Tax Guide for US Expats Living and Working in Barbados
Who Is Liable For Income Taxes in Barbados
An individual resident and domiciled in Barbados for tax purposes is subject to income tax on worldwide income, regardless of whether the income is remitted to Barbados. Residents who are not domiciled in Barbados are taxed on income derived from Barbados and on income remitted to Barbados. Non-residents are taxed on income derived from Barbados only.
Individuals are considered resident if they are present in Barbados more than 182 days in a calendar year or if they are ordinarily resident in Barbados in a calendar year. Individuals are deemed to be ordinarily resident if they have a permanent home in Barbados and notify the Commissioner of Inland Revenue that they intend to reside in Barbados for a period of two consecutive years, including the current income year. Domicile is not defined in the Income Tax Act and is understood as it is used in the United Kingdom. Broadly, it is the jurisdiction that an individual regards as his or her permanent home.
Income subject to tax. The taxation of various types of income is described below. For a table outlining the taxability of income items.
Employment income. Taxable remuneration from employment includes salaries, commissions, bonuses, directors’ fees, perquisites and pension income. In general, employees may be taxed on any benefit that is not conferred wholly, exclusively and necessarily for the performance of duties relating to their employment. For example, a company car is taxed at 10% of its cost, and the value of a rent-free residence is included in the employee’s taxable income, up to a maximum of BDS$48,000 per year.
Amounts paid as a housing allowance are fully taxable.
Educational allowances provided by employers to their employees’ children are fully taxable for income tax and social security purposes.
Self-employment income. Taxable profits generally consist of business profits as disclosed in the business operation’s financial statements, subject to various tax adjustments. Income tax is imposed on net business income.
Investment income. A resident’s investment income, other than domestic dividends, domestic interest and income from the rental of property, is aggregated with other income and taxed at the rates.
If a resident company pays an ordinary dividend to a resident individual shareholder, the dividend is subject to a final 12.5% tax withheld at source. For resident individuals, dividends received from shares held under dividend reinvestment plans are exempt from the 12.5% withholding tax if the shares are held for at least five years. However, this exemption is limited to 75% of the value of the dividend, up to a maximum of BDS$7,500 per year. Interest received by a resident individual, other than a pensioner, from a resident borrower is also subject to a 12.5% final tax withheld at source. Pensioners over 60 years of age are not subject to tax on interest income.
For residents, 50% of royalties received in Barbados is exempt from tax. All other royalties received are aggregated with other income and subject to tax at the rates. Net income from the rental of residential property is taxed at a flat rate of 15%.
Nonresidents are taxed on domestic dividend income, interest, royalties and management fees, which are subject to a final 15% tax withheld at source. Rental income is subject to a 25% withholding tax, which represents a prepayment of tax. However, if a nonresident individual has habitually filed tax returns with respect to rental income in prior years, no tax is required to be withheld. In addition, if the payer is a company operating in the international business and financial services sector, rental income is not subject to withholding tax. Interest earned by nonresidents on debentures, bonds and stock issued by the government of Barbados is exempt from tax.
Taxation of employer-provided stock options. Employees are taxed on income arising on the purchase of shares acquired under a stock option plan. The taxable amount is equal to the difference between the market price of the stock on the date the option is exercised and the price paid for the stock under the option, subject to a deduction of up to 10% of the employee’s assessable income. The benefit is taxed in the same manner and at the same rates as other employment income. If the shares are disposed of within five years after the option is exercised, the 10% deduction is recaptured in the year the shares are sold. No distinction is made between qualified and nonqualified stock option plans.
Capital gains. Capital gains are not subject to tax, and capital losses are not deductible.
Deductions
Personal deductions and allowances. For 2011, residents are entitled to the deductions and allowances.
Nonresidents may not claim deductions and allowances.
Specially qualified individuals working in the international business and financial services sector may qualify for tax exemptions equal to percentages of their remuneration, including salary, fees or any other emoluments, if they hold a valid work permit for at least three years.
If a resident but non-domiciled individual earns income from sources outside Barbados and transfers this income to Barbados through the banking system, the individual may claim a foreign currency earnings
Business deductions. Any expenses incurred wholly and exclusively for the purpose of producing taxable income are deductible.
Reserves or provisions of a general nature are not allowable. Write-offs of specific amounts or balances generally are allowed if the Inland Revenue is satisfied that they are not recoverable.
In computing taxable income, depreciation and amortization for financial statements’ purposes are replaced by capital allowances for tax purposes. Annual allowances from 5% to 33 1/3% calculated on a straight-line basis, are granted on the original cost of fixed assets. In general, an initial allowance of 20% is granted on the cost of plant and machinery purchased in an income year.
In addition, an investment allowance of 20% is granted on the cost of capital expenditure on new plant and machinery to be used in a basic industry. The allowance is 40% for new plant and machinery to be used in manufacturing and refining sugar and in manufacturing products from clay and limestone. Persons who export outside the Caribbean Common Market also qualify for an investment allowance of 40% of the cost of new plant and machinery purchased during the tax year. The investment allowance is not deducted from the cost of the asset in determining the annual allowance.
Industrial buildings qualify for an initial allowance of 40% and an annual allowance of 4% of the cost of the building.
An allowance of 1% is allowed on the improved value of commercial buildings.
Relief for losses. Business losses may be carried forward nine years and offset against income arising in those years. Losses may not be carried back. However, losses incurred from the rental of residential property can be offset only against taxable income derived from the rental of residential property. These losses may also be carried forward nine years.
B. Other taxes
Property transfer tax. Property transfer tax is levied on all transfers of real estate, certain leasehold interests and shares, except shares traded on the Barbados securities exchange and shares of companies whose assets consist of foreign assets and securities and whose income is derived solely from sources outside Barbados.
The seller pays tax at a rate of 2.5% on amounts in excess of BDS$50,000 received for the sale of shares and on amounts in excess of BDS$150,000 received for the sale of land on which there is a building. Transfers of shares involving no change of beneficial ownership are exempt from property transfer tax if the beneficial ownership does not change within five years after the original transfer. The lessor pays tax at a rate of 2.5% on a lease of 25 years or more for residential and commercial property.
Estate and gift tax. Estate and gift tax is not levied in Barbados.
C. Social security
Contributions. Contributions to the national insurance scheme must be made at the following rates on maximum monthly insurable earnings of BDS$4,090:
- For employees, 10.1%
- For employers, 11.25%
- For self-employed persons, 16.1%
Totalization agreements. Barbados has entered into social security totalization agreements with Canada, the Caribbean Community and Common Market (CARICOM) and the United Kingdom to provide relief from paying double social security taxes and to assure benefit overage.
To learn more about the history, culture, economy and other information about Barbados
We have been preparing US income tax returns for US Citizens and permanent residents living in Barbados for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Barbados and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the Barbados tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Barbados Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed while working in Barbados, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Barbados.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email