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Foreign Currency Permit
The company is also required to apply for a Foreign Currency Permit (FCP) under the Foreign Currency Permit Act 2018. This is a new requirement which became effective from January 1, 2019. To apply for an FCP permit, a Barbados company must generate 100% of its income in foreign currency.
All FCP holders will have the following benefits and exemptions:
Exemption from exchange control
Exemption from withholding tax on payment of dividends to non-residents
Exemption from withholding tax on all other payments to non-residents
Exemption from payment of stamp duty and property transfer tax (save and except real estate) other than nominal duty of Bds $200 on all instruments and agreements
Exemption from payment of value-added tax and duties on importation of plant and machinery
Income tax concessions for specially qualified individuals for a period of 3 years
There is a one-time government application fee of US$250 and a license fee of US$500. The company is required to renew its FCP each year at an annual fee of US $500.00.
Corporate Administration
Under the Companies Act, Cap. 308 of Barbados (the ‘Act’) it is mandatory for the Company to call an annual meeting of the shareholders within 12 months after incorporation and thereafter to hold annual meetings not later than 12 months after holding the last preceding annual meeting. Special meetings of the shareholders may otherwise be called at any time.
Meetings may be held at any place in Barbados as provided in the By-Laws of the Company and where not specified may otherwise be determined by the board of Directors. However, meetings may be held outside of Barbados if all the shareholders entitled to vote at the meeting so agree.
The Company will also require meetings of the Board of Directors to be held to carry on the management of the business and affairs of the Company. The frequency will depend on how active the Company is and the type of business and transactions being conducted.
Resolutions signed by all of the directors satisfies all of the requirements of the Act relating to meetings of the directors.
Resolutions signed by all of the shareholders satisfies all of the requirements of the Act relating to meetings of the shareholders.
Taxation, Reporting Obligations, & Allowances
Change in Tax Rates
Effective 1 January 2024, the Income Tax Act, Cap. 73 shall be amended to increase the corporation tax rate to 9%. This increased tax rate will impact all corporate entities other than those that fall within the stipulated exclusions under the GloBE Rules.
The new corporation tax rate will only be applicable for the portion of profits in income year 2024 that is earned from 1 January 2024.
Small Businesses
Small Business Companies (defined as companies with a gross income at or below BDS$2million/US$1 million) will enjoy a preferential corporation tax rate of 5.5% (there is final discussion being heard as to whether this will be automatic as with prior tiered tax rates or whether the company will have to apply for this status).
International Shipping Industry
The international shipping industry will continue to be taxed under the current tax regime established in 2019 (i.e., at the tiered rates of between 1% and 5.5% shown above). As international shipping income is currently excluded from the application of the GloBE Rules, the exemption afforded to international shipping corporations signals Barbados’ acknowledgment of this industry’s unique features and economic significance.
The Prime Minister has proposed that stakeholder consultations be conducted with a view to providing recommendations on whether Barbados should contemplate the implementation of a new taxation system tailored specifically to the needs of shipping companies. The proposed changes, if any, would come into effect from the fiscal year 2025.
Insurance Business
The existing corporate tax rates of 0% for Class 1 insurance business and 2% for Class 2 and Class 3 insurance business will remain unchanged.
The Income Tax Act does not tax capital gains. A Company would be liable to tax on profits from the sale of securities only if it trades in securities. Of equal note, dividends from a foreign subsidiary where the Barbados company owns 10% or more of its shares are not taxable in Barbados.
Filing & Payment Obligations
Current Requirements
Where the fiscal period of the Company ends during the period 1st January to 30th September inclusive, income tax returns are required to be filed by the Company and balance of tax paid by the 15th March in the following income year and a prepayment of tax (based on 50% of previous year's tax) paid by the 15th September in each year.
Where the fiscal period of the Company ends during the period of 1st October to 31st December inclusive, the prepayment of tax is required to be paid by December 15 in each year and income tax returns are to be filed by 15th June in the year following the end of the fiscal period.
New requirements
Effective 1 January 2024, in-scope multinational enterprises (enterprises with consolidated group revenue of more than US$850 million) are required to prepay corporation tax monthly. All other companies, except for small business companies (as defined above), will berequired to prepay corporation taxes on a monthly basis with effect from Income Year 2025.
Monthly prepayments for fiscal years will be calculated on the previous year’s tax base subject to the new applicable corporate tax rate, net of the impact of the newly introduced tax credits.
Exceptions: Companies with gross income less than US$1 million and paid-up capital less than US$500,000 will not be required to make monthly prepayments but will continue their prepayment schedule as per previous years (exceptions apply). Companies registered under the Small Business Development Act of the Laws of Barbados will remain at the corporate tax rate of 5.5%
Financial Statements & Auditing
The Company will be required to prepare annual comparative financial statements which the directors must place before the shareholders at every annual meeting of the shareholders of the Company relating to:
Effective 1 January 2024, the Income Tax Act, Cap. 73 shall be amended to increase the corporation tax rate to 9%. This increased tax rate will impact all corporate entities other than those that fall within the stipulated exclusions under the GloBE Rules.
Effective all companies with gross revenue at BDS$1 million or above are required to engage a licensed corporate services provider who will manage certain governance and compliance requirements, including submission of annual declarations and financial statements
Together with this the directors must also present the report of the Company's auditor, if any, and any further information respecting the financial position of the Company and the results of its operations required by the articles of the Company, its by-laws, or any unanimous shareholder agreement.
The Company will require an annual audit of the abovementioned financial statements if it is a public company or where the most recent financial statements of the Company show that its gross revenue or assets exceed:
US$2,000,000 for any period from 1st January, 2014
The Company shall be required to file annually with the Ministry, its audited financial statements (where necessary as indicated above) not less than 21 days before each annual meeting of the shareholders or immediately after a written resolution in lieu of such annual meeting, but in any event not later than 15 months after the last date when the last preceding annual meeting of the Company should have been held or a resolution signed.
Annual Returns
Domestic companies are required, under Section 15A of the Companies Act, to file an annual return each year in the manner and form prescribed. Return forms must be completed by a director or authorized officer of the company. The following company types are exempt from the filing requirement: companies with gross revenue exceeding BDS$1 million, companies holding a valid foreign currency permit, exempt insurance companies, private trust companies, nonprofit companies, and charities. The fees payable to the Registrar for filing an annual return is US$50.00 each year. A company that is in default in complying with the requirements to file an annual return, as prescribed in the Companies Act, is liable to a penalty of US$5.00 for every day during which the default continues up to a maximum of US$1,500; and every director and officer of the company who knowingly and willfully authorizes or permits the default is also liable to that penalty.
If incorporated between January 1st and June 30th in any year, the company shall file its annual return no later than June 30th.
If incorporated between July 1st and December 31st in any year, the company shall file its annual return no later than December 31st.
Deadline dates are determined by the date of incorporation of the company as follows
The Amended Companies Act states that any Barbados company with gross revenue of BDS$1 million or above must engage a corporate services provider licensed under the Corporate and Trust Services Act, 2015-12, The Financial Institutions Act, Cap. 324A and/or the The Financial Services Commissions Act 2010-21. This licensed service provider will make the requisite filings under the Act.
All Barbados companies not exempt as above and whose revenue falls at or above BDS$1 million but under BDS$4 million are required to appoint a licensed service provider and make a financial declaration to CAIPO within the requisite deadline
All Barbados companies not exempt as above and whose revenue falls at or above BDS$4 million are required to engage a licensed service provider and file financial statements to CAIPO within the requisite deadline
the Act states the following as it relates to Annual Returns and filings
All Barbados companies not exempt as above and whose revenue falls below BDS$1 million are required to file an annual return and financial declaration with Corporate Affairs and Intellectual Services Office (‘CAIPO’) within the requisite deadlines
Tax Residency & Good Corporate Governance
We note that the determination of the tax residency of Barbados Companies is based on a number of factors including where the mind management and control or central mind and management of the Company exist. Therefore, it is recommended that mind management and control be carried out in Barbados.
All meetings are held in Barbados
Resident Barbados directors should sit on the Board of Directors (preferably in the majority) engaging in the management of the Company
Business communications, essential functions, major decisions etc. are sent through or taken in Barbados;
A physical office is situated in Barbados.
The following factors are commonly considered by tax authorities with regard to what conduct is sufficient evidence that the central management and control of a company is in the country of incorporation and not onshore in the country where some principals may be living:
where the actual activities of the company take place
where meetings are convened and decisions for day-to-day operations are carried out
where the directors are tax resident or located normally
whether the local directors operate independently or at the request of a principal or other authorised person in another country
Directors
We often recommend that a company should consist of a board with locally based directors. If this is not possible, then at least a clear majority of the directors of the company should be local resident persons. If a majority of directors are however overseas in another country because of reasons of convenience (e.g. time zone), then it would be pertinent that they are not in the same country so that the domicile of the relevant company remains where it was intended to be. Further, if there is an overseas director, it is best that they are not appointed as chairman of the board as often the chairman will have a casting vote or some overall authority which should not be brought overseas. It should also be noted that there are usually no specific rules under any law in relation to these general principles and therefore the approaches taken by tax authorities are on a case-by-case basis, and very much dependent on other factors as further discussed below.
Board Meetings
In general, the number of board meetings for operational companies should be at the very least four per year to give any sense of actual commercial work being carried out. For holding companies receiving dividends or capital gains from its holdings, we anticipate that annual physical meetings should be sufficient. It is recommended that the agenda and minutes for the board meetings are prepared and distributed from Barbados and should not be prepared under the direction of an overseas person or director.
It is important that board meetings are convened in Barbados and that they are a genuine forum for discussion. In general, the types of discussions and decisions the directors should make include, but are not limited to, the following:
the declaration of dividends;
the approval of accounts;
the appointment of a director, banker, auditor, advisors, agents and if relevant, senior employees;
the company’s strategy and a review of financial performance, including clientele (in the case of the hedge fund industry, typically therefore the fund, or other managed accounts);
the review of and entry into substantial transactions – including but not limited to reviewing negotiation, funding, final approval of documents, authorising execution of documents and reviewing profitability of the relevant transaction;
the disposal of assets; and
the repayment of borrowings at the end of a transaction.
Each director should be furnished with all the relevant materials to reach an informed decision on the business to be discussed at the meeting. If there are overseas directors, information (such as invoices from a service provider) must not be sent to their overseas addresses and cannot exclusively be provided to them as this may confirm to tax authorities as evidence of control being exercised by the overseas directors over the other directors irrespective of whether the overseas directors are in the minority.
The meetings' discussions should be recorded as minutes in as much detail as possible, with supporting evidence of any discussions and decisions.
Economic Substance
The establishment of businesses of substance that create jobs and contribute to economic activity has been a feature of Barbados’ international brand since the establishment of the international business sector, several decades ago. From inception, Barbados was deliberate in building its international business sector on the strong foundation of treaty-based agreements that included provisions for the exchange of information.
Investors choosing Barbados as a preferred business jurisdiction do so, among other key reasons, for its high reputation anchored on the tenets of compliance, transparency, and consistency. The OECD’s Global Forum, in its initial report published in April 2009, recognised Barbados as the only independent, Caribbean nation which had substantially implemented the internationally agreed tax standard.
Barbados continues its commitment to the implementation of global standards. Barbados is one of the first countries in the Caribbean to converge its local and international tax rates, making its tax system globally competitive, while bringing the country in line with the OECD’s Base Erosion and Profit Shifting (BEPS) Initiative. By implementing the new regime, Barbados has formalized and fulfilled its commitment to be fully compliant with the BEPS Action 5 addressing harmful tax practices
A resident company must satisfy the economic substance test in relation to any relevant activity carried on by it.
The minimum number of directors that must be present at any meetings to make the proceedings of the meeting valid.
The company’s board of directors meets in Barbados at an adequate frequency having regard to the amount of decision-making required at that level
There is a quorum of directors physically present in Barbados at said board meetings
Minutes of said board meetings record the making of strategic decisions of the company made at the meeting
The directors of the company have the necessary knowledge and expertise to discharge the duties of the board
The minutes of all board meetings and records of the company are kept in Barbados
Relevant activities are defined as any of the following businesses
Banking
Insurance
Fund Management
Finance & Leasing
Headquarters
Shipping
Holding Company
Intellectual Property
Distribution & Service Centre
A company is considered to have met the economic substance test in relation to a relevant activity carried on by the company where
The company is directed, managed, and controlled in Barbados in relation to the relevant activity carried on:
There is an adequate number of employees physically present in Barbados to support the activity whether employed by the company or by another entity and whether on temporary or long-term contracts.
There is adequate expenditure incurred in Barbados
There are adequate physical assets in Barbados
Having regard to the level of relevant activity carried on in Barbados
The company conducts its core income generating activities in Barbados
In the case of core-income generating activity carried out for the relevant company by another entity, it is able to monitor and control the carrying out of that activity by the other entity
Additional considerations from our experience with various audits by the regulators and tax authorities
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The Barbados Revenue Authority will NOT issue a tax residency certificate or consider the company tax resident unless there is an equal or majority of local directors for the company meeting in Barbados
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The regulator, namely the International Business Unit, includes physical board meetings of the company in Barbados in their criteria for Barbados Economic Substance.