Subject to certain restrictions, expenses are, generally speaking, tax deductible to the extent that they are incurred wholly and exclusively to earn the income and are claimed in the year in which they are incurred.
Tax depreciation (referred to in Jamaica as ‘capital allowances’) is generally computed at prescribed rates annually on a straight-line basis. In the year of expenditure, initial allowances are also available at rates ranging from 20% to 25% on certain buildings and plant/machinery. Capital allowances are also available for capital expenditure on a wide list of intellectual property (IP) rights as well as pure or applied science and research and development (R&D) costs.
Generally, capital gains on depreciable property are not taxed. However, a recharge limited to the extent of the capital allowances allowed (or balancing charge) is taxable. Tax depreciation may not conform to book depreciation.
The amortisation or write-off of goodwill is not an allowable deduction.
The costs of incorporation and other expenses incurred in connection with establishing a business are not deductible against income.
A deduction is available for interest that is paid on capital employed in acquiring income. Additionally, where interest is paid to a non-resident, tax must be withheld where required and remitted to the tax authorities in order to secure a deduction.
A deduction is available in respect of specific debts that become bad during the year of assessment.
Approved donations (not exceeding 5% of taxable income) to registered charitable organisations and certain educational institutions are deductible.
Foreign exchange gains/losses
Foreign exchange gains and losses arising from trading are included in or deducted from chargeable income when realised. Foreign exchange gains and losses arising on capital assets are not taxable or allowable for tax purposes; however, where they pertain to fixed assets, on realisation, they may become part of the underlying acquisition cost and tax depreciation is computed thereon.
Fines and penalties
Fines, penalties, and interest arising from tax arrears are not deductible.
Taxes on income are not deductible. Additionally, GCT, contractors’ levy, transfer tax and stamp duty incurred on capital assets, input tax credits for GCT purposes, as well as the asset tax, are generally disregarded for income tax purposes. Other taxes, such as property tax, payroll taxes, and other business taxes, are deductible, to the extent that they were incurred to earn the income.
Net operating losses
Subject to certain exceptions for newly established and micro businesses, any claim for deduction of tax losses incurred in a prior year will be capped at 50% of the taxpayer’s chargeable income (before deduction of tax losses carried forward) of the year in which the claim is being made. Tax losses are not available for carryback. Certain anti-avoidance provisions restrict the ‘purchase’ of accumulated tax losses.
Payments to foreign affiliates
Royalties, management and other service fees, rentals, and interest charges paid to foreign affiliates are deductible to the extent that these payments are made at arm's-length rates. WHT should be paid in respect of such services, normally at 33⅓% where payment is to a company and 25% in the case of individuals, unless a lower rate is provided for under a DTT. Furthermore, interest paid to non-residents is not deductible until the WHT is remitted.