What is a Special Economic Zone (SEZ)?

A Special Economic Zone (SEZ) refers to designated geographical areas with special economic regulations that differ from general trade, tax and investment rules.

What is the established body that governs the SEZ Regime?

The Jamaica Special Economic Zone Authority (JSEZA) is the body corporate institutionalized to oversee the SEZ regime.

What is the role of the Jamaica Special Economic Zone Authority?

The Special Economic Zone Act establishes a body to be known as the Special Economic Zone Authority (the Authority). The Authority is administered by a board of directors whose chairperson is to be appointed by the Minister. The Authority shall assist in implementing the policies and programmes of the Government with regard to SEZs and be responsible for, amongst other areas:

  • Regulate and supervise SEZs
  • Ensure the development and sustainability of Jamaica’s economy through SEZs
  • Attract new and diverse investments in the Special Economic Zones
  • Establish efficient investor and business facilitation one stop service
  • Promote and market SEZs


How does the SEZ regime differ from the Free Zones?

Special Economic Zone (SEZ) Regime Jamaica Export Free Zone Regime
 
Similarities
Exemption from border taxes
Exemption from Customs Administrative Fees (CAF)
Customs charges on sale into the domestic economy
 
Differences
General Consumption Tax (GCT) is NOT charged on locally purchased goods and services entering the zone, including electricity and telephone services General Consumption Tax (GCT) was charged on the purchase of telecommunication services
Promotes two-way trade between zones and the rest of the local economy (i.e. to satisfy the World Trade Organization’s Agreement on Subsidies and Countervailing Measures and removes the previous export subsidy of the 15% cap on domestic sales), zero rate on sales into the zones Export requirement of 85% and restricted interaction with the rest of the country in terms of the amount of manufactured goods that have to be exported
Countrywide zone development with industry clustering Generally located in industrial areas or near ports or airports
Greater emphasis on private sector zone development and management Primarily developed and operated by the government
Low headline Corporate Income Tax No Corporate Income Tax
Managed by the SEZ Authority which has regulatory, facilitatory and promotional functions Managed by the Free Zone Council
Value added services provided to SEZ users via the Jamaica Special Economic Zone Authority Regulatory function provided via the Free Zone Council
Application with fees Application with no fees
In addition to employment, the SEZ regime also incorporates development policy priorities such as FDI and value chain development with a focus on innovation, human resource development, rural development and green growth Narrowly defined national development objectives

 

Tax Measures Developer Occupant
Corporate Income Tax Headline Rate of 12.5%

(possible effective rate of 7.5% with the approval of additional tax credits)

Customs Duty Relief
Relief from Income Tax on Rental Income
GCT relief – on all goods & services entering the Zone
Employment Tax Credit
Promotional Tax Credit (R&D and training)
Capital Allowance
Stamp Duty Payable 50% 50%
Relief from Transfer Tax X
Environmental Levy Payable


What are the fiscal benefits?

*Kindly refer to the Special Economic Zone Act and Regulations as amended periodically

 

  1. Asset Tax Relief – A developer or an occupant of a Zone is exempt from tax under the Assets Tax (Specified Bodies) Act.
  2. Customs Duty Relief – (i) Goods imported into the Zone by a developer or an occupant shall be exempt from customs duties under the Customs Act. (ii) Goods imported into the customs territory by an importer on which customs duties are paid shall, if sold by the importer to a developer or an occupant in a Zone, be deemed to have been exported from the customs territory by the importer, and the provisions under the Customs Act in relation to obtaining a refund of customs duty upon the exportation of goods shall apply accordingly.
  • Income Tax Relief – A developer or an occupant of a Zone shall enjoy the following relief for the purposes of the Income Tax Act, that is to say –
  • As per the Income Tax Act section 30(1)(b) a 12.5% rate of tax on the chargeable income of the developer or occupant derived from the conduct of a trade, profession or vocation within the Zone;
  • the developer or an occupant shall be exempt from the payment of income tax on profits derived from rentals of property in the Zone, except for any rental where the landlord (whether the developer or an occupant) and tenant are connected persons within the meaning of section 2(2) of the Income Tax Act;
  • As per the Income Tax Act section 30(3)(b)(iii) where as 0% rate of tax on dividend income derived from shares held by the developer or occupant in another developer or occupant;
  • As per the Income Tax Act section 32A of the Act shall apply to a developer and an occupant, however –
    • rental income derived by the developer or the occupant from property in the Zone shall be treated as falling within subsection (4)(b) of that section; and
    • subsections (10) and (11) of that section shall not apply to an occupant;
  • subject to subparagraph (f), a promotional tax credit in an amount equal to the developer’s or occupant’s expenditure on research and development and training, up to a maximum which is equal to 10% of the tax on the developer’s or occupant’s chargeable income from a trade, profession or vocation within the Zone; and
  • any amount of promotional tax credit that exceeds the limit set out in subparagraph (e) above in a year of assessment shall not be credited against tax payable in any other year of assessment and shall not be subject to a refund under the Income Tax Act.

Section 40(1A) of the Income tax Act shall apply as if the rate at which –

  • the occupant shall deduct tax from distributions by way of dividends paid out of profits derived from the conduct of a trade, profession or vocation in the Zone, is 0%; and
  • the developer shall deduct tax from distributions by way of dividends paid out of profits derived from non-exempt income from the conduct of a trade, profession or vocation in the Zone, is 0%.


What is the general designation procedures of SEZs

The Minister in charge of Special Economic Zones (The Prime Minister and Minister of Economic Growth and Job Creation) shall, on recommendation by the Authority, and in consultation with the Minister of Finance declare, by notice in the Gazette, any area as SEZ. The declaration will define the limits, rules and regulations of the zone and will remain in force until revoked by an order in the Gazette by the Minister and on recommendation by the Authority


What are the general types of SEZs


The types of SEZs established under the Act will include, General Zones and Specialised Zones as single-entity or multi-occupant Zones that will target industries and sector among others: business service parks, free port zones, airport zones, free trade zones, industrial parks, information communication technology parks, science and technology parks, agricultural zones etc.

Can Jamaican investors participate in the SEZ regime?

Definitely! One of the major aims of the SEZ regime is to promote the growth of Jamaica’s economy. All companies conducting business in the SEZ as a Developer, Occupant, Zone User or MSME Occupant must be incorporated in Jamaica.


What are the benefits for Jamaican companies within the SEZ?

Jamaican companies, provided they meet the eligibility criteria, are free to become Developers or Occupants or apply to the SEZ Authority for authorization to become an SEZ Zone User to supply goods and or services within an SEZ. Additionally, the SEZ Authority has a mandate to develop and foster backward linkages to the domestic economy and to encourage MSMEs seeking to enter the SEZ regime.


What is the minimum eligibility requirement for being granted status in an SEZ?

Developer Occupant Zone User MSME Occupant
Company incorporated under the Companies Act of Jamaica Company incorporated under the Companies Act of Jamaica Company incorporated under the Companies Act of Jamaica that has been authorized by the SEZ Authority to provide ancillary services, other services or goods to SEZ Occupants within the Zone. Company limited by shares and incorporated under the Companies Act of Jamaica with
Established to develop and or operate an SEZ under a master-concession or licence-agreement as approved by the SEZ Authority Conducts business in the SEZ under a sub-concession agreement with a developer and approved by the SEZ Authority No benefits from SEZ fiscal incentives. Conducts business in the SEZ under a sub-concession agreement with a developer and approved by the SEZ Authority
Approved to develop a Zone that is sufficient to accommodate at least three (3) SEZ Occupants or special approval as a Single-Entity Specialised Zone Approved to operate from an approved SEZ with a Developers’ Sub Concession Agreement Approved to operate from an approved SEZ with a Developers’ Sub Concession Agreement Approved by the SEZ Authority based on evidence that the MSME conducts at least 50% of its business with an SEZ Developer or Occupant or has the capabilities to provide services or goods to an international market
Benefits from fiscal incentives Benefits from fiscal incentives Benefits from fiscal incentives with year on year proof of business
Issued or paid up share capital at the effective date of either a master-concession or licence-agreement must not be less than US$1,500,000 Issued or paid up share capital at the effective date of either a master-concession or licence-agreement must not be less than US$25,000. Also, investments by the Occupant in the Zone related activities I,e. equipment, machines, facilities improvement etc. must be greater than US$50,000 within the first year of operation Investments by the Zone User in the Zone related activities I,e. equipment, machines, facilities improvement etc. must be greater than US$50,000 within the first year of operation Investments by the Zone User in the Zone related activities I,e. equipment, machines, facilities improvement etc. must be greater than US$25,000 within the first year of operation for a valid period of not more than four (4) years from date of issuance.


Is there a minimum eligibility requirement for a Special Economic Zone Developer?

Yes, the Developer must have issued or paid up share capital at the effective date of either a master-concession or licence-agreement not be less than US$1,500,000 as well as a minimum of three (3) Occupants, unless in receipt of special approval of a single-entity specialized zone.

Is there a minimum eligibility requirement for a Special Economic Zone Occupant?

Yes, the Occupant must have issued or paid up share capital at the effective date of either a master-concession or licence-agreement not be less than US$25,000. Also, investments by the Occupant in the Zone related activities I,e. equipment, machines, facilities improvement etc. must be greater than US$50,000 within the first year of operation.

What is a Single-Entity or Specialised SEZ

A Single-Entity Zone is a Developer approved to operate from an approved SEZ business from a location that is only occupied by the applicant. Specialized Zones that is, Zones limited to specific economic activities, such as maritime or aviation related Zones (which may include dry docks, bunkering facilities, aircraft maintenance and repair, or tank farms). These types of SEZs will only be approved by the Authority in the public interest.

What is a Master Concession?

A Master Concession is an agreement between the Jamaica Special Economic Zone Authority and a Developer to establish or manage an SEZ on lands that have been vested in the Authority.

What is a Licence-Agreement?

A Licence-Agreement exists between the JSEZA and a Developer to establish or manage an SEZ on lands that are not vested in the SEZ Authority. In this case the Developer may be a private land holder or a Government entity.

What is Sub- Concession Agreement?

A sub-concession is an agreement between an SEZ Developer and an Occupant to allow an Occupant to enter into an SEZ and conduct its business activities.

How can MSMEs benefit from SEZs?

There are several direct and indirect ways that Jamaica’s MSMEs may benefit from SEZs. A number of Jamaican businesses fall within the MSME category and as part of the SEZ Authority’s backward linkages mandate under the SEZ law and under the MSME and Entrepreneurship Policy, the SEZ Authority will target MSMEs to facilitate business with SEZ companies and to operate within the Zones.

How will existing Free Zone companies be affected?

Within SEZ law there is a transitional mechanism in place designed to facilitate existing Free Zone companies (Part IX SEZ Act 2016). The major feature of this mechanism is that existing Free Zone companies will have a transitional period in which to regularize themselves and transition to full SEZ status, in compliance with the SEZ law. If you are a current Free Zone holder and registered with the SEZ Authority, your benefits automatically continue until the end of the transition period, December 31, 2019.

What is the process for grandfathering my existing Free Zone benefits?

Where you were granted Free Zone status prior to August 1, 2016, your rights and privileges are automatically preserved under the SEZ Act. However, the SEZ Authority, in order to facilitate the transition from Free Zone to Special Economic Zones will be registering all Free Zone entities under the SEZ regime while preserving their Free Zone fiscal benefits during the grandfathering period which expires December 31, 2019.

Can I apply to be a Developer, Occupant or Zone-User now?

Yes. Once you are interested in any of the aforementioned areas you are invited to complete the requisite application form, which is available through the SEZ Authority.

Will SEZ companies have access to the domestic market?

Yes. This is one of the distinguishing features of the SEZ regime. Goods produced may access the domestic market provided companies pay the requisite import duties and are in possession of the necessary permits/licenses.

Is there a list of preferred locations for the development of SEZs?

No. Private Developers are encouraged to identify areas suitable for the construction of SEZs that meet the commercial and regulatory requirements for establishing a SEZ. The decision for granting SEZ status to a developer who has identified their own site for establishment will not be influenced by any existing opportunities identified by the SEZ but by the merits of the submission and will be based solely on the developer’s ability to meet the eligibility criteria. The Jamaica Special Economic Zone Authority, in partnership with various Ministries, Departments and Agencies will also seek to package SEZ opportunities based on sites that are available for development and promote Public Private Partnerships (PPP) agreements for development and management.


What is the application process for existing Free Zone entities (promoters and authorized enterprises) and first time SEZ Applicants?

All interested parties are invited to complete the registration form which may be requested via email at info@jseza.com or you may schedule an appointment with the JSEZA and a representative will be assigned to assist you with completing the documentation.


How will backward and forward linkages be fostered between the SEZs and the local economy

It is important to note that as a matter of policy and law the SEZ Authority has the responsibility and mandate to develop and foster linkages between companies operating within the SEZ and those with the domestic economy. There are several mechanisms with the SEZ law that facilitate this for example the Zone User designation. In exercising it mandate SEZ Authority will call on the assistance of existing agencies such as the Jamaica Business Development Corporation (JBDC), JAMPRO, and Jamaica National Agency for Accreditation (JANAAC) who have mandates and programmes in place to foster Jamaican business development, global supply chain participation and the acquisition of global standard by Jamaican business.

What responsibilities will the entities within the SEZs have with respect to environmental protection?

The JSEZA will seek to ensure that all SEZ developments adhere to local environmental legislation and promotes a clean and safe environment in keeping with best practice.

Can existing businesses migrate to the SEZs?

No, there is a restriction on such movement to mitigate against the erosion of Jamaica’s tax base for a period known as the Zone-establishment period. The Zone-establishment period is currently set at 10 years from the date the SEZ Act comes into force, however, the Minister may shorten or extend this time based on the level of zone development and protection of the Jamaican tax base.


What is the rationale for introducing the SEZ regime?

The upgrading of the Free Zone regime to a modem SEZ regime is to promote competitive trade globally and to encourage Jamaican businesses to be responsive to changes in global production and market conditions. This new framework creates new opportunities for companies to operate or integrate into complex networks of design, production, distribution and sales across multiple jurisdictions. The SEZ regime provides enormous potential to stimulate wide-scale economic activities, especially in new and emerging sectors. The SEZ regime also ensures conformity with Jamaica’s obligations under the World Trade Organization’s (WTO) Agreement on Subsidies and Countervailing Measures.

Are there any industry activities that cannot be performed in SEZs?

Yes, there is a negative list of activities that neither a Developer nor Occupant may conduct inside a zone (please see list below). However, a SEZ Zone User may engage in these activities provided they can acquire the requisite permits/licences under the applicable law(s) and they have received authorization from the SEZ Authority to conduct the activity within a zone. It is important to remember that in conducting these or other activities that Zone Users are not eligible for the fiscal benefits under the SEZ Act.

(Note: Additionally, of import, is the fact that the Minister of Finance, after consultations with the Minister with responsibility for the Jamaica Special Economic Zone Authority may amend the negative list. The JSEZA, in consultation with the appropriate Ministries, Departments and Agencies, reserves the right to deny applications on the basis of public interest.)


Are there any activities that are not allowed in the SEZs?

Activities in the following industries are not allowed:

  • Extractive industries
  • Tourism services
  • Telecommunication services
  • Public utilities
  • Financial services (regulated by the BOJ/FCS)
  • Construction services
  • Real estate and property management services
  • Health services (excluding R&D)
  • Catering services
  • Retail trade