Tue | Jul 23, 2019

Anthony Hylton | Cracking Jamaica’s SEZ code: An introduction to the SEZ players and their opportunities

Published:Sunday | May 26, 2019 | 12:14 AM
Ambassador Anthony Hylton
Think of the whole thing like a fruit tree that has been planted from the seed. The sponsor is the seed; the developer, the body of the tree; and the occupant and zone users are the fruit.
Think of the whole thing like a fruit tree that has been planted from the seed. The sponsor is the seed; the developer, the body of the tree; and the occupant and zone users are the fruit.
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The proof of the pudding is in the eating and not in the looking, and believe me when I say that the Special Economic Zones (SEZs) are a pudding layered with opportunity and profit!

Well, maybe you still don’t believe me. And that is ok. There were and are sceptics on both sides of the political divide, despite the fact that the logistics hub has been made the centrepiece of the growth agenda for two different administrations. So, as I said before, the proof of the pudding is in the eating!

Just take a look at the ever-expanding business process outsourcing (BPO) sector and the growing construction of warehouse and other industrial space that can scarcely keep up with demand. Look and you will see that some very yummy profits are already being made, indeed, especially when located in a zone. And why not.

The SEZs, of course, are not only about the BPO sector; far from it. The SEZs are equally well suited for manufacturing, logistics, e-commerce, creative industries, ship repair, aviation services, etc., as they are for BPO. The SEZs, at the end of the day, are about economic development, economic transformation, economic restructuring in a logistics-centred economy, but more on this in a future article. The SEZs are part of a growth agenda to propel Jamaica forward in this 21st century.

ENTRY POINT

The question now is how do you as an entrepreneur join in? How do you crack the SEZ code?

It is trite to say that there are different horses for different courses. Likewise, your entry point into the SEZ world will depend on the role you desire to play or are legally allowed to play. This desire is, of course, informed by a wide variety of factors, including, but not limited to, risk appetite, business acumen, access to capital, eligibility under the SEZ Act, access to suitable land, etc. And all of this even before you have submitted an application.

By way of information, I have been made aware that each application undergoes a rigorous evaluation process by the Jamaica Special Economic Zone Authority, which includes, but is not limited to, due diligence checks, safety and security checks, economic feasibility analysis, and fit and proper check on the principals and managers of the business, to ensure, as the SEZ Act states, that they are not involved in “money laundering or other financial crimes, the financing of terrorism or the manufacture or proliferation of weapons of mass destruction”.

It is easy to understand how even the most sophisticated investor, much less a casual onlooker, would feel a bit overwhelmed at a process that appears from the start to be, at best, as opaque as a concrete wall. But relief is at hand, as I am going to cut through the fog and shine a light on opportunities ripe for the picking for savvy investors.

Special economic zones are geographically designated areas that are used to attract foreign and local investment. They typically have trade laws that differ from the rest of the country and companies are offered tax incentives to set up operations. They are policy tools used by governments the world over to boost industrialisation, growth and development and to diversify economies.

To be honest with you, SEZs are not for the faint of heart or the casual investor. They are serious business. Likewise, understanding the ins and out of Jamaica’s SEZ regime is not easy, it too is serious business. However, what is easy to understand is the business opportunities that SEZs present for savvy entrepreneurs.

But first let me crack the SEZ code for you.

THE CODE

In the SEZ nomenclature, there are sponsors, developers, occupants and zone users. Here I am not going to bore you with the legalese, but translate into practical terms.

- The sponsors are the money. A sponsor is an individual, group of individuals and/or company or companies that have provided the investment capital to start or later expand a SEZ. In the first instance, they seed the development.

The developer is the company formed by the sponsors to carry out the SEZ development. The principal activity of a developer is rental activity to occupants and zone users.

- Occupants and zone users carry out manufacturing or service- based activities from a SEZ. The main differences between the two is that the occupant must be a company and is entitled to the fiscal benefits under the SEZ regime, and the zone user is not.

Think of the whole thing like a fruit tree that has been planted from the seed. The sponsor is the seed; the developer, the body of the tree; and the occupant and zone users are the fruit.

The Jamaican SEZ regime is very competitive offering; among other things, customs duty relief on goods destined for the zone, including construction materials, equipment and inputs into production. The fiscal benefits also extend to 0 per cent corporate income tax on rental income for developers, 12.5 per cent corporate income tax for occupants, which can go as low as 7.75 per cent with certain prescribed tax credits that are performance based. There is also 0 per cent general consumption tax (GCT) on electricity. For sponsors, while dividends to them are taxed, their investment vehicle earns income with no income tax.

Just imagine running a business in Jamaica, renting space to a manufacturing or information technology-enabled service provider, where your building materials and equipment come in duty free and, oh yeah, you only pay 0 per cent on your income tax. Well you don’t have to imagine – the SEZ regime is here! And speaking as the person who conceptualised and was intimately involved in its development, these fiscal incentives were specifically crafted to incentivise the development of something that has been woefully lacking in Jamaica for many years – modern, purpose-built space.

Modern, purpose-built facilities in and of themselves would make Jamaica very attractive for both local and foreign investment, given many of our other attributes, such as our geo-strategic location, being the third largest English-speaking country by population in the Western Hemisphere, and our trained and trainable workforce, etc.

However, when coupled with 12.5 per cent income tax going as low as 7.75 per cent, with tax credits earned from employment and from conducting research and development, Jamaica becomes all that more attractive for investors, be they logistics service providers or manufacturers of circuit boards or BPOs.

Now having cracked the SEZ code, the next question one should ask is: am I eligible? This will be explored in my next article.

- Ambassador G. Anthony Hylton is a partner at Samuda & Johnson and member of parliament for Western St Andrew. Email feedback to columns@gleanerjm.com