Creating tax certainty

Barbadians are generally law-abiding citizens – they stay in line long at the bank, they generally don’t go through red lights, and they pay their fair share of taxes.

Anyone who worked throughout the Caribbean can easily make the contrast. When it comes to paying taxes, Bajans may not like the quantum or the reasons but will comply with the requirement to pay. Usually, they will demonstrate their dislike to the governing administration via their vote every five years.

It is against the desire to be compliant that many are voicing their disapproval of the level of ambiguity evidence in the new tax prepayment regime and the lack of congruence in the various policy briefs disseminated by the authorities.

The Global Minimum Tax Rate

The change in Barbados tax system came on the heels of the introduction of the Global Minimum Tax (GMT), coordinated by the Organisation for Economic Cooperation and Development. This new global system was intended to represent a significant milestone in global cooperation regarding the taxation of multinational enterprises (MNEs). The new framework ensured that MNEs with revenues exceeding EUR750 million are subject to a 15 per cent minimum effective tax rate, no matter where they operate. Introduced through the Global Anti-Base Erosion (GloBE) Rules, the GMT is a key element of the second pillar in the ‘two-pillar solution.’ The two-pillar solution, which was endorsed by over 135 countries in October 2021 OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), addresses the tax difficulties created by globalisation and digitalisation of the economy. Following this, around 55 jurisdictions took steps toward implementation, with the rules set to take effect in 2024.

In 2023, Barbados initiated a significant overhaul of its tax system in order to comply with these global tax standards. As part of the reforms, the standard corporate tax rate moved from 5.5 per cent to 9 per cent, effective January 1, 2023. However, certain sectors fell outside the scope for this new corporate rate, including insurance companies, international shipping, multinational enterprises and small businesses. For the small business, a reduced tax rate of 5.5 per cent was introduced pursuant to Barbados Income Tax Act, which also took effect January 1, 2024.

The confusion for taxpayers came in the definition of small business and who could benefit from the 5.5 per cent tax rate. Whereas the entire small business community rejoices at the decision of government to carve out a system of preferences for small companies, the ambiguity became glaring as analysis was done on the information provided by the government.

The first policy note in January 2025 stated that the 5.5 per cent  rate was applicable to small businesses that have a gross income of $2 000 000 or less, AND are registered as an Approved Small Business under the Small Business Development Act, Cap. 318C.

It was evident this definition would disqualify thousands of small companies, and the well-intentioned policy would fail before it got off the ground. Through continued lobbying and dialogue, a new policy framework was announced on February 3, 2025, designed to correct this categorisation.

The second policy note indicated that the tax rate is only applicable to those small businesses that satisfy the criteria found below:

The company has gross income of $2 000 000 or less;

The company has paid-up capital of $1 000 000 or less;

The company has no more than 25 employees;

At least 75 per cent of the shares of the company are beneficially owned by a resident of Barbados; and

Where the company is a member of a group, all members of the group must meet the criteria (1) through to (4) OR

An approved small business under the Small Business Development Act, Cap. 318C

This definition is different to the one found under the Small Business Development Act, which is generally used to define what a small business is.

Exclusions to the tax rate:

There were notable exclusions of firms that would not qualify for the new tax rate. These include: Companies not considered small businesses

Companies/Societies that hold Foreign Currency Permits

Companies that have been granted tax concessions or exemptions under any other enactment, including a company operating under the Tourism Development Act, Cap. 341.

Companies whose primary purpose is holding shares in other companies or holding real estate.

If the second policy note was intended to correct the confusion, it failed, leaving stakeholders none the wiser.

There have been two major stakeholder sessions discussing this new tax policy within the last month – the Institute of Chartered Accountants of Barbados (ICAB) Annual Tax Update and the monthly webinars hosted by the Small Business Association of Barbados. During both sessions, attended by hundreds of business owners and professionals, the outcome was the same – participants were of the view that the authorities did not put the systems in place for this new policy regime.

Jason King, a member of ICAB’s Tax Committee, opined that while Barbados faces the urgent need to overhaul its tax system to remain competitive in the global economy, the country’s outdated approaches, slow refunds, and unclear regulations discouraged investment and hinder long-term financial planning.

The unclear regulation is clearly the Achilles heel in this framework.

During the SBA webinar, it became evident that the differences in the two policy notes were based on two different pieces of legislation — the Income Tax Act and the Small Business Development Act. Definitions and clarifications differed. Cognisant of this, the authorities needed to have done a better job of ensuring congruence in the processes, policies and procedures before communicating with stakeholders. Business owners are not recalcitrant of their obligations, they simply need clear and unambiguous guidelines to follow.

The Small Business Association of Barbados (www.sba.bb) is the non-profit representative body for micro, small and medium enterprises (MSMEs).