Tue | Jan 23, 2018

SEZ law passes, opens up domestic trade with free zones

Published:Friday | January 15, 2016 | 12:00 AMCamilo Thame
Minister of Investment, Industry and Commerce Anthony Hylton piloted the SEZ legislation.

The Special Economic Zone Act, which has now been passed by both houses of Parliament, opens up trade between the zones and domestic economy.

Under the free zone regime, which the SEZ effectively repeals, domestic sales were capped at 15 per cent.

However, just like before, custom duties and other cross-border taxes are fully applied to goods once they are traded locally.

The new legislation also allows for zones to be established anywhere on the island, whereas such operations were previously located in industrial areas or near to ports.

SEZs are similar to free zones in that they are exempt from border taxes and custom administration fees. Corporate income tax (CIT) will be applied to companies operating in the specially designated areas, removing the tax-free status, even though the 12.5 per cent rate is half the CIT applied to businesses outside the zone.

Moreover, zone operators can effectively lower their tax rate by as much as 10 percentage point through promotional tax credits given for spending on research, development and training, which will ultimately lead to increased employment.

Application fees have also been introduced.

On the other hand, no GCT will be applied to telecommunication services, undoubtedly to promote business process outsourcing (BPO) investment. Dividend payments will remain tax free.

Importantly, SEZ developers must come to the table with at least US$3 million in capital before a concession or license agreement can be effected, while zone occupants will be required to invest a minimum of US$50,000 on buildings, machines and other needed assets within their first year of operation.

MSMEs won't have to meet such capital requirements if the SEZ Authority determines that they have sufficient development potential, although they will have to meet the capital requirements within four years.

The over 130 free zone entities operating in warehousing, distribution, manufacturing, merchandising, and in the BPO sector will get four years to transition to the new regime.

The new legislation is seen as a necessary step towards establishing Jamaica as a global logistics hub.

"We envision that the zones will attract new economic activities, supported by the provisioning of new infrastructure," said Industry Minister Anthony Hylton.

In the meantime, the SEZ Authority will have to be established and set about raising capital to acquire property to operate as zones.

That's not to say that the Government will always have to have ownership in the zones. Developers can establish zones privately through licensed agreements with the authority. For example, Gulfray Americas Limited, which recently announced a US$350-million investment in the build out of the Spanish Town Free Zone are, among investors that will transition to the SEZ regime as a private developer.