There are various aspects of corporate taxation in Jamaica that should be understood before investing money in a local company. Some of the major topics include capital gains, dividends, profit shifting, and Jurisdictional arbitrage. In this article, we will cover the basics of corporate taxation in Jamaica.
Dividends
The Dividends of Corporate Tax in Jamaica (DCTJ) is a taxation system that applies to dividend income received from companies. This income is taxable in Jamaica under the Jamaican Income Tax Act. However, it is important to note that not every company pays dividends on a regular basis. Moreover, the taxation of dividends differs between individuals and companies.
Individuals can claim a deduction of up to 25% of the dividend income from their company. Companies may also claim tax deductions from preference dividends, if the payments are regarded as ordinary dividends. However, bonus issues, which are stock issues resulting from the capitalization of retained earnings, do not result in taxable distributions to the shareholders.
Some dividends declared by a company that trades on the JSE are taxed at a rate of 15%. In addition to this, the taxes deducted from the dividends are treated as a final tax for income tax purposes and cannot be brought forward. Moreover, resident corporate shareholders are subject to a 15% withholding tax. However, if they hold a 25% stake in a company, they will not be charged with tax withholding at source. However, they must account for this tax at the end of the year.
Capital Gains
Jamaica’s government has implemented an aggressive program of economic reform aimed at boosting foreign investment. As a result, the government has simplified the tax system and reduced distortionary taxes. Moreover, the government has also implemented many reforms to improve the business environment. Among these are a simplified tax code and SIPP legislation for credit bureaus. In addition, the government has made starting and running a business much easier. Furthermore, the cost of external connection works has been reduced, making it easier to attract foreign investors.
The corporate tax in Jamaica is a final 15% tax on dividends paid by Jamaican-resident companies. However, the government does not charge tax on capital gains if the recipients hold at least 25% of the voting rights. In Jamaica, the taxation of dividends is limited to the income that is generated by the company’s operations. In addition, the government does not apply tax to capital gains, which are distributions of the company’s profits and may be issued in the form of cash payments, stocks, or other property.
Individuals living in Jamaica can expect an income tax rate of 25%. This rate goes up to 30% for those earning more than six million JMD per year. Non-residents are taxed only on their Jamaica-sourced income. However, they are exempt from tax on income earned outside Jamaica. Tax deductions in Jamaica include contributions to pensions and Social Security. There is no capital gains tax in Jamaica, but the market value of certain assets such as real estate and investments is subject to a transfer tax.
Private companies can benefit from a balancing allowance. This allows them to offset any capital gains that they have withholding. Furthermore, capital gains that result from the sale of shares in a private company are tax-free. However, there are conditions that must be met for the profits to be tax-free.
Compared to the United States, taxes in Jamaica are high. Moreover, the country has high crime rates and high unemployment rates. As a result, foreign companies may feel uneasy about investing in Jamaica.
Jurisdictional arbitrage
Multilateral tax treaties (TLO) create a legal infrastructure for cross-border tax arbitrage, giving the government’s incentive to undercut each other’s tax rates. This competition is focused on multinational corporations and high-net-worth individuals. Among other things, these agreements lower the burden of the corporate tax and offer selected tax benefits for specific corporate activities or forms.
There are several advantages to jurisdictional arbitrage in corporate tax in Jamaica. For one, it discourages multinational companies from relocating their profits to low-tax jurisdictions, which in turn lower their tax revenues. On the other hand, multinational companies are discouraged from relocating their profits to low-income countries because of the global minimum CIT.
Impact of profit shifting
One of the biggest challenges facing Jamaica is the impact of profit shifting from multinational enterprises, which deprives the government of vital tax revenues. The country’s corporate tax share has dropped from 16.5% in 1990 to just 9.3% in 2015. The decline in corporate tax revenues is considered unfair by citizens and undermines the legitimacy of the tax system. It also distorts competition by placing domestic businesses at a competitive disadvantage.
The Government of Jamaica has implemented a number of measures to counter this problem. First, it has introduced a new Income Tax Treaty with the United States in 1980. This treaty aims to prevent double taxation and income tax evasion. The country has signed similar agreements with other countries, including Canada, CARICOM, Norway, and the United Kingdom. It also recently signed an intergovernmental agreement with the United States, which provides for information sharing in tax matters.
In addition to introducing a new tax regime, Jamaica has made some major changes to its corporate tax laws. For example, a new law has been passed that makes it mandatory for companies to disclose beneficial owners and maintain records for seven years. Jamaica’s tax system is not designed to discourage foreign companies from investing in the country. As a result, foreign companies investing in the country are treated similarly to local companies.
The Government of Jamaica views foreign direct investment as a key driver of economic growth and has implemented a number of macroeconomic reforms to improve the investment climate. As a result, the country’s debt-to-GDP ratio has reduced from nearly 150 percent in 2013 to 90 percent at the end of March 2020. Additionally, the government’s fiscal space has increased significantly, and it has been able to reduce taxes to promote growth.
While the Jamaican government does not release an official estimate of the gap between the countries’ corporate tax rates, the problem is serious enough that the government has asked outside help to identify and combat the problem. The Tax Administration Jamaica (TAJ) has also trained its auditors to detect large companies that avoid paying their tax dues. These auditors are supported by a program called Tax Inspectors Without Borders.
