Four great fiscal possibilities in Curacao

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.