Post-acquisition planning

Restructuring

What post-acquisition restructuring, if any, is typically carried out and why?

Entering into a fiscal unity is the most important post-acquisition tool. Fiscal unity can only be implemented when the acquiring company possesses all the shares at the beginning of the book year. Since 1 July 2018, it has been possible to form a fiscal unity during the book year. Provided certain conditions are met, a subsequent fiscal unity can granted. It is important that on the first day of the new book year the shares of the subsidiary are transferred. It is also possible to create a subsequent fiscal unity with a newly incorporated parent company.

It is important with a subsequent fiscal unity with a newly incorporated parent that the purchase price of the subsidiary is irrevocably agreed upon and it is agreed upon that the shares in the subsidiary are held for the account and risk of the buyer. The shares must be transferred on the first working day after the day of incorporation of the acquiring company.

In situations where a Curaçao company is acquired by a non-resident company and the acquisition is financed with debt, setting up a new Curaçao parent can be considered, combined with debt acquisition by the new holding and forming a fiscal unity to set off interest payments with operational profits of the target.

Alternatively, the target may apply for a tax transparent status that may enter into force on the first day of the new book year.

Spin-offs of businesses that are not of interest to the buyer are also possible.

Spin-offs

Can tax-neutral spin-offs of businesses be executed and, if so, can the net operating losses of the spun-off business be preserved? Is it possible to achieve a spin-off without triggering transfer taxes?

The tax rules that facilitate a tax-neutral demerger have been introduced as of 1 January 2017. A tax-neutral 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.

 

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

As in an enterprise merger, the shares acquired after a demerger cannot be sold for a period of three years. However, also as in an enterprise merger, it is possible to request a relief for the prohibition on selling the shares.

In both the demerger and 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 when the Curaçao legal entity is the disappearing entity.

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

Migration of residence

Is it possible to migrate the residence of the acquisition company or target company from your jurisdiction without tax consequences?

Under the Curaçao Civil Code (CCC) it is possible to re-domicile a Curaçao company and continue its existence under foreign law provided that under foreign law such conversion is not considered a liquidation but a continuation under that country’s law. Foreign law must allow such conversion.

It is also possible to convert a foreign company and continue its existence under Curaçao law.

If the articles of association of the Curaçao company incorporated before 1 March 2004 have a reference to the national ordinance on statutory seat transfer to third countries (NOTS), then such transfer may be executed under this old ordinance. The NOTS was abolished upon the introduction of the new conversion rules in the CCC, but reinstated only for those old offshore companies that have an explicit reference to the NOTS in their articles of association.

The aforementioned ordinance contains a specific clause that the conversion is tax-neutral and may still be applied in cases when the articles of association contain a reference to the NOTS.

The tax facility rules for conversion, merger and demerger contain rules for a conversion for shareholders and the company. Tax claims can be bypassed.

With a continuation under foreign law, the Curaçao company will cease to be a tax resident of Curaçao and Curaçao taxes are due on benefits not yet taken into account.

Interest and dividend payments

Are interest and dividend payments made out of your jurisdiction subject to withholding taxes and, if so, at what rates? Are there domestic exemptions from these withholdings or are they treaty-dependent?

Curaçao does not levy any withholding taxes on dividends, interest or royalties.

Tax-efficient extraction of profits

What other tax-efficient means are adopted for extracting profits from your jurisdiction?

Curaçao does not levy any dividend withholding tax. It is therefore quite simple to extract profits as long as there are sufficient retained earnings.

In cases when the target has a large share capital or share premium reserve, it may be attractive to take a shareholders’ decision to reduce the nominal value of the shares, amend the articles of association and repay capital. Under these conditions, the repayment is not considered a dividend.

In the case of high share premium reserves, the shareholders can take a decision to convert the share premium in share capital followed by a decision to reduce the nominal value per share. After the amendment of the articles of association, the company can repay capital, which is not considered a dividend payment.

Creating a hybrid debt is another possibility to extract profits from the subsidiary, especially if there is a mismatch and the debtor can deduct the interest payable.

Under hybrid financing the debt is considered equity and interest payments received qualify for the participation exemption.

In general, the Dutch Supreme Court considers a loan as a hybrid loan if the following conditions are met:

  • the loan must be perpetual;
  • the loan must be subordinated to all other loans;
  • the interest payments are profit dependent; and
  • the loan can only be recalled in case of bankruptcy or moratorium of payment or liquidation.

 

Case law is diverse and the conditions under which a hybrid is available may vary from case to case.

Law stated date

Correct on

Give the date on which the information above is accurate.

1 January 2020