Barbados ESR Update: What Businesses Must Know in 2025 and Beyond

09
Dec

Overview

In November 2025 Barbados has introduced an updated framework for Economic Substance Requirements (ESR) effective 1 January 2025.
This change is part of the Government’s ongoing alignment with OECD and international tax standards.

Two new pieces of legislation were tabled:

• Companies (Economic Substance) (Repeal) Act, 2025
– Repeals the current ESR Act (2019)
• Income Tax (Amendment) Act, 2025
– Introduces a new ESR framework directly into the Income Tax Act, Cap. 73
The result is a more streamlined and targeted ESR regime

From fiscal years ending 2025 onward, economic substance is no longer governed by a standalone law.

Instead, ESR is integrated into Barbados’ tax system.

This means:

  • ESR now applies only to companies benefiting from Barbados’ low corporate tax rate (9% or less).
  • Reporting will take place together with the annual tax return.
  • Compliance is tied directly to a company’s tax status.

Relevant Activities (from 2025 onward):

The list has been narrowed to only:

  • Insurance business
  • International shipping business

This is a major shift from the 2019 ESR regime, which applied to a much wider set of business activities.
Most Barbados companies will no longer fall within ESR.


Substance Requirements for 2025

Companies engaged in insurance or international shipping must demonstrate:

Examples include:

For insurance:

  • Underwriting
  • Calculating and managing risk
  • Claim handling
  • Reinsurance activities

For shipping:

  • Crew management
  • Ship maintenance and repairs
  • Tracking deliveries
  • Voyage planning and oversight

Companies must show that:

  • A quorum of directors meets in Barbados
  • Directors have appropriate knowledge and expertise
  • Key decisions are made in Barbados
  • Board minutes and corporate records are kept in Barbados

Depending on the size and nature of operations, companies must maintain:

  • Adequate operating expenditure
  • Adequate physical presence (office/premises/equipment)
  • Adequate employees physically located in Barbados

But the company must be able to monitor and control the outsourced activities

Reporting and Enforcement

Annual Filing

From the 2025 fiscal year onward, ESR information must be submitted as part of the annual income tax return.

ESR Audits

The Barbados Revenue Authority may conduct audits to verify:

  • Physical presence
  • Local expenditure
  • Staff and operations
  • Decision-making processes
  • Financial records

Consequences of Non-Compliance

If a company fails to meet ESR:

  • It may lose access to the reduced tax rate (9% or less)
  • Additional tax assessments and adjustments may apply

Transitional Arrangements

  • For fiscal periods ending on or before 31 December 2024, the current ESR Act (2019) continues to apply
  • For fiscal periods ending in 2025 and beyond, the new ESR rules under the Income Tax Act

Clients should ensure they remain compliant with the old regime for 2024 and prepare for the new tax-based ESR from 2025 onward.

This article is provided for informational purposes only and does not constitute legal or tax advice. The content herein should not be relied upon as a substitute for consultation with qualified tax or legal professionals. Readers are strongly encouraged to seek professional guidance tailored to their individual circumstances before making any tax or legal decisions regarding the topics discussed above.

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