Legal Alerts - Changes to Incentives for Tourism Investors
Introduction
1. The Income Tax Act (Hotel Incentives Amendment) Promulgation issued by the Fiji Interim Government makes significant changes to incentives for tourism investors. Dated 31 August 2007 and gazetted on 4 September 2007, it is deemed to have come into force on 1 July 2007.
2. This is a brief summary only of the legislation. We have yet to fully review it. We may need to issue a fuller explanation of its effect at a later time.
The changes, summarized
3. In summary:
a. the Hotels Aid Act (incorporating Hotels Aid Investment Allowance (“HAIA”), Short Life Investment Package (“SLIP”), Half-SLIP and developer profits exemption) is repealed
b. in its place, a new Eleventh Schedule (Hotel Investment Tax Incentives) has been incorporated into the Income Tax Act. This schedule appears to re-introduce:
- HAIA (by calling it “Standard Allowance”) and
- SLIP and Half-SLIP (for projects completed before 31 December 2008).
However the “new” incentives are subject to different definitions in certain areas
c. the previous income tax exemption for developer profits is no longer available
d. applications for Hotels Aid Act incentives were previously made to the Ministry of Tourism. They must now be made to the Ministry of Finance.
Differences between the old and new
4. Differences quickly identified between the old and new regimes are as follows:
a. the definition of “hotel” is amended and now includes villas and retirement resorts (and including facilities for health services for such resorts)1. Owner, management or employee accommodation is now excluded from the definition (meaning that construction costs for these cannot be claimed for SLIP or HAIA purposes
b. “refurbishment and renovation” is redefined (though all of the elements of the old definition can still be found in the Eleventh Schedule)
c. previously for SLIP applications, provisional approval entitled a hotel owning company(2) to import free of duty such capital goods (other than motor vehicles and furniture) as the owner required. The same incentive now applies provided that the hotel owning company must first provide proof that such goods cannot be produced locally to the satisfaction of the Minister, who shall decide whether such goods are to be imported. This is likely to lead to considerable uncertainty and delay in exercising rights under any relevant incentive package
d. the Minister now has the additional right to revoke any SLIP package if the relevant company has been convicted of an offence under the Income Tax Act or any other written law relating to customs or excise.
Transitional provisions
5. Any existing approval given under the old legislation continues with any ensuing benefits, as if such approval were given under the Eleventh Schedule. This means that existing holders of incentives must now deal with the Ministry of Finance.
6. Any pending application made under the old legislation will now be determined by the Minister of Finance.
Conclusion
7. The Eleventh Schedule states that its purpose is to provide hotel investors with certainty about the way the Minister will apply this Schedule to provide for the encouragement of hotels by the provision of financial inducements. Time will tell whether it has this effect.
8. For further information contact
Richard Naidu
Partner
Direct Dial +679 322 1816
Email Richard
Nehla Basawaiya
Senior Associate
Direct Dial +679 322 1848
Email Nehla
Varun Shandil
Senior Associate
Direct Dial +679 322 1813
Email Varun
1 although villas and retirement resorts were previously included for SLIP only, it would appear that they may now have the benefit of the Standard Allowance.
2 As before, SLIP is still only available to ‘companies’ (that is, companies registered under the Fiji Companies Act), not other legal entities
The information and opinions in this Alert are for general information purposes only. They are not intended to constitute legal or other professional advice, and should not be relied upon or treated as a substitute for specific advice. Munro Leys has no responsibility from any loss which may arise from reliance on materials contained in this Alert