1. Clear, consistent and easily executed tax laws
DBJ Private Equity & Infrastructure Conference
Presenter: Allison Peart
EY Jamaica Country Managing Partner and Tax Partner
11 June 2019

2. Disclaimer
EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the U.S.
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Views expressed in this presentation are those of the speakers and do not necessarily represent the views of Ernst & Young LLP.
This presentation is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer’s facts and circumstances
These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting or tax advice.

3. Agenda Jamaica Corporate Tax Regime Overview
Clear, consistent and easily executed tax laws? Why?
Issues & Recommendations
Conclusion

4. Jamaica Corporate Tax Overview
Jamaica’s Corporate Income Tax rate is:
25% for unregulated companies
33⅓% for regulated companies (note that building societies pay 30%)
Losses can be carried forward indefinitely, but the following restrictions apply on the utilization:

5. Jamaica Corporate Tax Overview
Taxpayers will be allowed to offset no more than 50% of the taxable income in any one year.
Exemption from the loss restriction for the first 5 years following the tax year in which a new business commenced.
Exemption from the loss restriction if the taxpayer’s gross revenue from all sources is less than $3 million.

6. Jamaica Corporate Tax Overview
No Group Relief for losses.

7. Jamaica Corporate Tax Overview Cont’d
Employment Tax Credit (“ETC”)
The total amount of the employer and employee statutory contributions for Education Tax, NHT, NIS and HEART, that may generally be credited against income tax payable. The statutory contributions must be paid on time and relevant returns filed on time.
Companies listed on the Junior Market continue to receive income tax relief

8. Jamaica Corporate Tax Overview Cont’d
ETC for a tax year is restricted to 30% of the company’s income tax payable.
Includes a clawback, where a company makes a dividend payment and the dividend withholding tax is 10% or less.
Companies listed on the Junior Market continue to receive income tax relief

9. Jamaica Corporate Tax Overview Cont’d
Depending on the amount of ETC, the corporate income tax rate could be reduced to 17.5% from the standard 25%.
Certain companies such as regulated companies, are not eligible for the ETC.
Companies listed on the Junior Market continue to receive income tax relief

10. Jamaica Corporate Tax Overview Cont’d
Jamaica has no capital gains tax.
Transfer Tax and a nominal Stamp Duty generally apply to transfers of certain Jamaican property:

11. Jamaica Corporate Tax Overview Cont’d
Based on the 2019 Tax Budget, a 2% transfer tax is imposed on the transfer of certain Jamaican property by way of sale, gift, exchange, grant, assignment, surrender, release, or other disposal.

12. Jamaica Corporate Tax Overview Cont’d
A few transfers can be made transfer tax free if certain conditions are met, but these transfers must be made between Jamaican companies.
Companies listed on the Junior Market continue to benefit from income tax relief.

13. Jamaica Corporate Tax Overview Cont’d
Withholding tax of 33⅓% is levied on certain payments (such as for services) if paid to non-resident companies, but the tax treaties can lower this rate.
General Consumption Tax (GCT) of 16.5% is charged on most goods and services with a few exceptions.

14. Jamaica Corporate Tax Overview Cont’d
GCT of 16.5% is also generally charged on taxable services “imported into Jamaica.”

15. Jamaica Corporate Tax Overview Cont’d
Transfer Pricing
Jamaica has transfer pricing rules that apply to transactions conducted by taxpayers resident in Jamaica with connected persons.

16. Jamaica Corporate Tax Overview Cont’d
The transfer pricing rules also intend to treat as a connected transaction:
Transactions that are carried out with persons resident in a jurisdiction where no income tax is payable.
Transactions that are carried out in the jurisdiction where the income tax payable is less than one half of the rate of tax that would be applicable to the transaction if the person were resident in Jamaica.

17. Jamaica Corporate Tax Overview Cont’d
The Jamaican Transfer Pricing rules which are based on the OECD standards:
provide the definition of the arm’s length principle for transactions between connected persons.
regulate the criteria taxpayers must follow to perform a comparability analysis.
establish the transfer pricing methodology to apply when assessing the arm’s length principle.

18. Jamaica Corporate Tax Overview Cont’d
Based on the transfer pricing rules, only taxpayers whose gross annual revenue equals or exceeds J$500 million are required to maintain transfer pricing documentation at the time of their transactions to prove arm’s length pricing.

19. Jamaica Corporate Tax Overview Cont’d
Effective year of assessment 2015, all taxpayers engaged in connected party transactions are required to complete a “Related Party Transaction Schedule” (Schedule 8) to be attached to the Income Tax Return and submitted by the 15 March tax filing deadline.

20. Why do we need clear, consistent and easily executed tax laws?
Globalization is leading to more competition in the Region and need for companies to improve performance and find long term solutions.
Regional & International businesses looking to expand, invest in the wider Caribbean and beyond.

21. Why do we need clear, consistent and easily executed tax laws?
Investors usually want:
Clear, consistent and competitive taxation regimes.
Easy cross-border investments.
Conformity to international standards regarding business concepts.

22. Why do we need clear, consistent and easily executed tax laws?
If the tax laws are confusing, change constantly and are not easy to follow, then why would anybody invest here much less use Jamaica as a regional investment hub?

23. Issues and Recommendations
Jamaica has come a far way with its tax reform and is not on any tax blacklists but it needs to continue to improve.
Some of the Corporate Law Issues
The corporate law can create issues for investors and impacts taxation, so Jamaica needs to update its corporate law to make it more useful and user friendly.

24. Issues and Recommendations
A Jamaican branch cannot be converted to a company in Jamaica without:
transferring its assets
Losing all accumulated tax losses.
Investors should be allowed to transfer assets used in a Jamaican branch into a Jamaican corporation and maintain access to any losses as long as the ownership remains the same and there is no tax avoidance intent.

25. Issues and Recommendations
Foreign companies cannot migrate or do a corporate continuance into Jamaica, but if we intend to become a regional hub for investments, the Jamaican corporate law needs to change to allow corporate continuances into Jamaica.

26. Issues and Recommendations
Partnerships are used widely in other parts of the world, particularly in private equity but due to the lack of clear tax laws, it is not common for most investors in Jamaica to use partnership structures as their vehicle of choice, unless they are legally forced to (e.g. law firms or accounting firms).

27. Issues and Recommendations
The transfer tax free reorganization provisions currently only apply to local Jamaican companies, but they should be allowed for foreign companies as well, provided there is no tax avoidance intent.

28. Issues and Recommendations
Collective Investment Schemes
Prior to the 2013 amendments to the ITA, unit trust that were 51% or more invested in equity and real estate were not subject to deduction of tax at source, but the 2013 Act amendments, made redemption gains in a collective investment scheme (and not just a money market fund) liable to payment of income tax.

29. Issues and Recommendations
An exemption was introduced whereby redemption gains in money market funds operated by registered collective investment schemes on units acquired after 1 January 2014, were exempt, provided they meet the 4 listed criteria, being:

30. Issues and Recommendations
(i) the units are held by individuals for no less than 5 years.
(ii) the units are not transferable except on death or bankruptcy.
(iii) no more than 75% of the realized gains in any year has been paid out.
(iv) the investment in any year does not exceed J$1 million.

31. Issues and Recommendations
Collective Investment Schemes
Section 39(3) of the ITA was effectively amended so that all redemption gains paid by a collective investment scheme were subject to tax deduction at source at the rate of 25%, except the relevant long-term accounts, so equities fund and real estate funds are now subject to income tax on their redemption gains.

32. Issues and Recommendations
Previously, there was no requirement to deduct tax at source, for equity invested funds or funds invested in real estate.

33. Issues and Recommendations
The current Jamaican tax legislation has far reaching implications for the continued operation of collective investment schemes which are more than 51% invested in equity or real estate funds in Jamaica, because it would not be beneficial for an individual or company to invest in a unit trust that has investments of more than 51% in an equity fund or a real estate fund post 2014, since less tax would be suffered by an individual or company that invests directly in equities or real estate.

34. Issues and Recommendations
There should be no difference in the benefit to a person who purchases real estate and equities directly and a person who invests through a collective investment scheme. This disparity needs to be addressed.

35. Issues & Recommendations (cont’d)
Double Tax Treaties
Luxemburg has over sixty-four (64) double taxation treaties compared to Jamaica’s fourteen (14). Barbados has twenty-four (24) double tax treaties and more in discussion.

36. Issues & Recommendations (cont’d)
Investors do not want to face double taxation on investments, so Jamaica needs to increase the number of its double tax treaties with developed countries to ensure it attracts investors from various countries especially the ones who are wealthy.

37. Issues & Recommendations (cont’d)
Interest and Penalties
Penalty and interest on late filing of returns is still too high. There is a fine line between encouraging people to pay on time and dissuading people from coming into the tax net. As an example, the 50% penalty on late payment of tax should be reduced to a more reasonable 10%.

38. Issues & Recommendations (cont’d)
The penalties and interest rate should be in line with the BOJ’s rate of interest.

39. Issues & Recommendations (cont’d)
GCT
The GCT Act is not clear as to whether the GCT is a VAT or a consumption tax, so it needs to be reviewed and properly updated.

40. Issues & Recommendations (cont’d)
Income Tax Act
The Income Tax Act needs to be updated so that the language is easier to understand.
As soon as Jamaica can afford it, the income tax rates, both personal and corporate should be reduced.

41. Conclusion
Jamaica needs to have a road map for tax policy such that regardless of the government in power, certain things remain such that the Jamaica has clear, consistent and easily executed tax laws

42. Questions?