The principal indirect taxes are:
Value Added Tax: A tax on imports and on the commercial supply of goods and prescribed services levied at 15% of the value of the supply. A commercial supply is a supply made in the course of business for a consideration.
Customs and Excise Duties: A tax at varying rates on imports and manufactured goods.
Import Surcharge: A tax on imports.
Stamp Duty: A tax at varying rates on instruments such as deeds of lease, conveyances, mortgages and share transfers.
Financial Services Tax: A tax at the rate of 15% on financial transactions with banks, etc.
Motor Vehicles Tax: A tax at varying rates levied on sale of motor vehicles.
Under the Corporation Tax Act, corporations or companies include unincorporated associations but not partnerships.
Resident corporations are taxed on their world income. Branches of non-resident corporations are taxed only on branch income. They are, however, allowed deductions for head office expenses incurred in relation to the branch. Branches are subject to withholding taxes on after-tax profits (less investments) whether remitted or not.
Residence is determined by central control and management of the affairs of the company and this is usually, but not necessarily, where the Board of Directors meets. Local subsidiaries of non-resident corporations may, themselves, be non-resident if control and management take place abroad.
All expenses wholly and exclusively incurred in the production of a company’s income are allowed except where specifically disallowed. Major expenses not allowed are domestic and private expenses, capital expenses and certain payments to non-residents unless withholding taxes have been accounted for and paid over to the Board of Inland Revenue.
Interest is treated as a distribution in cases where it is payable in respect of certain securities of a company, for example:
• securities convertible directly or indirectly into shares;
• securities issued by a company to a non-resident company of which it is a subsidiary or where both are subsidiaries of a third company.
Certain tax treaties (such as the U.S. Double Taxation Treaty) provide for the reversal, in certain circumstances, of the effect of these provisions so as not to treat such payments as dividends. The consequences of interest being treated as a distribution are that:
• the interest so paid is not a deductible expense for tax purposes;
• the withholding tax rate applicable to such remittances is the rate appropriate to distributions;
• such interest may only be paid out of profits.
In computing the tax liability, no deduction is allowed for interest paid unless the recipient is liable to Trinidad & Tobago tax thereon or specifically exempt under the Income Tax Act or some other law.
In the case of management charges paid to a non resident company or person, the deductible amount is normally restricted to the amount of those charges or 2% of the paying company’s total outgoings and expenses (excluding the management charges and tax depreciation allowances), whichever is less. The withholding tax due on such management charges must also have been paid to obtain any deduction for tax purposes. Management charges include technical fees, head office charges and shared costs charged by head offices, foreign research and development fees.
When business transactions between a non-resident company and a resident company over which it exercises substantial control have been so arranged that the resident company earns no profit from the transactions concerned, or less than it might normally be expected to earn, the Board of Inland Revenue may regard the profit shifted abroad as taxable income of the non-resident company subject to tax in Trinidad & Tobago. The tax is collected from the resident company as if it were an agent of the non-resident company.
The Board also has a general power to disregard any artificial or fictitious transactions that reduce the amount of tax payable by a person and to assess the parties involved accordingly.
Incentives take many forms e.g. capital allowances, tax exemptions, or loss reliefs. Under the Income Tax (In Aid of Industry) Act Ch. 84:01 there are capital allowances on industrial buildings and machinery and plant. These take the form of initial allowances on new buildings and structures required for the purposes of the trade of manufacturing or on plant and machinery acquired. The latter is significant and has been increased to 75% of the cost price except for businesses engaged in production of sugar, petroleum or petrochemicals which receive an allowance in the region of 20%. The 75% allowance is to be increased to 90% in January 2010. There are special provisions for the petroleum businesses.
Wear and Tear allowances are granted under the Income Tax Act in accordance with the Seventh Schedule. Various classes of assets receive allowances varying from 10% - 40% on the aggregate expenditure representing the written down value of the plant and machinery in a year of income.
Tax exemptions or reductions under the Customs Act relate to customs duties on imports for the manufacturing industry.
Operating losses which cannot be set off against profits from other sources for the same year can be carried forward and set off against what would otherwise have been chargeable profits for the succeeding years. Operating losses from trade or business cannot be set off against losses from profession or vocation, management charges or employment income.
Unrelieved losses of one company may not be transferred to, and carried forward by, another company in the case of a corporate reorganisation. There are rules preventing a company from carrying forward its own losses after ownership of the majority of its shares changes hands, unless the Board of Inland Revenue is satisfied that the change was not for the purpose of avoiding tax.
Subject to several conditions, group relief is available for trading losses suffered by a member of a Group which may be claimed by another member as a set off against its chargeable profits provided that the tax payable shall not exceed 25% of tax if no relief had been granted. The only capital losses relieved are those arising from acquisition and disposal of an asset within 12 months (short-term losses). Such losses can only be set off against future income from a short-term capital gain.
Taxation of Individuals
The individual who is resident and domiciled in Trinidad & Tobago is subject to tax on his world-wide income.
In the case of income arising outside of Trinidad & Tobago to persons who are not ordinarily resident or not domiciled in Trinidad & Tobago, tax is payable on the amount received in Trinidad & Tobago; but where the employment or office of such person is exercised in Trinidad & Tobago, gains or profits from such employment are taxed in Trinidad & Tobago whether received in Trinidad & Tobago or not.
Salary and emoluments are subject to a withholding called ‘Pay As You Earn’ (P.A.Y.E.) which is deducted by the employer at time of payment of salary or other emoluments. Salary of non-residents arising here also attracts P.A.Y.E. but may be exempt under restricted provisions in Double Taxation Treaties.
Pension plans, individual retirement plans, savings plans and profit sharing plans which are not approved by the Board of Inland Revenue do not secure tax benefits under the law for the employee.
There is now a single tax rate of 25% and a personal allowance of $60,000 for every resident.
Value Added Tax (VAT)
VAT is a tax of 15% on the value of imports and commercial supplies of goods and specified services. The value of goods imported into Trinidad & Tobago is the total of:
• the value of the goods determined according to the Customs Act (c.i.f.); plus
• any duties, taxes (other than VAT) and other charges that are charged and payable upon entry of imported goods.
There are special provisions for re-imports.
Output tax is the amount claimed from a person in respect of tax on commercial supplies made to that person in the tax period. A taxable person is entitled to a credit for so much of his input tax as is allowable. This may be said to comprise tax incurred by him in respect of specified supplies and imports.
All businesses earning a gross income of $200,000.00 per annum and over are required to be registered as VAT traders. Registration is with the VAT Office, Board of Inland Revenue.
VAT returns are due at the end of every 2-month period (6 times per annum) and must be submitted within 25 days from the end of the period. The difference between output tax and input tax is payable or refundable.
Certain services are exempt e.g. medical, dental, bus and taxi services, education as specified in the Act, real estate, brokerage, residential rents, financial services, betting and gambling, postal services. No credit is given for input tax paid in respect of an exempt service provided. The Act provides a formula to apportion input tax in order to determine the portion applicable to exempt services.
Certain items are subject to zero rating - a variety of basic foodstuffs, agricultural imports including fertilizers, herbicides and fungicides. Other examples of zero rated items are: natural gas, crude oil, hotel accommodation, yachting services to non-residents, services supplied for a consideration payable in a currency other than that of Trinidad & Tobago to a person who is neither a resident of Trinidad & Tobago nor within the territory at the time the services were performed.
Stamp Duty is levied on instruments of all types, for example, deeds of conveyance, mortgages, debentures, trusts, leases, insurance policies, annuity policies, agreements, and share transfers. The duty is paid at the Board of Inland Revenue and an embossed or machine stamp is affixed to the instrument. The rates vary from $25.00 on a trust deed to $4.00 per $1,000.00 on mortgages and charges. For rates in respect of Residential and Non-residential Transfers, see the section on Real Estate.
Company Registration Fees
Registration duties upon the incorporation of a company:
• Upon the registration of the Articles of Incorporation of a limited liability company operating for profit, a flat fee of $400.00 is paid. Registration of an external company attracts a flat fee of $2,200.00.
• On registration of each accompanying document, for example: declaration of compliance, certificate, or particulars of directors, a fee of $40.00 is paid.
Documents are filed with, and fees paid to the Registrar of Companies. Share transfers for companies not listed on the Stock Exchange attract stamp duty payable to the Board of Inland Revenue on an ad valorem basis at the rate of $5.00 per $1,000.00. A fixed stamp duty of $25.00 is paid on transfer to a nominee. Transfers of shares listed on the Stock Exchange are not subject to stamp duty unless they are not sold or transferred in accordance with the rules of the exchange in which event duty is payable at 5% of the market value of the transaction.
There are no registration duties upon the transfer of a corporate asset except that transfers of real estate are subject to stamp duty.
These are levied at varying rates on customs entries in respect of imported goods according to their classification in Schedules to the relevant legislation. There are exemptions in relation to specific goods. In all cases the basis is the c.i.f. value of the goods at the time of import.
The rates of Customs Duties (as per Common External Tariff) have been reduced gradually since 1995. Rates vary from 0% to 30% on specified items. Duties on non-competing Capital Goods have been reduced to 2.5%. Import surcharge is imposed on selected items.
The returns are made on specified forms at the port of entry to the Comptroller of Customs and Excise and goods are released after the taxes are assessed and paid.
Motor Vehicles Tax
Import duties on motor vehicles are imposed by reference to engine capacity. The rates vary from 25% to 30%. Public transport and goods vehicles attract a 10% rate of duty. A transfer fee is imposed on transfer of used vehicles based on the age of the vehicle. Foreign assembled used vehicles are required to pay motor vehicle tax at the rate of 75% of the rates specified for new vehicles. Tax is imposed by reference to engine size for all vehicles.
While dividends may only be paid out of profits, there are no special capitalisation requirements before a dividend can be paid. A local resident company which receives dividends from a locally controlled company (inter-company dividends) does not suffer any withholding tax and the dividends are not subject to further corporation tax. A final (definitive) withholding tax is levied on dividends paid to non-residents, whether companies or individuals. Generally the rate for individuals and companies is 10%, but dividends paid to a company owning 50% or more of the voting power of the company paying the dividends are subject to withholding tax at 5%.
Under the 1995 Double Taxation Treaty between countries which are members of the Caribbean Community (Caricom), dividends are taxable only in the country in which they arise. The rate of tax is zero per cent.
Interest paid to non-residents not carrying on a trade or business in Trinidad & Tobago is subject to a final withholding tax of 15% whether paid to a company or an individual. Tax treaties may reduce these rates. Interest paid in respect of savings accounts in banks and financial institutions and interest on bonds is exempt where paid to resident individuals.
Several other types of payment to be made to non-residents not carrying on a trade or business in Trinidad & Tobago are subject to a final withholding tax of 15% whether paid to a company or an individual. Tax treaties may reduce or eliminate the tax. These payments include:
• Management charges (including charges for the provision of personal services and technical and managerial skills)
• Rentals for real estate and other property
• Premiums (other than those paid to insurance companies), commissions, fees and licenses
No withholding tax is levied on such payments when they are made to residents.
Trinidad & Tobago has concluded double taxation treaties with Canada, France, Denmark, Germany, India, Italy, Norway, Switzerland, Luxembourg, the United Kingdom, Venezuela, the United States and Caricom. The object of the treaties is the elimination of double taxation either by taxing the income only in one country or by providing a tax credit in the country of residence where the income has been taxed at source.
As well as containing provisions to alleviate double taxation, the treaties also provide for the exchange of information (excluding trade secrets) when this is necessary to implement the treaty or prevent fraud.
The following rates of withholding tax now apply to non-treaty Countries:
Individuals: 10% on dividends; and 15% on royalties, interest and other payments
Companies: 10% on dividends; 5% to a parent company; and 15% on interest, royalties and other payments
The result is that these rates are, in many cases, lower than the rates provided in the treaty.
Use of double taxation treaties should be considered since these generally override the provisions of the tax legislation. Relief is given by way of tax credits, exemptions or deductions. Some treaties have non-discrimination clauses which have the effect, for example, of precluding assessments of branch profits to withholding taxes. The absence of such a clause, for example, could impact on the business structure, whether to incorporate as a company rather than a branch.
The various incentives to certain sectors e.g. under the Petroleum Profits Tax legislation and the Income Tax (In Aid of Industry) Act provide assistance in tax planning. In addition, under the Tourism Development Act, there is scope for obtaining exemptions from taxation and customs duties for periods up to seven years. To enjoy many of these incentives, the company must be incorporated and resident in Trinidad & Tobago. See Chapter 3: Incentives to Invest, for further information. In liquidation, distributions to corporate shareholders in excess of their paid-up share capital are exempt from tax.
Other factors which impact on the business structure are treatment of interest paid to non-resident parent companies as distributions; lower treaty rates of taxes on interest paid to Banks, local provisions with respect to deductibility of items such as management charges. Management charges are restricted to 2% of outgoings and expenses (excluding depreciation and the management charge) when paid to a non resident not trading in Trinidad & Tobago. Provisions prevent deductibility of interest paid to recipients who are not chargeable to tax unless they are exempt by a specific law.
Individual Tax Planning
Resident individuals receive a personal allowance of $60,000 per year. Contributions to approved pension funds and deferred annuity contributions are limited to $30,000 per year.
All income from employment is taxable whether received in Trinidad & Tobago or not. In the case of a resident who is neither ordinarily resident nor domiciled, other income arising outside of Trinidad & Tobago is taxed only if remitted here within the year of income. Since a person becomes resident after he is present for 185 days in a tax year, tax planning opportunities may arise.■