Law and Regulation re sized

From Free Zones to Special Economic Zones: One step closer to international tax compliance

On the 24th February, 2022, the European Union (‘EU’) published its updated list of non-cooperative jurisdictions for tax purposes which continued to list Trinidad and Tobago (‘T&T’) as one such jurisdiction. T&T has been listed as such for several reasons including that it did not apply any automatic exchange of financial information, did not have a rating of at least ‘largely compliant’ by the global forum for tax transparency and information sharing, has not signed and ratified the OECD’s Multilateral Convention on Mutual Administrative Assistance, and lastly, because it provided for a harmful preferential tax regime, namely the Free Zones regime.

The Free Zones regime has long been classified as a harmful preferential tax regime by the OECD Forum on Harmful Tax Practices, having satisfied the requirements of such a regime including that it has no or low effective tax rates that are ring-fenced from the domestic economy, lacks transparency and has no effective exchange of information. One of the consequences of T&T’s continued listing as a non-cooperative jurisdiction is the recent termination of the double taxation treaty entered into between T&T and Denmark. The termination of this treaty has already hampered the operations of numerous multinational companies involved in cross-border transactions between the countries, and poses a significant risk to continued investment in T&T.

In this regard, T&T has been making a conscious effort to delist from the harmful EU list through the implementation of certain legislative measures, including the intended repeal and removal the Free Zones regime, to replace it with a new regime which is intended to be more internationally attractive and compliant. This regime is called the Special Economic Zones (‘SEZ’) regime.

To this end, the necessary legislative framework to implement the SEZ regime, the Trinidad and Tobago Special Economic Zones Act, 2022 (the ‘SEZ Act’) has already been passed by Parliament and is awaiting full proclamation by the President (i.e. the SEZ Act has been partially proclaimed by the President, but not to the extent that would allow it to be fully operational and in effect).

The SEZ Act provides for the creation and establishment of a specialised authority, the SEZ Authority, which would be tasked with a host of responsibilities under the legislation including the regulation of the regime, determining applications for entities to be licensed under the regime and diversification of the economy; the designation and delineation of the various SEZ zones, compliance obligations of entities regulated under the SEZ regime, the benefits of the regime, and the repeal of the Free Zones regime.

In order to carry on business within an SEZ and to benefit from the incentives commensurate with the regime, an entity, whether a corporation, company, partnership or firm, will be required to obtain a special licence. There are 3 types of licences, each with varying eligibility criteria, licensing requirements, functions, and obligations. These licenses are:

      1. An Operator licence;
      2. A SEZ licence; and
      3. A Single Economic Zone licence.

An Operator licence would enable an entity to manage a zone marked as a SEZ. The operator has various statutory duties including the making of improvements to a SEZ, providing adequate facilities and amenities for occupation safety and health, and facilitating infrastructure and other services for the strategic and operational goals of the SEZ. An operator would benefit from exemptions on property tax, stamp duty on instruments for the purchase, lease and acquisition of land for its use, and import duties for approved capital goods, spare parts, raw materials, building materials and articles for the development and management of the zone.

A SEZ licensee could engage in any of the specified activities intended to benefit under the SEZ regime within a SEZ, while a Single Enterprise Zone licensee would be allowed to engage in only one such specified activity in a SEZ.

The benefits of a SEZ licensee or Single Enterprise Zone licensee are linked to the type of SEZ within which it operates. In this regard, there are 6 main types of SEZs, each with varying characteristics, obligations, and benefits. These include:

      1. A development zone – activities here are focused on the development of the specific geographical region with emphasis on factors such as rural development and the overall social and economic development of the area;
      2. A free port – a duty free area located at a port of entry where imported goods may be unloaded for warehousing, repackaging or processing of imported goods for value-adding activities, and logistics services;
      3. A free trade zone – a duty free area that accommodates certain specific activities targeted for international trade;
      4. An industrial park – a purpose built industrial estate that leverages domestic and foreign fixed direct investment in manufacturing industries, logistics and distribution;
      5. A single zone enterprise – in this zone, the activity that can be performed is restricted to one specific business between manufacturing, maritime services, aviation services, fishing and fish processing, agriculture and agro processing, information and communications technology, creative industries, financial services, medical tourism services, renewable energy, logistics and distribution, or business process outsourcing; and
      6. A specialised zone – a place designated for the specialised activities listed in (e) above to be performed, with no restrictions such as in a single zone enterprise.

A SEZ licensee or Single Enterprise Zone licensee operating in a free port or free trade zone will benefit from reinvestment and enhanced relief allowances/ credits, zero rated VAT on goods supplied and services provided by non-residents to it in the zone, and exemption on customs duties on the importation of approved capital goods, spare parts, raw materials, stock in trade, and other articles for use in the zone. With respect to licensees in the other types of SEZs, these entities will be entitled to the benefits of a free port and free trade zone, as well as a reduced Corporation Tax rate, a research and development allowance, and exemption from property tax. A development zone licensee however would not have a research and development allowance.

Entities applying for each of the respective licences are required to provide the SEZ Authority with a comprehensive schedule of information and documentation satisfying financial requirements and expertise, and to satisfy various statutorily prescribed tests. With respect to entities applying for a SEZ licence or a Single Enterprise Zones licence, this includes an economic substance test in which the SEZ Authority would be required to ascertain whether the proposed operating expenditure, qualified full-time personnel and the level and quality of investment of the entity are adequate, necessary and relevant in relation to its proposed core income generating activities and the size and nature of the proposed operations. The specific eligibility criteria for each of an Operator, SEZ licensee and Single Zone Enterprise licensee must also be considered when applying for the requisite licence.

A geographic area can be designated as a SEZ by the Minister of Trade and Industry on the recommendation of the SEZ Authority, after considering various factors including the type of SEZ and proposed economic activities, the intended size, topography, geographical limits of the proposed location, the existence of infrastructure including roads, telecommunication, ports and utilities including water, power, sewage and waste management, and environmental standards and requirements. Thus far, the Phoenix Park Industrial Estate has been earmarked as a SEZ, although the necessary legislative framework to be confirmed as such has not yet entered into force.

With respect to the SEZ Authority, it is subject to a duty of confidentiality and cannot disclose any trade secrets, documents, information or other matters disclosed to it under the legislation. However, there is an exception for the sharing of information where required under a written law. While it remains to be seen whether this is considered sufficient to comply with international tax reporting requirements and standards, the Government has indicated that the legislative provision has been approved by the OECD.

Some time has passed since the partial proclamation of the SEZ Act but based on various publications and news reports, the legislation appears on track to be operational in the near future, and with it, the consequent repeal of the Free Zones regime. While the SEZ regime provides significant economic incentives for investment and impetus to diversify the economy away from the energy sector, it is also representative of the first steps to ensuring T&T’s removal from the EU’s list of non-cooperative jurisdictions for tax purposes. As countries continue to face supply chain issues and impending food shortages, it is critical to T&T’s long-term sustainability that T&T is seen by the international community as an attractive jurisdiction to engage in international trade with and to invest in; factors which are restricted to a country that finds itself on the EU’s blacklist.

Disclaimer: This Document Provides General Guidance Only And Nothing In This Document Constitutes Legal Advice. Should You Require Specific Assistance, Please Contact Your Attorney-At-Law.

MVThis blog post was authored by Miguel Vasquez, senior associate in the Firm’s Taxation and Dispute and Risk Management groups. For more information, contact Miguel at


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