Prime Minister Mia Mottley gave local businesses an early Christmas present today, announcing a massive reduction in corporation tax from 25 per cent to between 1 to 5.5 per cent and she wants businesses to share the benefits with Barbadians.
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).
In keeping with a commitment made earlier this year by the Freundel Stuart Cabinet to remove tax incentives to the international business sector, Mottley announced this afternoon that the domestic corporate tax rate has been slashed by as much as 80 per cent while ensuring the country is still globally competitive.
“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, who made it clear while the commitment was ill-timed, it was necessary to follow through for the sake of the country’s reputation.
From January 1, 2019 all corporate entities in Barbados would be taxed on a sliding scale. Businesses with taxable income of up to $1 million will pay 5.5 per cent. Corporations with taxable income up to $20 million will be charged a rate of 3 per cent while those that earn up to $30 million will pay 2.5 per cent. Those with taxable incomes of more than $30 million will pay 1 per cent. Currently Barbados’ corporation tax ranges from 5 to 25 per cent. 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.
In a Ministerial Statement in Parliament, Mottley explained that it came down to either raising international business rates or lowering the domestic rate.
She however made 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.
The Prime Minister also explained that the Insurance Act will be amended to provide for three Classes of licences:
Class one will include insurance companies insuring related party risks, which will pay a licence fee and be taxed at 0 per cent 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 2.0% on taxable income. Class three will include brokers, managers and the like and will also be taxed at 2.0% on taxable income.
The Prime Minister further explained 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 per cent of taxable income.
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 per cent of the taxable income in any one year.