September 24, 2019

A word of warning

Monday September 23rd in Antilliaans Dagblad an article on policy on substance from our Minister of Finance.

What is this all about?

In international tax planning one aims to move income from high taxed jurisdictions to low tax jurisdictions. From tax infernos to tax havens so to say.

Curacao has since the early 50's of the former century been a tax haven or offshore jurisdiction.

From 1993 on a plan was devised to shed of this offshore reputation which found its conclusion in the coming of force of the so-called New Fiscal Framework per January 1st, 2002.

Before that we had an interesting system for taxation of offshore companies. Via so-called Guarantee Ordinances it was deemed that -generally speaking- offshore income would be taxed at 10 percent of the normal rate.

At the time of  introduction of this legislation the profit tax rate was 24 percent for the first ANG 100,000.-- profit and 30 percent on the balance.

So for offshore this basically became 2,4 percent and 3 percent on the balance.

The New Fiscal Framework made an end to all that. The last Guarantee Ordinance was not to be renewed.

And that is one of the reasons why Curacao is in a perfect storm right now as the Guarantee Ordinance and the lease of the refinery to PdVSA both end this year. This of course apart from the current US restrictions on Venezuela which already make that no crude oil is being delivered to the refinery.

Curacao has created new interesting possibilities to attract other fiscal driven tax planning such as the private foundation and the tax exempt corporation, the latter now called the Curacao Investment Company ("CIC"). Private foundations are bit like a trust and CIC's are exempt from profit tax as long as they adhere to a very limited set of goals and actual activities.

Alas, Europe frowns upon this so now our Minister of Finance has published a policy on substance so that certain kind of legal entities are to benefit.

However, remember where we started. We go from high tax jurisdictions to low tax jurisdictions. The high tax jurisdiction see possible taxable income slip away to the low tax countries.

They will judge for themselves if they deem the substance on Curacao sufficient to allow taxable income to be taxed elsewhere. In other words; the policy as published by our Minister can only be relied upon for Curacao purposes. It will not reflect on the stance to be taken by any foreign tax authority in the world.

So, adhering to this policy is beneficial from a Curacao perspective but may be not so much from the perspective of that other high tax jurisdiction which taxation one tries to avoid.

Just a word of warning!

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