Regulations and Incentives
The following incentives are granted in accordance with the Fiscal Incentives Act No. 5 of 1982 (as amended by Act No. 16 of 1991) by the government for the establishment and development of the manufacturing and processing industries.
Industrial Investment Incentives
Fiscal Incentives may be granted to an ‘Approved Enterprise. Such an enterprise must be engaged in the manufacturing of or must be about to embark on the establishment of an industry in the State to manufacture an ‘Approved product’.
Upon receipt of an application for the establishment of an industry or where the application is received from an enterprise that is manufacturing the product, Cabinet may declare such an enterprise an ‘Approved Enterprise’. Also, Cabinet may, by notified order, declare any product an ‘Approved Product’.
An application for Fiscal Incentives must contain the following information:
|The locality or proposed locality of the factory
|The construction day (must not be later than 12 months after the date of granting of the application).
|The production day (must not be later than 18 months from the construction day)
|The approved product
|All information relevant to the determination of the “local value added”. (See below)
In accordance with the Fiscal Incentives Act, 5 types of manufacturing and processing enterprises can qualify for a tax holiday. The length of the tax holiday for the first 3 types depends on, among other things, the amount of local value added to the finished product(s). The fourth type is called an Enclave Industry, meaning that it produces exclusively for export to extra-regional markets. Categories of enterprises and tax holiday allowable are as follows:
Category Tax Holiday Period
Group I Enterprise 15 years
Group II Enterprise 12 years
Group III Enterprise 10 years
Enclave Enterprise 15 years
Notwithstanding the above, the local value added content (expressed as a percentage of sales of an approved product) is first estimated, as shown below, for enterprises in Group I, II and III.
Category Local Value Added Content
Group I Enterprise 50% or more
Group II Enterprise 25% or more but less than 50%
Group III Enterprise 10% or more but less than 25%
“Local value added” means the amount by which total sales of an approved product over a period of twelve months exceeds the aggregate of the following:
1. The value of imported raw materials, contents of components and parts, fuel and services;
2. Wages, salaries paid to non-nationals of CARICOM;
3. Profits distributed or remitted directly to persons who are not resident in a member state;
4. Interest, management charges and other income payments accruing directly to persons who are not resident in a member state and
5. Depreciation on imported plant and machinery and equipment.
Additionally, exports of approved products to Guyana, Jamaica and Trinidad and Tobago ONLY are eligible for an ‘Export Allowance’ under the Act. Such an allowance, however, is confined to a period not exceeding 5 years after the expiration of the tax holiday period. The Export Allowance is calculated as follows:
Export sales (as a % of total sales) Rebate of Income Tax (as a % of income tax on export sales)
10 but under 21 25%
21 but under 41 35%
41 but under 61 25%
61 and over 50%
Tax holiday is also granted to capital-intensive industry, where initial capital invested is not less than ECD$25 million.
Other benefits under the Act include:
|Duty-free importation of plant, equipment, machinery, spare parts, raw materials or components for a period equivalent to the tax holiday granted (Category I, II, III).
|Exemption of income tax on dividends paid to shareholders.
|Net losses set-off in computing the profits taxable for the 5 years following the tax holiday period.
Export Development Incentives
Enterprises benefiting from tax and duty concessions under the Fiscal Incentives Act are accorded partial relief from income tax chargeable on the profits earned from exports. This provision becomes operative as soon as the enterprise’s tax holiday expires and lasts for 5 years. The percentage allowance is the same as the rates of Rebate of Income, as above.
Other benefits under the Export Development Incentives include:
|Repatriation of profits
|Exemption from capital gains tax.
|Working capital advances for the purchase of inputs and raw materials under the Export Credit Guarantee Scheme (ECGS).
Assistance to Small/Medium Size Manufacturers
Under the Industrial Incentive Credit Programme facilitated through the Ministry of Telecommunications, Technology and Industry, small to medium size manufacturers can benefit from consumption tax relief as well as an entitlement to 90% write-off of the outstanding arrears of local consumption tax. The Industrial Incentive Credit is not an amount paid in cash, but is an allowance that can be deducted against future consumption tax payable. This credit is granted annually.
Three sub-sectors were targeted to benefit initially from the Industrial Incentive Credit.
|Agro-processing and pasta
Access to this incentive credit is not automatic. Manufacturers would be required to:
- Submit completed application form and audited financial statements
- Have annual sales of up to EC$250,000 (qualifying firms will receive a credit equivalent to 100% of the local consumption tax payable on the first EC$250,000 in annual sales). Firms with annual sales of EC$50,000 or less would not be required to provide financial statements, but must provided some form of evidence of its operations, for example, tax returns
- Fulfil all their statutory obligations, such as payment to the NIS and records of PAYE deduction for workers.