Barbados Revenue Authority Requires Monthly Pre-Payment for Corporation Tax to Bolster Government Cash Flow

In a move the authorities expect to give Government’s cash flow a boost, companies are about to be required to pre-pay corporation tax each month.

The Barbados Revenue Authority (BRA) announced last week that an extension has been granted until January 31, “for the submission of monthly corporation tax pre-payments up to January 2025 for income year 2025”.

“Failure to make prepayments by the due date will result in a penalty of ten per cent or $10 whichever is greater, as well as interest at the rate of 0.5 per cent per month,” it advised.

“The Barbados Revenue Authority reminds entities that these prepayments are due in accordance with the relevant provisions of the Income Tax Act. The legislation requires taxpayers to submit monthly prepayments towards their estimated Corporation Tax liability for the income year,” the state entity explained.

The BRA said companies should note that “the monthly prepayment obligation does not apply to a company

with a gross income of $2 000 0000 or less; and which is registered as an approved small business under the Small Business Development Act, Cap. 318C.”

It also encouraged corporate tax payers to “utilise the available electronic platforms to ensure timely submission and payment”.

Prime Minister and Minister of Finance Mia Amor Mottley announced the new pre-payment requirement in November 2023 in Parliament while delivering a ministerial statement on corporate tax reform.

She said that in accordance with international best practice, Government would introduce “a requirement for smoother cash flow to facilitate its fiscal circumstances”.

“Monthly pre-payments for the fiscal year will be calculated based on the previous year’s tax base, multiplied by the new applicable rate, net of the impact of the tax credits,” the Prime Minister said.

The BRA says in a new guidance note on the pre-payment of corporation tax from this year that “the taxable income of a company for an income year shall be taken to be the taxable income for the income year before the preceding income year, as disclosed in its return filed in accordance with section 52 of the Income Tax Act, Cap. 73.”

“Therefore, for income year 2025, the prepayment shall be calculated based on the company’s taxable income for income year 2023. Where the return for Income Year 2023 is not available, the prepayment shall be calculated based on the company’s taxable income for income year 2022,” it explained.

The BRA also said that monthly pre-payments of corporation tax “must be paid no later than the 15th day of each calendar month through the global relations portal up to March 31, 2025 and thereafter through the Tax Administration Management Information System”.

It added: “The prepayments are calculated based on the taxable income, for the income year before the preceding income year, net of tax credits, multiplied by the applicable corporation tax rate, divided by the number of applicable months.”

Newly formed companies are required to enter an estimate of taxable income and thereafter make the appropriate prepayments.

Companies requesting a reduction in prepayments should do so by way of requesting a determination of instalments payable to the BRA, which says that “adequate supporting documentation must be submitted for consideration”.

The pre-payment requirement comes at a time when Government is receiving higher corporation tax revenue, after the overall corporation tax rate was increased to nine per cent.

The Central Bank reported in its January to September 2024 economic review that Government received $400.4 million in corporate between April and September, up from $177.7 million in the same period during the 2023/2024 fiscal year.

Central Bank Governor Dr Kevin Greenidge said that corporation and property tax receipts “drove up direct taxes to record highs during the first half of fiscal year 2024/25”.

“Net corporation tax receipts expanded by $222.6 million, due to the monthly prepayment schedule and higher corporation tax rates, announced as part of the November 2023 corporation tax reform measures,” he reported.

“The adoption of a new accounting framework for insurance companies, as well as an increase in the profitability of some multinational enterprises also shored up corporation taxes.”