Laws Amended for Companies to Repurchase Shares

Companies listed on the Jamaica Stock Exchange (JSE) will soon have the option to repurchase their shares tax free.

This follows the passage of three Bills which are being amended to allow for a tax exemption for listed companies using the share buyback option.

These are the Transfer Tax (Amendment) Act, the Income Tax (Amendment) Act and the Stamp Duty (Amendment) Act, which were approved in the House of Representatives on July 25.

Piloting the Bills, State Minister in the Ministry of Finance and the Public Service, Hon. Fayval Williams, explained that the share repurchase option was introduced through an amendment to the Companies Act in 2004.

Section 58 of the Act allows a company the power to redeem, purchase or otherwise acquire shares issued by the company.

However, Ms. Williams pointed out that there was a discrepancy between this option and related tax laws, which made it unattractive to shareholders.

“The 2004 amendments to the Companies Act did not provide for the consequential amendments in the relevant tax legislation. As a result, very few companies availed themselves of this option due to the tax implication which has been identified as a disincentive to the effective take-up of this option in the local securities market,” she said.

The State Minister explained that currently, an ordinary shareholder is able to sell his/her shares to a third party and would get the full proceeds tax fee. However, if that shareholder were to sell those same shares to his/her own company, that individual would be subject to income tax.

“The Ministry of Finance and the Public Service supports the amendments (to the Bills) as a part of the continued reform efforts, provided that the tax exempt benefit would be limited to listed companies and in accordance with the Companies Act, amended rules of the JSE, and the regulations and guidelines of the Financial Services Commission (FSC),” she said.