In this article, Mr. Timothy Hamel-Smith (the Partner who heads M. Hamel-Smith & Co.'s Commercial Department) and Mrs. Myrna Robinson-Walters (formerly Head of the Legal Section at the Board of Inland Revenue and presently the Partner in M. Hamel-Smith & Co.'s Commercial Department with primary responsibility for tax matters) provide investors with an overview of the type of incentives which are available to encourage investment.
FISCAL INCENTIVES ACT
An enterprise which is resident in Trinidad & Tobago may apply to the Minister of Finance under the Fiscal Incentives Act (Chapter 85:01) for the grant of approved enterprise status for the manufacture of an approved product. There is a list of products excluded from approval.
Application is made on the prescribed form, and where the Minister determines that the enterprise is eligible, it is classified into one of the following categories:
Group 1 Enterprise: in which the local value added to the
product is at least 50%
Group 2 Enterprise: the local value added is at least 25% but
less than 50%
Group 3 Enterprise: the local value added is at least 10% but
less than 25%
An Enclave Enterprise is one whose product is produced for export exclusively outside the Caricom Market and a Highly Capital Intensive Enterprise is one in which capital investment is not less than fifty (50) million dollars in the currency of Trinidad & Tobago or of Eastern Caribbean Members, whichever is the greater.
The Incentives Granted Are:
1)total or partial relief from Corporation Taxes for a period up to a maximum of ten (10) years;
2)total or partial relief from customs duty;
3)loss-offset without limitation (during the five year period immediately following the tax holiday);
4)total or partial relief from income tax on dividends or other distributions, other than interest, out of profits or gains derived from the manufacture of the approved products during the tax holiday period (where a shareholder or his nominee is not resident in a member state, the relief shall only apply to so much of the tax as exceeds the tax liability in the country in which the recipient is resident)
5)Import Duty Concessions On Plant, Equipment, Machinery, Raw Material Or Components Intended For Use In:
- constructing, altering, reconstructing or extending the approved enterprise;
- equipping the enterprise for the purpose of manufacturing its approved product;
- manufacturing its approved product.
6)Exemption from Value Added Tax (VAT) for Highly Capital Intensive Enterprises (Capital Investment of at least TT$50 million or EC$50 million, whichever is the greater).
CORPORATION TAX CONCESSIONS
Under the Income Tax Act, there is an annual wear and tear allowance of 10% of the capital expenditure on construction of a building or structure or in respect of capital improvements made on or after 1st January, 1995. There are also annual wear and tear allowances on plant and machinery. In respect of plant and machinery acquired after 1st January, 1995, there is the introduction of the pooling of such assets for the grant of wear and tear allowances. The allowance will be calculated at the applicable rate to aggregate expenditure incurred on assets within a particular group on a declining basis.
Under the Corporation Tax Act (Chap. 75:02 of the Laws of Trinidad & Tobago as amended), tax credits are available to special classes of companies as set out in the following paragraphs. The status of the Companies is approved by the Minister of Finance and the Company is registered with the Industrial Development Corporation.
APPROVED SMALL COMPANY
A tax credit of fifteen per cent (15%) of the chargeable profits is available to a small company approved by the Minister as an approved small company. To qualify, the company:
- must be locally owned and controlled (nationals must beneficially own shares carrying more than one half of the voting power in the company and have the right to receive more than one half of the dividends or capital distribution);
- if incorporated on or after January 8, 1988, is not the result of the splitting or the reconstruction of an existing company;
- does not have as a shareholder any other company holding shares either directly or indirectly through its nominees;
- maintains accounts audited by a member of the Institute of Chartered Accountants;
- has potential for creating permanent jobs;
- has at least five (5) permanent employees;
- makes optimum use of locally produced raw materials.
Application is made to the Minister of Finance in writing and the credit is available for seven (7) years from 1st January in the year the certificate of approval is granted.
REGIONAL DEVELOPMENT AREA
A tax credit equal to fifteen per cent (15%) of chargeable profits is available to an approved company carrying on business in a regional development area. To qualify, the company must:
- be incorporated in Trinidad & Tobago on or after 8th January, 1988 and be resident in Trinidad & Tobago
- be locally owned and controlled
- carry out its operations in an area designated to be a regional development area and produce manufactured goods or industrial services of which at least 75% are produced in the regional development area.
- hold at least 75% of its fixed assets in the development area.
- employ twenty or more workers of whom at least 75% work in the regional area.
A company which satisfies the criteria may apply in writing to the Minister of Finance. The credit can be claimed for seven (7) years from 1st January in the year the certificate of approval is granted. A listing of the Regional Development Areas is available.
APPROVED ACTIVITY COMPANY
A tax credit equal to fifteen per cent (15%) of the chargeable profits is also available to an approved activity company. To qualify, the activity must be capable of:
- earning hard currencies or effecting savings of foreign exchange
- creating a significant number of permanent jobs or offering prospects for future expansion
- stimulating technological development or developing new and modern industries
- making efficient use of local raw materials.
Application is made to the Minister of Finance. The credit can be claimed for seven (7) years from 1st January in the year the certificate of approval is granted. A listing of approved activities is available.
APPROVED PROPERTY DEVELOPMENT COMPANY
A tax credit equal to fifteen per cent (15%) of the capital expenditure on the construction of a commercial or industrial building is also available to an approved property development company. To qualify, the company must:
- have a paid-up share capital of not less than one million dollars.
- be locally owned and controlled.
- intend to undertake property development projects in both urban and rural areas within such time as the Board of Inland Revenue may specify.
Application for approval is made to the Board of Inland Revenue on a specified form with supporting documents as identified on the form. The credit is granted in the year of completion of the building and is claimed on the tax return.
INCENTIVES TO HOTEL AND TOURISM INDUSTRIES
With a view to encouraging the development of the hotel industry in Trinidad & Tobago and to stimulate tourism development generally, the Hotel Development Act, (Chap. 85:02) provides incentives to both Hotel Owners and Hotel Operators.
The Details Of The Incentives Are:
- Tax exemption for a period of 5 to 10 years.
- An accelerated depreciation of depreciable equipment owned by the hotelier.
- A capital allowance in respect of approved Capital Expenditure.
- Free repatriation of capital and dividends.
- Carry over of losses incurred by owner and/or operator during the tax exemption period.
- Tax exemption on dividends accruing to the owner and/or operator.
- Tax exemption to the financial institutions on interest on approved loans for a maximum period of 10 years or the period of the loan, whichever is less.
- Customs and Excise Duty Exemption on building materials and articles of hotel equipment to be used exclusively in connection with construction and equipping of a hotel project.
- Double Taxation Relief where applicable.
The definition of a Hotel Project is:
- Construction of a new hotel.
- Alteration or renovation of an existing hotel.
- Conversion of an existing building into a hotel.
- Furnishing and equipping of a new or renovated hotel or a building that is converted to a hotel.
- Individuals and Corporate Equity Investors are allowed a tax credit equivalent to 25% of the equity investment, claimable over a three (3) year period.
- Approved Hotel Projects with a minimum capital cost of US$15 million and/or 200 rooms.
Approved Tourism Projects with a minimum capital cost of US$15 million will have access to a Loan Short Fall Guarantee Scheme up to US$5 million.
The Investment Criteria For Hotel Projects Are:
- a newly constructed hotel.
- a refurbishment or renovation of a hotel with a minimum of 10 rooms where the capital cost for the upgrade exceeds US$12,000 per suite.
- an addition to an existing hotel where the room capacity is increased by 25% or 100 rooms whichever is greater.
- an upgrade of an existing hotel where the minimum investment is US$100,000.
- an ecolodge of no fewer than 20 rooms.
Investment Criteria For Tourism Projects:
- Have a minimum capital investment or equipment cost of US$83,333 or TT$500,000.
Rental of Villas, Townhouses and Condominiums should be available exclusively to visitors or be part of a bona fide time-sharing programme for at least 5 months of the year.
Application for approval of projects is made in writing to the Minister of Tourism on the specified form.
INVESTMENT IN THE OIL SECTOR
Under the Petroleum Profits Tax several incentives are available, including:
- initial allowance on tangible expenditure of 20%
- first year allowance on tangible expenditure of 20%
- annual allowance on tangible expenditure of 20%
- expenditure on development of a dry hole shall with the Minister's approval be written off in the financial year that the dry hole is plugged and abandoned.
- workover allowances of 100%.
- heavy oil allowance - 100% of capital expenditure on drilling wells.
These allowances are claimed on the tax returns.
CONCESSIONS UNDER THE INCOME TAX (IN AID OF INDUSTRY) ACT
Under The Income Tax (In Aid Of Industry Act) The Following Concessions Are Available:
- Initial allowances of 10% on erection of buildings and structures.
- Initial allowances of 50% on purchase of plant and machinery reduced in certain industries to 20%.
- Annual allowances equal to 1/50 of the expenditure on building structures or 1/20 of the expenditure where a person carries on petroleum operations under licence issued after 1st January 1970.
- Annual allowances of a reasonable amount for wear and tear on plant and machinery.
- Oil refineries - annual allowances calculated by manufacturer on 120% of the expenditure.
- Investment allowance for capital expenditure in respect of production business on land equal to 150% of the expenditure, that is, 40% in year 1 and 20% in the following five years.
These allowances are claimed on the tax returns.
IMPORT DUTY CONCESSIONS
Full exemption from Customs Duties is available in the following areas:
Sectors Imports Agriculture Machinery and Equipment Forestry Raw Materials Fisheries Petroleum Hotel/Tourism
Cabinet approval is required for full exemption, and application is made to the Permanent Secretary, Ministry of Finance.
Partial exemption from Customs Duties is available in the following areas:
Sectors Imports
Manufacturing/Assembly Machinery and Equipment - Free or 25%
Processing Raw material inputs - 0%
Parts for assembly - 5%
Exemption from Import Surcharges is available on raw materials, intermediate goods, packaging materials and other inputs not locally manufactured. These are granted by Customs at the port of entry on production of adequate documentation.
Stamp Duty on imports has been eliminated.
EXPORT INCENTIVES
Exporters, targeting countries other than Caricom countries, can benefit from the following incentives:
- Non-taxable Market Development Grant up to the equivalent of 50% of new market development cost (not applicable to market development in foreign investor's country of domicile). Recipients of this grant must meet the criteria set out by the Export Development Corporation which awards the grants.
- Tax deductions of up to 150% of actual promotional expenses in foreign markets (applicable only to companies incorporated and resident in Trinidad & Tobago).
- Profits from export sales (other than sales within Caricom) are exempt from Corporation Tax (applicable only to companies incorporated and resident in Trinidad & Tobago). Export allowances are granted to companies exporting goods outside of the Caribbean Community area. The allowance is granted on the basis of the following formula:
Total profits x specified export sales
Total Sales
Certain products are excluded from this allowance, for example, refined asphalt, rum, sugar, petroleum and petrochemicals. The allowances are claimed on the tax returns.
FREE ZONES
The Free Zones Act 1988 (as amended in 1995) established the Trinidad & Tobago Free Zones Company to promote export development and foreign investment projects in a bureaucracy-free, duty-free and tax-free environment for prescribed activities.
Free Zone enterprises may be established in any part of the country. They are 100% exempt from:
- Customs duties on capital goods, parts and raw materials for use in the construction and equipping of premises and in connection with the approved activity.
- Import and Export duties, taxes or licensing requirements.
- Land and Building Taxes.
- Fees for Work Permits.
- Foreign currency or property ownership restrictions.
- Corporate, capital gains, withholding and value added taxes.
- Duties on vehicles for use only within the Free Zone.
Investment Opportunities Include:
- Development and operation of Free Zones.
- Manufacturing (including downstream petrochemicals) for export.
- International Trading in Products.
- Provision of Services for export (for example, Information Processing and Financial services).
Application to operate in a Free Zone is made on specified forms to the Trinidad & Tobago Free Zone Company ('the Company'). After recommendation by the Company, the Minister may by Order designate an area a Free Zone, the limits of which are defined in the Order.
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.
