Jamaica could challenge the G7 economies on offering an attractive environment for entrepreneurs because it offers no tax on capital gains on the sale of a business by its entrepreneur owner, according to a new study by UHY, the international accountancy network.
Jamaica would levy no tax from an entrepreneur on the successful sale of a $50m business, compared to an average 28.6% in the G7 economies, and a global average of 19.8%*.
UHY collected information on the tax regimes of 25 countries across its international network to compare how much profit an investor in a typical small or medium size business would be allowed to keep when they sell their stake in the business, based on an initial investment of US$1m and the sale of the stake for US$10m and US$50m.
Jamaica’s tax regime also compares very favourably with the BRIC economies, which would levy an average 16.7% on the sale of a US$50m business. Jamaican entrepreneurs selling a business for US$50m would pay US$9.8m less tax than in China and US$10m less tax than in India.
UHY explains that Jamaica’s policy of not taxing the profits of an entrepreneur’s sale of their business encourages entrepreneurialism and should help increase its attractiveness as destination for setting up a business.
Low taxes on capital gains, especially those made by entrepreneurs, help compensate for the financial risk involved in expanding a business. They create a stronger incentive to keep growing the business, creating new jobs, with a view to attracting a substantial buyer, rather than keeping it as a smaller lifestyle business that employs fewer people and is easier to manage.
UHY adds that Western European economies impose some of the stiffest taxes on entrepreneurs’ capital gains. An entrepreneur selling a $50m company realising a $49m gain would pay 46.6% or $23.3m in tax in Germany and 36% or $17.6m in France. Additionally, the partial relief for an entrepreneur in Germany selling a business of up to a profit of EUR5 million applies only to the over 55s, putting younger entrepreneurs at a key disadvantage.
The tax regime for entrepreneurs is more benign in the USA than in Western Europe but it still compares unfavourably with Jamaica. An American entrepreneur’s tax bill from selling the same $50m business would be around 40% smaller than in Germany at $14.1m or 28% of the total sale price.
UHY adds that in China – where the Ministry of Commerce estimates that entrepreneurial ventures are responsible for 75% of new jobs each year and 68% of exports – entrepreneurs are encouraged with a tax on capital gains below the global average.
Some smaller mid-size economies, including New Zealand, Nigeria and Croatia seek to encourage entrepreneurialism by exempting gains from the sale of a business in most common scenarios entirely.
Dawkins Brown, of UHY Dawgen Chartered Accountants, comments: “Entrepreneurs are crucial to creating thriving, well-balanced economies. Historically G7 economies have been able to depend on a steady stream of business creation because their sheer size offers great opportunities. However, globalisation increasingly means that entrepreneurs are prepared to look overseas when setting up a business, and tax, alongside the cost and availability of skilled labour, as well as a benign legal environment, is an important factor in their decision and Jamaica could potentially be the beneficiary of that.”
“If entrepreneurs are able to enjoy the profits from the sale of their business – potentially even moving on to the next start-up – then that will help keep them focussed on growing the business and creating jobs.” Get Copy of Capital Gain Tax Study here or
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