Trinidad and Tobago
Tax depreciation rates (wear-and-tear allowances) have been standardised by statute. Fixed assets are to be classified into one of four classes:
|Asset class||Depreciation rate (%)|
|Class A: Buildings and improvements||10|
|Class B: Motor vehicles, furniture and fittings, plant and machinery||30|
|Class C: Heavy equipment, motor lorries, trucks, and computer equipment||33.3|
|Class D: Extra heavy equipment, airplanes||40|
The allowance is calculated at the rate applying to aggregate expenditure incurred on assets within the class on a declining-balance basis.
Accelerated tax depreciation is allowed to manufacturers in the form of an initial allowance at the rate of 90% on capital expenditure on plant and machinery. The allowance is to be claimed in the year that the asset is first brought into use. For those companies engaged in the production of sugar, petroleum, or petrochemicals, or enjoying concessions under the Fiscal Incentives Act, the rate is 20%.
Gains on the sale of tax-depreciable assets are taxable as ordinary income (i.e. a balancing charge) but only when the written-down value of the assets of a class goes into credit. Prior to this, the proceeds of sale are credited to the particular class, thereby reducing the written down value of the class. Tax depreciation is not required to conform to book depreciation.
A company engaged in the petroleum production business is entitled to capital allowances on tangible costs and intangible drilling and development costs as follows:
- Tangible and intangible capital exploration expenditure incurred during 1 January 2014 to 31 December 2017 may be deducted in full (100%) in the year incurred.
- Effective up to 31 December 2019, tangible and intangible exploration and development expenditure is granted an initial allowance at 50%, a year-two allowance at 30%, and a year-three allowance at 20% computed on the expenditure incurred.
Effective from 1 January 2020, tangible and intangible exploration and development expenditure is computed on a straight-line basis over five years (20% per annum).
- A company engaged in exploration activities in a deepwater block is granted an uplift of 140% of capital expenditure incurred on drilling of exploration wells, on which capital allowances can be computed.
There is no timing in respect of claiming of allowances (e.g. on achievement of commercial production). A claim for capital allowances cannot be deferred.
Goodwill expense is generally not allowable in arriving at chargeable income.
No specific rules exist in respect of start-up expenses, but, generally, these expenses are not deductible.
Interest expenses incurred by a company in the production of its income are generally allowed as deductions. However, in the case of interest payable or paid by the company, there are certain restrictions that exist in the taxing Acts, as well as in practice by the tax authority, that could restrict a company’s ability to deduct interest paid or payable in its computation of tax for a particular year of income. The criteria laid down by the legislation for the deductibility of interest are:
- The sums borrowed are wholly and exclusively incurred in the production of income.
- The interest is revenue in nature.
- The interest income earned is either chargeable to tax or exempt under the Trinidad and Tobago legislation.
- Where the interest payment is being made to a non-resident, the payer has accounted for and paid over WHT to the BIR.
A specific provision for bad debt will be deductible for tax purposes where:
- it is in respect of a revenue expenditure
- it is made in accordance with acceptable accounting principles
- it is specific, and
- it becomes bad in the year in which the claim is made.
Charitable contributions under deeds of covenant to approved charities are deductible, up to a maximum of 15% of total income.
Fines and penalties
Fines and penalties are not generally deductible.
Other than SPT, taxes or levies are not generally deductible in arriving at taxable profit.
Other significant items
Contributions by local insurance companies to 'catastrophe reserve funds' are deductible for tax purposes, up to the value of 20% of net premium income from property insurance business.
Net operating losses
A trading loss may be carried forward indefinitely to be set-off against future profits. Effective 1 January 2020, the Income Tax Act was amended to restrict the use of the tax losses carried forward by companies engaged in the petroleum production business to 75% of the otherwise chargeable profits. Loss carrybacks are not permitted.
A limited form of group loss relief exists, whereby current year losses may be surrendered to a claimant company within a group, except that the claimant’s tax liability cannot be reduced by more than 25%. Such companies must be resident in Trinidad and Tobago.
Payments to foreign affiliates
A corporation engaged in business in Trinidad and Tobago may claim a deduction for royalties, interest, and service charges paid to foreign affiliates, provided the appropriate WHT is deducted and properly accounted for. For interest to be deductible for tax purposes, the funds borrowed must have been utilised in the production of income and the recipient must be subject to tax in Trinidad and Tobago or otherwise specifically exempt from local tax.
Deduction for management charges (as this term is defined) paid to a non-resident is restricted to the lower of the management charges or 2% of deductible outgoings and expenses, exclusive of the charges. Tax depreciation allowances may not be treated as an expense for this purpose. WHT may also be applicable to management charges paid to non-resident persons.