Barbados Personal Taxation

There is no capital gains tax in Barbados, nor are there estate, inheritance or gift taxes. Income tax is the main tax. VAT was introduced in 1997 at 15% on a range of goods and services, replacing many old sales taxes.

"For the first time in this country, a government is doing two things that have tremendous fiscal implications - raising the income threshold below which people do not pay tax from $15,000 to $25,000 and cutting the rate of tax," said then Prime Minister Owen Arthur at the time of the announcement.

"And while we're doing that, we are also seeking to bring the taxes paid by companies in Barbados down to the most competitive level in CARICOM, from 40% to 25% to give Barbados a chance in the new single market and economy to be the preferred location for doing business," he added.

Barbados Residence and Liability for Taxation

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. The following categories of people can be distinguished from a tax point of view:

A resident and domiciled individual is taxed on worldwide income whether or not remitted to Barbados;
A resident but not domiciled individual is taxed on income derived from Barbados, including from an office or employment exercised there, and income remitted to Barbados;
A non-resident is taxed on income derived from Barbados, including from an office or employment exercised there.

Barbados Income Tax

Taxable income is defined very broadly, and includes the following categories:

Remuneration from an office or employment, including accommodation, car and other benefits;
Director's fees;
Taxable profits from a trade or business;
Interest, dividends, annual payments;
Royalties;
Social benefits;
Trust income, whether or not received;
Partnership income;
Income from the disposal of shares issued to employees;
The benefit of loans at under-value;

Dividends received from resident companies carry a tax credit and are grossed up accordingly.

See Double Tax Treaties for details of Treaty exemptions and reliefs as regards the taxation of foreign-source income for residents.

There are various personal allowances under Barbados tax law. In the 2003 budget, it was announced that personal allowances would be increased from BBD15,000 to BBD25,000 in four annual increments of BBD2,500.

The 2007 budget introduced indexation of the personal tax allowance, with the figure adjusted every three years starting from the 2007 income year (with the first adjustment expected in 2010). However, it is unclear whether the allowance will be adjusted on the basis of wage increases negotiated by trade unions, or figures compiled by the Central Bank.

Until 2002 chargeable income (after all allowances) was taxed at 25% on the first BBD$24,200 and at 40% thereafter. The basic rate was reduced to 22.5% in 2003 and to 20% in 2004, and the top rate was reduced to 37.5% in income year 2005, and to 35% in income year 2006.

In 2007, the basic and top rate remained at 20% on the first BBD24,200 of taxable income, and 35% thereafter.

Barbados tax law also provides for numerous other personal reliefs and tax allowances, a non-exhaustive list of which include:

Rental allowance, which is equal to the lower of 20% of rent paid and BBD3,000

50% exemption for royalties received in Barbados

75% of value of bonus converted to shares government bonds/debentures or mutual funds up to BBD7,500, up to a maximum of BBD7,500

A BBD10,000 allowance on the purchase of new shares in a public company, and investments in mutual funds and credit unions

A BBD10,000 allowance in investments in a Registered Venture Capital Fund or Innovation Fund

A 5% allowance of assessable income from annual payments/covenants

Tax exemption on severance payments.

Employers collect income tax from employees under a 'pay as you earn' scheme, along with social security contributions (see below).

Foreign employees working in Barbados are taxed at normal rates and are subject to Barbadian exchange controls (soon to be abolished), but if their employer is able to take advantage of the special schemes described above, up to one third of their remuneration is paid tax-free and is exempt from exchange controls.

In 2006 the government introduced enhanced tax concessions for specially qualified individuals employed in the International Financial Services Sector, as follows:

Up to $150,000 per annum 35%
Over $150,000 but less than $500,000 50%
Over $500,000 60%

Tax changes in the 2006 budget included:

individuals converting property to rental units will be permitted an initial allowance of 50 per cent on capital expenditure incurred; the remainder may be claimed at an annual rate of 4 per cent annually thereafter, effective this income year
a flat rate of tax of 15 per cent will be placed on all income derived from rental of home accommodation, effective in 2006
tenants will be allowed to claim an amount of 20 per cent of the assessable income or $3,000 which ever is lesser against the tax payable in any income year.
the levy on extra-regional imports will be increased by three percentage points to 6 per cent with immediate effect (not applicable to those food items which are zero rated under the VAT Act.)
a 0.1 per cent deduction will be taken from earnings up the national insurance maximum, which is currently $3,290 per month, to provide a catastrophe fund to pay for the rebuilding of residential properties where the home owners are uninsured.

Individuals file income tax returns by 30th April; if tax is due, half is payable with the return, and the other half on 30th September. If an individual has self-employment or business income, then the tax is payable as a proportion of the previous year's tax, in instalments during the tax year, on 15th June, 15th September and 15th December.

Barbados Social Security Taxes

National Insurance contributions for employees total are 6.75% for 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% for the employee and 11.25% for the employer.

The self-employed pay National Insurance contributions at a rate of 13.5% (2007), plus a 2% non-contributiry levy and a 0.5% training levy.

Barbados Land Tax

Barbados levies an annual land tax at 0.6% on all unimproved land; the tax-free threshold on improved property is BBD150,000 and the following rates then apply: 0.10% on amounts between BBD150,000 and BBD400,000; 0.45% on amounts between BBD400,000 and BBD1 million; and 0.75% on amounts in excess of BBD 1 million.

Where a company that is incorporated and resident in Barbados or an individual who is a citizen or a resident of Barbados has title to land that is being used exclusively for agricultural purposes, a rebate of tax of 0.5% may be granted under certain circumstances.

Barbados Stamp Duty

Stamp Duty is payable in a number of situations in Barbados, including transfers of real estate and shares (1%), leases (1%), and mortgages (BDS5 on the first $500, and $3 on each subsequent $500).

Barbados Property Transfer Tax

Property Transfer Tax is payable on the transfer by gift, sale or other method of any direct or indirect interest in land. Until recently, it was a significant tax, at 5% for citizens and permanent residents, and 8% for vendors who are neither citizens nor residents. A purchaser who is neither a citizen nor a resident paid 10% (this was in addition to the vendor's payment).

'Citizen' is defined to include dependants of citizens and companies controlled by citizens, and there is a similar definition for residents.

However, it was announced in 2007 that the rate of property transfer tax would be reduced to 2.5%, with exemptions on the first BBD50,000 of share sales and the first BBD125,000 of the sale of land and houses. The purchaser would longer pay the tax.

In addition where the sale of property by a non-resident is to another non-resident and there is no net foreign exchange loss to the country, the proceeds of sale can be repatriated without restrictions.

Barbados Customs Duties

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 30% on some items.

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