The Barbados Government announced very radical tax changes on November 9, 2018. Effective January 1, 2019, all international business companies ("IBC") and international societies with restricted liability ("ISRL") will be reclassified as regular Barbados companies ("RBC"). The IBC Act and the ISRL Act will be abolished before December 31, 2018. No new licenses will be issued from hereon. All existing IBCs and ISRLs that obtained their licenses before October 17, 2017 will continues to enjoy the current benefits until June 30, 2021. These are grandfathering provisions that would allow these entities to transfer onto the new arrangement. That arrangement is as follows:
The IBCs and the ISRLs will not be the only ones impacted by these changes. There will be changes on the insurance sector as well as the offshore banking sector.
IMPACT ON THE INSURANCE SECTOR
The Insurance Act will be amended to provide for three classes of licenses.
The international insurance sector will be grandfathered under the same rules that will be enjoyed by the IBCs and ISRLs. The Exempt Insurance Act will be repealed. All Exempt Insurance Companies including captives will now fall under the amended Insurance Act, which will provide for the three classes of licenses described above. Captive will continue to pay a license fee and to be taxed at zero percent.
THE IMPACT ON THE OFFSHORE BANKING SECTOR
The International Financial Services Act ("IFSA") will be abolished. The Financial Institutions Act ("FIA") will be amended to create a special section to deal with offshore banks. They will be licensed and be branded as Foreign Currency Earnings Banks. Entities regulated under the IFSA will now be regulated under the amended FIA.
THE NEW TAX RATES
In rationalizing the proposed tax rates, the prime minister noted that Barbados will be the first country to converge its international and local tax rates. The new rates from January 1, 2019 will be as follows:
AMENDMENTS TO THE INCOME TAX ACT
2. Tax Losses - tax losses available for offset in an income year will be restricted to 50% of taxable income.
3. Foreign Tax Credit - all entities may elect to take a credit in respect of taxes paid to a country other than Barbados provided that such an election does not reduce the tax payable to Barbados to a rate lower than 1% of taxable income in any one year.
4. Foreign Currency Earnings Credit - this was previously available under s. 12H of the income tax Act. It is proposed that from January 1, 2019, this credit will be abolished.
5. Foreign Currency Permit - these will be issued to companies with 100% earnings allowing them the same exchange control benefits that they had before. It is expected that the regulation of these permits will be handled by the Ministry of International Business to facilitate the grandfathering of the existing international business sector.
This effectively means that there will be an increase in the tax rates on the international business sector. However, the prime minister is confident that given the comparative analysis with some other jurisdictions, Barbados will remain a premier destination in which to do business.