Curacao is overhauling its tax regime which will see profit tax decrease to 27.5% and the participation exemption on passive income will be set at 63%; creating a tax rate on passive dividend income at a rate of 10.175%. It will be the same for income that has not been taxed against a rate with a minimum of 10%, income from a permanent establishment. The Private Foundation may elect to be taxed against a rate of 10% upon introduction of a transparent company. Taxand Curacao, examines the wider implications of the tax law changes.
The Curacao profit tax rate has been set at 34% since the introduction of the New Fiscal Framework at the beginning of this century. The idea is to lower this tax rate annually until a competitive rate has been reached. The usual 100% applicability of the participation exemption has been set at 63% for passive income received that was not subjected to a profit tax of at least 10%. For income from a permanent establishment same tax rate and exemption apply. It is expected that this will come into force from 1 January 2012.
The main difference between a traditional "Stichting" (Foundation) and the "Stichting Particulier Fonds" (Private Foundation) is that the Private Foundation is allowed to make distributions to beneficiaries, without the requirement that such distributions have to be of a charitable, social or ideological nature. A Private Foundation does not pay any taxes on contributions it receives from its founder or third parties nor does it pay profit taxes over its income, except when such income is derived from business activities. Asset management (except for third parties), holding activities, and acting as a holding foundation of participations are not considered business activities. All distributions made by a Stichting Particulier Fonds to beneficiaries are tax exempt in the Netherlands Antilles.
Through levying 10% profit tax the Curacao government creates the possibility for private persons worldwide to safeguard their wealth through such a foundation, established in accordance with civil law without creating the perception of tax evasion. Taxand Curacao is confident that the 10% tax rate will be beneficial to many wealthy individuals. The Private Foundation is also well suited to transfer wealth to the next generation.
The Transparent Company will be tax exempt from Curacao profit tax. Taxation will be levied from the shareholders who are viewed upon as partners in a limited partnership. It is our belief that the Transparent Company can serve as an interesting vehicle for the South-American market. It can serve as a vehicle for investing in e.g Colombia and may on the other hand serve to protect assets from other South-American countries.
Taxand Curacao has identified the following as the highlights of the tax changes:
- Decrease in Curacao profit tax rate to 27.5%
- Participation exemption on passive income applicable for 63%
- Exemption for passive income from a permanent establishment also applicable for 63%
- The Private Foundation will be able to elect to be taxed against a 10% profit tax rate
- Introduction of a Transparent Company
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