This country-specific Q&A provides an overview of Tax laws and regulations applicable in Curacao.
How often is tax law amended and what are the processes for such amendments?
Usually, main tax issues are amended once a year. The process is that the changes are drafted by the Ministry of Finance, and that the financial sector is allowed to give its input, especially in case of major changes in the profit tax, personal income tax and sales tax. The proposals are submitted to parliament and after discussion in the parliament approved and published in the Country Gazette.
Smaller changes or urgent changes, such as changes with respect to Covid-19, are introduced during the year and follows the same procedure. The Minister of Finance is allowed to issue decrees on tax matter, which are usually to clarify certain aspects and sometimes deals with matters that will be converted into law at a later date or at the beginning of the new year.
What are the principal procedural obligations of a taxpayer, that is, the maintenance of records over what period and how regularly must it file a return or accounts?
The profit tax must be filed once a year. Within 3 months after the end of the calendar year a provisional profit tax return over the previous year must be filed (i.e. before April 1). Before July 1, either the definitive profit tax return must be filed or a request for extension must be filed. If the request for extension is granted, then the definitive profit tax return must be filed before January 1.
Upon filing of the provisional profit tax return at least the amount of taxes that were due the previous tax year must be paid unless the taxpayer can prove that the taxes will be lower. In such case a provisional P&L must be submitted. Upon filing of the definitive tax return the remainder must be paid.
Books and records must be kept for a period of 10 years.
Personal income tax
The personal income tax must be filed once a year before June 1. Upon request an extension can be granted through the end of the year. The taxes are due within 2 months after an assessment has been imposed. The inspector of taxes may decide to impose a provisional assessment, which may be paid in term of the remaining months of the year.
Sales tax/payroll taxes/social security
These taxes must be filed on a monthly basis and paid upon filing.
There are exception on the monthly payment of sales tax.
Who are the key regulatory authorities? How easy is it to deal with them and how long does it take to resolve standard issues?
The inspector of taxes is the key regulatory authority in tax matters. They are difficult to contact, especially after the fire in the building and the covid-1 crises. The average time to solve standard issues is around 2-6 months.
Are tax disputes capable of adjudication by a court, tribunal or body independent of the tax authority, and how long should a taxpayer expect such proceedings to take?
Yes, tax issues can be brought to the court in Curaçao and appeal can be made to the Dutch Supreme Court in the Hague, the Netherlands. The procedure is that you file an appeal with the tax inspector against an assessment imposed within 2 months after the date of the assessment. If you do not agree with the decision of the inspector of taxes you can file an appeal with the tax court within 2 months after the date of the decision of the inspector. If you do not agree with the decision of the court, you have 2 months to appeal to the Dutch Supreme Court.
Tax procedures take around a year i.e. court date is around a year after filing the appeal.
Are there set dates for payment of tax, provisionally or in arrears, and what happens with amounts of tax in dispute with the regulatory authority?
Profit tax, sales tax, payroll taxes and social security premiums must be paid upon filing. Income tax must be paid within 2 months after the tax assessment is imposes. For taxes in dispute a postponement of payment can be requested until the inspector has taken a decision on the appeal filed.
Is taxpayer data recognised as highly confidential and adequately safeguarded against disclosure to third parties, including other parts of the Government? Is it a signatory (or does it propose to become a signatory) to the Common Reporting Standard? And/or does it maintain (or intend to maintain) a public Register of beneficial ownership?
Yes, we are signature to the CRS. The legislation with respect to the public register of beneficial ownership has been included in the tax legislation since 2018.
What are the tests for residence of the main business structures (including transparent entities)?
Under the incorporation fiction of article 1, paragraph 2, of the Curaçao Profit Tax Ordinance (‘PTO’), a company incorporated according to the laws of Curaçao is considered a tax resident of Curaçao for profit tax purposes.
As of July 1, 2018, article 1C, PTO, contains substance requirements. In short, the substance provision defines the actual presence (reële aanwezigheid) as a company, or, in as far as a company forms a group with other companies in Curaçao, the group, that perform income generating activities and that:
have a number of qualified fulltime local employees in agreement with the nature and the scope of the activities; and
have operational expenses in agreement with the nature and scope of the activities.
Advance Tax Rulings can be obtained in order to ascertain that sufficient substance is available.
The provision also state, that by ministerial decree additional rules could be issued. Additonal rules were published on September 10, 2019 in P.B. 2019/56 and withdrawn on July 23, 2020, published in P.B. 2020/77.
As per January 1, 2020, an additional paragraph was added to the substance provisions stating that companies that derive benefits other than benefits derived from a domestic enterprise or profession, must have not only have an actual presence in accordance with the substance article but the activities, if performed by a foreign tax payer in Curaçao, must also constitute a permanent establishment in Curaçao. On top of that, penalties of Nafl. 50k-Nafl. 500k can be imposed if the substance demands are not met.
The professional knowledge of the directors should go further than the day-to-day administrative tasks. From recent case law of the Dutch Supreme Court (HR BNB 2018/68) it appears the Supreme Court emphasized that the place where the strategic decisions are taken, and instructions are given to employees is decisive in determining the place of effective management. Less importance in determining the place of management is given to the place where the day-to-day management is executed.
A company is considered a tax resident of Curaçao in case the key function and key decisions are taken in Curaçao. The decisions must be prepared and taken in Curaçao (Court of Appeal The Hague V-N 2020/27.13).
Have you found the policing of cross border transactions within an international group to be a target of the tax authorities’ attention and in what ways?
Not in particular. But it has their attention, especially when ATR’s or APA’s are requested.
Is there a CFC or Thin Cap regime? Is there a transfer pricing regime and is it possible to obtain an advance pricing agreement?
There is no CFC regime. We article 6, par 2, under d, PTO contains Thin Cap rules in case interest is paid to a resident or non-resident group company which resident or non-resident group company is not subject to a tax levied on profits. The Thin Cap rule is 3:1 i.e. the loan may not exceed 3 x the equity of the borrower.
Is there a general anti-avoidance rule (GAAR) and, if so, in your experience, how would you describe its application by the tax authority? Eg is the enforcement of the GAAR commonly litigated, is it raised by tax authorities in negotiations only etc?
No, the PTO does not contain a general anti-avoidance rule. However, article 4, paragraph 5, PTO contain an avoidance rule to avoid the abuse of the territorial tax system. Under the anti-abuse rule passive interest, dividend, rental and royalty income is always considered domestic income under our territorial tax system.
The participation exemption rules contain an avoidance rules excluding dividend income from the participation exemption if, briefly summarized, the activity and subject to tax test are not met. If these 2 cumulative demands are met, then the dividend income is taken into account for 10/T part were T stands for the tax rate in the book year.
Have any of the OECD BEPs recommendations been implemented or are any planned to be implemented and if so, which ones?
Yes, BEPS 5 was introduced in 2018 and amended as per January 1, 2020 when the territorial tax system was introduced. Transfer pricing rules were introduced as well as CbC reporting standards. The preferential regimes were abolished (export facility rules) or amended (the tax-exempt company was reformed into Curaçao Investment Company regime, the economic zone legislation was reformed and the under the transitional provisions will end as per December 31, 2022, IP box rules comparable with the Dutch IP box rules were introduced) in order to comply with the OECD rules. The exemption for foreign profits introduced as per July 1, 2018 in order to comply with the OECD rules was replaced by a territorial tax system for the profit tax in order to comply with OECD rules.
In your view, how has BEPS impacted on the government’s tax policies?
The impact is considerable as the tax authorities also have to adjust to the new rules.
Does the tax system broadly follow the recognised OECD Model? Does it have taxation of; a) business profits, b) employment income and pensions, c) VAT (or other indirect tax), d) savings income and royalties, e) income from land, f) capital gains, g) stamp and/or capital duties. If so, what are the current rates and are they flat or graduated?
As per January 1, 2020 Curaçao has a territorial tax system for profit tax purposes.
Yes. Note that capital gains may be exempt under the participation exemption rules.
Profit tax: 22% Personal income tax/employment tax: 10%-46,5% Sales tax (Indirect tax): 6% or 9%, without the possibility of deduction of sales tax charged as in the European VAT system. Savings income follows the rules of either the profit tax or income tax. In the income tax a flat rate of 19.5% is applicable. Domestic interest is taxed at 8.5% and withheld by the banks. Royalty income: In the PTO royalty income that qualifies for the IP box is taxed at 0%. Non-qualifying royalties are taxed at 22%. Income from land: follows the regime of either the profit tax or personal income tax. Capital gains: in the profit tax are subject to 22% unless an exemption applies. Capital gains in the income tax are generally exempt though in case considered business income taxed at 10%-46%. Stamp duties: are levied when documents are brought into court or registered as of Nafl. 5.
Is the charge to business tax levied on, broadly, the revenue profits of a business as computed according to the principles of commercial accountancy?
Are different vehicles for carrying on business, such as companies, partnerships, trusts, etc, recognised as taxable entities? What entities are transparent for tax purposes and why are they used?
Yes, they are recognized as taxable entities.
The common transparent entities are the closed partnership and Fund for mutual account. On request, a public limited company (naamloze vennootschap) or private limited company (besloten vennootschap) can be considered tax transparent and treated as a partnership provided certain conditions are met.
The tax transparent entities are used as real estate funds, investment funds, but also for exercising a professions, (lawyers, medics, accountants, etc.)
Is liability to business taxation based upon a concepts of fiscal residence or registration? Is so what are the tests?
Foreign businesses earning:
Profits from a business of a profession in Curaçao; or
Income from real estate located in Curaçao; or
Income from mortgage loans vested on Curaçao real estate
are subject to tax in Curaçao.
Article 1, paragraph 5 through 14, PTO follows the definition of a permanent establishment of the OECD. Furthermore, companies incorporated according to the laws of Curaçao are considered a tax resident of Curaçao for profit tax purposes. Foreign companies with effective management & control located in Curaçao are considered subject to tax in Curaçao.
Are there any special taxation regimes, such as enterprise zones or favourable tax regimes for financial services or co-ordination centres, etc?
The economic zones for trading and warehousing were amended as per July 1, 2018 and are only applicable for physical trading and certain repair services. The regime ends as per December 31, 2022.
Under article 15, paragraph 4, PTO, a special regime is introduced for the following categories of industries, introducing a profit tax rate of 3%
Ship and aircraft repair;
Call-, service-, and datacenter in as far as they provide supportive activities for other companies which other companies have a minimum turnover of Nafl. 50m;
re-packaging, storage of goods;
services rendered to non-related investment companies and managers of investment companies.
The Curaçao Investment Company regime is special regime subject to a tax rate of 0% for finance and investment activities.
Are there any particular tax regimes applicable to intellectual property, such as patent box?
Curaçao has introduced the IP-box regime as per July 1, 2020 taxing IP income against a tax rate of 0%.
Is fiscal consolidation employed or a recognition of groups of corporates for tax purposes and are there any jurisdictional limitations on what can constitute a group for tax purposes? Is a group contribution system employed or how can losses be relieved across group companies otherwise?
Curaçao has a fiscal unity regime under which domestic companies can file on a consolidated basis and, provided certain conditions are met, group losses can be compensated.
Are there any withholding taxes?
Curaçao does not levy any withholding taxes on interest, dividends and royalties.
Are there any recognised environmental taxes payable by businesses?
Is dividend income received from resident and/or non-resident companies exempt from tax? If not how is it taxed?
By virtue of the participation exemption rules (art 11, PTO) dividends and capital gains are exempt provided that the parent company possesses 5% or more of the nominal paid in capital of the subsidiary or, in case the participation is less than 5%, the cost price of the participation is at least USD 500k.
Under the anti-abuse rule, dividends received from participations are effectively subject to tax at 10% if the following cumulative requirements are met: (i) the income is considered passive investment income and (ii) the participation in its country of residence is not subject to a statutory corporate tax rate of at least 10%.
A foreign participation of (Local operating) Banks and Credit Institutions that are licensed by the Central Bank of Curaçao and St. Maarten, to which the anti-abuse rules apply, is fictitiously considered to have distributed 100% of its profits of the book year in the current book year whereas a participation in a Curaçao Investment Company held by such local operating bank is considered to have fictitiously distributed 50% of its profit of the book year in the current book year.
The fictitious dividend is effectively taxed at 10%.
If you were advising an international group seeking to re-locate activities from the UK in anticipation of Brexit, what are the advantages and disadvantages offered by your jurisdiction?
No, I am not advising any international groups seeking to relocate from the UK in anticipation of Brexit. The Caribbean may not be the first location to think of. However, the advantages of choosing Curaçao would be:
A territorial tax system for foreign activities provided that there is sufficient substance;
No withholding taxes;
Participation exemption rules;
Extensive investment treaty network;
Attractive rules for expatriates.
Limited tax treaty network, though through the Tax Arrangement Netherlands Curaçao access to the Dutch treaty network;
Difficult immigration laws for non-Dutch and non-US national.
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