Barbados Widens Tax Break For International Financial Services Workers

by Amanda Banks, Tax-News.com, London

20 January 2006

Barbados is set to relax exchange controls and introduce improved tax concessions for workers in the international financial sector as a result of the 2006 Government Budget, announced by Prime Minister Owen Arthur earlier this week.

While Barbados' real economic growth at 4.1% was slightly below the 4.8% growth rate achieved in 2004, Mr Arthur announced that the international business sector was nonetheless in a healthy condition as the jurisdiction saw a 22% increase in the number of newly incorporated entities. However, there was a drop in tourism receipts during the year.

Citing preliminary reports from the Accountant General the Prime Minister indicated that current revenue increased 10.2% for the first nine months of 2005-2006 fiscal year when compared to the amount collected during the same period in 2004, with increased Goods and Services Tax revenues accounting for the lion's share of the increase.

Meanwhile, current expenditure rose by some 6.5%, and capital expenditure by 8.4%, which, it is anticipated, will result in a below target fiscal deficit of 1.7 per cent of GDP.

Among the major measures announced by Mr Arthur was the removal of exchange control restrictions for travel within Caricom by Barbadian residents in line with similar policies adopted by other Caricom countries and in preparation for the introduction of the Caricom Single Marlet Economy (CSME).

As a result of the change, Barbadian residents and CARICOM nationals resident in Barbados who earn foreign exchange may hold foreign currency accounts with a limit up to the equivalent of Bds$20,000 without exchange control permission provided the accounts are funded by foreign exchange of at least Bds$50,000 annually.

For limits in excess of BDS$20,000 exchange control permission will be required.

Effective February 1, 2006, returning Barbadian nationals may hold foreign currency accounts with a limit up to the equivalent of BDS$100,000 provided the funds credited to such accounts represent foreign currency earnings from abroad in the form of pensions, rental income, interest, dividends or other foreign income.

Another key measure is the introduction of the enhanced tax concessions for specially qualified individuals employed in the International Financial Services Sector. The concession currently granted to non-nationals is an exemption from tax equal to 35 per cent of their salary which can be paid in a foreign currency. The Prime Minister proposed to increase this as follows:

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

Under other tax measures:

• 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 this income year
• 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.)
• the land tax rate applicable for land with an improved value between $350,000 and $850,000 has been reduced from 0.65 per cent to 0.45 per cent effective from the 2006-2007 land tax year.
• 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.

Recommended