2014 Investment Climate Statement - Saint Kitts and Nevis

2014 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2014
Report
   

Executive Summary

St. Kitts and Nevis is projected to grow by 3% in 2014 and its outlook remains stable. Income from the citizenship by investment program, construction sector, and tourism has helped the economy to reduce its indebtedness and economically recover after four years of stagnant economic growth.

The Government of St. Kitts and Nevis strongly encourages foreign direct investment. St. Kitts and Nevis foreign direct investment policy is to attract FDI into the priority sectors as identified under the National Diversification Strategy. These include financial services, tourism, agriculture, information technology, education services and limited light manufacturing.

The government has instituted a number of investment incentives for businesses considering the possibility of locating in St. Kitts or Nevis, encouraging both domestic and foreign private investment.

Companies registered in St. Kitts and Nevis have the right to repatriate all capital, royalties, dividends and profits free of all taxes or any other charges on foreign exchange transactions. There are no exchange controls in Nevis and the invoicing of foreign trade transactions may be made in any currency.

St. Kitts and Nevis uses eminent domain laws that allow the government to expropriate private property for the betterment of the public. Currently the U.S. Embassy in Bridgetown is aware of four cases involving the seizure of private land by the government. One of these cases has been ongoing for years and involves a large multi-unit real estate project with more than 10 American citizens awaiting compensation. One additional case involved the attempted seizure of a business by the government. For this reason, the U.S. Embassy in Bridgetown recommends caution when investing in real estate or conducting business in St. Kitts and Nevis.

St. Kitts and Nevis uses transparent policies and effective laws to foster competition and establish clear rules for foreign and domestic investors in the areas of tax, labor, environment, health, and safety. St. Kitts and Nevis’ monetary and exchange rate policies are determined by the Eastern Caribbean Central Bank (ECCB). The ECCB regulates domestic banks. Exchange controls restrictions on capital and non-trade current transactions have been suspended under the Exchange Control Act.

1. Openness To, and Restrictions Upon, Foreign Investment

The Government of St. Kitts and Nevis strongly encourages foreign direct investment, particularly in industries that create jobs, earn foreign currency, and have a positive impact on its citizens. St. Kitts and Nevis is home to the Eastern Caribbean Central Bank, the Eastern Caribbean Securities Exchange and the Eastern Caribbean Regulatory Commission.

St. Kitts and Nevis bases its legal system on the British common law system. The Constitution guarantees constitutional independence of the judiciary.

The government has instituted a number of investment incentives for businesses considering the possibility of locating in St. Kitts and Nevis, encouraging both domestic and foreign private investment. Government policies provide liberal tax holidays, duty-free import of equipment and materials, and subsidies for training provided to local personnel. Foreign investors may also hold up to 100% of an investment.

The government treats foreign investors and local investors equally with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investment in its territory. The police and court systems are efficient and unbiased in commercial matters, and the government operates in a generally transparent manner. Deregulations in the telecommunications industry have facilitated market access to new competitors, though historically the industry was monopolized. There are currently three service providers: Cable and Wireless (Lime), Digicel, and Cable Communications (The Cable).

All investment proposals applying for government incentives are reviewed by the St. Kitts Investment Promotion Agency (SKIPA) to ensure that the project is consistent with the national interests and provides economic benefits to the country. St. Kitts and Nevis foreign direct investment policy is to attract FDI into the priority sectors as identified under the National Diversification Strategy. These include financial services, tourism, agriculture, information technology, education services and limited light manufacturing. However, investment opportunities also exist in energy and other services.

While officially all sectors are open to attracting FDI, certain sectors, such as taxi and tour operators and tour guides, are sometimes reserved for local investors. Additionally, potential investors are cautioned that St. Kitts’ actual level of openness to foreign investment is limited by local expropriation practices, which could put investments at risk.

TABLE 1: The following chart summarizes several well-regarded indices and rankings.

Measure

Year

Rank or value

Website Address

TI Corruption Perceptions index

2013

22 of 177

http://cpi.transparency.org/cpi2013/results/

Heritage Foundation’s Economic Freedom index

2013

33 of 177

http://www.heritage.org/index/ranking

World Bank’s Doing Business Report “Ease of Doing Business”

2013

64 of 189

http//doingbusiness.org/rankings

Global Innovation Index

2013

n/a

http://www.globalinnovationindex.org/content.aspx?page=gii-full-report-2013#pdfopener

2. Conversion and Transfer Policies

Companies registered in St. Kitts and Nevis have the right to repatriate all capital, royalties, dividends and profits free of all taxes or any other charges on foreign exchange transactions. There are no exchange controls in Nevis and the invoicing of foreign trade transactions may be made in any currency. Importers are not required to make prior deposits in local funds and export proceeds do not have to be surrendered to government authorities or to authorized banks. There are no controls on transfers of funds.

3. Expropriation and Compensation

St. Kitts and Nevis uses eminent domain laws that allow the government to expropriate private property for the betterment of the public; the government is required to compensate owners. There are also laws that permit the acquisition of private business, and the government claims such laws are constitutional. The concept of eminent domain and the expropriation of private property is typically governed by laws that require governments to adequately compensate owners of the expropriated property at the time of its expropriation or soon thereafter. In some cases, the procedure for compensation of owners favors the government valuation at the expense of the owner.

Currently the U.S. Embassy in Bridgetown is aware of four cases involving the seizure of private land by the government. One of these cases has been ongoing for years and involves a large multi-unit real estate project with more than 10 American citizens awaiting compensation. One additional case involved the attempted seizure of a business by the government. In practice, the government of St. Kitts and Nevis has often not paid compensation for private property expropriated under its eminent domain laws. In at least two cases the government partially paid the victims, but only after years of litigation and with some aspects still outstanding and in dispute. There has also been an example of tax laws used to push a U.S. company out of the market in favor of local ownership after courts blocked an attempted expropriation. For these reasons, the U.S. Embassy in Bridgetown recommends caution when investing in real estate or conducting business in St. Kitts and Nevis.

Foreign investors may hold up to 100% of an investment. Except for the requirement to obtain an Alien Landholders License (see below), foreign investment in St. Kitts and Nevis is not subject to any restrictions, and foreign investors receive national treatment.

4. Dispute Settlement

St. Kitts and Nevis bases its legal system on the British common law system. The Constitution guarantees constitutional independence of the judiciary. The judicial system consists of lower courts, called Magistrates’ Courts, as well as a Family Court. The Eastern Caribbean Supreme Court (St. Kitts and Nevis) Act, establishes the Supreme Court of Judicature which consists of the High Court and the Eastern Caribbean Court of Appeal. The High Court hears criminal and civil matters and makes determinations on the interpretation of the Constitution. Appeals are made in the first instance to the Eastern Caribbean Supreme Court, an itinerant court that hears appeals from all Eastern Caribbean States. Final appeal is to the Judicial Committee of the Privy Council. All laws must conform to the provisions of the Constitution and are void to the extent of any inconsistency.

The Caribbean Court of Justice (CCJ) is the regional judicial tribunal, established in 2001 by the Agreement Establishing the Caribbean Court of Justice. The CCJ has original jurisdiction to interpret and apply the Revised Treaty of Chaguaramas. In its appellate jurisdiction, the CCJ considers and determines appeals from Member States of the Caribbean Community and Common Market (CARICOM), which are parties to the Agreement Establishing the CCJ. St. Kitts and Nevis is subject to the original jurisdiction of the CCJ.

The United States and St. Kitts and Nevis are both parties to the World Trade Organization (WTO). The WTO Dispute Settlement Panel and Appellate Body resolve disputes over WTO agreements, while courts of appropriate jurisdiction in both countries resolve private disputes.

5. Performance Requirements and Investment Incentives

While there are no formal performance requirements for government incentives, government officials encourage investments they believe will create jobs and increase exports and foreign exchange earnings. There are no requirements for participation either by nationals or by the government in foreign investment projects.

There is no requirement that enterprises must purchase a fixed percentage of goods from local sources, but the government encourages local sourcing.

Fiscal Incentives Act

In an effort to increase investment, St. Kitts and Nevis has implemented a series of investment incentives. The Fiscal Incentives Acts provides a list of incentives including tax holiday of up to 15 years; additional tax rebates of up to five years; exemption from custom duties on material and equipment deemed necessary to establish or update an enterprise; repatriation of profits, dividends, royalties, and imported capital by arrangement with the Ministry of Finance; protection of investment through government agreement between St. Kitts and Nevis and the United States and no personal income tax. These incentives are an added benefit to doing business in St. Kitts and Nevis.

Corporate Tax Incentives

Under the Fiscal Incentives Act, four types of enterprises qualify for tax holidays. The length of the tax holiday for the first three depends on the amount of value added in St. Kitts and Nevis. The fourth type, known as enclave industry, must produce goods exclusively for export outside the CARICOM region.

Enterprise

Value Added

Maximum Tax Holiday

Group I

50% or more

15 years

Group II

25% to 50 %

12 years

Group III

10% to 25%

10 years

Enclave

Enclave

15 years

Companies which qualify for tax holidays are allowed to import into St. Kitts and Nevis duty-free all equipment, machinery, spare parts and raw materials used in production.

Hotels Aids Act and Taxes

The Hotel Aids Act provides relief from customs duties on items brought into the country for use in construction, extension and equipping of a hotel of not less than ten bedrooms. In addition, the Income Tax Act provides special tax relief benefits for hotels of more than 30 bedrooms. These hotels are exempt from income tax for ten years. If the hotel contains fewer than 30 bedrooms, gains or profits would be exempt from income tax for five years.

The hotel and restaurant tax is levied on the total accommodation charges of a hotel or guest house and on the cost of food and beverage sold by a restaurant. The total rate of tax is 9% (with 2% contributing to the Hotel and Accommodation Enhancement Levy). This tax is levied on the total accommodation.

Corporate Income Tax

Additionally, those who invest in St. Kitts and Nevis do not pay a capital gains tax, and have a corporate tax of 35% of net profits. Qualified companies enjoy full exemption from taxes on corporate profits for a period not exceeding 15 years. Corporate tax does not apply to exempt companies or to enterprises that have been granted tax concession.

Individuals and ordinary companies remitting payments to persons outside of St. Kitts and Nevis must deduct 10% withholding tax from profits, administration, management or head office expenses, technical services fees, accounting and audit expenses, royalties, non-life insurance premiums; and rent.

Withholding tax does not apply to profits of an approved enterprise, which is enjoying benefits under the Fiscal Incentives Act. This tax does not apply to exempt trusts, limited partnerships, companies or foundations. Consumption tax is levied on the gross revenue of services provided by professionals such as doctors, lawyers, dentists, and other specified persons listed in the Schedule to the Consumption Tax Act at a rate of 4%.

Export Allowance

St. Kitts and Nevis provides companies with a further tax concession effective at the end of the tax holiday period. In effect, it is a rebate of a portion of the income tax paid based on export profits as a percentage of total profits.

Exemption from Import Duties

Full exemption from import duties on parts, raw materials, and production machinery is also available.

Citizenship through Investment

Under the Citizenship by Investment Program, foreign individuals can obtain citizenship in accordance with subsection (5) of Section 3 of the Citizenship Act of 1984, which grants the right of citizenship (without voting rights) by investment. Applicants through the program are required to go through a due diligence process before citizenship can be granted. The minimum that would entitle an investor to qualify is US$400,000 in real estate, or a US$250,000 contribution to the Sugar Investment Diversification Foundation. Applicants must also provide a full medical certificate, and evidence of the source of funds.

6. Right to Private Ownership and Establishment

Foreign investors may hold up to 100% of an investment. With one exception, foreign investment in St. Kitts and Nevis is not subject to any restrictions, and foreign investors receive national treatment. The only restriction is the requirement to obtain an Alien Landholders License for foreign investors seeking to purchase property for residential or commercial purposes. The cost of these licenses is 10% of the value of the land or of the interest in the real estate to be purchased. Licenses are granted once properly submitted to Cabinet for consideration and payment of the license fees. Foreign investors do not require a landholding license for the purchase of land in certain parts of the island, such as Frigate Bay or the South East Peninsula.

7. Protection of Property Rights

Civil law protects physical property and mortgage claims. St. Kitts and Nevis signed the Paris Convention on Intellectual Property Rights (IPR), the Madrid accords, and is a member of the United Nations World Intellectual Property Organization (WIPO). Article 45 of the Protocol Amending the Treaty that established CARICOM commits all 15 members to implement stronger IP protection and enforcement.

The administration of intellectual property laws in St. Kitts and Nevis is the responsibility of the Attorney General. The registration of patents, trademarks, and service marks is administered by the High Court Registry. The 2000 Act created an Intellectual Property Office responsible for the administration of all laws relating to intellectual property, which began functioning in 2004. Enforcement of intellectual property rights (IPR) in St. Kitts and Nevis remains somewhat weak, in part due to resource constraints. IPR infringement in most areas is small-scale, with limited instances of pirated DVDs and compact discs. Post is not aware of any issues concerning U.S. rights holders and IPR infringement in St. Kitts and Nevis.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.

Embassy point of contact: Jonelle Watson Watsonjm@state.gov

Local lawyers list: http://barbados.usembassy.gov/attorneys_list.html

8. Transparency of the Regulatory System

St. Kitts and Nevis uses transparent policies and effective laws to foster competition and establish clear rules for foreign and domestic investors in the areas of tax, labor, environment, health, and safety.

The Revised Treaty of Chaguaramas provides the competition policy applicable to CARICOM States. Member States are required to establish and maintain a national competition authority for facilitating the implementation of the rules of competition. At the CARICOM level, a regional Competition Commission applies the rules of competition in respect of anti-competitive cross-border business conduct. The CARICOM competition policy addresses anti-competitive business conduct, such as agreements between enterprises, decisions by associations of enterprises, and concerted practices by enterprises that have as their object or effect the prevention, restriction or distortion of competition within the Community; and actions by which an enterprise abuses its dominant position within the Community. No legislation is yet in operation to regulate competition in St. Kitts and Nevis. The Organization of Eastern Caribbean States (OECS) has agreed to establish a regional competition body to handle competition matters within its single market. The draft OECS bill has been submitted to the Ministry of Legal Affairs for review. However, sectoral regulation of competition in the telecommunications field is provided for under the Telecommunications Act.

Additionally, the incorporation and registration of companies in the federation differs somewhat on its two constituent islands. In St. Kitts the process is regulated by the Companies Act No. 22 of 1996. The incorporation of companies in Nevis is regulated by the Nevis Island Business Corporation Ordinance No. 3 of 1984. Companies must register in the Companies Registry. There are no nationality restrictions for directors in a company, and in general, national treatment is applied. All registered companies must have a registered office in the Federation of St. Kitts and Nevis.

9. Efficient Capital Markets and Portfolio Investment

As a member of the Organization of Eastern Caribbean States and the Eastern Caribbean Currency Union, the Eastern Caribbean Central Bank (ECCB) has monetary oversight of St. Kitts and Nevis. The Eastern Caribbean Central Bank controls the currencies of several island states including St. Kitts and Nevis.

St. Kitts and Nevis’ monetary and exchange rate policies are determined by the ECCB. The ECCB regulates domestic banks. Exchange controls restrictions on capital and non-trade current transactions have been suspended under the Exchange Control Act.

According to the most recent data available from the government, assets of commercial banks totaled US$2.4 billion in November 2012, and remained relatively consistent throughout the year. The reserve requirement for commercial banks was 6% of deposit liabilities.

As a member of the OECS, St. Kitts and Nevis is a member of the Eastern Caribbean Securities Exchange (ECSE) and the Regional Government Securities Market. The ECSE is a regional securities market established by the Eastern Caribbean Central Bank and licensed under the Securities Act of 2001, a uniform regional body of legislation governing securities market activities to facilitate the buying and selling of financial products for the eight member territories. St. Kitts and Nevis is a member of this stock exchange, and is open to portfolio investment.

10. Competition from State-Owned Enterprises

Statutory corporations or state-owned enterprises in St. Kitts and Nevis include the National Social Security Board and the St. Kitts Nevis-Anguilla National Bank. These companies do not generally pose a threat to investors, as they are not designed for competition. They support government programs such as the national pension plan and assist the government in achieving developmental goals.

11. Corporate Social Responsibility

In St. Kitts and Nevis, there is an awareness of corporate social responsibility (CSR) among both producers and consumers. The private sector is involved in projects that benefit society, including in support of environmental, social and cultural causes. Individuals benefit from business sponsored initiatives when local and foreign owned enterprises pursue volunteer opportunities and make monetary or in kind donations to local causes.

The NGO community, while comparatively small, is involved in fundraising and volunteerism in gender, health, environmental and community projects. The government at times partners with non-governmental organizations (NGO) in activities. The government encourages philanthropy.

12. Political Violence

St. Kitts and Nevis does not have a history of political violence. However, there have been a number of recent protests due to a pending motion of no confidence against the Prime Minister.

13. Corruption

While corruption related to foreign business and investment is not generally believed to be a major problem in St. Kitts and Nevis, there have been some widely publicized allegations against government officials.

St. Kitts and Nevis has laws, regulations and penalties to combat corruption. However, while the law provides criminal penalties for official corruption, enforcement is not always effective. Government agencies involved in enforcement of anti-corruption laws include the Royal St. St. Kitts and Nevis Police Force, the Director of Public Prosecutions, and the Financial Intelligence Unit.

The country is a party to the Inter-American Convention against Corruption.

14. Bilateral Investment Agreements

St. Kitts and Nevis has no bilateral investment treaty with the United States. St. Kitts and Nevis has a bilateral investment treaty with Costa Rica, and partial preferential agreements with Columbia and Venezuela. It has free trade agreements with Costa Rica and the Dominican Republic. It has double taxation agreements with Denmark, Norway, Sweden, and the United Kingdom.

St. Kitts and Nevis is also party to the following:

Caribbean Community (CARICOM)

The Treaty of Chaguaramas established CARICOM in 1973. Its purpose is to promote economic integration among its fifteen (15) Member States. Investors operating in St. Kitts and Nevis are given preferential access to the entire CARICOM market. The Revised Treaty of Chaguaramas goes further to establish the CARICOM Single Market and Economy (CSME), by permitting the free movement of goods, capital and labor within CARICOM States.

Organisation of Eastern Caribbean States (OECS)

The Revised Treaty of Basseterre establishes the Organisation of Eastern Caribbean States (OECS). The OECS consists of nine Member States of Antigua and Barbuda, Dominica, Grenada, Montserrat, St. Kitts & Nevis, St. Lucia and St. Vincent & the Grenadines with associate members being Anguilla and the British Virgin Islands. The purpose of the Treaty is to promote harmonization among Member States in areas concerning foreign policy, defense and security, and economic affairs. The six independent countries of the OECS ratified the Revised Treaty of Basseterre establishing the OECS Economic Union on January 21, 2011. The Economic Union established a single financial and economic space within which all factors of production, including goods, services and people, move without hindrance.

Economic Partnership Agreement (EPA)

The Economic Partnership Agreement (EPA) was concluded between the CARIFORUM States and the European Community and its Member States. The EPA is designed to replace the now expired transitional trade regime of the Cotonou Agreement. The overarching objectives of the EPA are to alleviate poverty in CARIFORUM, to promote regional integration and economic cooperation and to foster the gradual integration of the CARIFORUM states into the world economy by improving their trade capacity and creating an investment-conducive environment. The Agreement promotes trade related developments in areas such as competition, intellectual property, and public procurement, the environment and protection of personal data.

Caribbean Basin Initiative (CBI)

The objective of the Caribbean Basin Initiative is to promote economic development through private sector initiative in Central America and the Caribbean islands by expanding foreign and domestic investment in non-traditional sectors, diversifying CBI country economies and expanding their exports. It permits duty free entry of products manufactured or assembled in St. Kitts and Nevis into markets of the United States.

Caribbean / Canada Trade Agreement (CARIBCAN)

CARIBCAN is an economic and trade development assistance program for Commonwealth Caribbean countries in which Canada provides duty free access to its national market for the majority of products which originate in Commonwealth Caribbean countries.

15. OPIC and Other Investment Insurance Programs

OPIC provides financing and political risk insurance to viable private sector projects, helps U.S. businesses invest overseas, and fosters economic development in new and emerging markets.

16. Labor

St. Kitts and Nevis has a labor force of about 25,000 persons, with a literacy rate of 98%. The country’s technical and training needs are met largely by local colleges, which offer courses in skilled labor, including, plumbing, electrical engineering, air conditioning and refrigeration, masonry, carpentry, mechanical engineering, motor mechanics, typing and basic hotel skills. There is also a large pool of professionals to draw from, in fields such as law, medicine, business information technology and accounting. Many of the professionals in St. Kitts and Nevis trained in the Caribbean, the United States, Canada and the United Kingdom, where many of them gained work experience before returning to St. Kitts and Nevis.

The main labor unions include the St. Kitts and Nevis Trades & Labor Union and the St. Kitts and Nevis Teachers Union. St. Kitts also has a number of associations including the St. Kitts and Nevis Chamber of Commerce and Industry, along with active hotel, and construction associations. In regard to labor negotiations, the average duration of wage contracts is two years. During contract negotiations, the union with 51% or more of the workers in that particular industry is recognized by the employer as the worker’s representative; however, some unions do not get involved in contract negotiations.

Labor unions are free to organize and to negotiate for better wages and benefits for union members. The law prohibits anti-union discrimination, but does not require employers found guilty of such action to rehire employees who were fired for union activities. However, the employer must pay lost wages and severance pay. There is no legislation governing the organization and representation of workers, and employers are not legally bound to recognize a union, but in practice employers do so if a majority of workers polled wish to organize.

Collective bargaining takes place on a workplace-by-workplace basis, not industry wide. The Labor Commissioner mediates all types of disputes between labor and management on an ad hoc basis. However, in practice few disputes actually go to the Commissioner for resolution. If neither the Commissioner nor the Ministry of Labor is able to resolve the dispute, the law allows for a case to be brought before a civil court.

Investors in St. Kitts and Nevis are responsible for maintaining workers’ rights and safeguarding the environment. While there are no specific health and safety regulations, the Factories Law provides general health and safety guidance to Labor Ministry inspectors. The Labor Commission settles disputes over safety conditions. Workers have the right to report unsafe work environments without jeopardy to continued employment; inspectors then investigate such claims, and workers may leave such locations without jeopardy to their continued employment.

17. Foreign Trade Zones/Free Ports

There are no foreign trade zones or free ports in St. Kitts and Nevis. However, there are four fully developed industrial sites where production facilities can be constructed to specification and leased at nominal rates. Kittitian officials project that factory space will increase annually by 15,000 sq. ft. in St. Kitts and 5,000 sq. ft. in Nevis. The sites are managed and serviced on behalf of the Government by the Development Bank of St. Kitts and Nevis.

18. Foreign Direct Investment and Foreign Portfolio Investment Statistics

TABLE 2: Key Macroeconomic data, U.S. FDI in host country/economy

 

Eastern Caribbean Central Bank

USG or international statistical source

USG or international

Source of data

(Source of Data: BEA; IMF; Eurostat; UNCTAD, Other)

Economic Data

Year

Amount

Year

Amount

 

Host Country Gross Domestic Product (GDP) (Millions U.S. Dollars)

2012

731

2012

748.5

http://www.worldbank.org/en/country

Foreign Direct Investment

Host Country Statistical source*

USG or international statistical source

USG or international

Source of data: BEA; IMF; Eurostat; UNCTAD, Other

U.S. FDI in partner country (Millions U.S. Dollars, stock positions)

n/a

n/a

2012

5

(BEA) click selections to reach.

Bureau of Economic Analysis

Balance of Payments and Direct Investment Position Data

U.S. Direct Investment Position Abroad on a Historical-Cost Basis

By Country only (all countries) (Millions of Dollars)

Host country’s FDI in the United States (Millions U.S. Dollars, stock positions)

n/a

n/a

2012

-1

(BEA) click selections to reach

Balance of Payments and Direct Investment Position Data

Foreign Direct Investment Position in the United States on a Historical-Cost Basis

By Country only (all countries) (Millions of Dollars)

Total inbound stock of FDI as % host GDP (calculate)

n/a

n/a

2012

69

www.eclac.org

* Provide sources of host country statistical data used.

19. Contact Point at Post for Public Inquiries

  • NAME: Jonelle Watson
  • TITLE: Economic and Commercial Affairs
  • ADDRESS OF MISSION/AIT: U.S. Embassy Barbados and the Eastern Caribbean
  • TELEPHONE NUMBER: 246-227-4052
  • EMAIL ADDRESS: WatsonJM@state.gov