Acquisitions (from the buyer’s perspective)

Tax treatment of different acquisitions

What are the differences in tax treatment between an acquisition of stock in a company and the acquisition of business assets and liabilities?

Acquisition of assets

The buyer can purchase the assets and liabilities of the target in Curaçao. In such a case, the buying company may value the assets and liabilities, including goodwill, at fair market value. When real estate is purchased with the asset transaction, 4 per cent real estate transfer tax is due. No sales tax is due on the acquisition of assets, provided it concerns the acquisition of a business or independent part of a business.


Acquisition of shares

The participation exemption rules are important tools in Curaçao mergers and acquisitions (M&A) practice. The proceeds, upon acquisition of shares from another Curaçao company, may be tax exempt at the seller’s side provided certain conditions are met.

In the case of acquisition of shares of another Curaçao company, the use of a Curaçao acquisition vehicle is recommended, as fiscal unity can be formed upon acquisition of 99 per cent of the shares in the Curaçao target. As a result of fiscal unity, the parent company can set off its interest expenses of acquisition loans provided certain conditions are met.

The acquired subsidiary continues with the book value of its assets.

The acquisition of real estate companies is, contrary to Netherlands law, not subject to real estate transfer tax. The acquisition of shares is not subject to sales tax in Curaçao.

The shares purchased are booked against the purchase price. No tax-deductible amortisation of goodwill is possible when the participation exemption rules apply with the acquiring company.


Domestic acquisitions

The acquisition of a domestic target is preferably executed through a local holding company to form a fiscal unity. If the acquisition is financed, the interest can be set off against the operational results of the target, though anti-abuse measures exist.

Domestic acquisitions of companies in certain industries can be executed by using the treaties to promote economic activities between Curaçao and Denmark, Sweden and Finland, granting certain tax advantages in those countries, including exemption of dividends distributed to these countries. It is not quite clear whether it concerns a direct investment of a company resident in those countries or whether it would also apply to foreign companies investing in Curaçao through intermediary holdings in those countries.


Foreign acquisitions

It may be beneficial to use a Curaçao holding to acquire a foreign target for the following reasons:

  • asset protection possibilities – Curaçao, as a country within the kingdom of the Netherlands, is party to more than 90 bilateral investments treaties;
  • through its participation exemption rules, dividends received and capital gains realised with the alienation of shares are exempt provided that certain conditions are met;
  • Curaçao levies no withholding taxes;
  • advantageous possibilities to create group finance companies and IP structures;
  • access to the Dutch treaty network by using a Dutch intermediary holding. Under the new Tax Arrangement of the Kingdom, the Tax Arrangement Netherlands Curaçao, which came into force on 1 January 2016, no dividend withholding tax is due provided the limitations of benefit clauses are not applicable or an appeal can be made on the safety net provision;
  • access to the Spanish treaty network by using a Spanish holding qualifying for the Spanish ETVE (for holding companies subject to corporate income tax) regime. Spain does not levy Spanish dividend withholding tax on dividend distributions to Curaçao; and
  • access to the Norwegian treaty network by using the Curaçao–Norwegian tax treaty.


US companies should be able to use the Curaçao fiscal unity rules for their foreign acquisitions, though it depends on the country where the target is located.

Step-up in basis

In what circumstances does a purchaser get a step-up in basis in the business assets of the target company? Can goodwill and other intangibles be depreciated for tax purposes in the event of the purchase of those assets, and the purchase of stock in a company owning those assets?

As mentioned, in asset transactions the buyer is allowed to account for the assets and liabilities at fair market value, which creates a higher amortisation base. Goodwill can be amortised, generally in five years, and other assets in three to five or 10 years. As of 1 January 2016, accelerated amortisation is no longer allowed. The depreciation rules for real estate were amended on the same date. Broadly speaking, no depreciation of real estate is allowed for real estate investments if the real estate value is lower than the real estate value for real estate taxes.

An investment deduction for tangible assets is available provided certain conditions are met. The investment deduction is 10 per cent of the acquisition value of the tangible assets. For real estate the investment deduction is 15 per cent. Disinvestments within six years (or 15 years for real estate) as of the year of investment, result in an addition of 10 or 15 per cent of the disinvestment amount.

Domicile of acquisition company

Is it preferable for an acquisition to be executed by an acquisition company established in or out of your jurisdiction?

Several tax advantages could be realised in the case of an acquisition of a business in Curaçao by an acquisition company in Curaçao.

Under the national ordinance tax benefits investments, tax advantages such as a reduction of the profit tax to 2 per cent, exemption for real estate taxes and custom duties can be granted provided that certain conditions are met. Investments in certain branches, such as tourism, project development, healthcare, and industries such as R&D, high tech and the agriculture industry are stimulated by these provisions. Existing companies acquired may also benefit from these rules, provided that certain minimum investments are made.

In addition, the Curaçao participation exemption rules may apply. This may be of particular importance in the case of the acquisition of shares in a domestic or foreign target. Under the participation exemption rules, dividends received and capital gains realised with the alienation of shares are exempt from taxes provided the following conditions are met: the Curaçao parent company holds at least an interest of 5 per cent or more in the nominal paid-in capital in the subsidiary, or 5 per cent of the certificates of participation in a mutual fund; or the Curaçao parent company is a member of a Cooperative Association.

The participation exemption includes a corresponding holding of profit-sharing certificates.

Not only are dividends and capital gains exempt, but also expenses, including foreign exchange results, directly or indirectly related with the participation, are not deductible, unless these expenses are indirectly instrumental in making profits in Curaçao. This means that only certain expenses in connection with a domestic participation are deductible.


Interests less than 5 per cent

A Curaçao parent company that holds less than 5 per cent of the nominal paid-in capital but has paid at least US$500,000 for its participation also qualifies for the Curaçao participation exemption.


No quantitative demands for interests in cooperatives

Contrary to the holding of shares in another company, no quantitative demands are applicable in case of a membership in a cooperative. Membership alone is sufficient.


Anti-abuse measure passive subsidiaries

Under the anti-abuse measure, a 10th part of the dividend income received from subsidiaries that qualify for the participation exemption is taken into account if the following cumulative conditions are met: the gross income of the subsidiary derived from investments comprises more than 50 per cent of dividends, royalties or interest received outside the framework of an enterprise it operates, has acquired or has alienated; and the subsidiary is not subject to a nominal tax rate of 10 per cent. These demands are hereafter referred to as the activity test and subject to tax test.

Capital gains are always fully tax exempt provided that the conditions of the participation exemption rules are met.

The activity and subject-to-tax tests may be determined on the consolidated gross income on the consolidated profit of the subsidiary. Participations held by the subsidiary that are not consolidated in the statutory financial statements may be considered as if they were tax transparent in determining whether the activity and subject-to-tax tests are met. On request, the activity and subject-to-tax tests may be determined on the basis of the average taxable profit of the past two years.


Tax-free repatriation profits in case anti-abuse rules apply

The profit tax ordinance contains a definition of dividends. As a result it will be possible to obtain income free from taxes from a participation that does not qualify for the full Curaçao participation exemption by way of repayment of capital, (partial) liquidation and repurchase of shares.


Real estate companies

The activity test and subject to tax test are not applicable to dividend income of a participation of which the assets consist, directly or indirectly, of 90 per cent or more of real estate.


Other anti-abuse rules

The participation exemption rules contain anti-abuse rules when receivables held by the Curaçao parent company have been amortised by the parent company and are converted into capital, or when they have been sold or transferred to a non-resident.


Earn-out arrangement and participation exemption rules

In M&A practice it may happen that (a part of) the purchase price for shares in the acquired company is paid under an earn-out arrangement. Under an earn-out arrangement, the sellers are paid an additional sum that is based on future earnings of the acquired company.

According to the decision of the Dutch Supreme Court of 30 June 1999, BNB 1999/139 additional payments under an earn-out arrangement do not qualify for the participation exemption. According to the Supreme Court decision, both the buyer and the seller have to make an estimate of the expected obligation respectively receivable of the future payments to be made or received under the earn-out arrangement. The buyer would like to value the obligation as low as possible, as additional payments are deductible, whereas the seller would like to value his or her receivables as high as possible, as payments received exceeding the receivables are taxable. In addition, Curaçao does not levy any withholding tax on dividends, interest and royalties.

Company mergers and share exchanges

Are company mergers or share exchanges common forms of acquisition?

Enterprise mergers (shares in exchange for assets)

The Curaçao profit tax ordinance contains enterprise merger rules under which the acquisition of assets that form a business or independent business in exchange of shares in the company that acquires the assets and liabilities is facilitated.

The enterprise merger rules are especially interesting for the transfer of family-owned businesses where the business is transferred from one generation to another.

The enterprise merger can also be used to merge the assets of two businesses and create holding companies of the original entities.

Characteristic of the enterprise merger is that the assets and liabilities, which must form a business or part of an independent part of a business, are transferred to a new entity in exchange for shares in the new entity. The contributing entity becomes a holding company, provided certain conditions are met. No taxes are levied at the time of the merger. The tax claim is preserved as the new entity continues the book value of assets received. Therefore, the new company that acquires the assets and liabilities cannot account for goodwill or revalue assets.

The tax not levied at the time of the merger will be levied when the shares issued are sold within three years after the enterprise merger.

A special form of the enterprise merger is where the assets and liabilities that form a business or independent part of a business are transferred in exchange for cumulative preference shares. As a result, it is possible to transfer all business assets to a new company in exchange for cumulative preference shares placed with the company of the contributor of the assets. Nominal shares are, for example, placed with a company incorporated by a third party, the acquiring party. After three years, the cumulative preference shares can be repurchased, as a result of which the company is fully owned by the company of the third party. The proceeds of the repurchase of the cumulative preference shares are not taxable under the participation exemption rules.

The enterprise merger can take place without prior approval of the tax authorities if the following conditions are met:

  • the enterprise merger must contain the transition of a business or assets that are considered an independent business;
  • the transition of assets must take place in the context of a merger;
  • the acquiring party may not have losses that can be carried forward;
  • the tax claim on the assets must be secured (realised by continuing with the book value);
  • the transition of assets must take place against exchange of shares in the acquiring company;
  • the shares acquired with the merger may not be sold within three years; and
  • for the purpose of determining the profit, both companies must use the same system of profit determining. This implies that the merger is not possible in case one of the companies is subject to, for example, a special regime.


‘Standard conditions’ have been published under which the enterprise merger can take place if one of the seven conditions mentioned above is not met. In such a case, a request must be filed with the tax authorities and the enterprise merger can only take place after the approval of the tax authorities.


Share exchange (shares for shares)

In a share merger a company is taken over by an acquisition of its shares in exchange for shares in the acquiring company.

The tax facility rules regarding share exchange, merger, demerger and conversion rules were introduced on 1 January 2017. With respect to the share merger, these tax facility rules have replaced the old share exchange directive based upon which a tax-facilitated share exchange was already possible.

Under the provisions for the share exchange, the profit realised with the exchange of shares does not have to be taken into account unless the acquirer also pays a cash remuneration. Under the provisions for share exchange, share exchanges in the following situations are facilitated when:

  • a Curaçao company acquires, in exchange for its own shares, sufficient shares in another Curaçao company that it has more than 50 per cent of the voting rights in the company acquired;
  • a Curaçao company acquires, in exchange for its own shares, such a number of shares in a foreign company that it has all, or almost all (namely, 90 per cent or more) of the voting rights of the foreign company acquired; or
  • if a Curaçao company already possesses shares in a Curaçao company that represents more than 50 per cent of the voting rights or such a number of shares in a foreign company that represents more than 90 per cent of the voting rights and the scope of the voting rights are extended by the share merger.


An advantage of the share exchange is that there is hardly a need for cash. The rules only allow limited cash payments (10 per cent) in the case of a share exchange.

The provision also contains a general anti-abuse provision. The share exchange provision is not applicable when the share exchange is aimed at avoiding taxes or postponing taxes. Such will be the case if the share exchange is not based on business motives such as reorganisation, restructuring or rationalisation of the businesses of the companies involved.

A share exchange can be of use in the case of the reverse takeover, where public listing is sought.

There are some companies that are still listed but hardly have any activities. Such companies are sometimes used to acquire shares in the company that seeks a listing in exchange for shares in the already listed company.

The rules also provide for bypassing the tax claim in the case of individual shareholders who are considered substantial interest holders.

The share exchange rules are especially useful to shareholders with a substantial interest in the company that is going to exchange its shares for shares in the acquiring company. Under the share exchange rules, the substantial interest is not levied, but the tax claim is passed on to the shares received. The tax claim is preserved by passing on the original cost-price of the shares to the shares obtained in the acquiring company.

Briefly, an individual is considered to have a substantial interest when he or she, whether or not together with a spouse, possesses 5 per cent or more of the shares. Under the substantial interest rules, individuals are taxed for their dividends as well as capital gains. Foreign individuals are generally not taxed under the substantial interest rules, unless they receive income from their substantial interest within 10 years after being a resident of Curaçao.

The share exchange rules are also advantageous for creating joint ventures.


Legal merger and demerger

As of 1 March 2004, the Curaçao Civil Code (CCC) contains merger, demerger and conversion rules, but the tax rules that facilitate mergers, demergers and conversions have only been implemented since 1 January 2017.

A tax-neutral merger (and demerger) is possible provided the following four conditions are met:

  • both the acquiring and disappearing company may not have any losses that are eligible for carry forward;
  • both companies have the same system for profit determination;
  • the tax claim on the assets must be secured (realised by continuing with the book value); and
  • the merger must be based on sound business reasons (see share exchange above).


If the four conditions mentioned above are not met, a facilitated merger or demerger can take place on request. Standard conditions are published with demands that must be met.

In both the share exchange and legal merger, the companies continue with the original cost-price of the assets and, contrary to an asset transaction, no tax is levied upon acquiring assets through a merger.

The merger rules of the CCC allow an inbound cross-border merger in which a foreign legal entity is the disappearing entity (provided that foreign law allows such a merger) and an outbound cross-border merger where the Curaçao legal entity is the disappearing entity, although the tax facility rules only facilitate a domestic merger, as the standard conditions only apply for mergers when both companies are located in Curaçao.

As with the share exchange, the merger rules also contain a facility in the case that the shareholders are individuals with a substantial interest.

Tax benefits in issuing stock

Is there a tax benefit to the acquirer in issuing stock as consideration rather than cash?

With a consideration paid in cash, the acquirer may wish to consider whether he or she can offset interest payments against operational profits, especially when the purchase price for the stock is borrowed. This can be realised through a fiscal unity between a Curaçao acquisition company and a Curaçao target. Alternatively, it could also be realised between a Curaçao acquisition company and Curaçao target in which the target applies for the tax transparent status. An existing company, provided certain conditions are met, can apply for tax transparent status before the end of the book year or within three months after the start of the new book year. In both cases the tax transparent status commences as per the new book year and the interest payments of the acquiring company can be set off against the operational profits of the target, either through consolidation (fiscal unity) or, in the case of transparency, because the results are accounted for at the level of the parent company.

Curaçao does not levy any capital taxes and therefore it does not make a difference whether an acquisition is cash or shares. There is a foreign exchange licence fee of 1 per cent levied by the Central Bank of Curaçao and St Marten when the acquiring company is not in possession of a dispensation of the foreign exchange licence.

Transaction taxes

Are documentary taxes payable on the acquisition of stock or business assets and, if so, what are the rates and who is accountable? Are any other transaction taxes payable?

No stamp taxes are due upon the acquisition of shares. The same goes for the asset transaction.

Curaçao does not levy any capital duties upon issuing of new shares or when shares are paid in.

No sales tax (VAT) is due upon the transfer of shares or the transfer of assets and liabilities that constitute a business or independent part of a business.

Real estate transfer tax is due when real estate is acquired under an asset transaction. As of 1 January 2017, exemptions for real estate transfer tax apply in the case of mergers and demergers.

Stamp tax amounting to not more than US$5.60 per page of document and registration tax of US$2.80 per document are payable in the case of registration in Curaçao of documents or if such documents are brought into the courts of Curaçao and court fees will be due in the case of litigation in the courts of Curaçao.

Net operating losses, other tax attributes and insolvency proceedings

Are net operating losses, tax credits or other types of deferred tax asset subject to any limitations after a change of control of the target or in any other circumstances? If not, are there techniques for preserving them? Are acquisitions or reorganisations of bankrupt or insolvent companies subject to any special rules or tax regimes?

Losses of a company can be carried forward for a period of 10 years.

In the case of an asset transaction, the losses stay behind with the selling company, which can use them to set off the capital gain realised with the sale of the assets.

Loss compensation can be continued in the case of a transfer of shares provided that the activities of the company acquired have not ceased or nearly ceased, in which case the losses cannot be compensated with new activities developed by the new shareholders. However, this anti-abuse rule is not applicable in cases when these profits are put mainly at the disposal of individuals who were also shareholders at the time when the activities ceased. The words ‘mainly at the disposal’ mean that at least 70 per cent of the shareholders must also be shareholders in the new situation.

Disinvestment premiums may be due by the seller in cases when the seller has claimed an investment deduction and the sale of the assets takes place within five years following the year of claiming the investment deduction. With real estate, the disinvestment period is 15 years.

Interest relief

Does an acquisition company get interest relief for borrowings to acquire the target? Are there restrictions on deductibility generally or where the lender is foreign, a related party, or both? In particular, are there capitalisation rules that prevent the pushdown of excessive debt?

Interest is generally deductible. However, the Curaçao profit tax ordinance contains several anti-abuse measures, including that interest and other remunerations paid for the use of assets to other group companies are not deductible if the remuneration is not at arm’s length. Also, interest, including foreign exchange results, paid to a tax-exempt group company, whether domestic or foreign, is not deductible if the average debt in a book year exceeds one-third of the equity of the borrower.

Furthermore, the Curaçao profit tax ordinance contains measures that prevent base erosion. Under these measures, no interest paid to group companies is deductible if the debt is related to:

  1. profit distributions and repayment of capital;
  2. the acquisition of shares, certificates of participation or membership rights in companies belonging to the same group and established in one of the other countries under the domain of the Netherlands or in a country with which Curaçao has entered into a tax treaty except and insofar as a change is made in the ultimate interest and control of that company; or
  3. a capital contribution by the taxpayer in the company to which the contribution is indebted.


However, the anti-abuse measures under (1) to (3) above are not applicable when the loan is based on business reasons or the interest received by the lender is taxed at a rate that is considered to be reasonable for Curaçao tax purposes (10 per cent).

Debts that fall within the reach of (1) to (3) above are not taken into account in cases when the interest is already not deductible as a result of the fact that it is paid to a foreign or domestic tax-exempt group company and the average loan during the book year exceeds one-third of the equity of the debtor.

Furthermore, thin capitalisation rules 1:3 (namely, the debt may not exceed three times the equity of the debtor) apply on payments made to related group companies that are not subject to tax (namely, interest is not deductible in as far as the debt exceeds three times the equity of the debtor). To determine whether interest is deductible or not, the base erosion rules (1) to (3) mentioned must be applied first. If the interest is deductible according to rules (1) to (3), then deductibility might be prevented by the thin cap rules. The thin cap rule is only applicable if moneys are borrowed from group companies.

As mentioned above, using a domestic company to take over the shares in another domestic company can be advantageous, as under the fiscal unity rules the interest can be set off against the operational results of the acquired company. The above-mentioned anti-abuse rules also apply in the case of a fiscal unity.

The main rule within the fiscal unity is that interest paid on intercompany loans entered into for the acquisition of shares in the subsidiary is only deductible if the interest amount does not exceed the profit of the parent that it would have realised without a fiscal unity or interest deduction.

However, loans related to the acquisition of shares stay deductible within the fiscal unity: in as far as the group company that has granted the loan to acquire the shares has taken up a loan with non-related parties (banks, etc); or if the parent company in the fiscal unity can prove that the ultimate interest in the subsidiary has been changed; or if the parent company in the fiscal unity can prove that the reasons for the loan agreement are not tax evasion.

As the rebuttal rules mentioned above are also applicable, the interest paid to group companies is also deductible in cases when the interest received by the lender is taxed at a rate that is considered reasonable for Curaçao tax purposes.

Protections for acquisitions

What forms of protection are generally sought for stock and business asset acquisitions? How are they documented? How are any payments made following a claim under a warranty or indemnity treated from a tax perspective? Are they subject to withholding taxes or taxable in the hands of the recipient? Is tax indemnity insurance common in your jurisdiction?

When shares are purchased, the seller and buyer often agree upon a full indemnity by the buyer for tax costs relating to the pre-acquisition period and that are not included in the acquisition balance sheet.

If the acquired company formed part of a fiscal unity with the seller, special warranties are usually agreed upon with respect to the period of the fiscal unity and transactions that might have taken place within the fiscal unity.

Furthermore, the seller and buyer may have determined certain tax indemnities in the due diligence and which are described in a separate schedule.

Provided that the participation exemption rules apply, payment under an indemnification should be tax-neutral for both the seller and acquiring company.

In the case of an asset transaction, the tax indemnities are limited as the tax liabilities are usually left behind with the selling company. Tax indemnity insurance is not common in Curaçao.