Tapuriah Jain & Associates

Income Tax in Saint Kitts and Nevis

The Income Tax Act was passed in 1966 and came into force on the first day of January 1967. It made provisions for income tax to be charged on both individuals and corporate entities.

Individual - Taxes on personal income

Income tax on individuals was abolished in 1980.

Individual - Income determination

Employment Income

Gross income includes salaries, wages, commissions, production and cost of living bonuses, gratuities, and any liability (including taxes) paid on an employee's behalf by the employer.

Capital Gains

St. Kitts-Nevis does not tax capital gains

Individual - Tax administration

Tax Returns

All individuals or group of individuals who are required to pay Unincorporated Business Tax and Island Enhancement Fund charge are required to register with the Inland Revenue Department and to file quarterly returns in the required form by the 15th day of the months of March, June, September, and December of each year. A person who fails to file a return on or before the date by which the filing is required is liable to a penalty of 5%, plus interest is charged on late payments at a rate of 1% per month or part of a month.

In addition, if the Comptroller makes a demand in writing that a person file a return or provide certain specific information and this is not done, the person would be liable to a penalty of XCD 500.

Payment Of Tax

A withholding tax (WHT) at the rate of 15% should be withheld from payments made to non-residents in respect of the following:

·  Dividends.

·  Interest, annuities, premiums, and discounts.

·  Rent, leases, contracts, and royalty payments.

· A natural resource payment.

· Commissions, remuneration, fees, and licences.

·  Charges for the provision of personal services, commercial advice, and managerial skills.

·  Administration, management, or head office expenses.

·  Profit.

· Technical, professional, vocational, and any other service fees.

· Accounting, actuarial, legal, and audit expenses.

· Non-life insurance premiums.

· Any other annual or periodic payment or distribution.

Corporate - Taxes On Corporate Income.

Companies incorporated in Saint Kitts and Nevis (St. Kitts-Nevis) pay corporate income tax (CIT) on their worldwide income with relief available under existing DTAs. Non-resident companies deriving income from St. Kitts-Nevis are liable for CIT and should be registered if they have a physical presence in St. Kitts-Nevis.

St. Kitts-Nevis imposes CIT at a flat rate of 33%.

Taxable income or assessable income is ascertained by deducting from income all expenses that are wholly and exclusively incurred during the year in the production of the income. Assessable income is normally arrived at by adjusting the net profit per the financial statements for non-taxable income, non-deductible expenses, and prior-period losses of up to 50% of chargeable income.

Where a person resident in St. Kitts-Nevis makes a payment to another person not resident in St. Kitts-Nevis, as noted in the Withholding taxes section, then withholding tax (WHT) at a rate of 15% must be deducted and remitted to the Inland Revenue within 15 days.

A company that carries on business exclusively with persons who are not resident in St. Kitts-Nevis is exempt from all income, capital gains, and WHTs.

Companies registered under the Condominium Act are governed by that Act and are not required to pay CIT.

Corporate - Corporate Residence

A corporation is deemed to be resident if it is incorporated in St. Kitts-Nevis or if it is registered as an external company doing business in St. Kitts-Nevis under the Companies Act.

Permanent Establishment

A PE is not defined in the Income Tax Act; however, any company that would meet the general definition of a PE must be registered.

Corporate - Income Determination

Inventory Valuation

Inventories are generally stated at the lower of cost or net realisable value. The first in first out (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 to standard accounting practice in the trade concerned. The last in first out (LIFO) method is not permitted for tax or book purposes.

Capital Gains

Capital gains tax will be imposed if an asset is sold within one year of the date of acquisition. The maximum rate of tax will be 16.5% (one half the 33% CIT rate). Assets sold after one year will not attract capital gains tax.

Dividend Income

Dividends received by a company resident in St. Kitts-Nevis from another company resident in St. Kitts-Nevis are taxed at source at the CIT rate of 33%. Credit is given to the recipient for the tax on the dividend in computing the tax liability.

Interest Income

Interest income received by a company registered in St. Kitts-Nevis is taxed at the CIT rate of 33%. Interest earned on local and other CARICOM government securities are normally exempt from the payment of CIT.

Royalty Income

Royalties received by a corporation are taxable as income from a business or property. Royalties earned from CARICOM sources are normally exempt from the payment of CIT.

Foreign Income

A St. Kitts-Nevis corporation is taxed on foreign branch income when earned and on foreign dividends when received. Double taxation is avoided by means of foreign tax credits where tax treaties exist and through deduction of foreign income taxes in other cases (the United Kingdom [UK] and CARICOM). There is also relief from British Commonwealth taxes.

Corporate - Withholding Taxes

WHT at the rate of 15% should be withheld from payments made to non-residents in respect of the following:

·  Dividends.

·  Interest, annuities, premiums, and discounts.

·  Rent, leases, contracts, and royalty payments.

·  Natural resources.

·  Commissions, remuneration, fees, and licences.

· Charges for the provision of personal services, commercial advice, and managerial skills.

·  Administration, management, or head office expenses.

·  Profits.

·  Technical, professional, vocational, and any other service fees.

·  Accounting, actuarial, legal, and audit expenses.

· Non-life insurance premiums.

· Any other annual or periodic payments or distributions.

Tax Treaties

Recipient	WHT (%)				Entry into force
	Dividends	Interest	Royalties	Management fees
Non-residents:
Non-treaty	15	15	15	15
Treaty:
CARICOM	0	15	15	15	7 July 1995
Monaco	0/5 (1)	0(2)	0(2)	N/A	1 December 2011
San Marino	5/7.5/15 (3, 4)	0 (5)	0 (2)	N/A	12 February 2014
United Arab Emirates	0 (2)	0 (2)	0 (2)	N/A	Awaiting ratification
United Kingdom	0 (5)	0 (5)	0 (5)	N/A	28 January 1948

Notes

1. The rate is 5% if the beneficial owner is a company; 0% if the beneficial owner is an individual and resident of either contracting state or a partnership held by individuals and beneficial owners who are resident of either contracting state.

2. Taxable only in the state in which the beneficial owner is resident.

3. The rate of tax is 5% if the beneficial owner is a company that has directly held at least 25% of the capital of the company paying the dividends for an uninterrupted period of at least 12 months prior to the decision to distribute the dividends.

4. The rate is 7.5% if the beneficial owner is a company that has directly held at least 10% but less than 25% of the capital of the company paying the dividends for an uninterrupted period of at least 12 months prior to the decision to distribute the dividends.

5.  Taxable only in the source state.

Corporate - Tax Administration

Taxable Period

Taxes are assessed on a fiscal-year basis.

Tax Returns

The taxpayer must file an information return on Form CIT-01 by the 15th day of the fourth month after the fiscal year-end along with the financial statements. The authorities either accept the self-assessment or issue a revised assessment. If a return is not filed on a timely basis, the authorities have the power to issue estimated assessments. There is a 5% penalty for late filing.

The taxpayer can object to assessments raised within one month and ask the Comptroller of Inland Revenue to review and revise. In the event that the objection is unsuccessful, the taxpayer may appeal to the Commissioners of Income Tax. Assessments may be reviewed and revised by the Comptroller within the year of assessment or within six years of the expiration of the assessment year.

Payment Of Tax

Advance tax is payable in quarterly instalments on 15 March, 15 June, 15 September, and 15 December of each year and is ordinarily based on the tax chargeable and assessed in the previous fiscal year. The standard amount of each instalment is determined as one quarter of the tax chargeable in the previous fiscal year. If the assessment for the prior year has not been finalised, the Comptroller of Inland Revenue can raise an assessment based on best judgement.

The balance of tax due after the final assessment is issued, as notified in the assessment, is payable on or before the 15th day of the fourth month after the fiscal year-end. If the Comptroller of Inland Revenue revises the assessment, then payment of the balance of taxes due is due one month after the date of issue of the revised assessment.

Tax is deemed to be in default if not paid by the 15th day of the fourth month after the fiscal year-end or within one month of the date of the notice of assessment, whichever is later. Interest of 1% per month or 12% per annum is charged on unpaid taxes in default.

Anti-Avoidance Provisions

The Comptroller of Inland Revenue can, by notice in writing:

· distribute, apportion, or allocate amounts to be deducted in calculating income tax paid between related persons as is necessary to reflect the chargeable income or tax payable as if the arrangement had been done at arm's length

· re-characterise the source and type of income, loss, or payments made under an arrangement, the form of which does not reflect its substance or is classified as an avoidance arrangement, and

· disregard an arrangement, transaction, or part of an arrangement or transaction that does not have substantial economic effect or is classified as an avoidance arrangement.

Tax Audit Process

The St. Kitts-Nevis tax system for companies is based on self-assessment; however, the Inland Revenue Department (IRD) undertakes ongoing compliance activities to ensure that corporations are meeting their tax obligations. There is no specific approach used by the IRD in relation to compliance and audit activities. Compliance activities generally take the form of reviews of specific issues and audits.

Tax Records And Accounting Systems

You are required to keep all supporting documents and records to support the Income Tax Returns filed for a minimum of six years after the date on which the original tax return was required to be filed. It is the obligation of the taxpayer to retain information to support the tax return that was filed with the Inland Revenue Department. The consequences of not maintaining adequate records may be significant. For example, in the event that you fail to keep records for the period required and the Inland Revenue Department has selected your return for an audit, you may be denied a deduction of all expenses you are unable to support.

Accounting Systems For Tax

Taxpayers are required by law to keep in the English language, proper books of accounts. There are many systems available that will be sufficient to meet the book of accounts standards required by the tax legislation, both computerized and manual. Selecting the appropriate accounting system is personal for each taxpayer and they should consider both tax requirements and business needs when deciding on the appropriate system. Whatever system a taxpayer selects for its bookkeeping and accounting purposes, that system must maintain an audit trail. That means that an independent person should be able to trace all items of information contained on the company’s financial statements and Tax Return from source to destination.

An appropriate accounting and record keeping system will allow the taxpayer or an independent person to identify all the individual transactions that comprise an amount reported in the financial statements or on the Income Tax Return. In addition, it will allow the taxpayer to locate all the supporting documents for any of those transactions, such as an invoice, voucher, cheque, purchase order, bank debit or credit, written agreement or some other document or combination of documents. The user will be able to determine where any particular individual transaction, such as a cheque, debit memo or invoice, has been reported in the financial statements or on the Income Tax Return. If an audit trail does not exist, it will be difficult for the taxpayer to support the financial statements and the Tax Return. This could result in deductions being disallowed or an assessment that is based on best judgments rather than based on the financial statements.