If you are a developer of, or an occupant operating within, a special economic zone (“SEZ”) in Jamaica, it is important to take the time to review and ensure that you understand the implications of the recent amendments to the Special Economic Zones Act (the “Act”).
The Act, amended in 2017 and 2020, was amended again by the Special Economic Zones (Amendment) Act, 2022 introducing a few minor and substantial amendments.
Since the most recent amendment, The Organization for Economic Cooperation and Development Forum on Harmful Tax Practices (FHTP) has concluded, as part of the implementation of the Base Erosion and Profit Shifting (BEPS) Action 5 minimum standard on harmful tax practices, that Jamaica’s SEZ law has been amended to be in line with the standard and so Jamaica is now not considered harmful. This is very good news for Jamaica. The FHTP’s conclusion is likely to be seen as an expression of confidence in Jamaica’s SEZ regime by the countries contributing to three-fifths of world gross domestic product and three-quarters of world trade (being the countries who make up the member states of the OECD).
The FHTP’s Peer Review Results, updated as of January 2023, notes the introduction of (a) economic substance requirements; (b) prohibition of intellectual property activities; and (c) a transition period for compliance with the economic substance requirement and intellectual property activities prohibition.
Section 41 of the Act has been amended to include ‘intellectual property activities’ among the list of excluded activities which developers and occupants must not carry on, whether directly or indirectly, in a SEZ. ‘Intellectual property activities’ is defined in the Act as “… any activities relating to the right to use, any copyright of literary, artistic or scientific work, including cinematograph films, and films or tapes for radio or television broadcasting, or any patent, trademark, design or model, plan or secret formula or process, for the use of or the right to use industrial, commercial or scientific equipment or for information concerning industrial, commercial or scientific experience.”.
A licensed developer or an occupant carrying out intellectual property activities must stop carrying out such activities on or before March 31, 2023.
Economic Substance Requirements
The list of eligibility criteria which must be applied by the Jamaica Special Economic Zone Authority (the “Authority”) in its review of SEZ applications was also expanded to include economic substance requirements. An applicant must be able to demonstrate to the Authority that the substantial activities carried out by that applicant, as a developer or occupant within a SEZ, will be its ‘core income generating activities’, and that its substantial activities fulfil the following requirements–
- the activities must be carried out by an adequate number of qualified employees;
- the activities must generate operating expenses which are both adequate, necessary and relevant, in accordance with the size and nature of the operation; and
- the activities may be outsourced to both related and unrelated parties, if they are situated in Jamaica and the outsourced activities are performed within Jamaica subject to the terms of the license agreement and approval from the Authority.
The Act provides that ‘core income generating activities’ may vary according to the specific qualifying activity, but must mainly consist of those significant functions that drive the business value, which are not exclusively or mostly support activities. Like the intellectual property activities prohibition, a developer or an occupant that is operating in a SEZ on the date of operation of the Act must comply with the economic substance requirements on or before March 31, 2023.
Time is therefore of the essence for developers and occupants to keenly consider whether they should seek the assistance of counsel and engage in discussions with the Authority to assess whether (a) any aspect of their business operations falls within the definition of ‘intellectual property activities’ and (b) their operations meet the economic substance requirements. March 31, 2023 is fast approaching. The clock is ticking.
Jezeel Martin is an Associate at Myers, Fletcher and Gordon, and is a member of the firm’s Commercial Department and SEZ Practice Group. He may be contacted at firstname.lastname@example.org or through the firm’s website www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.