Hotel developer in San Roque gets tax breaks

Saipan International Group Ltd. was issued a qualifying certificate last December that would allow it to avail of tax breaks during its construction and operational phases.

According to executive director Manuel A. Sablan of the Commonwealth Development Authority, SIG Ltd. was granted a QC for the construction of Saipan Globe Hotel in San Roque.

“We granted them $10 million in tax breaks as that was their proposal and request,” said Sablan.

He said the application was in order and CDA was provided with the documents required by law: the projected balance sheet, projected cash flow, and projected profit and loss, all indicative of the net rate of return on the investment.

“They are moving forward with their project. To date there are no other pending applications for QC,” he said.

Qualifying certificates are authorized under the Investment Incentive Act of 2000.

“The idea behind the QC is to induce new investment but it has to be reasonable. We provide 25 years of tax relief under the statute but the process is crucial as it has to meet conditions set by law such as employment percentage, purchase of local products, among many others,” Sablan said.

The process involves two phases: the construction phase and operational phase. During the construction phase, “we grant excise tax relief on materials bought and used which makes sense because you are not operating. Upon operation, a different form of applicable tax break is given,” he added.

Sablan said the public often does not understand how a QC works.

“If [CDA] gives a qualifying certificate and the grantee doesn’t perform, they don’t get the relief. This is investment-driven so if you say you are going to invest $10 million, then you have to deploy $10 million. Otherwise you are not going to get the compliance,” he said.

“The most critical thing is when we issue the compliance, we apply conditional performance because every year CDA requires an audited financial statement so we can look at performance versus the projection. The Tinian Dynasty Hotel & Casino is an example where we held any relief because they were not in compliance,” he added.

Last October, SIG Ltd applied for a $7,707,063 tax break from BGRT, $201,216 in bar tax (bar revenue at 5 percent of F&B sales), $354,356 in income tax, and $2,302,250 in excise taxes during the construction period, for a total of $10,564,884.

SIG Ltd. project consultant Antonio Muna said the project is a huge undertaking as the company plans to build a 536-room resort made up of 438 hotel rooms and 98 villas. The project will use 4.1 hectares of beachfront property in San Roque.

Based on the presentation made by Muña during the application, the company is asking for about 20 percent tax break from its projected income in the first five years of business starting October 2018.

Sablan said that CDA keeps track of all the process such as the expenditures to make out the $10 million tax relief.

“If you meet that every year, we give you a certificate of compliance. The certificate of compliance is the most important document because it will tell Revenue & Tax that CDA says that you are in compliance,” he said.

“When the company is compliant…the certificate of compliance will tell Revenue & Tax that they are legally obligated to abate or rebate the tax. Without that document, you cannot avail the abatement and rebate,” he added.