Over the years, successive Jamaican governments have used tax laws to balance the scale in the free market. These laws are usually framed to encourage trade in a particular industry, drive infrastructural development, influence the urbanization of rural areas, among other socio-economic initiatives. The main vehicle used to influence these changes is tax incentives. Tax Incentives may be offered in one of or a combination of the following forms:
Tax Exemptions – Where certain taxes are not imposed on the business; a reduction in the rate or amount of tax a business must pay; tax refunds and rebates – where a business is paid back a part of its taxes after it has already paid the balance; and tax credits – a predetermined amount set-off against your tax liability.
Below I’ll explore seven (7) tax incentives that MSMEs can benefit from.
1. Income Tax Credit for MSMEs
The government, in its recent 2020/2021 budget, introduced a non-refundable income tax credit of JMD 375,000 starting in the year of assessment 2020 for Micro, Small and Medium Enterprises (MSMEs) that meet the following criteria:
Regulated or unregulated companies with annual revenues not exceeding JMD 500 million.In the case of unregulated MSMEs, the credit may be claimed in addition to any ETC available.
The credit must be utilised in the year in which it is granted and may not be carried forward to be claimed against income tax liabilities in subsequent years of assessment.
2. Employment Tax Credit (ETC)
A non-refundable tax credit available to employers to set-off against its income tax liability for Payroll taxes (excluding PAYE) filed on-time and paid in full by the due date, by the employer, subject to an overall cap.
Where a company benefitted from ETC and subsequently makes a distribution (dividends and certain other benefits to shareholders), the credit is clawed back by TAJ to the extent of 10% of the distribution, less the tax payable by the recipient of the distribution. This amount should be repaid to TAJ within 14 days of the end of the month in which the distribution is made.
With an income tax rate of 25%, the ETC therefore provides tax-compliant employers with an opportunity to reduce their effective income tax rate to as low as 17.5%.
3. Tax Incentives For Charitable Organizations
The Charities Act provides a mechanism for approved charitable organisations to obtain exemption from income tax, customs duty, GCT, property tax, stamp duty, and transfer tax. This is not an automatic status when you register a non-profit organization with the Companies office. The approval is applied for through the Department of Cooperative and Friendly Societies.
4. Employee Share Ownership Plan (ESOP)
The Employee Share Ownership Plan Act (the Act) uses tax incentives to encourage employee ownership of assets in local companies. Employees and employers are entitled to relief from income tax, stamp duty and transfer tax in respect of contributions to an approved ESOP.
This incentive is severely underutilized owed to its stringent precondition for approval by the Commissioner General of Tax Administration Jamaica (TAJ). The preconditions include amending the articles of incorporation to bring it in line with the requirements of the ESOP Act and getting this certified by an independent auditor. Some of the requirements includes the setting up of a trust and ensuring the plan does not discriminate based on the category/level of staff, among other requirements.
5. Foreign Tax Credit
The Income Tax Act provides for a foreign tax credit to companies in Jamaica that have paid or are liable to Commonwealth Income Tax. A company may also avoid double taxation by means of foreign tax credits available under most tax treaties or by means of exemption in the case of the CARICOM treaty.
Where the above means do not apply, in practice, a partial relief of the foreign tax by way of a tax deduction is granted when computing the company’s income tax liability.
6. The Income Tax Relief (Junior Stock Market Companies)
Provided that certain conditions are met, a company listed on the Junior Market of the JSE may be eligible for a full exemption from income tax on profits in the first five years from the date of admission to the Junior Market. In the immediate five years thereafter, they may also benefit from a 50% exemption from income tax on their profits.
7. Productive Input Relief
This grants relief from customs duty and additional stamp duty on the importation of certain ‘productive inputs’ that are directly used in the ‘production of primary products’ or the ‘manufacture of goods.
Relief on certain products imported for use in the tourism (Hotel, cottages and tourism attractions), creative arts (specifically film and music), and the healthcare sector.
The relief is subject to the availability of adequate supplies from a local manufacturer or from a manufacturer within the CARICOM Common Market area or are not otherwise prohibited from benefiting from this relief.
It is important to note that these incentives are almost always tied to certain eligibility criteria and obligations to maintain the benefit which can get very technical. I highly recommend that you speak with a tax accountant to determine which incentive(s) you may be eligible for and what your obligation will be during and after utilizing any of these benefits.
Senior Accounting Services Limited has a team of experts who would be happy to provide some guidance.
Serika Sterling is a Certified Public Accountant (CPA) and Managing Director at Senior Accounting Services Limited. You may contact her at ststerling@sasjm.com.
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