Trinidad & Tobago's recent tax changes and regulations

For many years, Trinidad and Tobago has maintained a flat tax rate of 25%. This has since changed following the 2016/17 National Budget, which was introduced in September 2016. Effective January 1, 2017, individuals and companies whose chargeable income is in excess of TT$1m ($149,000) will be charged at a tiered rate. The progressive tax system allows the first TT$1m ($149,000) to be taxed at 25% and any amount thereafter to be taxed at a rate of 30%.

Income Tax

Income tax in T&T is payable for each year of income on all income accruing in or derived from T&T, regardless of whether the individual is resident or not. Persons who are residents of T&T benefit from any deductions to which they are entitled under the Income Tax Act, including a personal allowance of TT$72,000 ($10,800). An individual is considered to be a resident when their stay in T&T within a year of income is 183 days (six months) or more. Non-residents are persons outside of T&T.

The year of income is the calendar year and is the basis period for all sources of income, including emolument, and except profits from trade, business, profession or vocation, in which case it is the financial year ending in the year of income. Emolument refers to salaries, wages, overtime, bonuses, directors’ fees, stipends and severance pay of amounts in excess of the first TT$300,000 ($44,800) earned in T&T. However, it does not include earnings arising from trade or business carried out by an individual, or sole traders. Additionally, directors and employees receiving benefits in kind are also taxed, and this may include, for example, allowances for motor vehicles, travel, housing and telephone.

Every person whose emolument income is taxable should have a Board of Inland Revenue (BIR) file number. Exemptions to this include:

• Any person aged 16 and under;

• Temporary T&T residents in receipt of income where the period does not exceed six weeks; and

• A person who satisfies the BIR that he or she is not in receipt of income, and therefore is not required to file a return.

Chargeable Income

Chargeable income is the amount of income used to calculate an individual’s or a company’s income tax due. It is generally described as gross income or adjusted gross income minus any deductions or exemptions allowed in that tax year. Under current law, the following allowances are applicable when determining chargeable income for individuals and sole traders:

• Personal allowance of TT$72,000 ($10,800) for residents and non-residents meeting the 183 days criteria;

• First-time homeowners are given a tax allowance of TT$25,000 ($3740) per household for a fiveyear period;

• Tertiary education completed at an institution outside of T&T is granted TT$60,000 ($8970) per household, and spouses have to share this allowance; and

• Contributions to an approved annuity or pension plan are allowed up to TT$50,000 ($7470).

Corporation Tax

Corporation tax in T&T is charged on the chargeable profits of companies or unincorporated associations. The income is calculated in the same way as for income tax, as many provisions of the Income Tax Act are made applicable to the Corporation Tax Act. All allowances and deductions that are available to individuals are available to companies or unincorporated associations. Some of the differences are detailed below.

SME

For a company that is publicly listed as a small and medium-sized enterprise (SME) the tax rate is 10% for the first five years from listing on the T&T Stock Exchange and 25% thereafter. A SME-listed company must meet the following criteria:

• Minimum capital base, comprising its issued share capital, retained earnings and amounts transferred from such issued share capital or retained earnings to a reserve account, totals TT$5m ($747,000);

• Maximum capital base, comprising its issued share capital, retained earnings and amounts transferred from such issued share capital or retained earnings to a reserve account, total TT$50m ($7.5m); and

• Minimum number of shareholders is 25.

Exempt Income

T&T tax law also offers categories of income that are exempt from tax, including:

• Distributions other than preference dividends received by a company from a resident company;

• Profits of an investment company; and

• Profits accruing to a venture capital company. Corporate tax is charged for each income year on profits whether accrued or derived from T&T or elsewhere or whether or not they have been received in T&T in respect of the following sectors:

• Farming, agriculture, forestry, fishing or other primary activity;

• Any other trade of business; and

• Any profession or vocation or management charges for the provision of personal services and technical and managerial skills; and

• Dividends and other income received from non-resident companies out of profits not derived from or accrued in T&T. A company that has not started operating but is incorporated and/or registered is expected to file a nil corporation tax return.

Test Of Residence

Similar to individuals, the test of residence specifies tax benefits to companies that are residents and non-residents of T&T. A resident company is one that is controlled in T&T, whether or not said company is incorporated and engaged in trade within T&T. A non-resident company is one which is not controlled in T&T even though it may be incorporated and engaged in trade in the country.

Allowances For Corporations

As for income tax, the allowable expenses are those wholly and exclusively incurred in the production of income. The following deductions are allowed only to companies:

• Companies are allowed an uplift of 150% on expenses reasonably incurred in training and retraining employees;

• The cost of visual works of art of up to TT$3m ($448,000) are treated as an additional allowance, provided that relevant criteria are met;

• Sponsorship of sportsmen who are nationals of T&T, as well as promotion and sponsorship of other sporting activities, are allowed deductions of up to TT$3m ($448,000);

• A company that sponsors audio, visual or video production that reflects local culture, education and entertainment are granted an allowance of 150% or a maximum of TT$3m ($448,000);

• A production company that creates its own audio, visual or video production promoting local culture, education and entertainment is given an allowance of 150% or a maximum of TT$3m ($448,000);

• In addition to the deduction above, production companies can also benefit from a maximum allowance of TT$2m ($299,000) if they were to sponsor any sporting event or artistic works not related to its own business; and

• A company that incurs expenditure in promoting the fashion industry is granted an allowance of 150% or a maximum of TT$3m ($448,000).

Other Deductions

An initial allowance of 10% of expenditure on construction of an industrial building, excluding land purchases, and 90% of expenditure on plants and machinery is granted to a manufacturer in the year in which the building or plant and machinery, as the case may be, is first put into use. These initial allowances are available only to manufacturers and persons engaged in certain petroleum operations, as well as a selection of others who qualify under the Income Tax Act.

Wear & Tear

Wear and tear allowance is available for expenditures on industrial and commercial buildings and on plant equipment and machinery. The rate depends on the class to which the building or plant equipment and machinery belongs. Buildings are in Class A. Several items of plant equipment and machinery are grouped in Classes B, C or D. The wear and tear rate on expenditures is 10% for buildings, 25% for plant equipment and machinery listed in Class B, 33.3% for Class C and 40% for those listed in Class D. In the case of manufacturers and other entities that fall under the Income Tax Act, a claim for initial allowances and wear and tear allowances cannot be deferred. A wear and tear allowance can be claimed on up to 130% of expenditures used for:

• Acquisition of plants and machinery, excluding installation costs; and

• To provide compressed natural gas equipment and cylinder installation services. Wear and tear allowances can be claimed for up to 150% of expenditure on acquisition of plants and machinery for manufacture or acquisition of solar water heaters or wind turbines and supporting equipment such as solar photovoltaic systems.

Balancing Charge Allowance

When an item in any class is sold or otherwise disposed of, a balancing allowance or balancing charge may arise. A balancing allowance arises when, upon disposal, there is no item remaining in the class, but there is still a balance in the class. A balancing charge arises when, upon disposal of an item, there is a credit balance in the class. This amount, which is restricted to initial and wear and tear allowances granted, is chargeable to tax.

Chargeable Gain

The Capital Gains Tax is restricted to gains arising from capital assets, both tangible and intangible, that have been disposed of within 12 months of their acquisition. A major exemption from the charge is available for gains on securities disposed of within T&T.

Other Taxes

Withholding Tax is imposed on distributions and payments arising within T&T and payable to non-resident individuals or companies. Payments consist of interest, rental, royalties, technical managerial skills, etc., but do not include payments for products or inventory purchased for resale. Distributions include dividend, distribution of assets, and branch profits remitted or deemed to be remitted, except to the extent that the branch in question has reinvested, to the satisfaction of the BIR. Rates of withholding tax are listed below:

• 15% on payment made to a parent company;

• 5% on distribution made to a parent company; and

• 10% on other distribution. The above rates may be lower, but not higher under a double taxation treaty. It is the responsibility of the person making the payment to withhold the tax at an applicable rate and remit it to the BIR within 30days.

Business Levy

In T&T a business levy is charged at a rate of 0.6% on gross receipts or gross sales where these do not exceed TT$250,000 ($37,400) and TT$360,000 ($53,800) for individuals and companies, respectively. Income exempt from tax is not included in the gross sales or receipts. The levy is payable at the end of each quarter. An individual or company is liable only to either the business levy liability or the incomecorporation tax liability, whichever is higher.

Additionally, for the first three years of commencing or incorporating the business, an individual or company is not liable for the business levy.

Green Fund Levy

The green fund levy is charged at a rate of 0.3% on gross sales or receipts of all companies and partnerships carrying on business within T&T, whether or not such company is exempt from the business levy. Neither the green fund levy nor the business levy can be offset against other taxes and cannot be claimed as an expense.

VAT

A person or company which conducts a business activity and makes commercial supplies with a gross amount of TT$500,000 ($74,700) in any 12-month period is required to register for value-added tax (VAT) with the BIR. A commercial supply is defined as the supply of goods or prescribed services that are made in the furtherance of or in the normal course of business. The VAT rate in T&T is 12.5% on standard rated goods and prescribed services and 0% on zero-rated goods and prescribed services.

VAT is ultimately borne by the consumer or unregistered customer. Certain supplies are exempt. A registrant must pay over any excess of output VAT charged by him or her over input tax charged to him or her. Registrants are usually assigned a two-month VAT period. Where input VAT exceeds output VAT for a given period, the registrant is entitled to a refund of the amount that is in excess.

Insurance Companies

The profits of general insurance businesses are taxable under the Corporation Tax Act at a rate of 25%. The fourth schedule of the Corporation Tax Act sets out five classes of long-term insurance business. Ordinary life assurance and general annuity together form one class, while industrial life, approved annuity, bond investment, and non-cancellable sickness and accident businesses are each treated as a separate class.

The rate of tax on long-term insurance is 15% on the net investment income and not on premiums. Where any profits of a long-term business are transferred to shareholders, the amount transferred is taxable at a rate of 25%. Losses incurred in the period by one business cannot be offset against other business or business classes. Rather, losses must be carried forward and offset against future profits of the same business as loss relief. General rules on business and green fund levies also apply.

Petroleum Profit Tax

This tax is imposed on the net taxable profits for each financial year from operations accrued in or derived from T&T on production and refining businesses. At present, the rate of petroleum profit tax is 50% for petroleum operations and 35% for deepwater petroleum operations. Petroleum operations are currently divided into three separate businesses:

• Exploration and production;

• Refining; and

• Marketing operations. The net taxable profit of a company is determined by deducting all operating expenses, similar to the methods used for both income and corporation taxes. The deductions available to companies under the Corporation Tax Act, with the exception of capital allowances for production business, for which special rules apply, are also available to persons carrying out petroleum operations. Petroleum companies are granted several additional deductions, including work over, heavy oil, dry hole, and signature and production bonuses. Enhanced capital allowances are also available. Royalties paid under a licence or sub-licence, supplemental petroleum tax, petroleum impost and production levy are also deductible under current T&T tax law.

Supplement Petroleum Tax

The Supplemental Petroleum Tax is imposed on gross income derived from the disposal of crude oil, less royalty and overriding royalty as set out under the Petroleum Act. It is calculated separately with respect to land, marine operations and marine operations in a deepwater block. There are tax credits available of up to 20% against the Supplemental Petroleum Tax which are assessed on qualifying expenditure incurred in respect of approved development activity in mature marine or land oilfields, or on the acquisition of machinery and plants for use in approved enhanced oil recovery projects. The Supplemental Petroleum Tax applies at increasing rates when the price of crude exceeds $50 per barrel. The supplemental tax paid is deductible from petroleum profit tax liability. Petroleum companies are also subject to a petroleum impost, production levy and unemployment levy, but are exempted from the business levy.

Customs Tax

A tax may be levied on the import and export of goods into or from T&T, the rates of which are imposed, revoked, reduced or increased by Parliament. The president may from time to time alter Customs duties on any goods by so ordering, subject to subsequent resolution by Parliament. Upon import or export goods are grouped based on their description. The Customs Act of 1962 sets out 22 sections in which goods can be classified. Each section is further analysed, and goods are allocated heading or reference numbers, thus determining whether the goods are taxable and, if so, the rate of tax applicable. Additionally, VAT equal to 12.5% may be applied on the value of the goods, whether or not the duty is payable under the Customs Act, plus any duties and other charges that are charged, paid or payable upon the entry of imported goods.

Other Taxes

There is an online shopping tax of 7% charged on online purchases arriving by air in T&T, through the use of transportation companies or individuals. There is also a financial services tax of 15% charged by a financial institution on financial services it supplies. No VAT is charged on those financial services which are exempt from VAT.

There is a 10% hotel accommodation tax charged on proceeds from the letting of accommodation by a hotel. T&T tax law defines a hotel as a building or group of buildings occupied together and comprising not less than six bedrooms for the purpose of providing hotel accommodation for financial reward. Hotel accommodation charges are zero-rated for VAT. There is also a 5% insurance premium tax charged on taxable insurance contracts. These contracts are usually for property and motor vehicle insurance. Long- term insurance premiums are not subject to the tax. T&T residents over 60 years of age are not liable for this insurance premium tax. Insurance services are also exempt from VAT.

Stamp Duty

Currently under T&T tax law, a stamp duty is levied on several financial instruments, which include the following:

• Conveyance or transfer of any stock or funded debt or shares of any company or corporation;

• Conveyance or transfer on sale of any property where the property includes a dwelling house the first TT$850,000 ($127,000) of the property’s value is exempt;

• Conveyance or transfer on sale of any property where the property does not include a dwelling house but is residential the first TT$450,000 ($67,200) is exempt; and

• Mortgages, bonds, debentures, covenants or bills of sale.

Double Taxation

A person who derives income from a source in one country but is a resident of another may be taxed in both countries unless a treaty exists between the two countries in question to reduce or avoid double taxation.

T&T has double taxation treaties with all member states of CARICOM, as well as with Brazil, Canada, China, Denmark, France, Germany, India, Italy, Luxembourg, Norway, Spain, Sweden, Switzerland, the UK, the US and Venezuela.

Where there is no treaty between the countries, a unilateral tax relief is available of up to one-quarter of the tax paid in the foreign jurisdiction.

Free Zone

Companies incorporated in T&T, with the exception of firms in the oil and gas industry, can qualify for free zone status. The criterion is that 75% of their goods produced or 50% of the services provided must be exported. Companies with free zone status are not subject to import and export licences and are not required to pay import duties, VAT and other taxes, including the business levy, green fund levy, corporate tax and withholding tax.

Tourism Benefits

Several tax benefits will be assigned to the owner or operator when an approved tourism project results in the actual creation and operation of a new tourism project or the expansion of an existing project. They include the following:

• A tax exemption not exceeding seven years in respect of gains or profits;

• A tax exemption in respect of the gains or profits derived from the initial sale of a villa or condominium, or a site for a villa or condominium that forms part of the approved tourism project.

• When the tourism project is considered approved there will be an exemption in respect of the interest received on approval of a loan to be used on said project; and

• Customs and duty exemption on building materials and articles of hotel equipment to be used exclusively in connection with and construction and equipping of the approved hotel project.

Agriculture

There are also several incentives available to agricultural investors. They include:

• Agricultural produce that has been exported abroad for promotional purposes can claim up to 150% of the expenses incurred as a deduction;

• Gains or profits from commercial farming carried out on an approved agricultural holding are tax exempt for a period of 10 years from the date of approval of the agricultural holding; and

• Agricultural machinery, tractors, ploughs, harvesters, etc., has a wear and tear rate of 33.3%.

Transfer Pricing

There is currently no proposed legislation or bill with an impact on taxes pending, with the exception of the Finance Act 2015, through which existing tax rates, allowances, deductions and other rules are affected. Currently, there is no legislation in T&T that specifically addresses the subject of transfer pricing, although there have been discussions in various forums about the need to establish a transfer pricing regime within CARICOM. Additionally, there are provisions within existing T&T tax law that limit the ways in which multinationals may avoid taxes via cross-border charges within their groups. These provisions give the BIR the right to disregard any transaction deemed to be fictitious.

Accounting Requirements

Accounting law in T&T requires every person engaged in any business to keep proper records and books of accounts. These records must be kept in English at the place of business or at residence of the proprietor. All records, books of accounts, original vouchers and invoices must be kept in T&T dollars and be retained for a minimum of six years from the year of income to which they relate, unless the board requires in writing for them to be kept for a longer period. The board is guided by generally accepted accounting practice. However, if the records of a taxpayer are found to be inadequate, the BIR will specify what records and books of account they require the taxpayer to keep. In T&T only quoted companies are required to have audited financial statements.