Friday, October 07, 2011
The Curacao tax reform 2011 was recently adopted by the Curacaoan parliament. The Curacao tax reform 2011 has some interesting features for the international financial sector. The expectations are that more features will follow during the next few years, however, no formal announcements have yet been made in this respect. A switchover from direct to indirect taxation is already evident in the Curacao tax reform 2011, although still on a modest scale. Expectations are that this trend will continue. Personal and corporate income tax rates will decrease, while turnover tax will increase from 5% to 6%. Additionally, services provided by foreign service providers will also be subject to Curacao turnover tax.
Fully Fiscally Transparent Entities
The introduction of fully fiscally transparent entities, either limited liability companies or public limited liability companies, makes Curacao a perfect location for the establishment of (mother) funds in a civil jurisdiction. Combined with the ultimate protection of the Supreme Court of the Netherlands in case of disputes, Curacao is considered to be a safe and trusted location for funds with the availability of experienced service providers.
Full fiscal transparency means that no personal- or corporate income tax will be levied at the level of the fund itself or the participants. If applicable, turnover tax and or wage tax could be due. For the sake of completeness, Curacao does not levy stamp duty on capital contribution.
The following conditions must be complied with:
• Transparent status only applies for limited liability (BV) or public limited liability (NV) companies;
• A company with transparent status may not have bearer shares;
• The articles of association should contain a right of first refusal (or pre-emption rights clause) (in Dutch: aanbiedingsregeling) for the transfer of shares to acquiring shareholders with an obligation for the acquiring shareholder to declare that he / or she accepts and approves the transparent status of the company;
• The board of directors should maintain a record in which the ultimate beneficial owners who hold an interest of at least 10% are registered;
• An upfront request needs to be filed with the Curacao tax authorities by the board of directors on behalf of all shareholders.
Please note that if these conditions are not fulfilled in any year, the transparent status will cease to exist with retroactive effect from the 1st of January of the year of this occurrence. Limited (tax) filing obligations apply; a transparent entity should annually file:
• A statement confirming that no bearer shares have been issued;
• A list of shareholders who sold their interest;
• A balance sheet and a profit & loss account for that year.
Upon request from a foreign tax authority, this information may be exchanged under tax information exchange agreements.
Private Foundations with an Effective Tax Rate
A private foundation is a commonly used entity for international asset protection, privacy, estate planning, passive portfolio and international holding structures. More articles on these topics have been published in our legal blog.
Although following the implementation of the Curacao Tax Reform 2011 a private foundation would also be fully tax exempt (unless it is conducting business activities), a private foundation may opt to be treated as a so-called allocated fund (‘doelvermogen’).
An upfront request needs to be filed with the Curacao tax authorities, confirming that the private foundation is treated as an allocated fund (‘doelvermogen’). Upon approval, the private foundation will effectively be taxed at a rate of 10%.
The possibility to be treated as an allocated fund (‘doelvermogen’) combined with an effective tax rate of 10% has been created to meet international standards. Various jurisdictions have agreed not to apply local CFC legislation if an entity meets a minimum and reasonable effective tax rate. Within the EU, an effective tax rate of at least 10% is considered to be reasonable. Needless to say that the place of effective management and control should also be located in Curacao!
The introduction of a transparent Curacaoan entity and a private foundation with an effective tax rate, are new features meeting high international standards. This, combined with a civil law system in an OECD compliant country, should list Curacao as the top location for new funds and international asset protection, privacy, estate planning, passive portfolio and international holding structures.
Filed under: Tax by Jeroen Starreveld.
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