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Is the formation of a company a means to an end?

There is a common misconception that the creation of a limited liability company is the culmination of its statutory obligation, which is generally not the case. In fact, a company’s incorporation is merely the genesis of numerous statutory obligation. The company’s obligations are not limited to those defined under the Companies Act of Jamaica, but also expands to the Income Tax Act, General Consumption Tax (GCT) Act, National Insurance (NIS) Act, National Housing Trust (NHT) Act, Education Tax Act, Human Employment And Resources Training (HEART) Act plus based on your industry could involve various other acts such as Contractors Levy Act, Banking Act, Financial Institutions Act among others. However, the focus of the article is confined to those laws relating to income, provision of goods or service, payroll taxes and to a limited extent, the Companies Act.

Companies Act

On the formation of a company, there is a belief to some officers or directors that there are no other statutory obligations. However, the formation is just a commencement as companies are required to file an annual return under the Companies Act, which is due on the anniversary date of incorporation and every year after. Failure, to file could result in penalties of one hundred dollars per day up to a maximum of ten thousand dollars. More severely, the officer could be brought to answer in front of a court of law or the company removed from the register of companies by the Registrar of the Companies Office of Jamaica. The filing of the annual returns should also not be confused with other returns that are required by the Income Tax Act as well as other statutory taxes.

Income Tax Act

In addition to the above, the Income Tax Act also require persons, which include bodies corporate to file and make a declaration of their income from whatever sources, which is also not limited to income earned within the island. Companies are also required under the Income Tax Act make a declaration of their estimated income for the next year of assessment, which should be paid in four equal instalments unless there are reasons to believe that the entity will not expect to earn any income for the said year of assessment. Failure to file could result in a penalty of $5,000 per month for each month or part thereof in which the entity fails to file up to a maximum of one million dollars. The deadline for filing is March 15th of each, unless this date falls on a weekend, then the last date of filing would be the next business day. The requirement to filing is not dependent on whether or not the entity is deemed profitable or considered dormant.

General Consumption Tax

Where companies are making a taxable supply as defined under the GCT Act, then it is required by law to file a return declaring the value of all its taxable supplies and paying over the relevant output taxes after claim input taxes related to the said taxable supplies no later than the last business day of each subsequent month when these supplies were made. Failure to do so attracts a penalty of the greater of ten thousand dollars or 10% of the taxes to be payable to a maximum of one hundred thousand dollars plus interest at a rate of 1.5% per month or part thereof until balances are paid. The standard rate of GCT is currently 15% and 10% for tourism activities. GCT is required to be charged only by registered taxpayers as defined under the GCT Act. GCT is to be charged on the provision of all taxable supplies whether it is a good or a service.

Payroll Taxes

Where companies have employees, then it is required to file a return on a monthly basis in accordance with the Education Tax Act, HEART Act, NHT Act and NIS Act. All these obligations are filed on a single return monthly, which is due on the 14th day of each subsequent month. The company is required to file and submit along with its returns any obligations in accordance with the aforementioned Acts immediately above. Failure to do so also attracts various penalties and interest based on each of the Acts above. In addition to the monthly payroll tax returns (SO1), the taxpayer of company is also required to file an annual Employers’ return detail each persons employed for the year of assessment outlining the gross emoluments per employee in addition to their employees’ and employer’s statutory contributions. The rate of contribution differs between the tax types as well as between the employer and employee.

The above information is not considered exhaustive and is therefore a general guide, hence, it is advised that where there is a need for specificity, it is advised to contact your tax expert/advisor or attorney.

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