The Kindom of the Netherlands consisted until recently of three
countries; The Netherlands (in Europe, Aruba and the Netherlands Antilles. The
Netherlands Antilles were dissolved on October 10, 2010. The Kingdom of the
Netherlands now exists of: (1) The Netherlands, (2) Curaçao, (3) Aruba and (4)
three islands which are now named Caribbean Netherlands or the BES-islands.
The Netherlands Antilles became an offshore jurisdiction in the 1950’s
of the last century and has played a key role in international planning for
decades. This has mainly taken place on Curaçao, the largest island in
the Dutch Caribbean. The offshore system has however been shedded and Curaçao
now boasts a modern tax system that however still has a lot to offer.
Because of this Curaçao can be seen as a hot spot for financial
expertise in the whole Caribbean.
Hereunder we have outlined four excellent tax planning possibilities. (1)
the tax exempt company; (2) the e-zone company; (3) exit out of Europe through
Spain and (4) the penshonado legislation.
1 The Netherlands Antilles tax exempt company
The Netherlands Antilles limited liability company (also known as the
Netherlands Antilles Besloten Vennootschap, hereafter referred to as “NABV”) is
a legal entity established in Curaçao. As mentioned the Netherlands Antilles
have been dissolved per October 10 of 2010 but the abbreviation NABV is still
widely used. Curaçao is the island where traditionally most of the
international financial activities took place and is still the focus for a lot
of international tax planning.
The NABV can be structured as a tax exempt company for profit tax and
dividend withholding tax purposes and we therefore see the below mentioned
activities being performed by an NABV:
Mutual fund;
Group financing activities;
Portfolio investments;
Licensing activities.
The NABV is very easy to incorporate, as among other a declaration of
no objection is not required;
The articles of association can be drafted to look like a company under
civil law of a common law.
The NABV should engage almost exclusively in investing in debt
instruments, securities and deposits. Licensing of intellectual and industrial
property rights and comparable property or usage rights has recently also become
possible. If the company pursues other activities it will lose its tax exempt
status
The board of directors must consist of one or more Curaçao residents.
Rule of law will always be guaranteed through the Supreme Court in the
Hague, the Netherlands.
There are no minimum capital requirements with respect to the formation
of a NABV. Only registered shares, with or without par value, can be issued.
The liability of the shareholder is limited to the respective capital
contribution. The shares can be denominated in any valid currency.
The NABV is incorporated by notarial deed before a civil law notary.
The name of the NABV must be approved by the Government. The incorporation can
be executed in about three days.
Unless the articles of incorporation state differently, decisions are
made by a simple majority of votes.
Annual accounts should be audited by an independent expert.
2 E-zone companies
General information
In Curacao many so-called Economic Zones (’E-Zones’) provide interesting
opportunities for international trade, services or e-commerce activities.
An E-Zone is a designated area in Curacao in which international trade,
services or e-commerce activities and services supportive to the foregoing, may
be executed whether or not supported by electronic means.
An E-Zone has a manager who coordinates admittance to the E-Zone with the
Curacao authorities.
E-Zone companies are met with the very favourable proft tax rate of 2
percent. Further advantages are obtained with regard to custom duties, turnover
tax and expatriate tax facilities.
Only legal entities with a capital divided into shares may perform
activities in an E-Zone. The entity can either be a local company or a foreign
entity. The focus of such companies must primarily be on trading goods or
providing services to non-domestic clients.
Business generated on the local market may not exceed 25% to 30% of the total
turnover. The profit generated as such is subject to the normal profit tax rate
of 34.5%. Special conditions must be met however. The taxable profit of an
E-Zone company is calculated on the same principles as that of non E-Zone
company.
A
request should be filed with the Curacao
authorities. The local authorities are through the E-Zone legislation
entitled to impose certain conditions. The Manager of the specific the E-Zone
area in general plays a supportive role an acquiring the license to operate within
an E-Zone.
An E-Zone company that does not meet the conditions can await penalties
and/or the license to operate as an E-Zone company can be withdrawn.
E-Zone companies will be taxed at 2% until January 1, 2026 with respect to
income that falls under the scope of E-Zone activities as described above.
Local income will be taxed at the normal profit tax rate.
No import duties and turnover tax are due on goods entering the E-Zone and
services rendered by local companies to an E-Zone company. Also import duties
and turnover tax are not due on products delivered to or services rendered to
other companies located in the E-Zone.
Under certain circumstances employees of E-Zone companies can qualify for
the expatriate status which allows for a smaller gap between the gross and net
salary and also opens possibilities for net benefits for the employee. The
total package allows for lower salary cost for the employer while on the other
hand provide for a higher net salary for the employee.
3 The exit out of Europe is through Spain
Hereunder we will try and connect a Spanish company falling under the
scope of
the ETVE regime with a Curacao Holding company and a Netherlands Antilles
tax exempt company.
Important is that, as a consequence of the TEIA (Tax Echange Information
Agreement) between Spain and Curacao countries which has come in to force
recently, Curacao is no longer blacklisted in Spain.
With the above in mind we will outline the combination of the ETVE status
for a Spanish
Sociedad de responsabilidad limitada (S.L.) with the Curacao tax exempt
BV (BV stands for basically the same as Sociedad de responsabilidad limitada).
In between those we will avail ourselves of a “normal” Curacao NV which will
act as a
holding company for both entities.
The idea that we would like to bring to the table is that e.g. a company
falling under the
scope of the ETVE regime holds (a) qualifying participation(s) in non
Spanish resident
subsidiaries. As we understand it the ETVE can in such a situation
distribute the
dividends that are obtained from these subsidiaries, to her parent
company without
having to withhold tax on these dividends. This parent company cannot be
resident in a
tax haven. The Curacao have shed their tax haven status with the Spanish
tax
authorities and it is therefore that the parent company could be a Curacao
resident company.
The Curacao participation exemption however has undergone changes which
have come into force per January 1st 2009:
The 95% participation exemption for qualifying interests has been
replaced by a
100% participation exemption, subject to certain conditions. In order for
the
100% participation exemption to apply, the qualifying participation must
be
either “subject to tax” or have “enterprise activity / non-portfolio
investment”. If
neither condition is met, the participation exemption on dividends will
be limited
to 63%.
Also a new, restricted, definition of dividends has been introduced.
The new participation exemption allows for consolidation of the ETVE
results with the
results of its subsidiaries before applying for the 100% participation
exemption. Also the
limitation to 63% participation exemption is not applicable on situations
where dividends
are distributed from subsidiaries of which the assets consist for 95
percent or more of real
estate.
The next step is that the Curacao parent company establishes a tax exempt
BV. This BV is capitalized with the dividends which originate from the
non-Spanish
subsidiaries. (For obvious reasons it is important that the Curacao parent company does not lend the dividends received to the tax exempt subsidiary
as there is no fiscal gain from interest payments whereas the interest payments received
would be
taxed).
The tax exempt Curacao BV could then e.g. lend the capital to third
parties
or to group companies. Because of the tax exempt status of the BV the
interest paying
companies may not be able to deduct the interest paid from their
respective taxable
income, as local anti-abuse legislation may be in place, but as the Curacao
tax exempt BV receives the interest taxfree this will make the
transaction fiscally neutral.
A source tax may however be due on the outgoing interest payments.
4 Penshonado
legislation
This part of the article deals with the current penshonado
legislation. Among other the conditions, applicable tax rate and a few special
items are brought to your attention.
v
Conditions
The penshonado
needs to be living in the Netherlands Antilles.
From a fiscal point of view one’s domicile is determined by considering the
facts and less by observing formalities. In short, one’s domicile is not only
determined by answering the question in which civil registration one has been
entered.
v
For sixty months previous to the year in which
the penshonado wants to apply for the fiscal penshonado status his domicile
cannot have been in the Netherlands Antilles.
v
At the moment the aspiring penshonado wants to
enter his name into the civil registration in one of the islands of the Netherlands Antilles he has to be at least 50 years of
age.
v
Within two months after entering his name into
the civil registration the penshonado needs to inform the Tax authorities of
his wish to be taxed in accordance with the penshonado legislation.
v
Within 18 months of living in the Netherlands Antilles one needs to have purchased a house
with a minimum value of ANG 450.000 (approx. USD 257,000). It is required that
the penshonado can avail himself of this house without limitations. E.g. one
cannot let this house to third parties.
One is further not allowed to fulfill an employment in the Netherlands Antilles or be self employed. This rule
however has one exception being the director in a legal entity in which one
participates (directly or indirectly) for at least 40% of the share capital.
Tax rate and income type under the
scope of the penshonado legislation
From his income from a foreign source the penshonado will be
taxed against flat income tax rate of 10%. Income from a foreign source are
considered to be among other:
v
Income from a current of former employment or
other activities executed outside the Netherlands Antilles.
Pensions are a good example here;
v
Income from real estate not situated in the Netherlands Antilles;
v
Income from bank accounts, dividends distributed
by companies which are not involved in activities in the Netherlands Antilles,
income deriving from a substantial interest in the share capital of a company
not domiciled in the Netherlands Antilles;
v
Income from annuities received from parties not
residing in the Netherlands Antilles, lump sum payments deriving from a life
insurance policy from parties not residing in the Netherlands Antilles;
Lump sum tax payment
For a penshonado it is also possible to opt for a payment of
approximately USD 150,000 instead of the 10% income tax rate. One cannot shift
between these two systems on an annual basis but this can provide for some
interesting tax planning opportunities.
Social Security Premiums
Besides income tax the penshonado under 60 years of age also pays for the Old
Age Pension Fund of which the maximum premium is currently approximately ANG
4,800 (approx. USD 2,740). Penshonados also pay a special sickness insurance
premium of 2% on their annual income.
From the above it can be concluded that Curaçao has a lot to
offer for those involved in international tax planning.
