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ExpatBriefing.com Editorial, 30 August, 2016
The most easterly of the Caribbean islands, Barbados, is a popular destination for expat retirees and investors from North America and Europe. With its year-round warm climate contrasting sharply with the often unforgiving winters of the northern latitudes, it's easy to see why the island has become some popular with long-term expats, and in this feature we summarize the economy of Barbados, its tax and exchange control rules, and its entry and residence regulations.
Introduction To Barbados
Barbados is regarded as the gateway to the Caribbean. It is also one of the most densely populated; the land area covers just 431 sq km and is home to 290,000 people.
Barbados is mostly flat, but the tablelands rise in a series of terraces to Mount Hillaby at 336m. The area in the north east is rocky, eroded by a strong surf. There are no permanent rivers and the rest of the island is coral limestone. Natural coral reefs surround clear seas and beaches of white sand.
The climate is mild subtropical. December - June is the dry season, tempered by cooling north-east trade winds. The wet season is humid and hotter but still generally pleasant due to sea-breezes.
Barbados lies on the southern edge of the West Indian hurricane zone, and the hurricane season normally runs from June to November. However, thankfully, hurricanes are relatively few and far between.
There is a rich diversity of tropical flora. Natural wildlife has largely been displaced by sugar cane but a Wildlife Reserve was established in 1985.
The capital is Bridgetown, which is the only sea port. Other towns are Speightstown and Holetown; there is extensive coastal tourist development.
The Caribbean's Richest Economy
Barbados is the wealthiest and most developed country in the Eastern Caribbean. Historically, the Barbadian economy was dependent on sugarcane cultivation and related activities. However, in recent years the economy has diversified into light industry and tourism with about four-fifths of GDP and of exports being attributed to services. Offshore finance and information services are important foreign exchange earners and thrive from having the same time zone as eastern US financial centres and a relatively highly educated workforce.
Barbados' tourism, financial services, and construction industries have been hard hit since the onset of the global economic crisis in 2008. Barbados' public debt-to-GDP ratio almost doubled to around 100 percent of GDP between 2008 and 2015. Economic growth has largely flat lined over the last three years and growth prospects are limited because of a weak tourism outlook and austerity measures. A five-year plan unveiled by the Government in February 2014 aims to achieve a 40 percent increase in foreign exchange earnings from the international business sector, a 40 percent increase in revenue from corporate and personal income tax, the creation of 2,000 jobs, and the registration of 2,000 new corporate entities.
Barbados is Moderately Taxed
Compared with other countries, personal income tax in Barbados is relatively moderate. The basic and top rate is 16 percent on the first BDS35,000 of taxable income, and 33.5 percent thereafter. However, there is a fairly generous personal allowance of BBD25,000 (BBD40,000 for individuals over 60 in receipt of a pension), and there are various other personal allowances under Barbados tax law.
Unless reduced under a double tax avoidance treaty, withholding taxes on payments to non-residents apply at the following rates: dividends, interest and royalties 15 percent; managerial, technical and administrative fees 15 percent; other payments for services 25 percent.
Residence is defined as presence in the country for more than 182 days in a calendar year (which is the tax year), and then applies to the whole year. There is no legal definition of domicile in the Income Tax Act; but it is usually acquired by birth or by a conscious decision to base oneself permanently in a country.
National Insurance contributions are payable by both employees and employers. There are also additional levies, including a non-contributory levy, employment injury levy, unemployment levy, training levy, and a catastrophe fund levy, bringing total contributions to 10.1 percent for the employee and 11.25 percent for the employer.
Stamp Duty is payable in a number of situations in Barbados, including transfers of real estate (one percent) and mortgages (at BDS3 per BDS500).
The rate of property transfer tax is 2.5 percent, with exemptions on the first BDS50,000 of share sales and the first BDS150,000 of the sale of land and houses.
There is an annual land tax levied on the improved value of the property. As from 2015, the rates are as follows: zero percent on the first BBD150,000; 0.1 percent between BDS150,000 and BDS450,000; 0.45 percent between BDS450,000 and BDS1m; and 0.75 percent above BBD1m.
Land tax is capped at BBD60,000 where a dwelling is used exclusively as a residence by the person who owns the land on which the dwelling is built. Pensioners occupying their homes are entitled to a 40 percent discount on stamp duty rates, and hotels and villas receive a 50 percent and 25 percent discount, respectively.
Customs Duties are imposed under the Customs Tariff (Amendment) Order 1991, which recognised the Common External Tariff of Caricom. Goods traded within Caricom are exempt from duty.
The rates of Customs Duty vary widely in themselves, and also because of a network of exemptions and reductions in duty under foreign investment legislation; rates can rise as high as 60 percent on some items.
Value-added tax is imposed on a range of goods and services at 17.5 percent.
There is no capital gains tax in Barbados, nor are there estate, inheritance or gift taxes.
Although Barbados intends to remove the distinctions between the "onshore" and "offshore" economy, offshore company formats are still available in the form of international business companies, international societies, exempt insurance companies and international banks.
Taxes in the regular economy are on the high side in Barbados (corporate income tax is 25 percent). However, IBCs can pay as little as 0.25 percent income tax with the maximum set at just 2.5 percent. IBCs are also exempt from withholding taxes on payments to non-residents, and from exchange control regulations (see below).
IBCs are generally incorporated under the Companies Act of Barbados and must only carry on international business (i.e., generally cannot trade in Barbados).
Concessionary tax rates are also available for on-island businesses, particularly on income derived from manufacturing, construction and for small businesses.
N.B. This is a simplified summary of the tax situation in Barbados. Those intending to live, work and/or invest in Barbados are urged to seek expert independent advice.
Barbados Is Compliant With FATCA
The Barbados Government has taken key steps to meet the requirements of the Foreign Account Tax Compliance Act Intergovernmental Agreement (FATCA IGA) with the United States, which has been in force in Barbados since September 25, 2015.
FATCA, which took effect on July 1, 2014, is intended to ensure that the US obtains information on accounts held abroad at foreign financial institutions (FFIs) by US persons. Failure by an FFI to disclose information on their US clients, including account ownership, balances and amounts moving in and out of the accounts, will result in a requirement to withhold 30 percent tax on payments of US-sourced income.
Speaking on the subject of FATCA in august 2015, Minister of Finance Christopher Sinckler said: Regarding the IT infrastructure, Barbados is well placed, as we have had the technology in place and in use for a number of years, though some enhancements will be necessary. The Revenue Commissioner has, however, assured us that she and her staff have been working assiduously to ensure that all requirements are met within the required timelines."
Sinckler acknowledged that tax practitioners and financial institutions will be required to make a number of substantial changes. He said, however, "we will adequately prepare ourselves as a tax jurisdiction for facing the many challenges which confront us. More important, however, is that it will certainly enhance our reputation and our image as a clean and competent jurisdiction, full of integrity, transparency, and openness as it relates to the administration of taxes."
Furthermore, in October 2015, Barbados became an early adopter of the Convention On Mutual Administrative Assistance In Tax Matters, along with the Multilateral Competent Authority Agreement. Early adoption of the Convention On Mutual Administrative Assistance In Tax Matters means that Barbados will begin exchanging tax information on an automatic basis from 2017, under the OECD's new international tax information reporting standard, the Common Reporting Standard.
Exchange Controls Are Being Relaxed, Slowly…
Barbados has exchange control regulations in place, although these are gradually being loosened.
Under the regulations, residents of Barbados need permission from the Central Bank before investing and/or borrowing abroad. Only an Authorised Dealer is permitted to hold foreign currency in Barbados without the permission of the Central Bank. Foreign currency brought into Barbados in cash must be offered for sale to an Authorised Dealer.
A non-resident or foreign investor must register funds with the Central Bank that are to be used to make investments into shares or debt of companies incorporated in Barbados (and there are controls over their subsequent repatriation).
Central Bank permission is required for a non-resident (Barbadian or otherwise) to buy real estate in Barbados; permission is usually given if the funds are foreign and if the money is received in Barbados. There are no other state restrictions imposed on the ownership of real estate by foreign investors or the acquisition of interest in entities which own real estate.
Non-residents individuals are not normally allowed to borrow to finance purchases of real estate, although Barbadian nationals who are non-resident may be given permission to do so.
Non-resident companies controlled either directly or indirectly by non-residents require Central Bank's permission to borrow or to obtain credit or mortgage loans from a local source.
All exchange controls relating to the Caricom area have been abolished. Corporations operating under the International Financial Services Act, such as international business companies, international societies, international banks and international insurance companies, are also exempt from Barbados's exchange control requirements.
Entry and Residence
All visitors intending to enter Barbados for short stays should: have a valid passport; have a return ticket to their country of residence; provide the address of their accommodation; and have adequate funds. Children under the age of 18 travelling to Barbados alone must be accompanied by a letter of authorization from their parent or guardian.
The validity of a visitor's visa can be extended by making an application to the Immigration Department, subject to a fee.
All non-nationals intending to work in Barbados are required to register with the Immigration Department prior to commencing employment. There are two types of work permit available: short-term permits which are valid for up to 11 months; and long-term permits, which are valid for up to three years. Employers normally complete work permit applications on behalf of employees. Whilst there are no limits on the number of foreigners a business can employ, companies must be able to demonstrate that no locals are available to fill the post.
Immigration law also allows non-Barbadians to apply for permanent residency. However, a new, more flexible permit was recently introduced allowing non-nationals to come and go more freely.
Under the Special Entry Permit regime, holders do not have time limits imposed on their stays in Barbados and can leave and re-enter the country without applying to the Immigration Department. However, the SEP is aimed at wealthy individuals, and in order to qualify one must be classed as either a "retired property owner" of a "high net worth person."
Retired property owners over the age of 60 qualify for an indefinite SEP with no expiry date. Retired property owners below this age are required to renew their SEP when they reach 60.
High net worth persons are defined as those with net assets of at least USD5m, and the same age-related rules apply i.e. the SEP must be renewed when the holder reaches the age of 60.
High net worth persons may also apply for an indefinite work permit.
Spouses and dependents of SEP holders also receive a residency visa for the same length of time.
Fees for SEPs vary depending on the type, and the age of the applicant. Fees range from USD3,500 for a retired person over 60 up to USD20,000 for an indefinite work permit for an individual under 60. Spousal and dependent visas cost USD150 per applicant.
The main government hospital, Queen Elizabeth, can cope with many types of treatment, but serious cases will mean emergency evacuation, usually to the US. There are also a number of private hospitals and clinics.
Obviously, it is essential that long-term visitors to Barbados have adequate health insurance and accessible funds to cover the cost of any medical treatment abroad and repatriation.
The Grantley Adams international airport has direct flights to US, Caribbean and European destinations.