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Business Taxation in Montserrat
 
 
 

General

Corporate income is assessable in the hands of the corporation. Corporation tax payable by resident corporations also applies to the branch operations in Montserrat of foreign corporations in respect of income arising in Montserrat. A company is deemed to be resident only in the country in which the central management and control of its business is situated.

Taxation

Accounting Period

A newly incorporated company will select a year-end for accounting purposes, usually a year after commencement of the business. The Comptroller of Inland Revenue has to approve any subsequent change of year-end. Such approval is usually given if good reasons for a change exist.

Accounting Methods

Accounts are normally prepared on an accrual basis; any other basis would have to be agreed on with the Comptroller of Inland Revenue.

Inter-company Transactions

There are no specific limitations on prices for goods bought from or sold to foreign affiliates, but the Inland Revenue will disregard or adjust transactions they consider to be artificial.

Inventory Valuation

Inventories are generally stated at the lower of cost or net realisable value. FIFO and average-cost methods of valuation are generally used for book and tax purposes. However, the Comptroller of Inland Revenue will normally accept a method of valuation that conforms with standard account practice in that trade. LIFO is not permitted for tax purposes. General provisions for obsolescence are not deductible for tax purposes.

Capital Gains

Capital gains are not subject to a separate tax or taxed as ordinary income.

Interest

Interest is taxable and forms part of the taxable income assessable to tax in the same way as any other taxable income.

Dividends & Inter-company Dividends

Dividends received by a company resident in Montserrat from another company resident in Montserrat are taxed at the rate of 40%. However, the recipient company is allowed a tax credit equal to the tax on the profits out of which the dividends were paid.

An Montserrat corporation is taxed on foreign branch income as earned, and on foreign dividends as received. Double taxation is avoided by means of foreign tax credits where active tax treaties exist.

Stock Dividends

A Montserrat corporation can distribute a tax-free stock dividend proportionately to all shareholders.

Royalties

Royalties are assessed for corporation tax in the same way as interest.

Service Fees

Service fees are also assessed for corporation tax in the same way as interest.

Exchange Gains & Losses

Foreign exchange gains and losses would be taken into account in computing taxable income generally when resulting from trading and when realised.

Non-taxable Income

Income arising from the business of fishing, farming, market gardening and livestock raising carried on by a resident is exempt from taxation.

Deductions

Business Expenses

For the purpose of ascertaining the taxable income of a corporation, all outgoings and expenses are to be deducted that are wholly and exclusively incurred in the production of the income. There are no territorial limits and no prohibitions against payments to affiliates, provided they conform to the principle of being incurred for the production of the income. Certain payments to overseas companies are subject to withholding taxes.

Depreciation

Depreciation allowed for tax purposes is computed on the diminishing-balance method at prescribed rates. Initial allowances are granted on industrial and commercial buildings, built between April 1998 and 31 March 2003, and in respect of capital expenditure incurred on plant and machinery by a person carrying on a trade or undertaking as defined. Conformity between book and tax depreciation is not required. Gain on sale of depreciated assets is taxable as ordinary income up to the amount of tax depreciation recaptured.

Taxation

No allowance is given for amortisation of goodwill or other intangible assets, such as patents, trademarks and copyrights.

Interest

Interest is an allowable deduction provided the interest is paid on capital employed in acquiring assessable income. Interest payments to non-resident persons are subject to withholding tax.

Royalties & Service Fees

Royalties and service fees are tax deductible if incurred to produce assessable income. Payments to non-residents are subject to withholding tax.

Employee Remuneration

Deductions may be claimed on payments to employees provided they are properly employed within the business. The fact that they are foreigners or shareholders has no relevance except that the salaries must be reasonable having regard to the services performed. Where a principal shareholder receives a salary from the company, there is a restriction for tax-deductibility purposes on the amount of that salary to a reasonable commercial level of remuneration.

Insurance Premiums

Insurance premiums are allowable but, in the case of captives, must be at a level that bears a reasonable resemblance to the arm's-length cost of insuring the risk.

Bad Debts

Specific provisions for bad debts are allowed.

Foreign Taxes

Relief is given for tax paid on Commonwealth income and taxes paid in territories with which a double taxation agreement exists.

Pension Funds

Contributions to pension funds approved by the Governor in Council are allowed and is 3% of the individuals salary.

Non-deductible Items

No deduction is allowed in respect of domestic or private expenses; expenses not wholly and exclusively incurred in the production of income capital withdrawn; any sum recoverable under an insurance policy or contract of indemnity; legal fees for purchase of an asset or lease; or amortisation of goodwill, patents, trademarks, and copyrights.

Tax Computation

Net Income

Net taxable income is determined by taking the reported profit from the profit and loss account (income statement) and adding back book depreciation and non-allowable expenditure and then deducting tax depreciation allowances and non-taxable income, such as gains on sales of fixed assets, in the amount of accumulated allowances granted earlier.

The adjusted profit may then be reduced by up to 50% if there are sufficient agreed tax losses brought forward from previous years.

Tax Rates

Corporate tax is imposed at the following rates:

Non-resident companies lending money for "approved development" in Montserrat – 20%;
Resident companies – 20%.

Tax Credits

There are provisions in the tax laws for a foreign tax credit by way of unilateral relief where no double taxation treaty exists. Credit is given under the double tax treaties and there are also bilateral arrangements with certain Commonwealth countries.

Consolidation

There are no provisions for group tax relief where losses of one company may be offset against profits of another.

Other Taxes

There are no other taxes on the income of a corporation resident in Montserrat.

Generally, it is preferable to incorporate a local company in Montserrat rather than operate as a branch of a foreign company. The advantages derived are as follows:

        • identity and image; it is better to present a local image;
        • possible future admission of local shareholders;
        • possible tax advantages in foreign parent's country of residence e.g. if the subsidiary had a tax holiday, the parent could be free of tax on Antiguan earnings until distributions were made
        • saving of substantial stamp taxes if the Antigua operation, including fixed assets, were subsequently sold e.g. stamp tax on share transfers is 2.5%, whereas stamp tax on property transfers is a total of 7.5%.

Branch losses cannot be carried forward on incorporation.

Special Industries

Insurance

In the case of an insurance company (other than a life insurance company) where the gains or profits accrue in part outside Montserrat, the gains or profits on which tax is payable shall be ascertained by taking the gross premiums and interest and other income received or receivable in Montserrat less reinsurances, claims expenses and a reserve for unexpired risks.

Life insurance companies are taxable on investment income and commission, less management expenses.

All insurance companies are subject to a premium tax of 3% on the premium income, excluding motor business, net of agents' commissions, whether resident or not.

Shipping

Income arising from the business of shipping carried on by a non-resident is exempt from tax provided an equivalent exemption is granted by the country in which such person is resident to persons resident in Montserrat. The expression "business of shipping" means the business carried on by an owner of ships, and the expression "owner" includes charterer.

Subject to the above provisions, an owner or charterer of ships whose principal place of business is outside Montserrat, but in a part of the Commonwealth, is taxable on the proportion of profits applicable to shipping in Montserrat.

Hotels

Under the Hotel Aid ordinance, investors in the hotel industry may benefit from a tax holiday of up to five years. For five of the following eight years, the investor may offset up to one-fifth of the incurred capital expenditure against future income. Losses incurred during the tax holidays may not carried forward against future profit.

Manufacturers

The Fiscal Incentives Act 1975 provides that manufacturers of an "approved product" are exempt from local taxation for varying periods, five to 10 years, although longer periods of up to fifteen year maximum may be negotiated depending on the nature of the investment.

Companies qualifying for fiscal incentives are entitled to Capital Expenditure Allowances after the expiration of the tax holiday. This allowance may not exceed 20% of the total expenditure on plant, machinery and equipment made during the holiday. There are no restrictions on the Repatriation of Profits, dividends or registered capital.

International Business Corporations

The International Business Companies Ordinance 1985 provides that an international business corporation is exempt from local taxation.

Holding Companies

There is no special tax legislation relating to holding companies, nor is there any provision in the tax legislation to permit the assessment to tax on a group basis. Each company within the group is assessed separately and there is no set-off of losses between related companies.

 

 
 

 



 


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