Monday, April 15, 2019
Barbados's 2019 Budget includes proposals to remove VAT input tax credits for various supplies, reform the personal income tax regime, and generate more revenues from property taxes and the gaming sector.
The territory has pledged to make good on outstanding value-added tax refund payments. Companies will receive BDS10,000 immediately and those due amounts greater than BDS10,000 (29 percent of companies) will receive refunds over up to 42 months, in monthly installments, beginning May. The Revenue Authority is to contact companies requiring that they complete a form before a payment is made.
On value-added tax reform, the territory announced that water services will become exempt, rather than zero-rated, to prevent utilities providers from obtaining VAT refunds, and the accommodation sector will newly be subject to a 10 percent rate of VAT, up from 7.5 percent from January 1, 2020, and the villa sector will become exempt, rather than zero rated, from April 1, 2019.
In addition, some imported foodstuffs will be made exempt where there are substitutes available in the local market.
Finally, the Government announced that it will seek to levy tax this year on foreign suppliers transacting with local consumers, adding that it would ensure that retailers are not subject to double taxation.
The Budget also includes a proposal to establish a Commission to review all tax incentives available in the territory. Separately it proposes also to revoke tax law provisions that permit the Minister of Finance to waive at their discretion a tax on a specific entity.
The Budget includes proposals to comprehensively reform the personal income tax system. While it maintains the BDS25,000 personal income tax-exempt threshold, it includes a pledge to remove the burden of income tax on those earning up to BDS35,000 via a tax credit.
Effective July 1, 2019, Barbados will remove the 16 percent lowest income tax rate and the second rate of 33.5 percent. Instead, the lowest tax rate on income up to BSD50,000 will be 12.5 percent. The rate on income above this threshold will fall from 40 percent top 33.5 percent, between July 1, 2019, and December 31, 2019, and from January 1, 2020, the rate will fall to 28.5 percent.
Tax perks for individuals resident but not domiciled in Barbados will be reduced, ensuring that those earning foreign currency income will be subject to an effective rate of about 10 percent, up from about 2 percent.
Further, the Budget proposes to eliminate withholding tax on payments made to non-residents, other than dividends, including: interest, management fees, and royalties income. Withholding taxes on residents will increase on interest and dividends income from 12.5 percent to 15 percent. The Budget pledges to retain the same withholding tax rates for pensioners without providing details.
The Budget includes a number of international tax provisions, including new limits on the amount of related-party interest that can be deducted from income derived from a business or property. In addition, effective September 1, 2019, a thin capitalization rule, with a ratio of 1.5 to 1, will be introduced. Interest payable on outstanding debts due to non-resident related parties that own more than 10 percent of the company will be deductible to the extent that the total amount of the debt does not exceed one and a half times the equity of the company. Any portion of interest that exceeds this ratio will no longer be deductible, the Budget states. Further, the Budget includes a commitment to introduce transfer pricing rules in the near future.
On branch profits, the Budget states that to bring the withholding tax treatment of branch profits in line with that of dividends, branch profits paid out of income earned outside of Barbados will no longer be subject to branch profits tax.
Finally, the Budget includes proposals to raise the room rate levy by 75 percent and increase land tax for properties valued above BDS450,000. Those valued up to BDS850,000 will face a 0.7 percent rate, up from 0.45 percent, with a one percent rate on properties valued above this threshold, with tax liability capped at BDS100,000. Certain real property will be subject to a one percent idle land tax. Discounts for early payment of land tax will be reduced from 10 percent to five percent, and land tax bills will be issued at the end of May, rather than in September.
The Budget will be particularly deleterious for gaming companies. The Budget states that slot machine owners have not been subject to tax since mid 2011. During talks with the industry, the Government was informed that there was a standstill arrangement in place with the previous government with respect to license fees, the Budget states. The current Government intends to collect three percent of the tax said to now be due from these operators dating back to 2011, as it says there is no public record of that agreement.
Further, effective May 1, 2019, there will be a 20 percent withholding tax on gambling winnings from lotteries and betting. Slot machines and video lottery terminals will be subject to 17.5 percent VAT on net drops, the Budget states. It provides that gaming establishments will have until January 1, 2021, to change out all of the current old slot machines to auditable new machines.