Ahead of the Pack: How Trinidad and Tobago Outpaces Nearshore Competitors in Key Site Selection Criteria

Ahead of the Pack: How Trinidad and Tobago Outpaces Nearshore Competitors in Key Site Selection Criteria

Trinidad and Tobago has been pushing to become a bigger player in the professional services outsourcing world. As a nearshore destination, the country has several advantages that put it ahead of regional competitors, including a strong talent pool that officials believe will make it well suited to deliver business process outsourcing (BPO), especially for the financial services sector.

The nation hosted a two-day summit this summer featuring interested parties from locations as far and wide as Canada and India. Rajiv Nayan, senior director of Tata Consultancy Services Canada, came away impressed. “Everything is ready,” he told Finance TnT. “There is no reason Trinidad and Tobago cannot be a financial center — not only for the Caribbean but for the larger North American organizations or any part of the world.”

For the first time in 2016, Trinidad and Tobago also managed to make the top 50 of the benchmark A.T. Kearney Global Services Location Index, ranking 42nd overall in the company’s annual list. One of the reasons the nation is emerging onto the radar of AT Kearney and others is its competitiveness in key metrics.

By now, the islands are known for their best-in-region education, world-class connectivity, and native English-speaking workforce. There are many other less-discussed benefits for companies though.

The country’s free-zone benefits, ease of getting work permits, quick startup processes, and favorable tax schemes are also becoming more widely viewed as reasons to set up shop. And when you look at how Trinidad and Tobago compares to its regional peers, its easy to see why.

Free-Trade Zone Benefits

Trinidad and Tobago’s free-trade zones offer what the government characterizes as a “relatively bureaucracy-free environment” with a “comprehensive package of other incentives.” Eligible firms include any limited liability companies incorporated or registered in Trinidad and Tobago in the provision of services, manufacturing (including assembly), or international trading in products.

Specifically, free-trade zone benefits include a 100% exemption on corporate tax, as well as import and export duties, and the free application process requires only submitting paperwork and a business plan to the Port of Spain-based Trinidad and Tobago Free Zones Company.

Costa Rica offers similarly attractive benefits to companies, including many service providers. However, the Central American country’s tax incentives do become less favorable after the initial eight years operating in the free zones.

Moreover, the policies offered to those in free-trade zones in Costa Rica and other Central American nations have been increasingly challenged in recent years. A 2015 editorial in the Costa Rican newspaper La Nacion highlighted the discontent. “While firms located in free zones are offered all kinds of facilities and exemptions, the local business community has to support relentless taxes and regulatory ordeals,” wrote journalist Juan Carlos Hidalgo.

Around the same time, the country’s minister of labor suggested that free-trade zones may actually not be good for society. President Luis Guillermo Solis quickly rebuked his lieutenant’s claims, but it was a nervous summer for some operating in the nation.

Guatemala, which has established free-trade zones through Decree No. 65-89, has had to make modifications in recent years to limit the scope of the incentives offered. Amending legislation was passed earlier this year that limits “the access to benefits exclusively to taxpayers operating in the textile industry and technology services through call centers,” according to PwC.

In South America, Colombia has been pushing free-trade zones increasingly in recent years to attract more foreign direct investment. While it has opened up many areas, it only offers a partial corporate income tax exemption in some cases. And even for those sectors that do get a full exemption — which include call centers and some technology development programs — there is still a significant “CREE” tax.

“Companies will have to pay the CREE tax of 9% over the profits as well as a CREE surcharge of an additional 6%, which will increment up to 9% in 2018,” according to ProColombia, the nation’s investment promotion agency.

Complicating the location benefits further, an analysis by Mastercard also notes that “the average tariff in Colombia is 8.2% on the cost, insurance, and freight value of the goods, a considerably higher level than the world average of 3.4%.”

Work Permit Ease

Getting work permits in Trinidad and Tobago is a breeze compared to the onerous procedures employed in some locations. They take about six weeks to process, according to the Ministry of National Security, and can be granted for as long as three years. The application fee costs below $90 USD (TT$600) at today’s exchange rate.

In Brazil, the application and approval can take up to three months and permits are usually only valid for two years. Applicants in Brazil also must generally submit required bank statements and undergo a medical exam in addition to receiving police clearance.

Argentina’s process can be complex as well. To hire foreign staff, companies must be registered with — and keep up with all the paperwork required by — the nation’s Single National Registry of Petitioners of Foreigners. Generally, if a work visa is applied for at the immigration office in Buenos Aires, it takes 15 days to kickstart the procedure. The employee can then work under an interim residence allowance for 90 days pending the approval of the temporary residency. But once the approval is granted, it will only be good for one year, meaning that a renewal process will have to be re-started again before long.

The renewal requires that they have spent “at least half a calendar year plus one day” in Argentina during the preceding year, according to International Comparative Legal Guides, and “they must submit a letter from the company requesting the renewal and must have received a salary duly registered in Argentina.”

Colombia, on the other hand is relatively welcoming to foreign workers, and can generally process applications quickly. One downside is the additional cost. Among the various business visas it grants, the highest runs $370 USD while any version will set you back $200 USD. The plus side is that they can be valid for up to three years.

The Downside of Large Economies

For some, the size of places like Brazil, Argentina, and Colombia outweighs the bureaucratic hurdles. But there are drawbacks, as highlighted by the 2016 IMD World Competitiveness rankings, that show how far large Latin American economies lag behind others across the globe.

The index looked at 61 different countries, but Chile was the only analyzed nation in the region that finished in the top 40. After its 36th place finish came Mexico (45th), Colombia (51st) Brazil (56th), Argentina (55th), and Venezuela (61st) — all in the bottom third, including four of the worst six in the study.

“The public sector continues to be a drag on these economies,” said Arturo Bris, director of the IMD World Competitiveness Center. “It’s notable that Chile is the only Latin American economy not in the bottom 20.”

While Trinidad and Tobago was not included in the IMD report, further analysis shows that it is well above the bulk of its competitors throughout Latin American and the Caribbean in several key metrics.

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The World Bank’s “Doing Business 2017” study included a breakdown of how long it takes to start a business in each economy.

At 11 days, Trinidad and Tobago is not first in the region — but that figure is less than half the time it takes in Costa Rica, Argentina, and Peru. And it is a mere snap of the fingers compared to the lengthy procedure in Ecuador (49 days) and Brazil (80 days).

 

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Taxation is another area where Trinidad and Tobago truly shines. Its 32.2% overall tax rate (as a percentage of commercial profit) beats out nearly everyone, according to the “Paying Taxes 2017” report conducted jointly by PwC and the World Bank. Chile is slightly better (at 30.5%) and Ecuador (32.5%) is on par, but its advantage is substantial compared to the bulk of other options.

Costa Rica, for example, has an enormous 58.3% rate, while Brazil (68.4%) and Colombia (83.7%) both make it incredibly difficult to operate at attractive margins. Argentina (106.0%) has been making reforms since President Mauricio Macri took charge in Buenos Aires last year, but it still remains a no-go for many international investors given persistent taxation and inflation challenges.

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Many of these nations do have certain tax incentives and free zones for different industries, including BPO firms. But the red tape and overall burden still make many think twice before setting up shop.

On top of the tax rate, companies need to consider the amount of man-hours it takes to comply with the country’s regulations. Unfortunately, this is too often simply a cost of doing business throughout Latin America and the Caribbean.

But Trinidad and Tobago, along with Nicaragua and Costa Rica, have shown that all locations are not equal. Each has a streamlined process that takes less than 210 hours to comply with on average. By comparison, Panama requires almost twice that amount, while Ecuador takes 664 hours and Brazil takes a staggeringly high 2,036.

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One other benchmarking attempt comes from the World Economic Forum. Its annual “Global Competitiveness Report” compares nations on various metrics, and Trinidad and Tobago comes out better than most in several critical categories.

The country still has room for improvement, ranking just eighth among 21 regional countries for its legal framework efficiency, for example. However, the performance here is still well above average, as is Trinidad and Tobago’s ranking for overall burden of government regulation.

Ahead of the Pack

Trinidad and Tobago’s biggest draws are its most obvious advantages. The nation’s people — a highly educated, English-speaking workforce — lead the way. Its technology infrastructure is also second to none, while the culture, location, and stable political system make it a great long-term bet for a lucrative future.

The country’s advantages compared to its peers simply make an excellent location even better. Low taxes are a rarity in the region, and having minimal compliance challenges is a dream.

By coming to Trinidad and Tobago, businesses get the total package. That’s why a country that wasn’t on the radar for most multinationals even a decade ago is now moving to the front of the pack.

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