The International Trusts Act of Barbados 1995-14 (amended by the International Trusts Act 1995-19) provides for the creation and regulation of international trusts and related matters. Subject to the terms of the trust instrument the Act provides for certain taxation matters which affect the trust and its beneficiary. Some of these taxation matters are discussed herein.
Taxation of Beneficiary of International Trust
The Act provides that non-resident beneficiaries of an international trust are not subject to income tax in Barbados on amounts allocated or distributed by trustees out of trust income. However a resident beneficiary is subject to tax in Barbados on trust income in respect of the year(s) during which he is resident in Barbados.
Amounts allocated or distributed out of capital of the trust to eligible beneficiaries are exempt from tax in Barbados. Subject to the provisions of the trust instrument, accumulated income of the trust which has been allocated but not distributed to beneficiaries in prior periods shall form part of the capital of the trust.
Where income of prior years has accumulated in a discretionary trust which is exempt from tax under the Act, subsequent distribution of that income shall not be subject to tax in Barbados when paid to a beneficiary who is a resident of Barbados, except to the extent hat the income relates to prior years during which the beneficiary was a resident of Barbados.
Taxation of International Trust
An international trust is exempt from indirect tax, ad valorem stamp duty or other imposts on transactions undertaken or documents executed pursuant to its activities. Note though that an international trust shall pay a fixed duty as specified in the Stamp Duty Act, Chapter 91.
Furthermore, section 40 of the Income Tax Act, Chapter 73 provides that a trust, other than a unit trust, shall in respect of the trust property and the income arising therefrom be deemed to be a separate individual. In short, in Barbados a trust is taxed as an individual, separate and distinct from its trustee or beneficiaries. The question remains whether an international trust is subject to income tax.
Section 29 of the International Trusts Act amended by section 3 of the International Trusts (Amendment) Act 1995-19 provides that for the purposes of section 17 of the Income Tax Act an international trust is deemed not to be domiciled in Barbados.
Section 17 of the Income Tax Act provides as follows:
In calculating the assessable income for an income year of a resident person who during the income year is not domiciled in Barbados, the following amounts and no others shall be included:
- income derived from Barbados for that income year,
- income from an office in Barbados or employment exercised therein for the income year whether or not the contract of employment was made in Barbados and whether or not the employer is resident in Barbados, and
- income from other sources outside Barbados whenever derived to the extent that a benefit is obtained in Barbados from an income in the income year in the form of a remittance of money, an importation of property, the granting of credit by bank overdraft or otherwise or in other form whatever,
and no deductions or allowances in respect of the calculation of assessable income shall be made in respect of income or the production of income not so included.
Therefore an international trust not domiciled in Barbados, having no source of income form Barbados and not benefiting from any income from foreign sources income being derived in Barbados is not taxable in Barbados. Also, such a trust does not qualify for any deductions or allowances in respect of the calculation of its assessable income derived from foreign sources.
Moreover, because a trust is deemed as a separate individual the trustees of the international trust are allowed no personal deductions in respect of the trust property.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.