Tax Residency Criteria in Barbados
In Barbados, the determination of tax residency is governed by the Income Tax Act, Cap. 73. According to Section 2 of the Act, an individual is considered a resident of Barbados for tax purposes if they meet any of the following criteria:
- Physical presence in Barbados for more than 183 days in a calendar year.
- Domicile in Barbados, which is established by a person's permanent home or principal place of abode.
- Ordinary residence in Barbados, which implies a more continuous and permanent presence beyond mere physical presence.
For entities, tax residency is determined based on their place of incorporation or management and control. Companies incorporated in Barbados are generally considered resident in Barbados, while foreign companies may be deemed resident if their management and control are exercised in Barbados.
Impact of International Tax Treaties
Barbados has entered into several double taxation agreements (DTAs) with other countries to prevent double taxation and promote cross-border trade and investment. These DTAs may modify or provide exceptions to the standard criteria for tax residency as defined in domestic law.
For example, the DTA between Barbados and the United Kingdom provides that an individual is considered a resident of Barbados if they are liable to tax in Barbados by reason of their domicile, residence, place of management, or any other criterion of a similar nature. The DTA also includes tie-breaker rules for individuals who are considered residents of both Barbados and the United Kingdom under each country's domestic law.
Rationale and Objectives
The criteria for determining tax residency in Barbados are designed to ensure that individuals and entities with significant ties to Barbados are subject to taxation on their worldwide income. By establishing clear criteria, the legislation aims to prevent tax evasion and ensure that individuals and entities contribute to Barbados' tax revenues in line with their economic activities within the country.
International tax treaties play a crucial role in modifying or providing exceptions to these standard criteria. These treaties are negotiated between countries to prevent double taxation and promote cross-border economic activities. The treaty-specific modifications aim to provide clarity and prevent double taxation by establishing clear rules for determining tax residency in cases involving cross-border activities.
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