Main amendments to be introduced
As part of the Kingdom of the Netherlands, Curaçao is a party to a federal tax agreement with the Netherlands. On December 12 2011 the Dutch tax authorities published the outlines of a new tax arrangement (IFZ 2011-793) in order to avoid double taxation between the two countries. The new agreement is expected to come into force on January 1 2013.
During 2012, in anticipation of the new tax arrangement, the anti-abuse measure in the existing agreement(1) will not be invoked with regard to the Dutch substantial interest provision in the Dutch Corporate Income Tax Act.(2) This provision, as it was amended and came into force on January 1 2012, gives the Netherlands the right to tax a foreign legal entity if it is interposed to avoid Dutch income tax or dividend withholding tax and the substantial interest is not part of an enterprise.
The new arrangement confirms that the Netherlands will not levy non-resident tax from Curaçao parent companies of Dutch companies or Dutch cooperatives until the end of 2012. This appears to be good news for the public limited liability company (NV)-cooperative structures and NV-BV (private limited liability company) structures, in which individuals, trusts and private foundation participate directly at NV level.
Main amendments to be introduced
Gift and inheritance tax
Under the existing provisions, gift and inheritance tax can be levied for up to one year after emigration by the country from which an individual emigrated. This period will be increased to five years under the new arrangement. The Dutch Gift and Inheritance Tax Act states that a Dutch national is fictitiously considered to be a resident of the Netherlands if he or she passes away or makes a gift within 10 years of his or her emigration. The act also states that anyone who makes a gift within one year of emigration from the Netherlands is considered to be a resident of the Netherlands. The new provisions will limit the 10-year period to five years.
Under the existing provisions, private pensions are taxable in the country of residence. This is particularly advantageous for those benefiting from the penshonado (pensioners) provisions in Curaçao, which tax a number of foreign sources of income, including pension income, at a rate of 10%, provided that certain conditions are met. Under the new arrangement, private pension payments will become subject to a 15% withholding tax in the source country. Private pensions already in effect will be honoured and therefore taxed according to the previous rules.
Dividend withholding tax
Under the existing provisions, the lowest dividend withholding tax is 8.3% on dividends from the Netherlands to Curaçao, provided that the Curaçao parent company possesses at least a 25% share in capital.
The new arrangement establishes a 0% dividend withholding tax. A 'limitation of benefits' provision will state the conditions under which the 0% will apply. This provision has not yet been published, so the conditions under which the Dutch authorities will not levy any withholding tax and whether other reduced dividend withholding tax rates will be applicable remain to be seen.
Dividends distributed by Dutch companies to Curaçao parent companies that do not qualify for the 0% dividend withholding tax are normally subject to the domestic Dutch dividend withholding tax rate of 15%. However, as a transitional measure for the period up to 2019, this will be reduced to 5%, provided that at least a 25% capital share is held by the Curaçao parent company.
Exchange of information and withholding tax under the Savings Directive
Under the new arrangement, a provision will be introduced for the exchange of information according to international standards. This modernises the previous exchange of information provisions.
Further, Curaçao is considering introducing an automatic exchange of information provision under the EU Savings Directive. As a member of the European Union, the Netherlands had to introduce provisions in its overseas territories to comply with the directive. Curaçao introduced these provisions in 2005 and chose to levy withholding tax on interest qualifying under the directive, instead of exchange of information. Presently, Curaçao levies a 35% withholding tax on interest under the directive.
Curaçao and the Netherlands are considering introducing provisions for mutual consultation with the possibility of (obligatory) arbitration.
Trade and transit of goods
The Netherlands and Curaçao have reached an agreement on the trade and transit of goods from Curaçao to the Caribbean Netherlands – the islands of Bonaire, Sint Eustatius and Saba, which are special Dutch municipalicites. Both countries have agreed that such transit must not be restricted by taxes.
Goods originating from third countries which arrive in Curaçao on route to the Caribbean Netherlands (and vice versa) can be transited to Curaçao or the Caribbean Netherlands without any custom or excise duties. Further, both countries have agreed that no sales tax or general spending tax will be levied on goods that are exported from Curaçao to the Caribbean Netherlands (and vice versa). Both countries will sign a convention on this matter before or on May 1 2012 the latest. Both countries also intend to analyse whether goods produced in Curaçao or the Caribbean Netherlands can be imported without taxes on either country.
Whether the changes to the tax arrangement will be beneficial for Curaçao remains to be seen. Much will depend on the outcome of the 'limitation of benefits' provision that is proposed for the dividend withholding tax. The changes of the gift and inheritance tax and private pension provision seem to be slightly less advantageous, but should not have a negative effect on Dutch high-net-worth individuals who are considering emigrating to Curaçao.
For further information on this topic please contact Emile Steevensz at Certa Legal Tax Dutch Caribbean by telephone (+599 9 461 8899), fax (+599 9 461 2345) or email ([email protected]).