New 2016 tax legislation
On June 22, 2016 several tax legislation proposals were approved by the parliament of Curaçao (“Staten”). This update is a summary of some of the proposed legislation. Note that at this stage the proposals did not yet enter into force (only after an official publication notice). This update contains a summary of the proposals of tax law. Since only a summary is given, not all conditions and/or exceptions will be mentioned. The update merely outlines the important proposals and is general in nature and therefore cannot be considered to constitute advice for any particular situation. Baker Tilly Dutch Caribbean shall not be liable for any actions taken or omitted on the basis of information contained in this memorandum.
1. Obligation to report a change of address
Every taxpayer (whether an individual or a corporate entity) is obliged to inform the tax department of his/her/its address. In case the taxpayer relocates, the tax department must be informed of the new address within one month from the date it became applicable.
2. Obligation to keep ‘transfer pricing’ documentation in case of transactions between related parties
Every taxpayer (whether an individual or a corporate entity) who directly or indirectly has an interest in a corporate entity or manages same and concludes a transaction with that entity shall keep in his administration documents describing the following:
– the business criteria that were considered as the basis of the transaction; and
– whether the conditions of the transaction are based on business considerations (are at arm’s length).
In other words, if the proposed legislation is passed, related parties must be able to demonstrate that the transactions they entered into are based on business conditions The documentation proving the business conditions, most often will consist of a ‘transfer pricing’ report. If the taxpayer does not have this type of documentation in his administration, the proposed law makes it possible that the legal presumption that the taxpayer is bona fide is reversed and the burden of proof is transferred to the taxpayer. This proposal constitutes a considerable increase in the administrative burden of taxpayers who carry out their business as part of a corporate group and should not be taken lightly by entrepreneurs. The tax department of Curacao has been quick to reverse the burden of proof and it is now being given additional tools to do so in case the required documentation is missing.
3. Increase of the basis for the calculation of the tax owed by shareholders of a tax exempt company
Every year, shareholders of a tax exempt company or a foreign investment company must report a deemed income of 4% of the value of their shares (as at 1 January of the year for which the tax is owed). This deemed income is subject to income tax at a rate of 19.5%, which results in an effective rate of income tax of 0.78%. In case the proposed legislation is passed, the basis for the calculation of said 0.78% will be increased. The basis, which will be used for the calculation of the income tax owed in any year will not only be the value of the shares at 1 January of the year for which the tax is owed, but will include the amount of the dividends declared to the shareholder in the year prior to the year for which the tax is owed.
4. It will no longer be possible to convert a regular taxed company into a tax exempt company without payment of income tax
Currently, a company subject to regular profit tax can be converted into a tax exempt company without its shareholder (if an individual) being liable for income tax on the retained earnings that were accumulated during the period that the entity was subject to the regular profit tax rate . If the proposed law is passed, the tax department will retain its claim to a 19.5% income tax on the existing retained earnings. Should the tax exempt company declare a dividend, for tax purposes the company will be deemed to have paid a dividend from the accumulated retained earnings (prior to having obtained the status of tax exempt company), which is subject to tax at the rate of 19.5%. It will be possible to make full use of the deemed income facility offered by the income tax law (see before) after the entire retained earnings, which were accumulated before the status of tax exempt company is obtained, is distributed.
5. Fiscal facilities in case of conversion, merger and demerger of companies or shares
In Curaçao it is possible for corporate entities to carry out conversions, mergers or split up without tax consequences, subject to conditions, often subsequent to obtaining a tax ruling. The proposed legislation contains the statutory provisions to be introduced in the income and profit tax ordinances, which will govern conversions, mergers and split ups. Based on these legal provisions it will, under certain conditions, become possible to convert, merge or split up companies without income or profit tax consequences.
6. Saving for pension plans tax free
Many residents of Curaçao have no or insufficient pensionrights. The proposed legislation will make it possible to build up (or increase) pensionrights in a fiscally attractive manner. In a few years, it will become possible to deduct a maximum of NAf 5,000, from the taxable income for transfer of the deducted amount to a blocked savings- or investment account maintained with a qualifying credit institution (for instance, a bank or insurance company in Curaçao). The interest received on the blocked account is not subject to income tax. The saved amount is subsequently paid out in instalments, as if it were pension payments, when the taxpayer is between 60 and 70 years of age. Monthly payments will be made until the savings will have been exhausted. The instalments received are subject to income tax.
7. Interest charge on collection of outstanding taxes
Presently, the Receivers’ department of the tax authorities (“Ontvanger”) does not charge interest on outstanding tax balances or charges very little. The taxpayer owes interest on outstanding tax amounts that are not paid timely. If this proposed legislation is adopted, the taxpayer will owe the tax department 3% interest per year from the date of the demand note of the Receivers’ department (only for amounts exceeding NAf 500). Note that the interest on collections of overdue tax will be calculated retroactively on amounts outstanding for which a demand note was sent to the taxpayer.
For additional information on the legislative proposals please contact:
Arthur van Aalst, Tax Attorney, firstname.lastname@example.org
Geraldine Josephina, Tax Advisor, email@example.com
Anjli Finessi, Tax Advisor, firstname.lastname@example.org
Wilco van Oosten, Tax Advisor, email@example.com