The one question to ask yourself before investing in a Special Economic Zone in Jamaica
The one question an investor needs to ask themselves before investing in a special economic zone (SEZ) in Jamaica or elsewhere is this:
Am I eligible?
Special economic zones are all the rage these days. And Jamaica is no exception to this rule.
The one question an investor needs to ask themselves before investing in a SEZ in Jamaica is: Am I eligible? Click To TweetLet’s just quickly explore the numbers. In its new Report, World Investment Report 2019: Special Economic Zones, the United Nations Conference on Trade and Development’s (UNCTAD) has documented the massive rise of SEZs in over 147 countries. As of 2018, globally we have witnessed growth in SEZs to nearly 5,400, up from 4,000 five years earlier.
SEZs, specifically designated geographic areas where governments use fiscal and other incentives to attract investments and where the trade laws are different from the rest of a county’s economy have a proven track record. It is this ability to catalyze an economy, with growth, jobs, foreign and local direct investment, that make SEZs so attractive to governments worldwide as an investment attraction and development tool. As the UN Secretary General, Antonio Guterres, puts it “among the most important instruments for attracting investments are Special Economic Zones.”
With the growth numbers sited in the UNCTAD Report clearly SEZs have peaked the interest, and attracted the capital, of the global investor community. And Jamaica is no exception. We are witnessing tremendous growth in SEZ, particularly in the business process outsourcing (BPO) and logistics sectors.
Jamaica’s SEZ Benefits
Jamaica’s SEZ growth is supported by, among other things, a generous and competitive fiscal incentive package.
However, as attractive as these incentives are they mean nothing to an investor unless they can take advantage of them. And the first step in doing so is to answer:
Am I eligible?
To answer this question I have developed a basic formula which involves answering some simple questions.
Am I eligible? A basic formula
| Questions | Answer: If yes, then | Answer: If no, then |
| Are you an existing business already in operation? | You are ineligible | You maybe eligible. |
| Can I meet the basic eligibility criteria? | You may be eligible. | You are ineligible |
| Is your proposed commercial activity on Jamaica’s SEZ excluded list? | You are ineligible | You may be eligible. |
| Do you currently or plan to benefit from excluded fiscal incentives? | You are ineligible | You maybe eligible |
Existing Business – Are you an existing business already in operation?
In carrying out its duties Jamaica’s Special Economic Zone Authority, Jamaica’s SEZ regulator, must at all times, while it seeks to grow the Jamaican economy, be mindful of the possibility for erosion of the local tax base. The Authority should be especially mindful of attempts of existing businesses already established in the local economy trying to re-establish their business in whole or part in the SEZ.
Jamaica’s SEZ fiscal incentives were specifically designed to:
not erode the domestic tax base and should not compete with the general tax regime.
Jamaica SEZ Policy, pg 41
Basic Eligibility – Can I meet the basic eligibility criteria?
It is the basis on which the Authority will determined that an applicant has the legal and financial capacity to undertake a SEZ development or SEZ commercial activity. For a developer, the company charged with the responsibility of developing and managing a SEZ, at minimum that means having USD $1.5 million in issued and paid up share capital and investing in the build-out of a space large enough to accommodate at least three occupants. On the other hand, for the occupant, the company that carries out commercial activity in a SEZ, it must have USD $50,000 in issued and paid up share capital and invest USD $25,000 in SEZ related machines, equipment, facilities, etc. All of this is of course set out the Fourth Schedule of the SEZ Act.
Excluded activities – Is your proposed commercial activity on Jamaica’s SEZ excluded list?
There is a list of activities that are prohibited from benefiting from Jamaica’s SEZ fiscal benefits. These include but are not limited to:
- Extrative industries (mining)
- Tourism
- Financial Services
- Real estate
- Retail trade
The complete list of the ‘negative list’ can be found in section 41(1) of the Special Economic Zones Act.
It is important to note, and it is a point that is often misunderstood, it is not that negative list activities are not allowed to be in a SEZ, because they are. However, what is not allowed is for those commercial activities to benefit from SEZ fiscal benefits. However, they free to be present in a SEZ and even to apply for and benefit from any other Government of Jamaica fiscal incentive that they are eligible for.
In taking a negative list approach, the Government of Jamaica made a deliberate policy shift and to followed SEZ global best practice. The shift was to move away from a ‘positive list’ approach meaning that only commercial activities explicitly listed in the Act could be carried out in a Free Zone, followed under the now repealed Jamaica Export Free Zones Act ,to a negative list approach where all commercial activity are allowed unless they are on the negative list.
Excluded fiscal incentive – Do you currently or plan to benefit from excluded fiscal incentive?
Jamaica Special Economic Zones Act, paragraph 9 of the First Schedule, in essence states that SEZ developers or occupants cannot ‘double dip’ or benefit from both SEZ and a specific list of other fiscal incentives. For example, in the build out of a SEZ or build out of a commercial space within a zone for let’s say manufacturing or BPO, a SEZ company could not also claim the fiscal incentives under the:
- Bauxite and Alumina Industries (Encouragement) Act
- Income Tax Relief (Large-Scale and Pioneer Industries) Act
- Urban Renewal (Tax Relief) Act
Final word
Now that I have shown you a sure fired way to answer the question, am I eligible? go check out Jamaica’s SEZs. I am sure you will agree, Jamaica is a great place to invest.
Jamaica is a great place to invest. Click To Tweet