New changes to Trinidad and Tobago's tax code

Trinidad and Tobago has traditionally generated the majority of its revenue from its once-buoyant oil and gas sector. Today, however, the sharp decline of energy revenue has led to a shift in the tax landscape, with the government seeking to diversify its sources of income and reduce leakages.

One such change came with the Finance Act No. 15 of 2017, which was enacted on December 19, 2017 and took effect on January 1, 2018. The act introduced further corporation tax increases and new taxes, as well as removing certain concessions.

On June 8, 2018 amendments to the Property Tax Act and the Valuation of Land Act were assented. This marked the reintroduction of tax on properties, with the end of the moratorium on payment of property tax (which was last collected in 2009 in its previous form as lands and buildings taxes).

Tax Framework

The local fiscal regime is based on self-assessment and voluntary compliance. It includes a mix of direct taxes (i.e. tax remitted directly to the government by the person onto which it is imposed) and indirect taxes (i.e. tax passed onto customers as part of the price of purchase of the goods or service, collected by an actor in the supply chain and remitted thereafter to the government).

For individuals, direct taxation takes the form of income tax imposed via the pay-as-you-earn (PAYE) method for employees and quarterly instalments for self-employed persons.

For corporations, direct taxation takes the form of corporation tax, business levy, green fund levy and petroleum taxes.

Both individuals and corporations are also subject to property tax and withholding tax, a method of taxation collected at source which applies to qualifying payments made to non-residents.

The indirect taxes T&T imposes are value-added tax (VAT), financial services tax, insurance premium tax, hotel accommodation tax, Customs and excise duties.

Key Changes

With the assent of the Finance Act No. 15 of 2017, the following amendments were made to the local tax framework:

• The Corporation Tax Act was amended to increase corporation tax to a flat rate of 30% for all ordinary companies (except banks). For companies licensed to carry out banking business, the corporation tax rate increased to 35%.

• The Income Tax Act was amended to remove the restriction on the land acreage (over 100 acres) that may be approved as an agricultural holding and qualify for tax incentives. The Miscellaneous Taxes Act was amended to introduce the following taxes:

• Lottery winning tax of 10% on all prize money paid in excess of TT$1000 ($148); and

• Environmental tyre tax of TT$20 ($3.00) on every tyre imported into T&T. New and used (not older than four years) motor vehicles have been exempted from the following taxes when they meet certain criteria:

• Motor vehicle tax and VAT on motor vehicles manufactured to use compressed natural gas (CNG) and imported for private or commercial use. The exemptions apply to motor vehicles with an engine size not exceeding 1599 cu centimetres (cc). Commercial vehicles with an engine size exceeding 1599 cc will be allowed the exemptions up to December 31, 2020.

• Motor vehicle tax, VAT and Customs duty on electric motor vehicles that are imported for private or commercial use. The exemptions apply to motor vehicles with an engine size not exceeding 179 KW. Commercial vehicles with an engine size exceeding 159 KW but not above 179 KW will be allowed the exemptions up to December 31, 2020.

• Motor vehicle tax, VAT and Customs duty on hybrid motor vehicles that are imported for private or commercial use. The exemptions apply to motor vehicles with an engine size not exceeding 1599 cc.

Commercial vehicles with an engine size exceeding 1599 cc but not exceeding 1999 cc will be allowed the exemptions up to December 31, 2020.

Individual Taxes

Persons who are resident, ordinarily resident or domiciled in T&T are taxed on their worldwide income, whether or not such earnings are remitted to T&T. A non-resident individual engaged in employment in T&T, however, is taxable only on income received in T&T for services performed in T&T, subject, where applicable, to the provisions of double taxation treaties (DTTs). An expatriate is considered to be a temporary resident for tax purposes in T&T if present in T&T for more than 183 days.

Effective January 1, 2018 individuals with chargeable incomes of less than TT$1m ($148,000) will be liable to pay tax at the rate of 25%. Where the chargeable income exceeds TT$1m ($148,000), the rate of tax applicable is 30%.

In accordance with the PAYE system, an employer is required to deduct income tax on emoluments paid to employees. An emolument is defined within the legislation to include all salary, wages, overtime, bonus, remuneration, perquisites, lodging, stipend, commission or other amounts for services, directors’ fees, retirement allowance and pensions.

Any shortfall of taxes deducted under the PAYE system can be settled without incurring interest, up until April 30 following the year of income.

Individual tax returns are to be filed by April 30 of the year following the year of income. A six-month extension may be granted, following which a penalty of TT$100 ($14.80) accrues for every six months or part thereof that the return remains unfiled.

Resident individuals earning only employment income are not required to file a tax return and therefore incur no late filing penalty.

The social security tax, referred to as National Insurance (NIS), is deducted at source at varying rates. The maximum rate is TT$414.30 ($61.40) per week for monthly income over TT$13,600 ($2017); two-thirds is borne by the employer and the remaining one-third by the employee. Some 70% of NIS contribution is deductible by a resident individual in arriving at the chargeable income up to a limit of TT$50,000 ($7420), aggregated with pension and annuity.

A health surcharge is payable by all individuals and is deducted at source by employers. The maximum rate is TT$8.25 ($1.22) per week, where monthly income exceeds TT$470 ($69.70). Other individuals are required to pay the health surcharge quarterly at the maximum rate of TT$107 ($15.90) per quarter.

A business levy of 0.6% is applicable to sole traders and self-employed individuals with gross income or receipts in excess of TT$360,000 ($53,400) per annum. A three-year exemption is granted from the year of commencement of business. The business levy is payable if and to the extent that the liability exceeds the individual’s income tax liability.

The following allowances are available to resident individuals in determining their chargeable income:

• Personal allowance of TT$72,000 ($10,700);

• Allowance of TT$60,000 ($8900) for tertiary education completed at a foreign institution;

• Pension/deferred annuity, aggregated with NIS, of TT$50,000 ($7420);

• 70% of NIS contributions;

• First-time homeowner allowance of TT$25,000 ($3700) per household for five years;

• Contributions under a deed of covenant, which receive a deduction equal to 15% of total income;

• Alimony paid as per court order/registered deed of separation; and

• Deduction on approved capital expenditure on guest houses. Tax credits are also available to resident individuals (these directly reduce the tax liability for the year), and include the following:

• Venture capital tax credit equal to 30% of investment;

• CNG kit and cylinder tax credit equal to 25% of total cost;

• Solar water heating equipment tax credit equal to 25% of total cost; and

• Tax credit on national tax-free saving bonds equal to 25% of face value, limited to TT$5000 ($742).

Individual Tax Exemptions

The fiscal regime also offers categories in which individuals are exempt from tax, including:

• Severance payments received by a resident individual in respect of past employment in T&T may qualify for an exemption from tax on amounts received up to a maximum of TT$300,000 ($44,500);

• Local interest received by a resident individual on all classes of savings or other accounts with banks, financial institutions or other forms of deposit-taking institutions, is exempt from tax; and

• Tax credit is granted to T&T residents for taxes paid overseas on the basis set out in the legislation and existing DTTs for the particular type of income.

Corporate Taxes

Resident corporations are taxed on their worldwide income. A company’s tax residence is determined by the location of its control and management. Non-resident companies carrying on a trade or business in T&T are subject to corporation tax on their income directly or indirectly accruing in or derived from T&T. A company is deemed to be engaged in or carrying on trade or business in T&T if it has an office or place of business, or a branch or agency within the country.

Local legislation does not reference the term permanent establishment (PE); however, this term is used in the treaty context and constitutes the threshold for the imposition of corporation tax on a non-resident company in T&T. Subject to the terms of specific DTTs, a non-resident company would create a PE in T&T where it:

• Has a fixed place of business in T&T through which the business of the company is wholly or partly carried on; or

• Has an agent acting on behalf of the company, where that agent habitually exercises his authority to conclude contracts in the name of the company. A non-resident branch is subject to corporation tax on all income directly or indirectly accruing in or derived from T&T. In addition, branch profits, after the deduction of corporation tax and reinvestments other than for the replacement of fixed assets from the company’s chargeable profits, are subject to withholding tax at the rate of 5% (subject to the provisions of any applicable DTTs).

Business Levy & Green Fund Levy

Corporations are subject to a business levy at the rate of 0.6% of gross revenue or receipts, where the levy exceeds the corporation tax liability. Exemption is available for certain companies, including petroleum companies and companies with annual turnover of less than TT$360,000 ($53,400). Companies are exempt from the business levy during the first three years after registration and on the gross sales or receipts, which give rise to profits that are exempt from corporation tax.

A green fund levy of 0.3% on gross income is applicable to all companies and partnerships doing business in the country.

Both levies are payable quarterly and neither is deductible in computing chargeable income. There is no credit due against corporation tax in respect of the green fund levy.

Withholding Taxes

Withholding taxes on qualifying payments to non-residents are imposed at varying rates of up to 15%, depending on the nature of the payment, the status of the payee and the applicability of DTTs. Where the tax treaty rate is higher than the domestic statutory rate, the lower domestic rate applies. No withholding tax is imposed on payments made to non-residents which are engaged in trade or business in T&T, and on payments which are not deemed to arise in T&T.

VAT

VAT is an indirect tax and is applicable to a wide range of goods and services. The standard rate applicable to commercial supplies is 12.5%. Basic food items and agricultural supplies incur a rate of zero, as do crude oil, natural gas, and exported goods and services. Certain basic food items and yachting services to non-residents are also zero-rated. A number of services are exempt, such as financial services, real estate brokerage, residential rentals and educational services. The VAT registration threshold for companies making commercial supplies is TT$500,000 ($74,200) for a 12-month period.

Property Taxes

The Property Tax Act was enacted in June 2018, subjecting all land in T&T to the tax. Land is defined to include any area covered with water, and all buildings, structures, machinery, plants, pipelines, cables and fixtures erected or placed upon, in, over, under or affixed to the land. The applicable rates are imposed on the annual taxable value (ATV) of land, which vary based on the purpose/use of the particular property under the categories of residential, commercial, industrial or agricultural.

The Board of Inland Revenue, which oversees the activities of the Inland Revenue Division, a division of the Ministry of Finance, will determine the ATV using the annual rateable value (ARV) less such deductions as it sees fit for voids or loss of rent of 10% of the ARV. The applicable tax rates are as follows:

• Agricultural property at 1%;

• Residential property at 3%;

• Commercial property at 5%;

• Industrial plant and machinery housed in a building at 6%; and

• Plant and machinery not housed in a building at 3%.

Stamp Duty

A stamp duty is levied on instruments of all types, such as deeds of conveyance, mortgages, debentures, trust deeds, leases, insurance policies, annuity policies, agreements and share transfers executed in T&T. The rate of stamp duty varies from TT$25 ($3.71) on a trust deed to between 3% and 7.5% on property conveyances.

Hotel Accomodation Tax

Hotels are subject to a hotel accommodation tax at a rate of 10% of the value of the accommodation.

Insurance Premium Tax

A tax on general insurance premiums is imposed at the rate of 6%. Excluded are long-term life insurance, group life and group health, commercial insurance relating to ships and aircraft, loss of or damage to goods during international transit, risks arising outside T&T and reinsurance.

Capital Gains

There is no capital gains taxes in T&T, except for the application of the balancing allowance on depreciable assets and the short-term capital gains on the disposal of assets within 12 months of their acquisition.

Excluded from these are gains on the disposal of any securities, and gains on vehicles and household goods disposed of for TT$5000 ($741) or less.

Dividend Income

Dividends received by a T&T company from both resident/CARICOM subsidiaries and other similar corporations are exempt from the corporation tax and business levy, but are subject to the green fund levy. Dividends paid by a resident company to a resident company or resident individual will not be subject to tax.

Interest Income

Interest income received by a T&T resident company is generally taxable, with some exempt sources.

Royalty Income

Royalty income received by a T&T resident company is generally taxable.

Foreign Income

A company resident in T&T is subject to tax on its worldwide income. T&T has DTTs in place with a number of countries and certain CARICOM member states, which provide for either tax exemptions or credits against foreign tax payments.

Tax Depreciation

The legislation allows for a deduction for tax depreciation for corporations in the form of a wear and tear allowance. Fixed assets are categorised into one of four classes:

• Class A – Buildings and improvements, with a depreciation rate of 10%;

• Class B – Motor vehicles, furniture and fittings, and plants and machinery, with a depreciation rate of 25%;

• Class C – Certain heavy equipment, forklift trucks, oil rigs and computer equipment, with a depreciation rate of 33.3%; and

• Class D – Airplanes, with a depreciation rate of 40%. The allowance is calculated at the rate applicable to aggregate expenditure incurred on assets within the class on a declining-balance basis.

Accelerated tax depreciation is granted to manufacturers in the form of an initial allowance at the rate of 90% on capital expenditure on plant and machinery. The allowance is granted in the year that the asset is first brought into use. Companies engaged in the production of sugar, petroleum or petrochemicals, or which enjoy concessions under the Fiscal Incentives Act, access this initial allowance at the rate of 20%.

Proceeds on sale of assets are credited to the particular class, thereby reducing the written-down value of the class. A balancing charge is computed and subjected to tax when the class is in credit.

Tax depreciation is not required to conform to book/accounting depreciation. Other wear and tear allowances include:

• A 130% wear and tear allowance for expenditure incurred in acquiring plant, machinery and equipment (excluding installation) for providing CNG kit and cylinder installation service;

• A 150% wear and tear allowance on the expense incurred in the acquisition of solar heaters, wind turbines and photovoltaic systems; and

• A 150% allowance of the expenditure actually incurred for companies that engage another company certified as an energy service company for carrying on an energy audit for the design and installation of the energy-saving systems. Where the certified energy service company has acquired plant and machinery for conducting energy audits, it shall be granted an allowance of 75% of the cost incurred in the year of acquisition.

Start-Up Expenses

No specific rules exist in the local legislation in respect of start-up expenses, but, generally, these expenses are not deductible.

Interest Expenses

Interest expenses incurred by a company in the production of its income are deductible. However, in the case of interest payable or paid by the company, there are certain restrictions that exist in the tax acts, as well as in practice by the tax authority that could restrict a company’s ability to deduct interest paid or payable in its computation of tax for a particular year of income.

Bad Debt

A provision for bad debt will be deductible for tax purposes where:

• It is incurred in respect of a revenue expenditure;

• It is made in accordance with acceptable accounting principles;

• It is specific; and

• It becomes bad in the year the claim is made.

Charitable Contirbutions

Charitable contributions under deeds of covenant to approved charities are deductible, up to a maximum of 15% of total income.

Fines, Penalties & Taxes

Fines and penalties are not generally deductible.

Other than the supplemental petroleum tax, withholding tax and property tax, taxes or levies are not generally deductible in arriving at taxable profit.

Net Operating Losses

A trading loss may be carried forward indefinitely, to be set-off against future profits. A limited form of group loss relief exists, whereby current year losses may be surrendered to a claimant company within a group as defined. However, the claimant’s tax liability cannot be reduced by more than 25%. Such companies must be resident in T&T.

Payments to Foreign Affiliates

Subject to management fee restriction, a corporation engaged in business in T&T may claim a deduction for royalties, interest and service charges paid to foreign affiliates, provided the appropriate withholding tax is deducted and properly accounted for. To allow for the deductibility of the interest, the funds borrowed must have been utilised in the production of income and the recipient must be subject to tax in T&T or otherwise specifically exempt from local tax.

Management Charges

Deductions for management charges (as defined in the tax legislation) paid to a non-resident are restricted to the lower of the management charges, or 2% of deductible outgoings and expenses, exclusive of the charges. Tax depreciation, or wear and tear allowances, may not be treated as an expense for this purpose. Withholding tax may also be applicable to management charges paid to non-resident persons.

Foreign Tax Credit

In addition to relief under DDTs, in particular circumstances foreign tax credits would also be available.

Group Taxation

While there is no provision for group taxation in T&T, a limited form of group loss relief is available.

Transfer Pricing

There are currently no specific transfer pricing rules in T&T. However, the legislation empowers the national tax authority to disregard any transactions that it views as artificial or fictitious. This general power has been utilised by the tax authority in dealing with related parties and large multinational companies to evaluate whether transactions are at arm’s length.

Thin Capitalisation

There are no thin capitalisation rules in T&T.

Controlled Foreign Companies

There are no rules for controlled foreign companies in T&T.

Additional Allowances

Other allowances or incentives in T&T include:

• Promotional expenses – 150% of the actual outlay incurred by local firms to promote the expansion of existing markets and/or the creation of new ones for the export of specified services or locally produced goods are tax deductible as an expense.

Tax-deductible promotional expenses are defined as those expenses incurred in respect of specified services or goods produced in T&T. This includes items such as advertising in foreign markets, and participation in trade fairs and missions.

• Scholarship allowance – Companies are allowed to deduct the actual expenses incurred in granting scholarships to nationals who are not employees, directors or associates of directors of the company for the purposes of pursuing tertiary education.

• Production company allowance – An allowance equal to 150% of actual expenses incurred in respect to the company’s own audio, visual or video productions for educational or local entertainment, or local culture, is available.

• Sponsorship or acquisition of art and culture – 100% of the expense incurred.

• Sponsorship of sportsman/sporting activity – 100% of the expense incurred.

• Sponsorship of audio, visual or video production – 150% of the expense incurred.

• Sponsorship or promotion of the fashion industry – 150% of the expense incurred.

• Training allowance – A company is allowed to claim a 150% deduction of expenses incurred in the training and retraining of the employees of the company.

Petroleum Operations

Petroleum operations are classified into the following types of business:

• Exploration and production (E&P) operations;

• Refining businesses;

• Marketing of petroleum products; and

• Manufacturing of petrochemicals. Companies engaged in E&P, refinery and marketing operations are assessable to petroleum profits tax (PPT) at the rate of 50% (35% for E&P operations in deepwater) and the unemployment levy at the rate of 5% (no set-off for prior year losses is permitted in computing this liability). Companies carrying on the business of marketing of petroleum products and manufacturing of petrochemicals are assessable to a corporation tax of 35%.

The following capital allowances are available to E&P companies assessable to the petroleum profits tax and unemployment levy:

• Capital expenditure on exploration operations (land or submarine) incurred from January 1, 2014 to December 31, 2017 may be deducted in full in the year incurred (this provision is optional).

• Tangible and intangible exploration and development expenditure with an initial allowance at 50%, a second-year allowance at 30% and a third-year allowance at 20% computed on the expenditure incurred.

• A company engaged in exploration activities in a deepwater block is granted an uplift of 140% of capital expenditure incurred on drilling of exploration wells, on which capital allowances can be computed. The following capital allowances are available to refining businesses assessable to the petroleum profits tax and unemployment levy:

• An uplift of 120% on the expenditure incurred to acquire new plant and machinery on which capital allowances can be computed;

• An initial allowance of 20% on capital expenditure incurred on plant and machinery; and

• Annual allowance of 20% straight-line basis on the residue after the deduction of initial allowance. There is no timing in respect of claiming of allowances, e.g. on achievement of commercial production. A claim for capital allowances cannot be deferred.

Supplementary Petroleum Tax

The supplementary petroleum tax is chargeable on the gross income (derived from the sale of crude oil) less royalties and overriding royalties paid on the crude oil sold. This tax is computed separately in respect of land and marine operations and is a quarterly tax based on the actual gross income for each quarter. The supplementary petroleum tax is deductible in arriving at profits subject to petroleum profits tax.

Goodwill

Goodwill expense is generally not allowable in arriving at the chargeable income of a corporation.

Tax Holidays

Under the Fiscal Incentives Act of 1979, an approved enterprise, which must be a locally incorporated resident corporation, may be granted an exemption from corporation tax for a period of up to 10 years, depending on the category under which it is approved. Exemption may be total or partial. Subject to approval, profits may be distributed tax-free to shareholders, except in the case of certain non-resident shareholders, where the relief is restricted to the amount of tax that exceeds their liability in their country of residence. Net losses during the tax holiday period (i.e. the excess of total losses over total profits) may be carried forward for set-off without limitation for five years from the end of the tax-holiday period, after which the normal set-off provisions for losses apply. As of January 1, 2007, the tax holiday in respect of corporation tax is no longer granted.

Approved Tourism Projects

Under the Tourism Development Act of 2000, approved tourism development projects (declared as such by the government), including hotels, are granted a tax holiday for periods of up to seven years. In addition, a company is allowed to carry forward any loss incurred during a tax-exemption period that was derived from the operation or renting of an approved tourism project. Such a loss can be written off against profits in accordance with normal income tax loss provisions, subsequent to the tax-holiday period.

Approved Mortgage & Other Companies

The profits of an approved company are exempt from corporation tax. The exempt profits, when distributed to shareholders, are exempt from corporation tax and income tax. Expenses incurred in the course of the approved mortgage business remain fully deductible.

Free Zones

The profits of an approved company operating in a designated free zone are exempt from the corporation tax, business levy and green fund levy. In addition, payments made by such companies to non-residents are free of the withholding tax.

Tax Returns

Companies are required to file a tax return with the tax authority by April 30 following the end of the fiscal period. An automatic six-month grace period is allowed, following which a penalty of TT$1000 ($148) is imposed for every six months or part thereof that the return remains unfiled.

Payment of Tax

The corporation tax, business levy and green fund levy are payable quarterly in advance on March 31, June 30, September 30 and December 31. Any balance of tax due is payable on or before April 30 of the following year. Instalments of corporation tax are based on an estimate of the current year’s liability or on the actual chargeable profits for the previous year, whichever is greater.

By December 31 of a given year of income, in addition to the quarterly instalments calculated based on the prior year chargeable profits, the taxpayer must have accounted for and paid the Board of Inland Revenue 80% of the increase in its liability over that year. If the current year’s estimate is lower, the company may apply to the tax authority to reduce its quarterly instalment. The levy liabilities are based on the actual receipts for the quarter.

Additional Statutory Requirements

There is no statutory requirement for the audited financial statements to accompany the return. These may be prepared on an accruals or cash basis. Any other basis would require the approval of the tax authority.

A company carrying on business in T&T is required to keep proper accounts and records, and is obliged to retain these accounts (in English and in T&T dollar) for a period of at least six years after the completion of the transactions, acts or operations to which they relate, or three years after the filing of its return (whichever is later).

Foreign Act

T&T is a signatory of the US Foreign Account Tax Compliance Act.

Customs Duties

Customs duties are imposed at varying rates on imported goods according to the classification in Schedules to the Customs Act. Import duties are imposed on the cost, insurance and freight value of the goods at the time of import.

However, there are provisions for exemptions in relation to specific goods. Excise taxes are imposed at varying rates on certain manufactured goods, including tobacco, alcohol and petroleum products.