Income tax in Trinidad and Tobago 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. The year of income is the calendar year and is the basis period for all sources of income except profits from trade, business, profession or vocation, in which case it is the financial year ending in the year of income. The tax is assessed at a flat rate of 25% on an individual’s income. Companies are subject to tax in accordance with the Corporation Tax Act, as discussed below.
Income Tax
Where a loss from a trade, profession or vocation arises in any year of income, the loss can be offset against other sources of income for that year, except against short-term chargeable gains or income from employment. Trade losses cannot be offset against income from a profession or vocation. An unrelieved loss can be carried forward indefinitely. Incomes exempt from tax include interest payable to a resident individual on accounts with a financial institution; dividends paid by a resident company to a resident individual; distributions from qualifying unit trust business to resident individuals; and interest from bonds issued in T&T.
Test Of Residence
A person who is resident in T&T is also liable for tax on income arising outside of the country. A person who is not ordinarily resident or not domiciled in T&T is liable for tax only on income remitted to T&T. An individual is considered to be resident in a year of income if he or she is in the country for 183 days or more in that year.
Calculating Income
In calculating income chargeable to tax for a year of income, the only expenses that are deductible in that year are those wholly and exclusively incurred in the production of the income. Expenses are disallowed where they are intended to be employed as capital or payments from which no withholding tax was deducted. The 2% of management charges paid to or for the benefit of a non-resident person or company is tax deductible. Management charges include charges made for the provision of management services, as well as charges made for the provision of personal services or technical and managerial skills, head office charges, foreign research and development fees, and other shared costs charged by head office. Other deductions and allowances that may be applied in determining chargeable income are listed below.
Initial Allowance
An initial allowance of 10% of expenditure on construction of an industrial building, excluding land, 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 (In Aid of Industry) Act.
Wear & Tear Allowance
Wear and tear allowance is available on expenditure on industrial and commercial buildings and on plant and machinery. The rate depends on the class to which the building or plant and machinery belongs. Buildings are grouped in Class A. Several items of plant and machinery are grouped in Classes B, C or D. The wear and tear rate on the expenditure is 10% for buildings, 25% for the plant 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.
Wear and tear allowance can be claimed on 130% of expenditures used for the acquisition of plants and machinery, excluding installation costs, to provide compressed natural gas equipment and cylinder installation services, and 150% of expenditure on acquisition of plants and machinery for manufacture of solar water heaters or wind turbines and supporting equipment or solar photovoltaic systems, or acquisition of solar water heaters.
Balancing Charge Allowance
When an item in a 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, restricted to initial and wear and tear allowances granted, is chargeable to tax.
Promotional Expenses
These are expenses wholly and exclusively incurred to create or promote the expansion of foreign markets for goods or agricultural produce produced in T&T, or architectural, engineering and design services in connection with the building industry performed by a resident for a recipient outside of T&T. For this allowance, 150% of the sum incurred can be claimed as a deduction.
Business Levy
Effective January 21, 2016 the Business Levy is a tax charged at a rate of 0.6% on gross receipts or gross sales where these did not exceed TT$250,000 ($38,500) in the preceding year. Income exempt from tax is not included in the gross sales or receipts. The levy is payable at the end of each quarter. A person is liable only to either the Business Levy liability or the income tax liability, whichever is higher. A person is not liable for the Business Levy in the first three years after the commencement of business.
Withholding Tax
Withholding tax is imposed on distributions and payments arising in T&T payable to all non-resident persons, including companies. Payments include: interest, discounts, annuities, rental, royalties, professional fees and management charges, including outlays for the provision of personal services and technical managerial skills. Distributions include: dividends, 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 board, such profits or any part thereof within T&T (other than in the replacement of fixed assets). Rates of withholding tax are listed below:
• 15% on a payment made to a parent company;
• 5% on a distribution made to a parent company;
• 10% on other distributions.
These rates may be lower but not higher under a double taxation treaty. The person making the payment has an obligation to withhold the tax at the applicable rate and pay it to the board within 30 days.
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 in T&T.
Income From Employment
Employment income includes salaries, wages, bonuses, stipends, commissions or other amounts for services, directors’ fees, retiring allowances or pensions arising or accruing in or derived from or received in T&T. In addition, directors or employees are assessed for tax on monetary allowances and benefits in kind received with respect to employment. These monetary allowances include travelling, telephone, entertainment, housing or any other allowances paid to the director or employee.
Benefits and facilities to a director or employee that are not subject to tax include expenses incurred in the provision of any pension, annuity, lump sum, gratuity or similar benefit to be transferred on death or retirement. The only expenses deductible from the employment income of an employee are travelling expenses incurred in the performance of his or her duties or maintaining means of transport in order to perform such duties.
Termination Of Payments
Where an employer is liable to pay to an employee an amount by way of severance pay upon termination of employment by reason of redundancy of the position or by reason of ill health the first TT$300,000 ($46,200) is exempt from tax. The exemption applies on retirement benefits paid to an employee who, among other requirements, is at least 60 years old and also to payments not otherwise chargeable to tax. Any amount in excess of the exempted amount is taxed at the average rate of tax paid by the employee for the year immediately preceding the year of termination.
Tax Deductions & Allowance
Resident individuals are entitled to certain other deductions and allowances in determining their chargeable income. These deductions and allowances include:
• Personal allowance of TT$72,000 ($11,100) for all residents effective as of January 1, 2016;
• Contributions of up to TT$50,000 ($7700) to an approved pension fund plan or premiums paid under an approved deferred annuity plan;
• Expenditures incurred with respect to tertiary education at an institution that is not situated in T&T, with this type of claim is limited to TT$60,000 ($9240);
• 70% of the annual National Insurance Scheme contributions made in an income year; and
• First-time homeowners who acquire a home by way of purchase or construction are allowed a deduction of up to TT$25,000 ($3850) each year for the first five years commencing from the year of acquisition.
Tax Credits
The following tax credits are deductible from the tax assessed:
• 25% of the purchase price of shares purchased in a venture capital company by a resident individual, and unutilised credit may be carried forward to the following year;
• 25% of the cost of compressed natural gas equipment and cylinder purchased and installed by a resident individual for use in his motor vehicle, with this credit limited to TT$10,000 ($1540);
• 25% of the cost of solar water heating system equipment purchased for household use is available to a resident individual, with this credit limited to TT$10,000 ($1540); and
• A credit is available on any tax paid on income to a foreign jurisdiction on tax assessed and paid on the same income in T&T. The amount of foreign tax credit to be deducted depends on the provisions of any double taxation treaty entered into between T&T and the foreign jurisdiction in question.
Corporation Tax
Corporation tax in T&T is charged on the chargeable profits of companies or unincorporated associations. The tax is 25% on chargeable profits, the same rate as the income tax rate, with some exceptions. Income is computed 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. The following are some of the differences.
SMEs
In the case of 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. An SME-listed company means an SME listed on the T&T Stock Exchange, namely a company whose:
• 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, is TT$5m ($770,000);
• 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, is TT$50m ($7.7m); and
• Minimum number of shareholders is 25 members.
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.
Test Of Company Residence
A resident company is a company that is controlled in T&T, whether or not such company is incorporated within the country or engaged in trade or business in T&T.
Determining Chargeable Profits
As for income tax, the expenses allowable under T&T tax law are those wholly and exclusively incurred in the production of the income. The following deductions are allowed only to companies:
• Training and retraining of employees, for which a company can claim 150% of this expense;
• Purchase of debt securities, and where a company acquires from the holder of a bond or other debt security the right to receive the income derived from the security, it is allowed to deduct all out-goings wholly and exclusively incurred in respect of the acquisition of the income;
• Art and culture, and where a company incurs expenditure in respect of a qualifying artistic work, including performing arts done by a national, it can deduct the actual expenditure up to a maximum of TT$3m ($462,000);
• Scholarships to nationals who are not employees or associates of directors, with the full amount paid being deductible;
• Sponsorship of sports persons or sporting events, with a company able to claim a deduction of up to TT$3m ($462,000) of the amount spent;
• Sponsorship of certified local audio, visual or video productions, with a company able to claim up to TT$3m ($462,000) of the amount spent;
• Production company allowance, which allows a company that produces its own audio, visual or video production to deduct 150% of the amount spent up to a maximum of TT$3m ($462,000); and
• Fashion industry allowance, and where a company incurs costs in promoting the fashion industry, an allowance is available equal to 150% of actual expenditure incurred in respect of such promotions up to TT$3m ($462,000) in a year of income. The allowances for art and culture, sponsorship of sports persons or sporting events, the fashion industry or sponsorship of local audio, visual or video productions must not exceed in aggregate the sum of TT$3m ($462,000) in any year of income.
Group Loss Relief
In addition to the loss relief available under the Income Tax Act, a company that is a member of a group of companies can surrender part of its current losses to another group company. Each subsidiary company must be resident and fully owned. The tax relief is restricted to 25% of the tax that is otherwise payable.
Buiness Levy Threshold
The Business Levy applies in much the same way as for individuals, except that the threshold is TT$360,000 ($55,400).
Insurance Companies
The profits of general insurance businesses are taxable under the Corporation Tax Act at the rate of 25%. The fourth schedule to the Corporation Tax Act sets out the various classes of long-term insurance business. These are ordinary life assurance and general annuity forming one separate class, with industrial life, approved annuity, bond investment, and non-cancellable sickness and accident businesses each being treated as a separate class of business.
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 businesses 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 to insurance companies operating in the country.
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 (PPT) is 50% for petroleum operations and 35% for deepwater petroleum operations. Petroleum operations are 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 method for income tax and corporation tax. 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.
Supplemental Petroleum Tax
This 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 computed separately with respect to land, marine operations and marine operations in a deepwater block. There are tax credits available of 20% against the Supplemental Petroleum Tax (SPT) 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.
SPT applies at increasing rates when the price of crude exceeds $50 per barrel. SPT paid is deductible from PPT liability. Petroleum companies are also subject to a petroleum impost, production levy and unemployment levy, but they are exempted from the Business Levy.
Green Fund Levy
The Green Fund Levy is charged at a rate of 0.3% effective as of January 21, 2016 on gross sales or receipts of all companies and partnerships carrying on business in T&T, whether or not such company is exempt from the Business Levy. The levy cannot be offset against other taxes and cannot be claimed as an expense.
VAT
Value-added tax (VAT) is charged on commercial supplies made by a registrant at 12.5% effective as of February 2016 on standard-rated goods and prescribed services, and 0% on zero-rated goods and prescribed services. The threshold for registration by a business is TT$500,000 ($77,000) per year. VAT is 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. 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.
Customs Tax
A tax may be levied on the importation and exportation 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 the Customs duties on any goods by so ordering, subject to subsequent resolution by parliament. Upon importation or exportation 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 then 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 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.
Financial Services Tax
This 15% tax is charged by a financial institution on financial services it supplies. No VAT is charged on those financial services which are exempt from VAT.
Hotel Accomodation Tax
This 10% tax is charged on proceeds from the letting of accommodation by a hotel. A hotel is defined as a building or group of buildings occupied together and comprising not less than six bedrooms for the purpose of providing hotel accommodation for reward. Hotel accommodation charges are zero-rated for VAT.
Insurance Premium Tax
A 6% tax is charged on taxable insurance contracts. These are usually property and motor vehicle insurance contracts. Longterm insurance premiums are not subject to the tax. A T&T resident over 60 years of age is not liable for this tax. Insurance services are exempt from VAT.
Stamp Duty
Stamp Duty is levied on several instruments, and they 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, and where the property includes a dwelling house, the first TT$850,000 ($131,000) of the property’s value is exempt, and where the property does not include a dwelling house but is residential, the first TT$450,000 ($69,300) 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 countries to reduce or avoid double taxation. T&T has double taxation treaties with the member states of Caribbean Community (CARICOM), the US, Canada, Denmark, India, Norway, the UK, Brazil, France, Italy, Sweden, Spain, China, Germany, Luxembourg, Switzerland and Venezuela. Where there is no treaty between the countries, a unilateral relief is available of up to one-quarter of the tax paid in the foreign jurisdiction.
Free Zone
Companies incorporated in T&T (except in oil and gas) can qualify for free zone status. A criterion is that 75% of their goods produced or 50% of the service provided must be exported. Such companies are not subject to import and export licences and are free of payment of import duties, VAT and other taxes, including the Business Levy, Green Fund Levy, Corporation Tax and Withholding Tax.
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 residence of the proprietor. All records, books of accounts, original vouchers and invoices must be kept in T&T dollars and be retained for at least six years from the year of income to which they relate unless the board in writing requires 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 board 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.
Transfer Pricing
There is currently no proposed legislation or bill with an impact on taxes, 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 tax laws that limit the ways in which multinationals may avoid taxes via cross-border charges within their groups. These provisions give the Board of Inland Revenue the right to disregard any transaction deemed to be fictitious.
OBG would like to thank Aegis Business Solutions for their contribution to THE REPORT Trinidad & Tobago 2016
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