TURKS AND CAICOS ISLANDS INVESTMENT POLICY 2012

Transcription

1 TURKS AND CAICOS ISLANDS INVESTMENT POLICY 2012 INTRODUCTION As stated in the Turks and Caicos Islands (TCI) Development Strategy the TCI needs private sector investment to generate greater economic activity. This creates jobs and incomes, opportunities for overall economic growth and therefore the public revenues that can be used to improve public services. Private and public investment has declined in recent years as a result of the global economic crisis, the impact of hurricanes and the consequences of past mismanagement of the public sector and the economy. Despite growth in the past 3 years, the economy of the TCI continues to suffer from the significant decline in 2009 with an estimated fall in GDP of 19.55% in constant prices. Historically inward investment has been concentrated in high-end tourism on the island of Providenciales with other industries struggling to develop. Investments have also largely failed to stimulate the economies of the Family Islands. Investment has generally not created the local jobs and generated additional incomes as anticipated. PAST LESSONS Investment concessions provided in the past were often over generous, too complicated, insufficiently transparent and open to abuse, difficult to monitor for compliance and not always anchored in the development priorities of TCI. TCI s current investment policy, Investment in Turks and Caicos Islands needs to be updated to reflect this investment experience as well as revised development priorities. 1 Any new investment policy will continue to be guided by the relevant TCI Ordinances 2. Some regional comparisons The Caribbean has tended to offer too many concessions to prospective investors. This has led to some non-viable investments and to a proliferation of short term ideas rather than actual long-term operations. In comparison with other countries in the region, the TCI has considerable investment advantages including being a UK Crown assured jurisdiction, utilizing the US dollar, being close to and with direct air links to the USA and with no corporation or income tax. It is difficult to compare the varied investment jurisdictions of the different economies in the region. While the Bahamas and Cayman Islands both have no income and corporation taxes, investment incentives in the form of reduced customs duties and stamp duties for property differ in these two countries. Under the Hotels Encouragement Act the Bahamas provides concessions for resort facilities throughout the country, including duty-free importation of building supplies and exemption from Real Property Tax for 10 years and a nominal tax for the ensuing 10 years. Under the Industries Encouragement Act the Bahamas provides duty-free concessions for the importation of machinery, raw materials and building supplies for manufacturing entities in addition to exemption from Real 1 Investment Incentives in Turks and Caicos Islands. 2 Turks and Caicos Islands. Chapter Encouragement of Development Ordinance. Revised Edition showing the law as at 31 August 2009.

2 2 Property Tax for a 15-year period. Other Acts provide concessions in support of export manufacturing industries, time-share ventures, and agriculture that include exemption from the payment of customs duties on building materials, equipment and approved raw materials and real property taxes for periods up to 20 years. The Cayman Islands considers investment incentives on a case-by-case basis with a reduction or waiver of import duty on materials for tourism development. In July 2012 the government of the Cayman Islands announced that imports of building materials to Grand Cayman, the largest of the Cayman Islands, would be charged a flat rate of 15% until December 31, Meanwhile, imports of building materials to Cayman Brac and Little Cayman would be on a 100% duty free basis for the period July 1, 2012, to December 31, Property stamp duty in the Cayman Islands is generally levied at 7.5% with a zero duty on the transfer of land under $200,000, and transfer of land is levied at 2% for land valued over $200,000. In the Bahamas stamp duty on property is levied from 4 to 10% depending on the value of the property. First time Bahamians purchasing property are exempted from stamp duty. However the Bahamas government levies an annual property tax from ¾% to 1% of the market value of the property. There are no exemptions for foreigners on stamp duty, though there are exemptions for property tax for hotels and other industry. AIM AND OBJECTIVES The overall aim of the new investment policy is to provide a framework for incentivizing future domestic and foreign investment as well as a covering umbrella that will guide in the future specific investment incentives. Such a summary policy statement cannot and does not aim to - anticipate and comprehensively detail all the specific incentives that could be considered for each and every future investment. All investments will continue to be subject to the standard due diligence assessments and cost benefit analysis. As previously noted, future incentives will continue to be directed by existing ordinances. Determination of all incentives will continue to be at the discretion of government. The specific objectives of the new Investment Policy 2012 are to: Attract long-term and sustainable investment that creates local jobs and other local value-added to the economy of the TCI. Pro-actively draw appropriate and sustainable investment that stimulates the economies of the lesser-developed Family islands. Pro-actively draw investment to the country that supports economic activity outside tourism. Attract investment to the TCI that creates new industries and otherwise meets the broader development priorities of the country. Operate a regulated system of investment incentives that is clear, transparent and relatively easy to operate, including monitoring for compliance. Continue to reduce the cost of doing business and improve the regulatory and other environment for all investment in the TCI. Against this background the government will continue to respect and enforce existing development agreements. However current investment concessions are too complicated, over generous, expensive to comply with and otherwise administer and have previously been abused. Thus continuing with the existing investment policy is

3 3 not an option. Given the state of the economy, the need for balanced and diversified growth, job creation and public revenue generation the do nothing option is also not considered be in the best interests of the country. A new investment policy that is clearly focused on supporting initial investment rather than life-long operations; that focuses on non-financial investment needs; and that is tailored to the development priorities of the country is the best option. DEVELOPMENT PRIORITIES As described in the TCI Development Strategy the development priorities for TCI today are considered to be the following: Stimulating investment in the lesser-developed, family islands of North, Middle and South Caicos, Grand Turk and Salt Cay. Diversifying growth by adding new industries to the economy. Stimulating competition. Increasing employment opportunities for TCI islanders. Contributing to public revenues in future years so that the TCI government may deliver more and better education, health and other public services, including easing the plight of the poorest and protecting the natural environment. Development priorities will be assessed in the form of the attached A, B, C ranking (Appendix 1) together with additional economic analysis where justified. Investment incentives and other public support to private business might be assessed as in the long-term public interest of the TCI and therefore supportable by government where: (i) the proposed private investments match the development priorities of government; and (ii) the public finances foregone as investment incentives in the short-term are more than outweighed by the annual gains in public revenues in the long-term. Incentives in support of other types of investment are unlikely to warrant public support. INVESTMENT INCENTIVES Future investment incentives to be provided by TCIG to both domestic and foreign investment will concentrate on: Alleviation of essential fixed investment costs 3 for qualified investments 4. Reduced import duties on fixed investment costs for qualified. investments and new industries at a rate of 50% for Providenciales, Parrot Cay and Pine Cay and 75% on the other islands. Public private coordinated investments in all islands other than Providenciales, Parrot Cay and Pine Cay. 3 Fixed investment costs are defined as the capital and labour costs that are essential to the initial investment and to later re-investment. These costs will likely include the importation of construction materials, machinery and equipment, and the importation of highly skilled or otherwise proficient management and staff that are considered by the investor to be key to the successful commencement of operations. 4 Select investments are defined as those investments that meet the development priorities of the TCI (Appendix 1) by scoring at least an overall B average.

4 4 Reductions in stamp duty for purchases of land in the family islands (islands other than Providenciales, Parrot Cay and Pine Cay,) and reductions in stamp duty for new developments and first time sales of new condominiums across TCI. TCIG will continue to do all it can to reduce the overall cost of doing business and ease the regulation of investment and business throughout the TCI. Investment incentives will not be considered for the following: Long-term operating expenditure. Purchase and reinvestment in distressed properties. Future investment incentives will only be applied to import duties and stamp duty on land and first time sales of condominiums and will not be applied to VAT, Customs Processing Fee, or any other form of taxation. Investments that do not meet development priorities. Investments that do not otherwise need government support. The Incentives 5 1) Alleviation of fixed investment costs For qualified investments only, capital fixed investment costs will be eased by the reduction of import duties as 2) below. All investors should make every effort to employ TCI islanders. However, in accordance with the Immigration Ordinance 6 and for select investments only, for fixed investment costs in essential labour, TCIG will facilitate the issuing of work permits within an agreed time frame. Certificates of Permanent Residency (PRCs) and Belonger status and certificates will not be issued in support of investment. 2) Reduced import duties Fixed capital investment costs can cover the initial import of essential construction and fit-out materials and equipment and other capital imports that are otherwise accepted by TCIG as being essential to establishing operations in the country. With the exception of building materials, other fixed capital investment cost incentives will be provided in the form of a 50% reduction in customs duties for investments in Providenciales and a 75% reduction in all other islands. Building materials imported into TCI are already exempt from import duty and will also be exempt from VAT. This exemption does not apply to pre-fabricated items, such as doors and windows which are charged either 15% or 30% import duty at present (VAT implementation reductions will apply from April 2013). 3) Stamp duties 5 Investor incentives or concessions are required to be published under the laws of the TCI. 6 Turks and Caicos Islands Immigration Ordinance. Immigration (Amendment) Regulations 2012.

5 5 Stamp duties associated with the purchase of property will continue as currently levied. Applicable rates of duty vary by island and by value of transfer. 7 However, Stamp duty for new developments and first time sales of new condominiums will be reduced by 50% in Providenciales and nearby developed islands and by 75% on the family islands. 4) Coordinated public-private investments When sufficient public revenues are available, the government will consider coordinating appropriate public investment with new private investment in order to attract that investment. Preference will be given to the islands of Salt Cay, Grand Turk, and North, Middle and South Caicos. The Investment Unit and the Strategic Planning and Policy Unit (SPPU) of the Ministry of Finance, Tourism and Trade intend to draft investment plans for these islands. This is likely to focus on the key priority public investments as listed in the recently released Development Strategy for 2013 to Future public investments in transport, utilities, health, education, other infrastructure, crime and the environment that may support private investments will be appraised. The above program of incentives will only apply to new investments. The concessions on Stamp Duty relating to sales of new condominium units will come into effect from 1 April All other incentives will come into effect immediately. 5) Business environment Of equal, or even greater, importance to investors than incentives is ease of establishing a business and then doing business. To this end TCIG will: Continue to do what it can to reduce the cost of doing business in the country. Establish a TCI cost of doing business set of indicators to help monitor progress in improving the environment for business. Reduce cost and time for processing work permits. Move toward a one stop shop for investment approval. Establish or re-establish business-government council(s) to provide advice on the environment for business. Finalize - through the TCIG Investment Unit - a summary explanation of the processes and procedures required for processing investment in the TCI and will publish this extensively. RISKS AND ASSUMPTIONS Risk Fixed cost import duty concessions will be abused and will be difficult for Assumption A preferential rating system is used that is simple to understand and operate. 7 For the islands of Providenciales, Pine Cay, Parrot Cay and Water Cay: where the value of transfer is less than $25,000 the applicable rate of Stamp Duty is 0%; where the value of transfer is from $25,000 to $75,000 the applicable rate is 6.85%; and where the value of transfer is more than $75,000 the applicable fee is 9.75%. For the islands of Grand Turk, North Caicos, Middle Caicos, South Caicos and Salt Cay: where the value of transfer is less than $25,000 the applicable rate of Stamp Duty is 0%; where the value of transfer is from $25,000 to $75,000 the applicable rate is 2%; and where the value of transfer is more than $75,000 the applicable fee is 5%.

6 6 government to operate. The coordinated public-private investments will be abused by some developers. Private sector representatives will use their positions on business-government advisory councils to promote their own private business interests. The new package of financial and nonfinancial investment incentives will be insufficient to attract the required investment. Implementation of the investment incentives will be curtailed by the protracted decision-making processes of government. The scheme will only be open to investors and public investment will follow that of the private sector. Business representatives will be expected to declare self-interest and council advice will be reviewed by an independent Ombudsperson. The Investment Unit will monitor investment proposals, prepare an annual report that includes a review and recommendations for refinements to the incentives. The Investment Unit will monitor all investment approval processes and recommend improved processes. POLICY IMPACT ASSESSMENT The domestic and foreign investors seeking support from TCIG will be required to describe and present their case for such support to government. If financial incentives are requested then the investor will be asked to present an assessment of projected financial viability as well as projected public revenue viability in terms of costs (public revenues foregone in the form of reduced duties) and benefits (future years returns to government in the form of projected tax payments, jobs created and any other gains to the public). These assessments will be reviewed by the TCIG Investment Unit with the help of the SPPU. Benefits As required under law the assisted private investors will submit a report to the Governor every year on the conduct and the progress of the development enterprise. This shall include information on job creation, fixed costs investment, imports, and, as above, annual costs and benefits to the public purse. 8 The Investment Unit will monitor the progress with all new as well as existing investments. Costs The Customs Department will monitor all import duty exemptions. SPPU will annually monitor capital expenditure on public projects in the Family Islands. The Investment Unit will prepare and submit an annual report to the Governor that, among other issues, summarizes new domestic and foreign investment by nature and volume. Among other issues the annual report will include assessments of: (i) how new investments address development priorities; (ii) the adequacy of the 8 Turks and Caicos Islands. Chapter Encouragement of Development Ordinance. Revised Edition showing the law as at 31 August Section 11 page 10.

7 7 package of incentives; and (iii) the efficiency and effectiveness of the implementation of investment incentives. ROLES AND RESPONSIBILITIES The Investment Unit will continue to play the lead role in facilitating both domestic and foreign investment. As above, the Investment Unit will be supported by the Customs Department and SPPU in monitoring the costs of the Investment Policy.

8 A, B, C PUBLIC INVESTMENT IMPACT ASSESSMENT Appendix 1 Issue and Assessment 1. Describe how the investment is likely to be profitable over the longer term Direct net benefits and, or cost savings are: A. Projected to earn over 6% IRR B. Projected to produce a positive IRR. C. Projected to earn negative IRR. 2. Will the investment stimulate additional commerce and trade in the TCI? A. Likely to start a new industry. B. Will add some new business. C. Neutral impact on commerce and trade. 3. Will the investment take away business from other existing enterprises in TCI? A. No impact on existing businesses projected. B. Increased competition expected to lead to net gain in business activity. C. Will directly compete with and take away business from other private entities. 4. How will the investment contribute to public revenues in future years? A. Provides a significant projected impact of an increase of more than 10% of existing combined domestic taxation, stamp duties, work permit and business license revenues. B. Provides some projected impact on public revenues but less than 10% C. Provides no net impact on public revenues. 5. Will the investment assist the lesser-developed regions of the TCI? A. Investment will be situated in and, or will directly benefit lesser-developed regions in the form of providing employment and, or sourcing other resources from the region and, or providing other revenues to such regions. B. Investment is expected to provide for minimal benefit to lesser-developed regions. C. Investment is not expected to impact the lesser-developed regions.

9 6. Will the investment help the poorest? A. Investment is expected to directly employ or otherwise benefit areas where poorest communities are situated. B. Expected to provide marginal benefit to the poor. C. Not expected to benefit the poor. 7. Will the investment provide employment for TCI islanders? If so how many and of what professions or skills? A. Likely to lead to a significant increase in the creation of jobs for local islanders estimated at more than 5% of the current number employed. B. Likely to lead to some projected creation of jobs for local islanders but less than 5% of the current islander labour force. C. Not expected to lead to jobs for TCI islanders. 8. How will the investment affect the natural environment? A. No impact on the natural environment anticipated. B. Likely negligible impact on the natural environment. C. Likely to negatively impact on the natural environment. 9

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