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Corporate Income Tax

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. Income tax on individuals was abolished in 1980.

There are two Acts which taxpayers need to be familiar with when filing Income Tax Return for corporations. The specific rules on the income that is taxable, as well as the various available deductions and exemptions, are outlined in the Income Tax Act Cap 20.22. The administrative and procedural rules are outlined in the Tax Administration and Procedures Act (TAPA), 2003. This Act specifies the filing deadlines, penalties and interest charges, other fees chargeable for various infractions of tax laws, and other general procedures and processes.

Any business incorporated in Saint Christopher and Nevis must file an Income Tax Return even if the corporation did not have any business transactions during the year or if it was granted a tax holiday. In addition, any non-resident, corporation or otherwise, with a permanent business establishment in Saint Christopher and Nevis must also file an annual Income Tax Return. Saint Christopher and Nevis Branch offices of offshore corporations are treated as if they were incorporated in Saint Christopher and Nevis and as separate tax entities from their head office.

The Corporate Income Tax Return must be filed on the forms prescribed by the Comptroller. If you are unclear about which forms you should be using, we encourage you to contact the Inland Revenue Department.

The Corporate Tax Return is due three and one half (3½) months after the fiscal year end of the entity. For example, if the fiscal year end of a corporation is the 31st December, the Income Tax Return must be filed with the Inland Revenue Department on or before the 15th of April of the following year. Similarly, if a corporate year end is the 30th of June, the Income Tax Return must be filed on or before the 15th of October.

The official filing date depends on the delivery method. If the Corporate Tax Return is hand delivered, the return will be date stamped by Inland Revenue on the day it is received by the department and that date will be considered the filing date. If the Income Tax Return is mailed or delivered by some other delivery method, the postmarked date will be considered the date of filing. In the event that a tax return is filed late, penalties and interest will be applied.

You are required to file an Income Tax Return each year. If a taxpayer fails to file a return as required, the Comptroller will make an assessment based on the relevant information that is available at that time or to the best of the Comptroller’s judgment. While the return remains unfiled, the Comptroller can indefinitely reassess the ‘best judgment assessment’, as many times, as new information is uncovered.

An extension may be granted at the discretion of the Comptroller. To obtain consideration for an extension, the taxpayer must make an application, using the RLF-001: Application: Request To File After The Due Date, to the Comptroller outlining the specific reason requested for the extension. Generally, circumstances that were beyond the control of the taxpayer, such as a catastrophic event, are considered valid reasons for requesting an extension. The granting of an extension means that late filing penalties will not be assessed, however, interest charges will not be waived. (Also see section: When is Income Tax Due)

Taxpayers are required to pay their income tax in installments. Installments are due at the end of each quarter of the calendar year which are, the 15th of March, the 15th of June, the 15th of September and the 15th of December (Amendment Act No. 6 of 2006)(Section 44 (6) of The Income Tax Amendment Act No. 6 of 2006).

Installments are generally one quarter (¼) of the total taxes payable on the most recent Corporate Tax Return that had been filed with the Inland Revenue Department. However, the Comptroller may estimate the amount of the installments due from any taxpayer as long as there is a reasonable basis for that estimate. Any balance owing on an Income Tax Return is due on the filing deadline of the tax return. If payment is received after that date, interest will be charged commencing on the day after the filing deadline and will continue to be charged until the amount owing has been paid in full. To be considered for an extension to pay, the taxpayer must make an application, using the RLP-001: Application: Request To Pay After The Due Date, outlining the specific reason requested for the extension. The granting of an extension to pay means that late payment penalties will not be assessed, however, interest charges will not be waived.

When an income tax return is received by the Inland Revenue Department, it will be reviewed by an assessor. If the return is incomplete or incorrect, you may be contacted to clarify any information or you may be asked to re-file. Once the tax return has been assessed, the taxpayer will receive a notice of assessment and a document entitled “Income Tax Computation and Explanation of Adjustment(s)” which will outline the details of the assessment and explain any adjustments, made by the Inland Revenue Department.

REJECTED FILINGS

The Comptroller may refuse to accept a tax return if it does not meet the minimum filing requirements. Section 52 (2) b of the Income Tax Act states that the comptroller

 

Where a person has delivered a return, the Comptroller may…
…. refuse to accept the return and, to the best of his or her judgment,
determine the amount of the chargeable income of the person and assess 
him or her accordingly.

When a return is rejected and the taxpayer does not resubmit before the due date, late filing penalties and interest will be charged.

 

The following are the minimum filing requirements for persons submitting Income Tax Returns for a Corporation.

1. Financial Statements (in accordance with International Financial Reporting Standards – IFRS) including

 

a. The Balance Sheet for the end of the period

b.Income Statement for the end of the period

c.Statement of Cash Flows

d. Statement of Retained Earnings

e.Note Disclosures

2. The Statements listed above must be signed

3. The Statements listed above must be audited

4. All required schedules on the tax return must be completed (Uncompleted Schedules may lead to the rejection of the entire tax return)

5.The tax submissions must be signed.

A taxpayer may amend a previously submitted Corporate Tax Return as long as it is done no later than six years after the date on which the original tax return was required to be filed.

If you disagree with an assessment, you must first submit a written request for an administrative review to be performed by the Comptroller. That request must be delivered to the Comptroller no later than one month from the date of the assessment. This written application of an administrative review must clearly state the reason for the objection. Failure to request an administrative review in the proper form and within the time limits could result in the taxpayer losing any rights to object or appeal the assessment. Once the administrative review is complete, the Comptroller will notify the taxpayer in writing of the findings and the reasons for those findings.

It is very important that you follow the appropriate procedures in Section 61 of the Income Tax Act Cap 20.22, if you disagree with an assessment of the Corporate Tax Return.

If the taxpayer disagrees with the findings of the administrative review, they must appeal to the Tax Commissioners in writing not later than one month after the date of the notice of the Comptroller’s findings from the administrative review. Failure to appeal to the Commissioners in the proper form and within the appropriate time limits could result in the taxpayer losing any rights to object to the assessment.

The full details of objections, including objection forms, are covered under the OBJECTIONS AND APPEALS section on the website.

 As part of the ongoing compliance program, the Inland Revenue Department may conduct detailed audits of tax submissions. The Department can re-assess an Income Tax Return as long as it is done no later than six years after the date on which the original tax return was required to be filed. However, there are certain instances where there is no time limit imposed on the Inland Revenue Department’s ability to audit and reassess previously filed returns. Those instances are:

1. Where no assessment was made;
2. The original assessment was based on false information due to fraud or the willful neglect of the taxpayer; or
3. No tax return was ever filed by the taxpayer and the Comptroller made an assessment based on his or her best judgment at the time.

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.

Interest on late payments is charged at the rate of twelve percent (12%) per annum. Interest charges commence on the original due date of the tax return. The penalty for late filing of a return is five percent (5%) of the tax owing and an additional one percent (1%) for each month or part of the month during which the return remains outstanding. (Section 37 (1) (a) and (b) of The Tax Administration And Procedures Act 2003)

Where the Comptroller makes a demand in writing that a person provide additional information that is relevant to the determination of a taxpayer’s tax liability, and that person fails to file the return or provide the information within the time specified, there is a penalty of one thousand dollars ($1,000). An additional one thousand dollars ($1,000) penalty can be applied to a second request if that request also is not responded to appropriately. (Section 37 (2) (a) and (b) of the Tax Administration and Procedures Act 2003)

Section 38 of The Tax Administration and Procedures Act 2003 states:

Where any tax is underpaid, or may have been underpaid as a result of an incorrect statement or a material omission in the taxpayer’s tax return, or other
incorrect information provided by the taxpayer, and that statement or omission or incorrect information is a result of intentional conduct or negligence on the
part of the taxpayer, the taxpayer shall be liable to a penalty in the amount of twenty-five percent (25%) of the underpayment.

TAX EVASION AND IMPEDING INLAND REVENUE OFFICERS

The penalties for tax evasion and impeding Inland Revenue in the administration of the tax laws are significant.

Any person who willfully evades or attempts to evade an assessment, payment or collection of taxes commits an offence and on summary conviction is liable to a fine not exceeding $30,000 or to imprisonment for a term not exceeding one year or both (Section 60 of the Tax Administration and Procedures Amendment Act No 22 of 2012).

Any person who obstructs the Inland Revenue Department in its administration of the this Act commits an offence and is liable on summary conviction to a fine
not exceeding fifteen thousand dollars ( $15,000), or imprisonment for a term not exceeding one year or both. (Section 60 (2) of the Tax Administration and
Procedures Amendment Act No 22 of 2012).

Who has to file an Income Tax Return for corporations?
Any entity incorporated in St. Christopher and Nevis. This also includes any non-residents (whether a corporation or otherwise) with a permanent business establishment in St. Kitts or Nevis. A corporation is required to file even if it did not have any business transactions during the year or was granted a tax holiday.
When are the tax returns due ?

The Corporate Income Tax Return is due three and one half (3½) months after the fiscal year end of the company. For example, if the year end of the corporation is he 31st December, the Corporate Tax Return must be filed with the Inland Revenue Department by the 15th of June, the Corporate Tax Return must be filed by the 15th  of April of the following year. Similarly, if the corporate year end is the 30th of October.

What happens if I don’t file a return ?
Every corporate entity is required to file a Corporate Income Tax Return!. If a taxpayer fails to file, the Comptroller has the discretion to make an assessment based on the relevant information available at that time or to make an assessment to the best of the Comptroller’s judgment. While the return remains unfiled, the Comptroller can indefinitely reassess the ‘best judgment assessment’, as many times, as new information is discovered.
Can an extension be granted?

Any extension to file returns or pay taxes can only be granted by the Comptroller. The taxpayer must make an application in writing to the Comptroller outlining the specific reasons for the extension. Generally, circumstances that were beyond the control of the taxpayer, such as a catastrophic event or a death in the immediate family, are considered valid reasons for requesting an extension. The granting of an extension will result in no late filing penalties being assessed. However, interest charges will not be waived. (see Extension Of Time To File a Tax Return and When Is Income Tax Due)

When is income tax due?

Taxpayers are required to pay their income tax in installments. Installments are due at the end of each quarter of the calendar year– which are, the 15th June, the 15th Amendment Act No. 6 of 2006). Installment notices are mailed out each quarter one month prior to the due date. If you do not receive a notice, contact the Inland Revenue Department to have another sent to you or you may come into our office. Any balance owing on a Corporate Income Tax Return is due on the filing deadline of the return. If payment is received after that date, interest will be charged commencing on the filing deadline and will be charged up until the amount owing has been fully paid.

Is payment due if I did not receive a tax notice?

Yes, payment is due before the due date or interest will be charged, even if you did not receive a notice. It is the responsibility of the taxpayer to ensure that their obligations to our society are being met. It is also the responsibility of the taxpayer to update their contact information, including e-mail addresses, with the department when there is a change. If you do not receive a notice before the due date, contact the Inland Revenue Department to have another sent to you or you may come into our office. Not having received a notice is not a valid reason for late payment of taxes.

What is a Best Judgment Assessment?

A Best Judgment Assessment (BJA) is an assessment by the Inland Revenue Department  (IRD) to the best of the Comptroller’s judgment after taking into account all relevant information which has been gathered. Applying his or her own intelligence and deciding on the question of income and tax, were the IRD completes an assessment in this manner it is termed as a BJA. A tax officer/inspector can then carry out an assessment to the best of his/her professional judgment. The best judgment assessment takes into consideration various findings which may aid in arriving at an estimation of the quantum of taxable turnover and thereby determine the quantum of taxable amount payable.

When can a Best Judgment Assessment be issued?

Pursuant to Tax Administration and Procedures Act No.12 of 2003, Section 13 (3)

“where a taxpayer fails to file a tax return as required, the Comptroller may make an assessment of the amount of tax payable, based upon such relevant information as may be available to him or her, or make an assessment to his or her best judgment.”

This is supported by the Income Tax Act Cap 20.22 Section 52 (3) which asserts that,

“where a person has not delivered a return and the comptroller is of the opinion that such person is liable to pay tax, he or she may, according to the best of
his or her judgment, determine the amount of the chargeable income of such person and assess him or her accordingly, but such assessment shall not affect any liability otherwise incurred by such person by reason of his or her failure or neglect to deliver a return.”

Therefore to summarize a BJA can be issued in cases where:

1. The taxpayer fails to file within the filing period.
2. The taxpayer fails to submit information requested within the deadline stipulated.
3. There is reason to believe that the taxpayer is underreporting or the Department is not satisfied with the accuracy and completeness of the taxpayer’s filings submission.
4. New information is made available to the Department that a previously issued BJA or assessment was based upon incorrect information.

What records should be kept and for how long ?

You are required to keep all supporting documents and records to support the Corporate Income Tax Returns filed for at least six years after the date on which the
original tax return was required to be filed.

Who can be audited ?

Any entity which was incorporated in Saint Christopher and Nevis, or an individual operating a business, can be audited by the Inland Revenue Department.

What kind of accounting system should I use?

Taxpayers are required by law to keep in the English language a proper set of book 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.

Are audited financial statements required?

Taxpayers are required to file Audited Financial Statements using IFRS or other recognized GAAP requirements for submissions to the Inland Revenue Department.
These financial statements must be compiled by an independent third party. The department will also accept compilations and reviews that are performed using IFRS and other recognized GAAP requirements by an independent third party.

Are there any penalties associated with income tax ?

The penalty for late filing of a return is 5% of the amount of tax owing and an additional 1% of that amount for each month or part of the month during which return is still outstanding. (Section 37 (1) (a) and (b) of the Tax Administration and Procedures Act) There is also a penalty of $1,000 where the Comptroller makes a demand in writing that a person files a tax return or provides any other information that is relevant to the determination of the taxpayer’s tax liability, and that person fails to file the return or provide the information within the time specified. An additional one thousand dollars ($1,000) penalty can be applied to a second request if that request also is not responded to appropriately. (Section 37 (2) (a) and (b) of the Tax Administration and Procedures Act).

Where any tax is underpaid, or may have been underpaid as a result of an incorrect statement or a material omission in the taxpayer’s tax return, or other incorrect
information provided by the taxpayer, and that statement or omission or incorrect information is a result of intentional conduct or negligence on the part of the taxpayer, the taxpayer shall be liable to a penalty in the amount of 25 percent of the underpayment. (Section 38 of the Tax Administration and Procedures Act).

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