The tourist industry is a major component of the TCI economy and many of the biggest contributors to Government tax revenues are resort-owning companies, which fall within the definition of land holding companies under the 1992 law. In the recent past, the TCI Government has been concerned that those entities have been prejudiced in their efforts to raise new capital by the effective tax imposed on the issuance of new equity, under the 1992 Ordinance, and that this was forcing some into unacceptably high levels of debt. In consequence, the TCI Government has now announced new measures to ensure that the issuance of new equity in TCI land holding companies is taxed not at the old 8% rate but rather at a nominal 0.2%.

A little unusually, the change has been introduced in advance of a formal amendment of the 1992 Ordinance. The TCI Government has said (by implication) that it will use its residual powers to waive tax that would otherwise be payable, pending introduction of a statutory amendment. The policy rationale is that the tax reduction is needed now and not in 3 or 4 months time when an amending statute might have worked it way through the legislative process.

The new provisions will apply only to the issuance of new equity in parent land holding corporations and not in subsidiaries even if those subsidiaries are the ones that directly hold the real estate. The duty of 0.2% will be charged on the face value of the newly issued shares. Thus if ResortCo Limited, the parent of a wholly-owned TCI land holding subsidiary, issues new shares with a face value of $10m, the duty payable will be $20k. Previously that duty would have been charged at the rate of 8% of the value of the group’s TCI land holdings, multiplied by the percentage of the total issued capital represented by the new share issuance. As can be seen, the tax reduction is very significant.

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