Revealing that some global business companies left Barbados before the recent announcement of new corporate tax rates, President of the Barbados International Business Association (BIBA) Jamar Arthur-Selman believes the new measures should attract new business.
He said the changes announced by Prime Minister Mia Mottley last week reflected Barbados’ commitment to international tax reform and its role in addressing global tax challenges.
The global business association head was reacting to the release of the government’s proposals to address the fast-approaching deadline for the implementation of the two-pillar tax reform solution of Organisation for Economic Co-operation and Development’s (OECD) Inclusive Framework on Base Erosion Profit Shifting (BEPS).
In an effort to remain compliant, the prime minister recently announced a change in the corporate tax rate from between 1 and 5.5 per cent tax rate to 9 per cent. However, small businesses earning an income below $2 million will pay a rate of 5.5 per cent. She also announced a qualified domestic minimum top-up tax of 15 per cent for subsidiaries or permanent establishments of in-scope multinational enterprises.
“BIBA acknowledges that there had been a lot of uncertainty in the global business sector as the deadline approached and that some multinational companies had already chosen to exit Barbados as they could not anticipate with certainty what the environment would be, heading into 2024,” said Arthur-Selman.
“Other multinational companies were patiently waiting for the government to declare its official plans before making any final decisions. However, with the government, among other things, now opting for a moderate increase in the domestic tax rate to 9 per cent and the implementation of a Qualified Domestic Minimum Top-up Tax (QDMTT), which in some cases could be alleviated with tax credits for major contributions by companies to employment and research and development other national development areas, BIBA anticipates that the clarity will allow for proper planning and avoid reactions solely stemming from prior uncertainty.
“This remains ever important as the undeniable fact is that Barbados earns the vast majority of its corporate income tax from companies operating in the global business sector and not from domestic businesses,” he added.
The BIBA president said some multinational enterprises have already indicated they were not averse to doing business in jurisdictions where the QDMTT has been implemented.
Arthur-Selman said the association considered the rate of 9 per cent to be a moderate and logical choice if there was no other option other than to increase the domestic rate.
“BIBA expects that Barbados will continue to attract responsible foreign investment that contributes positively to the country’s economy without compromising its tax base. Being an active participant in international tax reform initiatives enhances Barbados’s international reputation as a responsible and transparent jurisdiction,” he said.
The BIBA head contended that the new tax rate allowed Barbados to have leverage in new treaty negotiations with partners that have terminated or given notice of the need to renegotiate existing double taxation treaties because the existing rate was lower than 9 per cent.
“In effect, it may go a long way towards preserving and enhancing Barbados’ double taxation treaty network in this new global environment, as the existence of the same remains one of the island’s unique selling points,” he said, adding that the rate was also still low enough to generally be “acceptable to most global businesses” although it is anticipated that there may still be some minor loss of business”.
Arthur-Selman said further clarity and guidance will be required from the Barbados Revenue Authority (BRA) on the change to a monthly pre-payment of tax and the plans to be put in place for a smooth transition to this system.
BIBA also welcomed the government’s decision to keep the tax rate for small businesses with income of less than $2 million at 5.5 per cent, and not change the tax rate for insurance businesses.
He said BIBA hoped the existing tax credits and those announced earlier this month would act as a catalyst for larger multinationals of substance to set up business units in Barbados, transfer existing business units here, and eventually drive the rapid growth of new sectors in which Barbados can claim expertise and growth.
“Additionally, there should be some areas in which local and regional businesses can take advantage as well and help to drive the development of Barbados,” the BIBA head added.