. A fee structure was proposed for these permits. Comment This proposal is welcomed as it will encourage certain qualifying non-nationals who are parents/ grandparents of citizens of Barbados and high net worth individuals to establish their business and/or their place of abode in Barbados. The granting of special entry permits to these non-nationals would allow them to move freely in and out of Barbados without any time constraints. The immigration measures proposed for high net worth individuals combined with the availability of a FCEC on the remittance of foreign income to Barbados, the benefits of the Barbados/United Kingdom tax treaty and the absence of capital gains tax and inheritance tax should increase the attractiveness of Barbados to such high net worth individuals, especially from the United Kingdom. 9 <strong>Focus</strong> on Barbados Budget 2012
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