At present the Kingdom of the Netherlands consists of three constituent countries: the Netherlands, the Netherlands Antilles and Aruba. The Netherlands Antilles consist of the islands of Curaçao (approx. 140,000 inhabitants), St. Maarten (approx. 40,000 inhabitants), Bonaire (approx. 12,000 inhabitants), St. Eustatius (approx. 2,800 inhabitants) and Saba (approx. 1,600 inhabitants).
The constitutional reform of the Kingdom of the Netherlands will take effect on October 10, 2010. This reform entails the dissolution of the Netherlands Antilles as a separate country; the transformation of the two largest islands of the Netherlands Antilles - Curaçao and St. Maarten - into autonomous countries within the Kingdom of the Netherlands, similar to the position Aruba has had since 1986; and the integration of the three remaining islands - Bonaire, St. Eustatius and Saba (the "BES Islands") - into the Netherlands as public bodies as referred to in Section 134 of the Netherlands Constitution - a position more or less comparable to that of a Netherlands municipality.
The reform was prompted by referenda on the political future of the Netherlands Antilles, which were held between 2000 and 2005 on each of the five islands. As a result of the reforms, the Kingdom will in the near future consist of four countries: the Netherlands, Aruba, Curaçao and St. Maarten.
In this newsletter, we elaborate on the envisaged constitutional reform and certain legislative changes in connection therewith that may be relevant for doing business in the Caribbean part of the Kingdom of the Netherlands.
- The Kingdom of the Netherlands
Implementing the constitutional reform entails an elaborate and complex legislative process, whereby legislation on multiple levels must be adopted or amended. At Kingdom level, the Kingdom Charter (Statuut) has been amended to provide for, inter alia, the dissolution of the Netherlands Antilles, the new constitutional status of the five islands, and the possibility that Netherlands law applicable in the BES Islands deviates from Netherlands law applicable in the European part of the country of the Netherlands. Furthermore, a number of new so-called Kingdom Acts lay down new rules regarding, inter alia:
- Financial Supervision of public finances - a Financial Supervisory Authority was established to supervise the public finances of Curaçao, St. Maarten and the BES Islands. The underlying supervisory principles will be a balanced budget and a cap on contracting debt. This financial supervision is intended to be temporary;
- Joint Court of Justice - the existing Joint Court of Justice of the Netherlands Antilles and Aruba will be converted into the Joint Court of Justice of Aruba, Curaçao, St. Maarten and the BES Islands, responsible for handling appeals in civil, criminal and administrative matters. Each of (i) Curaçao, (ii) St. Maarten and (iii) the BES Islands jointly, will have a Court of First Instance. Aruba already has a Court of First Instance. In civil and criminal matters, the Dutch Supreme Court (located in the Netherlands) will remain the highest instance. The Netherlands, Curaçao and St. Maarten have expressed their intention to keep procedural legislation as uniform as possible;
- Council for law enforcement - an umbrella organization will supervise all aspects of law enforcement (from police to judicial authorities) within the Kingdom of the Netherlands.
- Curaçao and St. Maarten
From a constitutional perspective Curaçao and St. Maarten can be considered successor countries of the Netherlands Antilles. They have each adopted a constitution (Staatsregeling) in anticipation of their status of autonomous countries.
The legislation currently in force in the Netherlands Antilles will continue to apply in Curaçao and St. Maarten. A range of technical amendments are, however, required to accommodate the constitutional changes. In Curaçao, the proposed Ordinance Transitional Regime Legislation and Administration (Landsverordening Algemene Overgangsregeling Wetgeving en Bestuur) confirms the continued applicability of Netherlands Antilles legislation (and will also include a list of Netherlands Antilles legislation that will not be applicable in the new country of Curaçao), and provides, inter alia, that references in legislation to the country Netherlands Antilles shall be replaced by references to the country Curaçao, that references to the Netherlands Antilles Guilder shall in due course be replaced by references to the Dutch Caribbean Guilder, and that any other legislative amendments required to reflect the new constitutional status, shall be implemented.
It is envisaged that Curaçao and St. Maarten will have one and the same central bank - the successor of the Bank of the Netherlands Antilles - which will be authorized to issue bank notes and coins and which will have supervisory tasks regarding banks and other financial institutions. A shared new official currency (the Dutch Caribbean Guilder) is expected to replace the Netherlands Antilles Guilder in Curaçao and St. Maarten in 2012. This new currency will remain pegged to the US Dollar. Aruba will keep its own currency, the Aruban Guilder.
Within the European Union, Curaçao and St. Maarten will retain their (limited) status of Overseas Communities and Territories. The vast majority of European Community law will not apply in Curaçao and St. Maarten.
- The BES Islands
The BES Islands will become an integral part of the country of the Netherlands. The Netherlands constitution will apply on these islands as from October 10, 2010.
The guiding principle is that the Netherlands Antilles legislation currently in force on the BES islands will largely remain in force after October 10, 2010. Neither existing nor future Netherlands legislation (as applicable in the European part of the country of the Netherlands) will apply to the BES Islands unless this is explicitly provided for. Over time, however, Netherlands Antilles legislation will be replaced by Netherlands legislation, although this Netherlands legislation will contain specific provisions taking into account, inter alia, the limited size, the insular character and the special geographic, social, and economic position of the BES Islands. As a result, two different legal systems will apply within the country of the Netherlands.
A number of specific Netherlands laws outline the legislation that shall apply in the BES Islands during the transition phase, i.e. from October 10, 2010 until BES legislation has been brought in line with Netherlands legislation as applicable in the European part of the Netherlands:
- The Implementation Act Public Bodies BES (Invoeringswet Openbare Lichamen Bonaire, St. Eustatius en Saba) ("Implementation Act") reiterates the basic principle that as from October 10, 2010, the bulk of Netherlands Antilles legislation remains in force in the BES Islands. The Implementation Act contains an exhaustive list of Netherlands Antilles legislation that will remain applicable in the BES Islands without major substantive amendments, albeit under a different name. This list includes, inter alia:
- the Netherlands Antilles Civil Code (renamed the Civil Code BES);
- the Business Establishment Ordinance (Vestigingsregeling Bedrijven), renamed the Business Establishment Act BES;
- the Ordinance on the Supervision of the Banking and Credit System 1994 (Landsverordening toezicht bank- en kredietwezen 1994), renamed the Act on the Supervision of the Banking and Credit System BES; and
- the Ordinance on Investment Institutions and Administrators (Landsverordening regelende het toezicht op beleggingsinstellingen en administrateuren), renamed the Act on Investment Institutions and Administrators BES.
The text of the Netherlands Antilles legislation on this list as it read on December 15, 2008 will apply as from October 10, 2010. Any amendments made or proposed after December 15, 2008 have been included in the Amendment Act mentioned below, to the extent the legislator deemed such amendments desirable.
Legislation that is not included on the list, will not apply in the BES Islands after October 10, 2010 (such as the Foreign Exchange Ordinance (Landsverordening Deviezenverkeer), which has become obsolete).
- The sizeable Amendment Act Public Bodies BES (Aanpassingswet Openbare Lichamen BES) ("Amendment Act") contains amendments to the Netherlands Antilles legislation that will continue to apply in the BES Islands after October 10, 2010. These amendments are mostly of a technical nature (e.g. terminology).
The Amendment Act also lists certain existing Netherlands acts which shall enter into force in the BES Islands as from October 10, 2010, again with the necessary technical adjustments.
- In a number of legal areas, specific Netherlands BES legislation was deemed urgent and will enter into force immediately on October 10, 2010. This includes the Monetary System Act BES (Wet Geldstelsel BES) and the Tax Act BES (Belastingwet BES). We will elaborate on the latter below, under 5.
The introduction of the Netherlands constitution in the BES islands, which includes the right to protection of one's privacy, has prompted the introduction on October 10, 2010 of the Personal Data Protection Act BES (Wet Bescherming Persoonsgegevens BES).
During the transition phase, the Netherlands Central Bank will be responsible for supervision of credit institutions, insurance companies and trust companies, whereas the Netherlands Financial Markets Authority will be responsible for supervision of investment institutions and administrators, insurance agents and stock exchanges. This is a remarkable difference with the financial supervision system in the European part of the Netherlands, where such entities are in principle subject to supervision by both the Netherlands Central Bank and the Netherlands Financial Markets Authority. The successor of the Bank of the Netherlands Antilles may also exercise supervision over entities in the BES islands, as these often have Curaçao as their principal establishment.
The intention is to gradually introduce a financial supervision system in the BES Islands that is similar to the system in the European part of the Netherlands. One important legislative proposal in this respect is the Act Financial Markets BES (Wet Financiële Markten BES). Importantly, qualifying credit institutions and insurance companies having their statutory seat outside the BES Islands can be exempted from BES financial supervision legislation.
It is also envisaged that the BES Islands will switch from the Netherlands Antilles Guilder to the US Dollar instead of the Euro. The US Dollar is scheduled to be introduced on January 1, 2011. As a result, two different official currencies will exist within the country of the Netherlands. The Netherlands Central Bank will act as the central bank in the BES Islands.
Like Curaçao and St. Maarten, the BES Islands will maintain their (limited) status of Overseas Communities and Territories within the European Union. The vast majority of European Community law will not apply in the BES Islands.
- Tax Legislation
From a tax perspective, there will be no material changes to Curaçao and St. Maarten legislation as from October 10, 2010. For the time being, the current Netherlands Antilles tax legislation, including international tax treaties concluded by the country of the Netherlands Antilles, will remain in force in the autonomous countries of Curaçao and St. Maarten.
As regards the BES Islands, the new Tax Act BES (Belastingwet BES) states that companies in the BES Islands are deemed to be resident in the Netherlands by operation of law, and will therefore be subject to Netherlands corporate income tax and dividend withholding tax.
Qualifying legal entities may opt to be subjected to the specific BES Islands profit distribution tax and property tax instead of the aforementioned Netherlands corporate income tax and dividend withholding tax. The profit distribution tax will be levied on all direct and indirect distributions at a rate of 5%. The property tax will be levied on an annual basis on commercial property with a value above USD 50,000. The tax base of the property tax will be 4% of the value of the property and the tax rate will be 20%. This results in an effective tax rate of 0.8% of the value of the property.
- Practical Consequences of the Reform
As from October 10, 2010, legal entities having their statutory seat in Curaçao will become Curaçao legal entities, subject to Curaçao legislation. Equally, legal entities having their statutory seat in St. Maarten will become St. Maarten legal entities, subject to St. Maarten legislation. For the time being, current Netherlands Antilles legislation will continue to govern these entities, including the Netherlands Antilles Civil Code (albeit under a new name).
Legal entities having their statutory seat in one of the BES Islands will become Netherlands entities, subject to Netherlands BES law. Again, for the time being current Netherlands Antilles legislation will continue to govern these entities, including the provisions of the Netherlands Antilles Civil Code, renamed the Civil Code BES. Over time, specific Netherlands BES legislation will be adopted to govern these legal entities.
Considering that the Netherlands Antilles will cease to exist on October 10, 2010, legal documentation may have to be amended, inter alia, to replace references to the country of the Netherlands Antilles and Netherlands Antilles law. It may also be advisable to include continuity clauses in existing or new contracts, among other things to anticipate the introduction of a new currency in Curaçao and St. Maarten, and the further introduction of Netherlands BES legislation in the BES Islands.
- The Way Forward
The constitutional reform is an ongoing process, and a lot of work remains to be done after October 10, 2010. The autonomous legislators of Curaçao and St. Maarten are bound to propose further legal reform, and the Netherlands legislator is expected to move ahead with the gradual introduction of Netherlands law in the BES Islands. We will continue to update you on a regular basis of the legal developments in all four future countries of the Kingdom of the Netherlands.