What’s so special about the Special Economic Zones Act?

LEGAL NOTES

with SAMANTHA MOORE

Tuesday, September 20, 2016

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A Special Economic Zone (SEZ) generally refers to a geographically demarcated area within a country that offers special economic regulations and procedures to entities which operate within the zone.


The passing of the Special Economic Zones Act (the Act), which effectively repealed the Jamaica Export Free Zones Act, represented a major initiative by the Government of Jamaica to improve the manner in which SEZs were designated, promoted, developed, operated and managed within the country.


The intention was that the introduction of a modern SEZ regime would result in greater investments (both domestic and foreign), increased employment and economic growth for the country. Set out below are some of the significant reforms introduced by the Act.


Under the Act, the category of persons who may utilise the SEZ consists of developers, occupants and zone users. A developer is defined as a company limited by shares incorporated under the Companies Act of Jamaica and established by a sponsor (ie an investor) for the purposes of entering into a master-concession or a licence agreement to develop and construct an SEZ.


An occupant refers to a person who conducts business in the SEZ under a sub-concession agreement with the developer. Zone users are persons, other than occupants and developers, who have been authorised by the authority (defined below) to perform activities or services within the SEZs.


Perhaps one of the most significant reforms introduced by the Act was the establishment of the Special Economic Zones Authority (the Authority). It is believed that the introduction of an autonomous authority will enhance the efficiency and competitiveness of the SEZs. Some of the functions of the Authority include the handling of development applications; management and operation of a business acceleration centre, which will assist with the communication and co-ordination of regulatory activities with Government entities on behalf of the developers and occupants of the SEZs; promotion and marketing of the SEZs; and the raising of capital to execute its functions under the Act.


Under the previous free zone regime, manufacturing entities were only allowed to supply up to 15 per cent of production to the domestic markets. This cap on domestic sales has been removed under the Act, which will result in sustainable linkages between SEZs and the rest of the Jamaican economy. Entities within the SEZs are now able to freely sell goods on the local market and export goods to businesses outside of the SEZs. The hope here is that this will lead to increased domestic employment, increased exports, and will facilitate the participation of Micro, Small and Medium Enterprises (MSMEs).


A number of additional tax benefits and incentives have also been introduced under the Act. For instance, entities which operate within the SEZs will benefit from a 12.5 per cent reduction in income tax; there is no General Consumption Tax on electricity or telephone services provided to entities within the SEZs; and the Act provides for stamp duty relief of 50 per cent of the duty payable upon the purchase, lease or other acquisition of land used by a developer of an SEZ. The tax benefits and incentives are conferred upon the Authority as well as developers and occupants of the SEZs.


The Authority has the power to allow for the establishment of an SEZ in which only specific economic activities such as maritime or aviation may take place. The Authority may also establish an SEZ in which only a single entity may operate. It is also important to note that there are a number of activities which may not be carried on within an SEZ.


These prohibited activities are set out in the Act and include tourism services, financial services regulated by the Bank of Jamaica or the Financial Services Commission, construction services – save where such services form a part of a manufacturing process within the SEZ, health services excluding research and development, retail trade, telecommunication services, public utilities, real estate, catering services and extractive industries such as mining, quarrying or drilling.


Another significant reform under the Act is that developers can now establish SEZs privately through concession or licence agreements with the Authority. These developers must have at least US$1.5 million in capital as a prerequisite to obtaining a concession or licence agreement with the authority. A developer that is an MSME will not have to meet this capital requirement so long as the Authority determines that it has sufficient development potential and is likely to meet the capital requirements within four years.


Lastly, the Act provides for the introduction of a special Customs regime for SEZs. It requires the commissioner of Customs to make arrangements for the availability of Customs services within the SEZs on a continuous basis, the establishment of Customs procedures and systems that will enable electronic transactions and payments and pre-arrival clearance of goods and the efficient transportation of goods and equipment destined for an SEZ without any unnecessary delay.


The passing of the Act has undoubtedly established a modern SEZ regime for Jamaica. Over time, we will see if this regime results in sustained growth and development for our country’s economy. In terms of finding out how the SEZ may benefit you and your business, there is, however, no time like the present.







– Samantha Moore is an associate attorney-at-law at Myers, Fletcher & Gordon and is a member of the firm’s Commercial Department. Samantha may be contacted via samantha.moore@mfg.com.jm or www.myersfletcher.com This article is for general information purposes only and does not constitute legal advice.



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