Tax strategies for entrepreneurs
Better tax planning can save your business and, most importantly, keep you out of jail. If you didn’t know that before, you knew after this month’s Mayberry Investors Forum where industry experts discussed tax strategies for entrepreneurs.
At the forum held at the Knutsford Court Hotel on Wednesday, Ernst and Young managing partner Allison Peart made the key presentation in which she addressed both simple and complex strategies that entrepreneurs and indeed all business persons can use to pay taxes both legally and frugally.
Peart stressed the importance of efficient tax planning in the initial stages of any investment decision. It was a sentiment later echoed by noted tax specialist, legal council and compliance officer, Ethlyn Norton Coke.
Peart noted that the establishment of International Business Corporations (IBCs) can facilitate the reduction in the amount of applicable tax being charged against the business. This is possible, she said, because intercompany dividends between related companies are not taxable. Additionally, with the establishment of the IBC, the tax rate that applies to the parent company would also apply to the subsidiary in cases where “mind and management” of the companies can be proved to emanate from the parent. The zero to one per cent tax rate applicable in a country such as St Lucia was given as an example of the possibility of benefiting from such a tax structure.
Another strategy that seemed to appeal to the investors was the suggestion of using the transfer of management fees between related companies to offset losses from one company, with gains from another. Peart said this strategy must be carefully assessed because the fee for services must be substantiated and services attract a 17.5 per cent General Consumption Tax.
Peart also advised business operators to investigate and become familiar with the tax regimes of countries within which they are operating or intend to operate, scan the landscape for impending and implemented tax changes and know the requirements for withholding taxes so that these can be transferred to the government. When in doubt, consult your tax advisor, she said.
Commissioner of Taxes at the Inland Revenue Department (IRD), Rosalee Brown, added that while the IRD is committed to providing better customer service and more accessible payment options, it would also balance this with compliance actions.
“Think tax whenever business plans and forecasts are made,” she said, adding that “the tax implication of all activities should be kept in mind.”
She also advised the entrepreneurs to know all the relevant dates for the payments and filing of taxes. “It can be very costly if you fail to make timely payments as interest, and sometimes penalties are applied to late payments and filing,” Brown said.
It is also important to keep all tax records for at least six years, Brown said, because these can help to resolve discrepancies that may occur from time to time between the records of the IRD and the taxpayer.
Even where business persons have not received a tax notice, they can and should request a statement of the accounts from the IRD, explained Brown.
“It can be very useful for you to know what our records show as your tax status. You can thus initiate a reconciliation of the account if it differs from what you know it should be,” Brown said.
With changes to the administration of taxes in Jamaica, self employed persons and professionals such as artisans, doctors, architects and accountants will be targeted for tax compliance by the government. Coke said this would mean that such persons will need a Tax Compliance Certificate (TCC) to practice. She therefore advised all professionals to be proactive in filing their income tax returns, even if they are pay-as-you-earn (PAYE) workers.
She said that employers sometimes overlook the fact that they should also withhold tax on the payment to contract workers.
“Every time you engage a contractor who does any work over $1,000 the purchase falls under the Contractors’ Levy Act,” Coke said.
She said employers of these persons should therefore deduct the two per cent tax from the payment and transfer same to the IRD as otherwise this may create problems with tax compliance.