Taxable Income

Calculation Taxable Income from Trade or Business

In Barbados, income from trade or business is based on accounting income derived based on Generally Accepted Accounting Principles (GAAP) applicable in Barbados. However, the Income Tax Act does not permit the deduction of accounting depreciation for tax purposes, but it does allow the taxpayer to claim Capital Cost Allowances (CCA) on permitted capital expenditure. Additionally, there are a range of additional special allowances which a taxpayer may claim in certain circumstances.

Below is a summary of generally permitted expenses which may be deducted from income from trade and business in the determination of taxable income.

1. Interest on debt
2. Preferred dividend payments in certain circumstances
3. Repairs of premises, property, plant, and machinery.
4. Bad debts written off during the year. No deduction is permitted for an allowance for doubtful bad debts which were not written off in the year.
5. Property taxes
6. Insurance premiums on property, plant, and equipment. As well as premiums on fidelity, indemnity, and similar risks.
7. Travel expenses
8. Business entertainment and marketing expenses
9. Contributions paid to an approved registered pension plan
10. Office operating expenses
11. Salaries, wages, and employment benefits
12. Contributions to registered benevolent organizations.
13. Tax losses incurred in prior years, not exceeding nine years, may be deducted.
14. From 2019, taxable income tax losses may not reduce taxable income by more than 50% of the amount assessable in that year.

Allowances include:

1. Annual Allowances (i.e. depreciation allowances on the straight-line method) at prescribed rates are deductible in respect of plant and machinery used in the trade. Initial Allowances at 20% of the cost are deductible for the year of purchase. Balancing Allowances and Charges (to ensure that total allowances equal but do not exceed cost) are made on the sale or obsolescence of machinery and plant.(Refer to the provisions of Parts 4 and 5 of the Income Tax  Regulations, 1969)
2. Instead of the initial allowance, Prescribed Basic Industries are entitled to an Investment Allowance on plant or machinery which was new or which was imported into Barbados for the first time.
3. The investment allowance is not deducted like the initial allowance in determining the diminished value of the asset. The rate is 40% in the case of the manufacture and refining of sugar and the manufacture of products from clay or limestone. In any other case, the rate is 20%. A person entitled to claim an Export Allowance could also qualify for an investment allowance at the rate of 40%.(Refer to the provisions of Parts 4 and 5 of the Income Tax  Regulations, 1969)
4. Capital Expenditure on Industrial Buildings and Structures may be written off by an initial allowance of 40% of the cost and an annual allowance of 4%. (Refer to the provisions of Parts 4 and 5 of the Income Tax Regulations, 1969)
5. Agricultural Businesses (other than those engaged in the refining or manufacture of sugar) can claim a Cash Rebate on capital expenditure incurred on agricultural machinery or plant which was new or which was imported into Barbados for the first time. The rates are 10%, 15% or 18% depending on the type of machinery or plant.
6. Commercial buildings qualify for a building allowance equal to 10% of the improved value where the property is registered with the National Trust, and 1% of the improved value where it is not so registered.
7. Where a building, other than a commercial building or a building enjoying the benefits under the Hotel Aids Act, has been converted by the owner to provide units for rental to residents, 40% of the capital expenditure incurred on the conversion may be claimed as an initial allowance in the year the expenditure was made and 4% or as an annual allowance.
8. Persons engaged in the business of export to countries outside CARICOM may claim a research and development allowance of 150% of qualifying expenditure on the research and development undertaken for the purpose of promoting the export sales of the business.
9. A market development allowance of 150% of the specific expenditure incurred for the purpose of encouraging tourists to visit Barbados may be claimed by persons engaged in the tourist industry.
10. A person, other than a company enjoying benefits under the Fiscal Incentives Act, 1974, that exports sugar to countries outside Caricom, is entitled to an export allowance at prescribed rates.
11. An export allowance may also be set off against the tax payable on the income derived from the reinvestment of profits earned in Barbados from enclave enterprises owned by persons other than Barbadian citizens, which produce goods exclusively for export outside of Caricom.
12. A foreign currency earnings allowance, calculated as set out in the Fourth Schedule or Fifth Schedule in the Income Tax Act, is available to a person carrying on business in Barbados and whose assessable income is derived from the undertaking of qualifying overseas construction projects, or the supplying of qualifying overseas professional services, has the payment due, either by transfer of foreign currency to Barbados through the Barbados banking system or by payment in Barbados currency from funds held in Barbados which would be legally remitted from Barbados.
13. If an item of capital expenditure is made in relation to a water storage facility on any commercial building, an allowance of up to a maximum of $3,500 may be claimed for each commercial building.
14. Persons contributing an amount of money to the Tourism Development Corporation, that person can deduct an amount equal to 150% of the actual amount contributed, or 150% of 3% of his pre-tax profits from the preceding year, whichever is the lesser.
15. A company investing an amount in the Barbados Agency for Micro Enterprise Development Ltd. can deduct an amount equal to 120% of the actual amount invested up to a maximum of one million dollars.
16. A company, which has contributed an amount of money to the Regional Negotiating Fund, can deduct an amount equal to 150% of the actual amount contributed in calculating the assessable income.
17. Where a company has in an income year listed its shares on the Securities Exchange of Barbados, then in calculating the assessable income of that company for that income year, there shall be deducted an amount equal to 120% of any cost incurred in that income year by the company in listing its shares on the Securities Exchange of Barbados.
18. A company contributing an amount of money in the Arts and Sports Promotion Fund, established by the Arts and Sports Promotion Act, 2004 may claim as a deduction an amount equal to 150% of the actual amount invested.