A special economic zone (SEZ) is a designated geographic area within Jamaica where businesses operate under a special regulatory and tax framework.

These zones are intended to promote investment, boost exports, create jobs, and position Jamaica as a logistics and investment hub, capitalising on opportunities posed by the growth in global trade.

One of the primary benefits available to entities operating within an SEZ is certain tax incentives. In order to benefit from such incentives the entity must be formally designated as a developer or occupant (SEZ Entities) by the Jamaica Special Economic Zone Authority (JSEZA). JSEZA is the statutory agency responsible for facilitating the development of and promotion of investments in SEZs.

A developer is a company, limited by shares, that is incorporated under Jamaica’s Companies Act and is established by a sponsor (investor/s) for the purpose of entering into a master-concession or a licence-agreement with JSEZA in relation to the establishment of an SEZ. A master-concession is a concession agreement concluded between JSEZA and the developer of an SEZ established, or intended to be established, on land that is to be designated a zone.

An occupant is an entity, other than the developer of an SEZ or a ‘zone user’ in an SEZ, who conducts authorised business activities in an SEZ pursuant to the terms and conditions set out in a sub-concession agreement that has been entered into between the Occupant and Developer of that SEZ, with the prior approval of JSEZA.

A zone user is an entity who receives authorisation from JSEZA permitting that person to carry out or operate, as the case may be, any activity, service or facility in an SEZ. Zone users cannot avail themselves of the incentives under the SEZ.

What are these incentives under the SEZ?

1) SEZ entities are exempt from corporate income tax (subject to compliance and conditions). Generally, corporate income tax is at a rate of 25 percent, however SEZ entities are entitled to apply a lower rate for corporate income tax of 12.5 per cent.

Multipurpose developers and occupants are exempt from the payment of income tax on profits derived from rentals of property in the zone, except for rentals where the landlord (whether the developer or an occupant) and tenant are connected persons within the meaning of the Income Tax Act.

2) General Consumption Tax (GCT) is a value added tax imposed on the supply of goods and services within, or deemed to be supplied within Jamaica. As a benefit to the SEZ entities, goods and services entering and for use in the zone, including electricity and telephone services, are subjected to GCT at a rate of 0 per cent as opposed to 15 per cent.

3) Customs duty is payable on imported goods and is assessed based on the type of item and cost of the goods imported. SEZ entities are eligible for exemption from Customs duties on items imported into the zone.

4) There is no withholding tax on dividends, interest or other payments made from SEZ entities to non-residents that may otherwise apply to certain payments. including dividends and interest income payable by a resident to a non-resident.

5) SEZ entities may also be able to access employment tax credits (ETCs) for tax liability reduction outside of income generated in the zone. ETC is a non-refundable tax credit available to an eligible, tax-compliant employer in calculating its tax liability, that is Education Tax, National Insurance Scheme (NIS), National Housing Trust (NHT) and Human, Employment and Resource Training (HEART) contributions.

6) A promotional tax credit in an amount equal to the SEZ entities’ expenditure on research and development and training — up to a maximum which is equal to 10 per cent of the tax on the SEZ entities’ chargeable income from a trade, profession or vocation within the zone — and any amount of professional tax credit that exceeds the 10 per cent in a year of assessment shall not be credited against tax payable in any other year of assessment and shall not be subject to a refund under the Income Tax Act.

7) Stamp Duty is a documentary stamp tax. This duty is imposed on a range of documents or instruments pursuant to the Stamp Duty Act. Under the SEZ regime, there is an exemption of:

a. 50% of Stamp Duty payable on instruments used for the purchase, lease or other acquisition of land for the use as a zone by a developer; and

b. 100% of Stamp Duty payable on instruments used for the sale or lease of land by the developer to occupants or zone users in connection to the development or operation of the zone.

8) Transfer tax is a tax on transfer of any legal and/or beneficial interest in a property. Under the Transfer Tax Act, property includes land. A developer is entitled to exemption from Transfer Tax payable on the sale of land by the developer for the purposes of use in the development of operation of the zone.

Incentives are not available to SEZ entities who may be eligible for relief under other incentive frameworks which may include: the Bauxite and Alumina Industries (Encouragement) Act, Income Tax Relief (Large-Scale Projects and Pioneer Industries) Act, and the Urban Renewal (Tax Relief) Act.

SEZs have the potential to increase the transfer of knowledge and training and contribute to economic and social development through the promotion of trade, investment, job creation and much more.

Joanna Marzouca is an associate at Myers, Fletcher and Gordon and a member of the firm’s Commercial Department. She may be contacted at joanna.marzouca@mfg.com.jm or through the firm’s website www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.