Amendments approved by the House of Parliament on Friday to the Turn over Tax (ToT) Ordinance 1997 addresses some technical flaws and loopholes, says Minister of Finance Hon. Hiro Shigemoto.
"The amendments besides addressing technical flaws and loopholes, also clarifies the topic concerning goods supplied and services rendered by foreign entrepreneurs to local buyers or clients.
"Only import of services by foreign entrepreneurs is taxed. Import of goods by foreign entrepreneurs is not taxed as we have no import duties. Whether it is from the French side or other international import of goods, no ToT is to be paid for the import of those goods. Import of services, however, is subject to the five per cent ToT.
"The law has also been softened whereby local entrepreneurs, who imported services such as professional advice or other such services, can only be charged with ToT that foreign importers of services didn’t declare and pay.
"We have also softened the law to give local businesses the opportunity to make arrangements with the importers of services to pay the ToT rather than run the risk of the Tax Office coming after them for the foreign entrepreneur not having paid the ToT for imported services.
"It also encourages compliance by the foreign entrepreneurs. It also makes local entrepreneurs more aware of the fact that the foreign business has to pay ToT on services which are being imported into Sint Maarten. Basically, these changes are to create a more level playing field between local businesses and foreign entrepreneurs whereby now the import of services is also taxable for ToT. Local entrepreneurs can only be charged when foreign entrepreneurs import services and they fail to declare and pay the ToT.
"The amendments also sharpens the reverse procedure regarding the payment of taxes by the foreign entrepreneur and identifies the period of taxation for the ToT. Due to many past changes to the ToT Ordinance, some references no longer correspond and therefore these amendments were presented to Parliament to correct these omissions," Minister Shigemoto informed Parliament on Friday.
With reference to the notice of May 31, 2011 regarding the ToT, the Minister of Finance would like to reiterate that the ToT is not to appear separately on the bills, but should be included in the price.
The Minister added that these amendments will also help to bring in additional income for the people of Sint Maarten which benefits the country’s overall national development and allows Government to make the necessary investments in education, health, crime prevention and social development.
Brief summary
Clarification of article 2, paragraph b of the Turnover Tax Ordinance 1997
· Article 2: ground rule for the taxation of ToT.
· Essence: The turnover realized by foreign based entrepreneurs through supply of goods or the rendering of service is only taxed if the supply or service rendered has taken place locally.
· It is proposed to amend article 2, paragraph b of abovementioned Ordinance in order to clarify that services rendered by foreign entrepreneurs are only taxed if their services are enjoyed on St. Maarten.
Re- instatement of article 5 paragraph 2 of the ToT Ordinance
· Article 5, second paragraph of abovementioned ordinance regulated the place of supply of goods.
· This paragraph has been erroneously deleted in a recent amendment of the ToT due to editorial changes in the draft ordinance by Legal Affairs and Legislation (JZ&W).
· Because of the importance of this paragraph for the taxation system, it is proposed that this paragraph be reinstated immediately.
Clarification of article 5, third paragraph of the Turnover Tax Ordinance
· Following the recent amendment of article 5, third paragraph, of the ToT Ordinance a debate has arisen in the media stating that the place of supply of goods by foreign entrepreneurs to a local buyer is also subjected to ToT. This perception is incorrect.
· Article 5 regulates only the place of supply of goods and services rendered and does not govern the taxability of the goods or services as such.
· The taxation of the supply by a foreign based entrepreneur is regulated in article 2.
· Under article 2, the turnover realized by foreign based entrepreneurs through supply of goods is only taxed if the supply has taken place locally.
· Import of goods is therefore, based on current legislation, never charged with ToT.
· In article 5, paragraph 2, reference is made to article 2 to avoid future debates regarding the place of supply of goods.
· No substantial change is intended with this addition.
Reverse procedure
The reverse procedure (regarding the payment of taxes) has been introduced for foreign based entrepreneurs with the recent amendment of the ToT Ordinance (article 11, second paragraph)
· After consulting with the Tax Office, the proposal has been made to add an additional condition to the reversing of the ToT payable by the foreign entrepreneur to the buyer/client.
· The tax liability is shifted to the buyer/client only if the foreign based entrepreneur has failed to pay the turnover tax to the Tax Collector on declaration. This measure is needed to enhance the tax compliance of foreign entrepreneurs.
The period of taxation
With the introduction of the General Tax Ordinance (in Dutch and abbreviated: the ALL) in 2001, the provision regarding the period allocating the turnover tax was erroneously uncompleted.
· The period of one calendar month for the payment of the ToT is proposed in article 12.
· An optional period of one calendar year is proposed for persons who exploit real estate to generate a durable income.