Developing a strong and efficient tax planning strategy and management is essential to the success of a Jamaican business. The strategy must focus on tax reduction, tax avoidance, and tax compliance. The strategy should also take into account the unique nature of the Jamaican economy. This means that the strategy must take into account all aspects of the business, including the local business environment, competitiveness, and taxation practices.
Withholding tax rates on dividends
Various forms of dividends are taxable in Jamaica, including ordinary dividends, interest, and gains. These are charged in accordance with the Jamaican Income Tax Act. However, some dividends are exempt from tax. This is known as group relief.
Dividends are also subject to withholding tax. The default rate is 25% for individuals, while a higher rate is applied to companies. Companies that pay dividends to non-resident shareholders are subject to tax on the dividends. These shareholders are also eligible for treaty protection, which may include a reduced rate.
Dividends are taxed based on the amount paid out, the source of the dividend, and whether or not the company has a tax residence. Taxes are deducted at the time of payment by the issuing company. The tax is not refundable for income tax purposes. However, a credit is given for withholding tax already paid.
The amount deducted on dividends is considered final tax. Dividends paid to non-resident shareholders are also subject to withholding tax. However, dividends paid to non-resident shareholders are subject to a default rate of 25% for individuals, while a higher rate applies to companies.
Individuals are also taxed on dividends received from companies that are tax resident. Non-resident shareholders can be individuals, corporations, or other entities. Non-resident shareholders are subject to double taxation treaties. However, these treaties generally charge a lower rate of tax.
The taxation of dividends is also impacted by the number of companies paying dividends. The JSE has indicated that it will lobby the government for the removal of taxes on dividends. This decision will affect future dividend distributions.
Shareholders who are non-Israeli residents should request a Reduced Tax Withholding Rate. They will need to submit the request to the Agent in order to receive a reduced rate. However, Agents may request additional documents to ensure that the Shareholder is tax eligible. The Shareholders should also consult their own tax advisors for advice.
Withholding tax on interest income
Among the many taxes and duties that Jamaica levies on its residents are taxed on interest. Aside from the tax, there are other taxes, notably special taxes on immovable property. These include a land tax, which ranges from one percent to 1.5 percent of the purchase price.
In addition to the tax on interest, there are a withholding tax on some payments and an income tax deducted from the gross interest paid to Jamaican residents. There is also a tax on dividends paid by a Jamaican company. In addition to the tax, the dividend might be subject to a special tax called the Group Relief (GR) scheme. In other words, the dividend may be a tax-free reward if you are a member of a tax-free group of persons residing in Jamaica.
The withholding tax on interest is a mere 25% on some payments and 5% on others. The tax rate on ordinary dividends paid by a Jamaican tax resident company is only 15%. Unlike most taxing jurisdictions, Jamaica does not levy a withholding tax on dividends received from foreign corporations. In fact, dividends may be treated as a non-taxable dividend if the recipient is a member of a tax-free organization such as a group of religious or philanthropic organizations. A withholding agent is required to notify the recipient of the benefits associated with the group relief scheme.
In addition to the withholding tax on interest, Jamaicans residing in Japan for 183 days or more are subject to taxation on the same income. Aside from the tax, there are other taxes to be paid, including management fees and technical service fees. Interestingly, Jamaica and Japan have a DTA in place.
Withholding tax on management fees
Whether you are a resident or non-resident of Jamaica, you are liable to withholding taxes on dividends, investment income, emoluments, and management fees. However, you may be able to avoid withholding tax on these payments by using a tax-planning strategy. You can do this by shifting profits across locations to minimize your tax liability.
The Jamaican tax rate on dividends is 33.3 percent. This tax applies to dividends paid by resident corporations and non-resident individuals.
Non-resident individuals are liable to a withholding tax rate of 25 percent. There are some exceptions to this rule, such as those for dividends paid by companies that are tax resident in another country. These dividends may be taxable in Jamaica depending on the country in which the company is located.
The tax on management fees is calculated in accordance with the laws of each Contracting State. The tax is calculated as if the resident had a permanent establishment in the other Contracting State. However, a special relationship can exist between the payer and the beneficial owner of the management fee. This relationship can result in excessive management fees.
Management fees include payments for industrial or commercial advice. Payments for technical services are taxed as royalties. In addition, payments for movable property are taxed as rents.
A withholding tax is also levied on interest income, a portion of which is refundable to the payer. The withholding tax rate for interest is 25 percent for non-resident corporations, 25 percent for resident corporations, and 25 percent for resident individuals. For the rest of the interest, a credit is given for the withholding tax that is already paid.
Caricom IBCs
Investing in International Business Companies (IBCs) is a tax-planning strategy that local investors use to reduce their tax liability. These companies are formed in tax-neutral jurisdictions and are used to manage and hold investments for international investors.
The Caribbean Community (CARICOM) is an economic integration group of twenty-five Caribbean states and five associate members. They work together in security, transportation, education, and other areas of cooperation.
The Caribbean Community was formed in 1973 by Caribbean English-speaking states in order to promote economic integration. These countries mainly depend on export commodities and a few natural resources. They are structurally diversified and suffer from high income volatility. The economies of these small states have been challenged to diversify their economic structure in order to accommodate a growing population. The offshore sector represents an opportunity for economic diversification of the Caribbean economies.
International Business Companies (IBCs) were introduced in nine CARICOM Member States in 1999. These countries offered a low withholding tax on dividends, interest, and management fees. This tax advantage was particularly attractive to international investors.
The offshore sector in these CARICOM countries was developed at different times and at different paces. Some jurisdictions encouraged the use of IBCs while others were hesitant.
In the last six months, CARICOM countries have made changes to their offshore sector regimes. These reforms aim to improve the offshore sector in order to meet international standards. The CARICOM countries will cooperate with the efforts to develop international best practices.
The Caribbean Community is home to 16 million people and includes 15 full members and five associate members. It is a passport zone, which offers visa-free travel to nearly 130 countries worldwide. It is similar to the Schengen zone.
Cayman Islands’ action plan to address its strategic deficiencies
Despite being on the FATF watchlist for the past five years, Cayman remains a high flyer in terms of anti-money laundering and countering the financing of terrorism. However, the FATF has opted to focus on a handful of jurisdictions as opposed to just the Caymans. The FATF is a Paris-based intergovernmental organization that develops policies and measures to combat money laundering, fraud, and terrorism. The organization also maintains a list of non-cooperative jurisdictions, which it considers to be of particular interest.
Despite having a number of AML and CFT deficiencies, the Caymans has opted for a pragmatic approach that will ensure that the country meets FATF’s strictures and remains compliant while maintaining a competitive edge in financial services. The country’s regulatory regime has a number of notable changes, many of which address recommendations from the CFATF. Among other notable changes, the Caymans has recently opted for a new framework for Collective Investment Funds and adopted new reforms to its existing anti-money laundering (AML) and countering the financing of terrorism (CFT) framework.
While the AML/CFT regime is a work in progress, the Caymans has made a number of other notable improvements, such as implementing a comprehensive and systematic approach to combating money laundering and terrorism financing. In particular, the government has implemented a comprehensive framework to counter proliferation financing. In addition, the Caymans has imposed effective sanctions for non-compliance. The AML/CFT regime has also been streamlined and improved in terms of information and transparency, with the introduction of a new data sharing and reporting framework. This will ensure that the jurisdiction is in the best position to implement the FATF’s recommendations and will ensure that the country remains competitive in a rapidly evolving regulatory landscape.
