Tax Monsters that Bite

Overseas Companies Taxable in Jamaica

Tax Residence

Companies resident in Jamaica are taxed on their worldwide income. 

In Jamaica, the determination of the tax residency of a company is not explicitly stated in the Income Tax Act and therefore must be decided in accordance with common law principles. In the leading case on tax residency, it was held that the test of residence is not where the company is registered or incorporated, but where it really keeps house and does its real business. The real business is carried on where the central management and control actually abides. 

Important considerations in determining place of residency include:

• The place where board members are physically present during directors’ meetings

• The place of residence of key decision makers

Caution

Care must be taken to ensure that the tax residency of overseas companies can withstand the scrutiny of tax authorities, as failure may expose these overseas companies to Jamaican corporate tax assessments on their worldwide income, as well as withholding tax being assessed on their distributions to shareholders.

Transfer Pricing on Services You Did not Charge for

Market Value

Transfer pricing legislation in Jamaica requires companies to report transactions between connected parties at the price which would have obtained if the parties were at arm’s length.

A connected party to a company includes other companies within the same group based on control relationships, whether upward, downward or lateral, among other things.

Companies within a group may perform services for each other and not charge at all for these services. However, even if no charge is accounted for, these transactions are still subject to transfer pricing rules.

Caution

Care must be taken to ensure that all intra-group activities are properly assessed and accounted for in conformity with transfer pricing legislation, as failure may expose the company to assessments from the revenue authority for unreported tax, interest and penalties.

Payroll Taxes on Contract Work

Deemed Emoluments

Section 5 of the income tax act deems payments for personal services performed under right of the supervision, direction or control of the recipient as emoluments for tax purposes. This is the case even if there is a contract for service between companies and even if the services were subjected to General Consumption Tax. The obligation of the recipient, who is deemed an employer, cannot be superseded by the terms of the contract stating that the provider of the service is responsible for their taxes.

Caution

Care must be taken to ensure that a proper review is done of all contract work terms and activities to ensure that obligations, if any, are clear, as failure may expose the company to assessments from the revenue authority for employer’s as well as employee’s payroll taxes, penalties and interest.

Tax Audits Targeting You

Tax Administration Targeted Audit Approach

Tax Administration from time to time decides on areas it will concentrate its audit resources on. It is our understanding from Tax Administration Jamaica(TAJ) that currently their planned programs are targeting, among other things:

• Continuous tax losses entities

• Charities

• Payroll Taxes

• Motor Vehicle Importers/Dealers

Caution

Companies should consider getting objective, professional health checks and tax due diligences conducted to identify if there are any hidden exposures which might surprise them, as failure may expose the company to assessments from the revenue authority for taxes, interest, penalty and reputation damage.

Withholding Tax You Did not Account For

Payments to non-residents

The income tax act in Jamaica requires that income tax be withheld from payments for certain services by a Jamaican resident to non-residents, including:

• Interest or annuities

• Dividends

• Royalty

• Management or technical services

The applicable withholding tax on payments to overseas companies is 33⅓ % unless it is reduced or relieved based on a double taxation treaty. Other withholding taxes to be mindful of are withholding tax on specified services and contractors levy. 

Caution

Companies should consider getting objective, professional health checks and tax due diligences conducted to identify if there are any hidden exposures which might surprise them, as failure may expose the company to assessments from the revenue authority for taxes, interest, penalty and reputation damage.

Perquisites Provided to Staff But not Taxed

Emoluments Defined

The income tax act in Jamaica defines emoluments as including not only salaries and fees, but all provisions, other benefits, perquisites and facilities WHATSOEVER (whether in money or otherwise). So don’t think that awards and prizes for performances are not taxable. The income tax act makes it explicitly clear that emoluments includes: without prejudice to the provisions of section 13, all sums paid to any person by an employer in respect of expenses whether reimbursable or not. So don’t think that your traveling allowances and or per diems and other allowances are not taxable. They would only be non-taxable if TAJ specifically advises your company that such amounts may be paid tax-free.

Caution

Companies should consider getting objective, professional health checks and tax due diligences conducted to identify if there are any hidden exposures which might surprise them, as failure may expose the company to assessments from the revenue authority for taxes, interest, penalty and reputation damage.

General Consumption Tax(GCT) Input Tax Claimed when Prohibited

Regulations 14

Regulation 14 to the GCT Act stipulates restrictions in tax credits that registered taxpayers are entitled to claim. 

These restrictions includes, among other things:

• Motor vehicle expenses

• Motor vehicle acquisition

• Entertainment, bar and hotel expenses

• Construction materials
  

Caution

Companies should consider getting objective, professional health checks and tax due diligences conducted to identify if there are any hidden exposures which might surprise them, as failure may expose the company to assessments from the revenue authority for taxes, interest, penalty and reputation damage.

Tax monsters can be avoided! For more information contact info@signaturecreed.com or call +1(876)618-9855

The information contained in this article does not constitute legal or other professional advice or an opinion of any kind and is intended for general information purposes only. We cannot guarantee that at the time of being published that the information contained herein will still be current.