Mon | Dec 18, 2017

New entrants push SEZ investments to US$120m

Published:Sunday | September 10, 2017 | 12:00 AMAvia Collinder
Kelli-Dawn Hamilton, JSEZA director of investor relations and communications.
Jampro Vice-president Claude Duncan
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The Jamaica Special Economic Zone Authority, JSEZA, is reporting that as new companies come on board, total investments through the nascent SEZ market has risen to US$120 million, with substantially more projects in the wings.

Kelli-Dawn Hamilton, JSEZA's director of investor relations and communications, says prospective investors have floated projects totaling US$1 billion and talks are ongoing with Jampro to help launch those ventures.

The prospects include firms engaged in business process outsourcing, logistics, warehousing, manufacturing and assembly.

Counted among the US$120 million are CEAC Outsourcing Company, which aims to launch a call centre operation at Ferry in St Catherine through subsidiary company International Business Spaces; and Happy Sandy Bay, which plans to open a BPO facility in Hanover.

Hamilton said she was not at liberty to name the others.

"There are also companies in the dry docking and manufacturing sectors as well," she said.

Jampro vice president for investments Claude Duncan later explained that the SEZ regulations are still being finalised.

The Special Economic Zone Act passed in 2016 to replace the free zones that were phased out to confirm with international free trade rules against export subsidies.

Under the new system, developers in the zones will receive a raft of tax incentives, but must have minimum paid up capital of US$1.5 million, while the occupants of a designated SEZ must have US$25,000 of paid up capital.

SEZ occupants are also required to invest a minimum US$50,000 in equipment, buildings and plant during year one, while small and medium-sized entities with the potential for high growth will be considered on a case-by-case basis by JSEZA.

Hamilton said local investors should consider investing in real estate for use by SEZ operators.

"One of the major challenges being faced locally is the availability of space within which companies can conduct their SEZ business. This clearly creates an opportunity for local developers to fill this gap in the SEZ space. One of the major benefits to developers within the SEZ is that their rental income will be tax free," she said.

As to how the SEZ operators will directly benefit the economy, the communications director said they are required to pay a registration fee for new applicants and annual fees thereafter, and that elements of the programme incentivises them to do business with Jamaicans.

"Backward and forward linkages in the local economy are key to ensuring that even those companies who are not SEZ can benefit from the programme as well. Purchases made in the local economy are tax free and therefore provides an incentive for companies to include local companies in their supply chain," said Hamilton.

"Under the Jamaica Free Zone Act companies were required to export 85 per cent of their goods and services; there is no such requirement in the SEZ regime. Companies can determine their own market breakdown, export and/or local markets," she said.

SEZ companies will pay corporate income tax at a rate of 12.5 per cent. There are no taxes on dividends and none on rental of property within the zone. They can also get a tax credit against funds spent on research and development, capped at 10 per cent of taxable income, among other incentives.

Existing free zone operators, who currently pay no corporate taxes, will be subject to the applicable 12.5 per cent rate, if they chose to migrate to the SEZ. Those operators will be grandfathered or phased into the new system, but the timeline is dependent on passage of the regulations, Duncan said.

Last year, the Ministry of Industry and Commerce estimated that there were 128 companies in operation under the repealed free zone law, including Gulfray Americas Limited which is building out the Spanish Town Free Zone and the Kingston Wharves port logistics facility.

avia.collinder@gleanerjm.com