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No capital gains tax seen as a plus for Jamaica

Published:Tuesday | March 3, 2015 | 12:00 AM

Investors who sell their businesses in Jamaica do not pay a capital gains tax, which is seen as a comparative advantage, while a new tax study by UHY International puts the global average for the tax at 19.8 per cent.

In a release on the tax study, UHY also said that in the Group of Seven - which comprises some of the world's richest economies - the tax charge on capital gains averages 28.6 per cent on the successful sale of companies valued at US$50 million and over.

For the BRIC economies - Brazil, Russia, India, and China - the levy is 16.7 per cent on average on the sale of a US$50-million business.

Locally, Dawkins Brown, the managing partner at UHY Dawgen Chartered Accountants, said Jamaica without the capital gains tax is better positioned as a destination to set up business among firms looking for benign regimes overseas.

"Entrepreneurs are crucial to creating thriving, well-balanced economies. Historically, G7 economies have been able to depend on a steady stream of business creation because their sheer size offers great opportunities," said Brown.

"However, globalisation increasingly means that entrepreneurs are prepared to look overseas when setting up a business, and tax - alongside the cost and availability of skilled labour, as well as a benign legal environment - is an important factor in their decision, and Jamaica could potentially be the beneficiary of that," he said.

"If entrepreneurs are able to enjoy the profits from the sale of their business - potentially even moving on to the next start-up - then that will help keep them focused on growing the business and creating jobs."

UHY International collected information on the tax regimes of 25 countries to compare how much profit an investor in a typical small or medium business would be allowed to retain when they sell their stake in the business, based on an initial investment of US$1 million and disposal of the stake for US$10 million and US$50 million.

"Low taxes on capital gains, especially those made by entrepreneurs, help compensate for the financial risk involved in expanding a business. They create a stronger incentive to keep growing the business, creating new jobs with a view to attracting a substantial buyer, rather than keeping it as a smaller lifestyle business that employs fewer people and is easier to manage," the accountancy group said.

UHY noted that Western European economies impose some of the stiffest taxes on entrepreneurs' capital gains.

An entrepreneur selling a US$50-million company would pay 46.6 per cent or US$23.3 million in tax in Germany, and 36 per cent or US$17.6 million in France, UHY said.