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Taxation in Trinidad & Tobago
 
 
 

Business Taxation

Under the Corporation Tax Act, corporations or companies include unincorporated associations but not partnerships.

Resident corporations are taxed on their world income. Branches of non-resident corporations are taxed only on branch income. They are, however, allowed deductions for head office expenses incurred in relation to the branch. Branches are subject to withholding taxes on after-tax profits (less investments) whether remitted or not.

Residence is determined by central control and management of the affairs of the company and this is usually, but not necessarily, where the Board of Directors meets. Local subsidiaries of non-resident corporations may, themselves, be non-resident if control and management take place abroad.

All expenses wholly and exclusively incurred in the production of a company’s income are allowed except where specifically disallowed. Major expenses not allowed are domestic and private expenses, capital expenses and certain payments to non-residents unless withholding taxes have been accounted for and paid over to the Board of Inland Revenue.

Interest is treated as a distribution in cases where it is payable in respect of certain securities of a company, for example:

        • securities convertible directly or indirectly into shares;
        • securities issued by a company to a non-resident company of which it is a subsidiary or where both are subsidiaries of a third company.

Certain tax treaties (such as the US Double Taxation Treaty) provide for the reversal, in certain circumstances, of the effect of these provisions so as not to treat such payments as dividends. The consequences of interest being treated as a distribution are that:

        • the interest so paid is not a deductible expense for tax purposes;
        • the withholding tax rate applicable to such remittances is the rate appropriate to distributions;
        • such interest may only be paid out of profits.

In computing the tax liability, no deduction is allowed for interest paid unless the recipient is liable to Trinidad & Tobago tax thereon or specifically exempt under the Income Tax Act or some other law.

In the case of management charges paid to a non resident company or person, the deductible amount is normally restricted to the amount of those charges or 2% of the paying company’s total outgoings and expenses (excluding the management charges and tax depreciation allowances), whichever is less. The withholding tax due on such management charges must also have been paid to obtain any deduction for tax purposes. Management charges include technical fees, head office charges and shared costs charged by head offices, foreign research and development fees.

When business transactions between a non-resident company and a resident company over which it exercises substantial control have been so arranged that the resident company earns no profit from the transactions concerned, or less than it might normally be expected to earn, the Board of Inland Revenue may regard the profit shifted abroad as taxable income of the non-resident company subject to tax in Trinidad & Tobago. The tax is collected from the resident company as if it were an agent of the non-resident company.

The Board also has a general power to disregard any artificial or fictitious transactions that reduce the amount of tax payable by a person and to assess the parties involved accordingly.


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