2 Dutch Caribbean Islands

Mr. Hans Ruiter • Ms. Sandy van Thol

I. Introduction

In this chapter, only the corporate income tax of the different jurisdictions will be discussed. In addition, the fiscal relationships between the various jurisdictions will be discussed. Please note that the details of the various tax systems will not always be explained. Instead, the focus will be on the differences and similarities between the various tax systems. The discussion of the tax systems itself will be in principle high level and only more detailed if the context requires this.

First, a short introduction of the Kingdom of the Netherlands is discussed. Subsequently, in each paragraph the various Dutch Caribbean islands are discussed from a tax perspective.

The islands of the Dutch Caribbean in principle each have their own tax system, except the BES islands. The BES islands (i.e. Bonaire, Sint Eustatius and Saba) in essence have the same tax system with only minor differences between the islands. For that purpose, only the tax system of Bonaire will be discussed.

Subsequently, the tax systems of Curaçao and Aruba will be discussed in each chapter. Please note that the tax system of Sint Maarten is very similar to the tax system of Curaçao and will not be discussed separately.

I.1 Kingdom of the Netherlands: a short introduction

1.1.1. General

To understand the fiscal relationships within the Kingdom of the Netherlands one must have a basic understanding of how the Kingdom of the Netherlands functions and how the internal relationships within the Kingdom of the Netherlands are arranged.

The internal relationship between the countries of the Kingdom of the Netherlands (hereafter: “the Kingdom”) is regulated by the Statute of the Kingdom of the Netherlands[1] (December 15, 1954) (hereafter: “the Statute”). The philosophy behind the Statute is that all countries within the Kingdom are equal. Before and during World War II the Dutch Government started thinking differently about its relationship with its overseas territories and the Dutch Government wanted to grant more autonomy to its overseas territories (at that time still considered as “colonies”). This resulted in the Statute in 1954. After the Statute took effect the Kingdom consisted of 3 countries: The Netherlands, Surinam and the Netherlands Antilles (consisting of 6 Caribbean islands). In 1975 Surinam became independent and was no longer part of the Kingdom, leaving 2 countries within the Kingdom: The Netherlands and the Netherlands Antilles.

On January 1, 1986 Aruba became an independent country within the Kingdom of The Netherlands after a long period of discussions and negotiations between The Netherlands and Aruba by the political leaders of the respective countries at that time. In 2010 another constitutional change took place within the Kingdom. As of October 10, 2010 (“10-10-10”) Bonaire, Saba and Sint Eustatius became part of The Netherlands as special municipalities (in Dutch: “openbare lichamen”) in the sense of article 134 of the Constitution of the Kingdom of the Netherlands. Also on that date Curaçao and Sint Maarten became countries within the Kingdom, like Aruba. Therefore as of October 10, 2010 the Kingdom consists of 4 countries: The Netherlands (including the BES-islands), Aruba, Curaçao and Sint Maarten[2].

I.1.2. Structure of the Kingdom

As of 1954 the Kingdom has the form of a federation of countries. As with every federation, there must be a clear definition of the authority of the federation and the member states. The member states are granted as much autonomy as possible and the federation should only look after the affairs of the Kingdom as a whole. The structure that is chosen for the Kingdom is that of the Statute as highest legal regulation and the Constitutions of the member states (The Netherlands, Sint Maarten, Curaçao and Aruba) as legal regulations that are of a lower legal order as the Statute.

The Statute is therefore the highest legal regulation of the Kingdom and as such has preference over the Constitution of The Netherlands (in Dutch: “Grondwet”) and the Constitutions of Sint Maarten, Curaçao and Aruba (in Dutch: “Staatsregeling”)[3]. According to the Statute, all the countries, which form part of the Kingdom of the Netherlands (The Netherlands (including BES-islands), Sint Maarten, Curaçao and Aruba, are responsible for their own internal affairs[4]. Kingdom affairs are taken care of jointly by the Kingdom government[5]. Kingdom affairs are, for example: defence, citizenship and foreign affairs. Fundamental human rights and general principles of good governance are regulated in the Statute and as such are guaranteed for all the member states (article 43 of the Statute). Article 2 of the Statute arranges the principle of Ministerial responsibility. Article 46 of the Statute arranges the principle of general voting rights.

Kingdom laws (in Dutch: “Rijkswetten”) apply to the Kingdom as a whole (an example of a Kingdom law is the Tax Regulation for the Kingdom which will be discussed later). Other matters are regulated at the level of each individual country within the Kingdom. Taxation is – for example – a matter that is the responsibility of each individual country. Governors represent the King of the Kingdom in each of the countries of the Kingdom in which the King does not reside. The King appoints and dismisses the Governors[6].

I.2. Corporate Income Tax at Domestic level

I.2.1. Active income

I.2.1.1. Business Profits
I.2.1.1.1. BES islands

Profit tax on the BES-islands was abolished as of January 1, 2011. It was replaced by the property tax and the revenue tax[7]. The reason to abolish profit tax on the BES islands was that at the time of the constitutional reform (10-10-10) the profit tax revenue was approximately USD 3.2 million[8]. This revenue was considered too low to justify the administrative burden for companies to comply with the profit tax regulations and the burden for the tax authorities to execute the profit tax regulations. To avoid abuse of the absence of profit tax on the BES islands, specific anti-abuse regulations apply. Based on the anti-abuse regulations, companies are considered to be established in The Netherlands, unless the companies (i) are admitted to a trade or service warehouse or (ii) by decision of the tax inspector are considered to be established on the BES islands (certain conditions apply for this decision).

I.2.1.1.2. Curaçao

The normal corporate income tax rate is applicable to all business income. Some types of income or some kinds of companies, are exempted or taxed at a lower tax rate based on a special regime. If the normal CIT regime applies, the business income, after offset of losses, is taxable at a rate of 22%.

I.2.1.1.2.1. Taxable event and taxable basis

Definition of profit

Article 3 of the State Ordinance Profit Tax describes the way the taxable profit of a company must be determined. Profit is determined based on sound business practice (in Dutch: “goed koopmans gebruik”). The profit must be determined consistently, independent from the expected outcome (in Dutch: “bestendige gedragslijn”). The way the profit is determined can only be changed if sound business practice justifies this.

Since sound business practice is not a clear and concrete definition of the way profit must be determined, in practice there can discussion about the explanation of sound business practice. Sound business practice is an old concept from Dutch tax law. Therefore there is a lot, very old but also recent jurisprudence regarding sound business practice. The concept of sound business practice is still developing and changing, based on new insights, changes in accounting principles and introduction of new products and industries.

Starting point for the determination of the fiscal profit are the commercial financial statements. This was decided by the Dutch Supreme Court in 1957[9]. The Supreme Court decided that the commercial financial statement should be followed for the determination of the fiscal profit, unless application of tax law or general tax principles would lead to a difference between the commercial and fiscal profit. Although officially Dutch Supreme court decisions regarding Dutch tax law have no relevance in Curaçao, in practice the Supreme Court decisions are followed.

Important tax principles which are used in sound business practice are:

  • Matching principle (costs are allocated to the period in which the income is recognized)
  • Reality principle (income and costs should be in accordance with the facts)
  • Caution principle (unrealized profits are not taken into account, unrealized losses can – under certain conditions (brick judgment) be taken into account)
  • Simplicity principle
  • Consistency principle (a change of tax accounting principles is not allowed unless sound business practice allows the change[10])

An important decision regarding sound business practice is the decision of August 26, 1998[11] of the Dutch Supreme Court. Until that date a provision could only be formed if a legal obligation existed on balance date based on which the future payments should be made. The Supreme Court decided that this condition no longer applied but that a provision could be formed if the following 3 conditions were met:

  • Provision is based on facts and circumstances which occurred before balance date
  • Costs can be allocated to the period before balance date (matching principle)
  • There is reasonable certainty that the costs will occuur

Further definition of profit

If a company ceases to realize profits in Curaçao, it is taxable for the difference in fiscal book value and the market value of its assets at the moment the company terminates its activities[12]. This also applies if the companies conducts its business through a permanent establishment in Curaçao and assets are transferred from this permanent establishment[13].

Exemptions

Article 2 of the State Ordinance profit tax grants exemptions to various types of activities. Some important tax exemptions are:

  1. A profit tax exemption for pension funds, savings funds, reservation funds, funeral funds, bad health funds and support funds for personnel or former personnel;
  2. A profit tax exemption for the so-called trust or private foundation[14], unless the profit is realized with business activities.

Deductions

Deductible costs

Costs which have to be made to realize the profit can be deducted from the profit. Furthermore assets can be depreciated for tax purposes if the assets have a certain economic life. If after the economic life, the asset still has a residual value, this must be taken into account for the calculation of the depreciation[15].

Investment allowance[16]

If a Curaçao company invests more than Awg 5,000 in assets, the investing company can claim an investment allowance of 10%. Investment allowance is a deduction on the taxable profit of a company. If – for example – a company invests for Awg 100,000, it can deduct 10% of Awg 100,000 is Awg 6,000 from its taxable profit. So if the taxable profit before the investment allowance is Awg 20,000, after deduction of the investment allowance the taxable profit is Awg 10,000.

Certain items do not qualify for investment allowance, like ground and animals.

Capital disposal charge[17]

If an asset is sold within 6 years (for buildings 15 years) after the start of the year the investment allowance was claimed, a capital disposal charge must be paid on the selling price. The capital disposal charge is 10% on the selling price.

Limitation of deduction of costs[18]

Certain costs are not or not completely deductible from the taxable profit of a company. First of all interest – including costs and exchange rate results – and remunerations for the use of goods are not deductible if paid to an entity which belongs to the same group of entities or a substantial interest shareholder, in as far the conditions for the payment are not at arm’s length[19]. The same group of entities is defined as a direct or indirect interest of 1/3[20]. A substantial interest exists if the shareholder holds at least 5% of the shares[21].

Furthermore, interest paid to an Exempt Company[22], in as far as the average loan of the Exempt Company to the debtor is more than 3 times the equity of the debtor. This rule also applies if the loan is granted by a foreign company that is not subject to tax on its profit. If the foreign company is subject to tax to its profit this rule does not apply and the interest is therefore deductible[23]

Financial criminal penalties imposed by a Curaçao criminal judge or amounts paid to avoid prosecution or financial penalties based on other Curaçao laws are not deductible from the profit[24]. A special limitation in the deduction of interest is stipulated in article 6A, paragraph 1 SOPT. Article 6A stipulates that the interest is not deductible if:

  • The interest relates to a profit distribution or a repayment of capital by the tax payer;
  • The interest relates to the acquisition of an interest of a group company as meant in article 1A, paragraph, letter a SOPT, established in one of the other countries of the Kingdom or a countries with which Curaçao has closed a treaty for the avoidance of double taxation, unless a change is established in the ultimate ownership or control in the acquired entity;
  • The interest relates to a capital contribution or other form of equity contribution in the entity to which the loan is due.

Article 6A, paragraph 2, still allows deduction of interest in the situations, mentioned in article 6A, paragraph 1 SOPT in the following situation:

  • The interest is based on mainly (in Dutch: “in overwegende mate”) arm’s length considerations;
  • The interest is subject to a profit tax that is reasonable tax according to Curaçao standards.
Replacement reserve

If a an asset is sold, lost or damaged and the tax payer receives a payment in connection with this, the payment can be reserved and will not be added to the profit if the taxpayer has the intention to replace the sold, lost or damaged asset. The reserve will be added to the profit ultimately in the fourth financial year after the financial year in which the reserve was formed.

I.2.1.1.2.2. Taxpayers

Contrary to the BES-islands, Curaçao levies tax on profits of companies. Currently the profit tax rate is set at 22%[25]. Subject to tax in Curaçao are the legal entities which are mentioned in article 1, paragraph 1, letters a and b of the State Ordinance profit tax. Foundations and associations are only taxable if they are not only acting to satisfy public interests[26].

The foreign tax payers are mentioned in article 1, sub 1, paragraph c. Foreign tax payers are entities which are not established on Curaçao and (i) which have a permanent establishment on Curaçao, or (ii) which have real estate on Curaçao or rights related to real estate or (iii) have amounts receivable which – regarding the principle amount – are secured by mortgage on real estate in Curaçao[27] [28].

Whether an entity is established in Curaçao is determined based on circumstances. However, if the entity is governed by Curaçao law, then Curaçao is always considered as country of establishment[29].

I.2.1.1.2.3. Tax Rates

The profit tax rate is 22% as from January 1, 2016. Special minimum rates apply to the taxable income of certain companies. E-zone, new industries, hotels and land development companies fall under a rate of 2% for example.

I.2.1.1.3. Aruba

The corporate income tax rate of 25% is applicable to all business income that does not qualify for a special tax regime. Some types of activities are tax exempt or taxed at a lower rate than the general rate of 25%. In Aruba over the years many special tax regimes were introduced which were included in the existing corporate tax law. We will discuss this further below.

I.2.1.1.3.1. Taxable event and taxable basis
Definition of profit

Article 3 of the State Ordinance Profit Tax describes the way the taxable profit of a company must be determined. CIT is levied according to the profit which is realized in the financial year of a company.

The profit which is realized in the financial year of the company is determined based on sound business practice (in Dutch: “goed koopmans gebruik”). According to article 3 the profit must be determined consistently, independent from the expected outcome (in Dutch: “bestendige gedragslijn”). The way the profit is determined (“tax accounting method”) can only be changed if sound business practice justifies this. The tax authorities normally require as a condition for the change of the tax accounting method that no incidental fiscal advantage is realized. However, this is not a relevant condition. According to jurisprudence, the only relevant condition is whether an incidental fiscal advantage is intended[30].

In principle the financial year of the company is used for tax purposes. However, if the company does not maintain a regular bookkeeping with a yearly closing, the financial year is considered to be the calendar year.

Sound business practice is used for a proper allocation of the profit to the respective financial years of the company. Since sound business practice is not a clear and concrete definition of the way the yearly profit must be determined, in practice there can discussion about the explanation of sound business practice. Sound business practice is an old concept from Dutch tax law. Therefore there is a lot, old but also recent jurisprudence regarding the explanation of the concept of sound business practice. The concept of sound business practice is still developing and changing, based on new insights, changes in accounting principles and introduction of new products and industries.

Starting point for the determination of the fiscal profit are the commercial financial statements. This was decided by the Dutch Supreme Court in 1957[31]. The Supreme Court decided that the commercial financial statement should be followed for the determination of the fiscal profit, unless application of tax law or general tax principles would lead to a difference between the commercial and fiscal profit. Although officially Dutch Supreme Court decisions regarding Dutch tax law have no relevance in Curaçao, in practice the Supreme Court decisions are followed.

Important tax principles which are used in sound business practice are:

  • Matching principle (costs are allocated to the period in which the income is recognized)
  • Reality principle (income and costs should be in accordance with the facts)
  • Caution principle (unrealized profits are not taken into account, unrealized losses can – under certain conditions (brick judgment, see below) – be taken into account)
  • Simplicity principle
  • Consistency principle (a change of tax accounting principles is not allowed unless sound business practice allows the change[32])

An important decision regarding sound business practice is the decision of August 26, 1998[33] of the Dutch Supreme Court. Until that date a provision could only be formed if a legal obligation existed on balance date based on which the future payments should be made. The Supreme Court decided that this condition no longer applied but that a provision could be formed if the following three conditions were met:

  • The provision is based on facts and circumstances which occurred before balance date
  • The costs can be allocated to the period before balance date (matching principle)
  • There is reasonable certainty that the costs will occur
Further definition of profit

In article 4 of the SOPT the so-called arm’s length principle is defined. The arm’s length principle means that related companies must deal with one another on a third party (“arm’s length”) basis. Therefore the related company must be seen as a third party for tax purposes for intercompany transactions. To apply the arm’s length principle rules, first of all the related company must be defined. In the Aruba SOPT there are 2 definitions of a related company and the definitions are not the same. First of all a related company is defined in article 4 SOPT with respect to the arm’s length principle. The second definition is stated in article 6 SOPT and relates to the limitation of the deduction of certain costs. We will first discuss the definition in article 4 SOPT

Related companies in article 4 SOPT

Article 4, paragraph 2 and 3 give a definition of a related company. This definition is very broad. If an entity, directly or indirectly, participates in the management or the supervision, or in the capital of another entity, the entities are considered as related entities for the application of the arm’s length principle. Article 4, paragraph 2 broadens this definition by also including entities of which the same person, directly or indirectly, participates in the management or the supervision or the capital of one entity and another entity.

On Aruba it often happens that a person is a supervisory director of more than one company. These companies are considered related companies for the application of the arm’s length principle. The consequence is that the conditions of article 4 SOPT regarding the arm’s length principle have to be fulfilled. We will discuss these conditions below.

Conditions arm’s length principle article 4 SOPT

If related parties, according to the above-mentioned definition, agree to conditions with respect to their intercompany transactions which deviate from conditions which independent third parties would have agreed to in normal economic dealings, the profit is determined according to conditions which independent third parties would have agreed to[34].

Furthermore, related entities must include documentation in their administration that demonstrates how the conditions of intercompany transactions are determined and why these conditions are at arm’s length.

Treatment local shareholders of exempt companies[35]

If the shares of an exempt companies ex article 2, sub c SOPT are held by an entity as meant in article 1, paragraph 1, sub a and b, the not-distributed profits of an entity as meant in article 2, sub c SOPT. This means that if a local entity holds the shares of a tax exempted company, the exempted company will be considered to be transparent for tax purposes and the local shareholder will be taxed for the profits of the exempted company.

Liquidation, merger, demerger and transfer statutory seat[36]

In case of liquidation, merger, demerger and transfer of statutory seat of a company, then the increase of value of the assets which are transferred to the entitled entity is taxable. The transferred assets are set at the market value at the moment of transfer and the difference between the fiscal bookvalue and the market value is taxed.

In the reversed situation (assets become taxable in Aruba because of a merger or transfer of statutory seat to Aruba) a so-called step-up to the market value will be granted for these assets[37].

Deductible costs

Costs which have to be made to realize the profit can be deducted from the profit. Furthermore assets can be depreciated for tax purposes if the assets have a certain economic life. If after the economic life, the asset still has a residual value, this must be taken into account for the calculation of the depreciation. If the asset has a cost price of more than Awg 90,000,000, and the asset is used for an industrial company, the asset can be depreciated in 10 equal parts.

Investment allowance[38]

If an Aruban company invests more than Awg 5,000 in assets and these assets are purchased from an Aruban company, the investing company can claim an investment allowance of 6%. Investment allowance is a deduction on the taxable profit of a company. If – for example – a company invests for Awg 100,000 with another Aruban company, it can deduct 6% of Awg 100,000 is Awg 6,000 from its taxable profit. So if the taxable profit before the investment allowance is Awg 20,000, after deduction of the investment allowance the taxable profit is Awg 14,000.

Certain items do not qualify for investment allowance, like ground and animals. A Free Zone company cannot apply the investment allowance.

Capital disposal charge[39]

If an asset is sold within 6 years after the investment allowance was claimed, a capital disposal charge must be paid on the selling price. The capital disposal charge is 6% on the selling price.

Limitation of deduction of costs[40]

Certain costs are not or not completely deductible from the taxable profit of a company. Monetary penalties, imposed by a criminal court and amounts paid to avoid criminal prosecution are not deductible. Furthermore administrative penalties, based on the General State Ordinance Taxes and State Ordinance purchase power compensation, are not deductible. Profit taxes on Aruba or a foreign country are not deductible from the profit. Neither are profit distributions.

Interest and other remunerations for the enjoyment of material or immaterial goods or rendered services, if due to entities, are not deductible, unless the tax payer makes credible that one of the following circumstances applies:

  1. The interest or remunerations are not due to related persons or entities.
  2. The interest or remunerations are subject to an effective tax rate of at least 15 percent.
  3. The completely interest of the entity to which the interest or remunerations are due belongs to an entity of which, directly or indirectly, at least 50% of the shares, representing at least 50% of the voting rights, are registered at a qualifying Stock Exchange[41].

If the receiving entity does not pay an effective tax rate of at least 15% but can demonstrate that the receiving entity is subject to a taxation based on profit, 75% of the interest or remuneration can be deducted. In this respect it is important to demonstrate that there is indeed a taxation based on profit. If – for example – the receiving entity pays tax based on a cost-plus ruling, it might not be considered as a taxation based on profit[42].

Replacement reserve

If an asset is sold, lost or damaged and the tax payer receives a payment in connection with this, the payment can be reserved and will not be added to the profit if the taxpayer has the intention to replace the sold, lost or damaged asset. The reserve will be added to the profit ultimately in the fourth financial year after the financial year in which the reserve was formed.

1.2.1.1.2.2 Taxpayers

Contrary to the BES-islands, Aruba levies tax on profit of companies. Since January 1, 2016, the tax rate is 25% (it was 28% before January 1, 2016). Subject to tax in Aruba are the legal entities which are mentioned in article 1, paragraph 1 of the State Ordinance profit tax. Foundations and associations are only taxable if they are not only acting to satisfy public interests[43].

The foreign tax payers are mentioned in article 1, sub 1, paragraph c. Foreign tax payers are entities which are not established on Aruba and (i) which have a permanent establishment on Aruba, or (ii) which have real estate on Aruba or rights related to real estate or (iii) have amounts receivable which – regarding the principle amount – are secured by mortgage on real estate on Aruba[44] [45].

According to article 1, paragraph 2 in the following situations are in any case considered as a permanent establishment: (i) a permanent representative and (ii) a place of construction of a building or of construction-, digging-, maintenance, cleaning-, assembling or installation work if the duration is longer than 30 days.

If an entity is established in Aruba is determined based on circumstances. However, if the entity is governed by Aruban law, then Aruba is always considered as country of establishment[46].

1.2.1.1.2.3 Exemptions

Article 2 of the State Ordinance profit tax grants exemptions to 3 types of activities. The first category is a tax exemption for pension funds, savings funds, reservation funds, funeral funds, bad health funds and support funds for personnel or former personnel.

The second category is for entities of which the shares are held by Land Aruba and which activities consist of exploration and exploitation of oil.

The third category are AVV’s or VBA’s which activities consist of activities which are mentioned in a State Decree[47].

1.2.1.1.2.4. Rate and refinery and terminal regime

The profit tax rate is 25%. For Free Zone companies the tax rate is 2%. Companies which operate an oil refinery or an oil terminal are subject to 12%. If this company is Stock Exchange listed, the tax rate is 7%. The oil refinery and terminal regime is also referred to as the OR/OT regime.

The minimum tax in the OR//OT regime is Awg 27,000,000. This amount will be increased yearly with an inflation correction. For the current owner of the refinery the minimum amount is Awg 18,000,000. If the tax paid according to the minimum amount due is higher than the tax due based on the percentage of the profit, the difference can be offset in the future if the actual tax is higher than the minimum amount.

I.2.2. Passive income

I.2.2.1. Curaçao
I.2.2.1.1. Dividends and capital gains
Participation exemption

Under the participation exemption regime, certain income such as dividends, stock dividends, bonus shares, hidden profit distributions and capital gains (including currency gains) realized on the disposal of (part of) a qualifying interest in a Curaçao or foreign corporate entity are, in general, fully exempt from corporate income tax. Results derived from related currency hedge transactions are also exempted.

Costs which relate to a participation are not deductible, unless the costs contribute to profit, taxable in Curaçao. This also applies to transactions which are aimed to avoid currency risk with respect to a participation[48].

As a participation is considered:

  • an ownership of at least 5% of the shares of the contributed capital or 5% of the voting rights of an entity of which the capital is divided in shares;
  • membership of a cooperative;
  • at least 5% of the participations of a fund that is appointed as a special fund as meant in article 1B, paragraph 1, or a comparable foreign special fund that is subject to tax.

As participation is also considered a related ownership of profit participations. If the participation is less than 5% as mentioned in article 11, paragraph 1, it is still deemed a participation if the cost price of the participation, together with the cost price of the shares which are already in the possession of the tax payer is at least Awg. 890,000.

Article 11, paragraph 4 SOPT gives a special regulation for so-called passive investments. Dividends from subsidiaries are only tax exempted for a part of 10/T (T is the tax rate) if:

  • the gross revenue of the participation consists for more than 50% in dividend, interest or royalties, which are not received in the normal course of the business operation of the participation; and,
  • the participation is not subject to a tax which is levied on the profit of the participation and which is at least 10% or which is subject to a foreign tax regime as mentioned in article 1A, paragraph 11[49].

This special regulation for passive investments does not apply to participations which assets consist, directly or indirectly, for 90% or more, of real estate.

Consolidated (group) financial statements can be used to substantiate the 2 requirements mentioned above (the type of income and the tax rate). The average of the relevant financial year and the 2 preceding financial years may be used for this purpose.

I.2.2.1.1.1. Taxable event

The taxable event is the realization of the participation income.

I.2.2.1.1.2. Taxable basis

The taxable basis is the dividend received or the capital gain realized with the disposal of the participation

I.2.2.1.1.3 Taxpayers

For taxpayers we refer to the tax subject as described above.

I.2.2.1.1.4 Tax rates

The income is not taken into account if the participation exemption applies. If the participation exemption does not apply, the normal tax rate of 22% applies to the income.

I.2.2.1.2. Interest
I.2.2.1.2.1. Taxable event

The taxable event is the realization of the interest income.

I.2.2.1.2.2. Taxable basis

The taxable basis is the interest received.

I.2.2.1.2.3. Taxpayers

For taxpayers we refer to the tax subject as described above.

I.2.2.1.2.4. Tax rates

The normal tax rate of 22% applies to the interest income, unless a special regime applies (see below).

I.2.2.1.3. Royalties
I.2.2.1.3.1. Taxable event

The taxable event is the realization of the royalty income.

I.2.2.1.3.2 Taxable basis

The taxable basis is the royalty received.

I.2.2.1.3.3. Taxpayers

For taxpayers we refer to the tax subject as described above.

I.2.2.1.3.4. Tax rates

The normal tax rate of 22% applies to the royalty income, unless a special regime applies (see below).

I.2.2.2. Aruba
I.2.2.2.1. Dividends and capital gains participation
Participation exemption

Income from participations is tax exempted. According to the law, income from participations is not taken into account (in Dutch: “blijft buiten aanmerking”).

As a participation is a considered an ownership of shares or profit participations of an entity, association or foundation from businesses as mentioned in article 1, paragraph 1, letters a and b. Also a qualifying ownership of shares or profit participations in an entity which is not established in Aruba qualifies for the participation exemption.

A qualifying ownership is deemed to exist if the foreign participation is subject to tax on its profit and the shares are not held as a passive investment. The participation exemption does not apply to companies which are tax exempt based on article 2, letter c SOPT.

Costs which relate to a participation (for example interest costs) are not deductible in the first 2 years. The costs which have not been deducted in the first 2 years can be deducted in year 3, 4 and 5. As of year 3 the costs are normally deductible. Costs which are not deductible based on article 6, paragraph 2, letter f or article 6, paragraph 4 are not taxable[50].

I.2.2.2.1.1. Taxable event

The taxable event is the realization of the participation income.

I.2.2.2.1.2. Taxable basis

The taxable basis is the dividend received or the capital gain realized with the disposal of the participation

I.2.2.2.1.3. Taxpayers

For taxpayers we refer to the tax subject as described above.

I.2.2.2.1.4. Tax rates

The income is not taken into account if the participation exemption applies. If the participation exemption does not apply, the normal tax rate of 25% applies to the income.

I.2.2.2.2. Interest
I.2.2.2.2.1. Taxable event

The taxable event is the realization of the interest income.

I.2.2.2.2.2. Taxable basis

The taxable basis is the interest received.

I.2.2.2.2.3. Taxpayers

For taxpayers we refer to the tax subject as described above.

I.2.2.2.2.4. Tax rates

The normal tax rate of 25% applies to the interest income, unless a special regime applies (see below).

I.2.2.2.3. Royalties
I.2.2.2.3.1. Taxable event

The taxable event is the realization of the royalty income.

I.2.2.2.3.2. Taxable basis

The taxable basis is the royalty received.

I.2.2.2.3.3. Taxpayers

For taxpayers we refer to the tax subject as described above.

I.2.2.2.3.4. Tax rates

The normal tax rate of 25% applies to the royalty income, unless a special regime applies (see below).

I.2.3. Special features of the CIT system

I.2.3.1. Curaçao
I.2.3.1.1. Existence of the Group Regime

It is possible to form a fiscal unity for profit tax purposes in Curaçao[51]. If a fiscal unity is formed, the parent company is assessed for the profit of the entities which form part of the fiscal unity. The parent company files a tax return for the consolidated profit of the entities which form part of the fiscal unity.

The most important conditions are:

  1. All the entities within the fiscal unity must have the same fiscal regime[52]. It is for example not possible to form a fiscal unity between an entity, which is subject to a tax rate of 2%, and an entity, which is subject to a tax rate of 22%.
  2. Furthermore, the fiscal financial years of all the entities within the fiscal unity must be the same[53] and the parent entity must have at least 99% of the shares of the subsidiary[54].
  3. The fiscal unity must be requested in the same financial year as the start of the fiscal unity[55].
  4. Losses which are suffered before the start of the fiscal unity by one of the entities which form part of the fiscal unity can only be offset with the profits of this entity itself[56]. This is to avoid that entities with losses can be used to offset profits of profitable companies.

If at the moment the fiscal unity ends, losses are not offset yet, these losses remain with the parent company of the fiscal unity[57].

It is possible to use the fiscal unity and the participation exemption to avoid taxation on capital gains of assets. If, for example, a company wants sell an asset with a fiscal bookvalue of 100 and a market value of 200, it could transfer this asset to a newly incorporated entity within a fiscal unity. After that the shareholder could sell the shares of this newly incorporated entity, using the participation exemption. To avoid this, article 16 of the MB Standard Condition Fiscal Unity stipulates that if an asset is transferred to a subsidiary within a fiscal unity with a higher market value than fiscal bookvalue at the moment of transfer the asset is set at the market value at the moment immediately preceding the end of the fiscal unity. If a replacement reserve is formed by the buyer of the asset, this replacement reserve is added to the profit at the moment immediately preceding the end of the fiscal unity[58].

This anti-abuse measure does not apply if:

  • the transfer within fiscal unity took place under normal business circumstances;
  • the transfer formed part of the transfer of a business or independent part of a business against the issuance of shares and after the moment of the transfer at least 3 financial years have lapsed;
  • after the moment of transfer at least 6 financial years have lapsed.
I.2.3.1.2. Treatment of losses

Losses can be carried forward for 10 years after the year the loss is suffered. If a tax holiday industrial companies[59] or a tax holiday business establishment or hotel construction[60] suffers the losses in the first 4 years after the start of the tax holiday, the losses can be offset indefinitely.

I.2.3.1.3. Tax holidays

In Curaçao different kinds of tax holidays still apply[61]. At this moment the following tax holidays can be requested:

  • a tax holiday incentives company establishment and hotel construction;
  • a tax holiday ground development;
  • a tax holiday industrial companies;
  • a tax holiday renovation hotels.

The tax holidays have different terms, different incentives and different objectives.

I.2.3.1.4. Insurance companies

A special regime exists for insurance companies in Curaçao[62]. Entities as mentioned in article 1, paragraph 1, letters a and b, which operate an insurance company, can request to determine the profit on 10% (life insurance) or 20% (other) of the received premiums and capital. For insurance coverage outside of Curaçao the percentages are 5%. This method is referred to as the premium method.

If an insurance company/entity elects the premium method, it must be elected together with the filing of the tax return and each time for a period of 5 years. If the insurance company/entity does not elect the premium method, the normal rules of sound business principles apply. An insurance company/permanent establishment can elect to report a pro rate part of the world wide profit of an insurance company. The pro rate part is calculated by dividing the premiums and capital received by the permanent establishment by the worldwide received premiums and capital by the insurance company. This fracture is multiplied by the worldwide profit of the insurance company. This last-mentioned profit is the profit that is considered to be the permanent establishment profit that can be allocated to Curaçao. The pro rate method can be elected in the tax return for consecutive periods of 5 years[63].

I.2.3.1.5. Exempt Company[64]

An NV or BV in Curaçao can claim the tax exempt status. The NV or BV must file a written request with the tax inspector. The tax inspector must respond within 2 months on this request, otherwise it is considered to be granted[65]. The conditions to qualify for the exempt status are as follows:

  • the management keeps a register of the names and addresses of the ultimate beneficial owners who have an interest of 10% or more in the entity;
  • only natural persons, living in Curaçao, or certified trust offices, established in Curaçao, or the management of such trust offices or its employees form part of the management;
  • the financial statements must be certified by a certified public accountant;
  • the legal purpose and factual activities of the company are only or almost exclusively (i) lending of money, (ii) licensing of intellectual and industrial and similar proprietary or users rights according to the laws of Curaçao or the laws of other countries, passive investments in shares and deposits; and
  • the company is not subject as a credit institution or other financial institution to supervision of the Bank of the Netherlands Antilles.
I.2.3.1.6. Export regime

As of January 1, 2014 the so-called export regime was introduced[66]. According to the export regime a tax rate of approximately 3.2%[67] applies to companies which gain 90% or more of their profits from goods sold or services rendered to international clients. The export regime serves as an alternative for the old offshore regime (subject to a tax rate of 2.4-3%) which is grandfathered through the 2019. The export regime is introduced for companies that act internationally. It allows the following activities:

  • export of goods;
  • international trade and services;
  • repair and maintenance services performed on Curaçao to goods of foreign clients which will subsequently be returned abroad;
  • repair and maintenance services performed abroad;
  • international warehousing services;
  • providing of loans and licenses, providing the use of intellectual property, acting as a holding company or being a member of a cooperation;
  • other services performed for foreign clients.

Services which are excluded from the export regime are:

  • acting as a director of companies whose registered office or effective management is situated in Curaçao and other similar trust services;
  • services performed by a public notary, lawyers, accountants, tax advisers and other such services.
I.2.3.1.7. Economic Zone

The E-zone is a designated area where goods can be stored, assembled, processed, packaged, displayed or handled in any other way. In Curaçao there are 2 E-zones for goods, one located at the airport, the other at the harbor. There are also E-zones where international trade and trade supportive services can take place. This can be electronic communication and information equipment (e-commerce). There are several e-commerce zones on Curaçao.

Financial services, royalty payments, insurance and reinsurance activities, trust services, services of civil-law notaries, lawyers, public accountants, tax counsellors and related services are not allowed in the E-zone.

The profit tax rate for E-zone companies is 2%. This rate does not apply to local sales or services on Curaçao. Furthermore, E-zone companies are not subject import duties, excise duties and turnover tax under certain conditions[68].

I.2.3.2. Aruba
I.2.3.2.1. Existence of a Group Regime

It is possible to form a fiscal unity for profit tax purposes on Aruba[69]. If a fiscal unity is formed, the parent company is assessed for the profit of the entities which form part of the fiscal unity. The parent company files a tax return for the consolidated profit of the entities which form part of the fiscal unity.

The conditions for the fiscal unity were published in 2006. There are 24 standard conditions for the fiscal unity. According to the fiscal unity conditions the parent company is assessed for the consolidated profit of the fiscal unity entities. The parent company files a joint return for all the fiscal unity entities[70]. Only Aruban NV’s can form part of the fiscal unity[71]. The factual management of all the entities which form part of the fiscal unity must take place on Aruba.

All the entities within the fiscal unity must have the same fiscal regime. It is for example not possible to form a fiscal unity between an entity which is subject to a tax rate 10% and an entity which is subject to a tax rate of 25%. Furthermore, the fiscal financial years of all the entities within the fiscal unity must be the same and the parent entity must have at least 99% of the shares of the subsidiary[72].

The fiscal unity must be requested within 6 months after the start of the financial year. This request should include a so-called joint venture agreement, which forms the basis of the fiscal unity.

Losses which are suffered before the start of the fiscal unity by one of the entities which form part of the fiscal unity cannot be offset with profits of the fiscal unity[73]. This is to avoid that entities with losses can be used to offset profits of profitable companies. Normally in fiscal unity conditions it is possible to offset the losses with “own” profits of the entity with the carry forward losses. However, for simplicity sake, this is not possible on Aruba.

If at the moment the fiscal unity ends, losses are not offset yet, these losses remain with the parent company of the fiscal unity.

An anti-abuse regulation applies if the fiscal unity and the participation exemption are used to avoid taxation on capital gains of assets. If, for example, a company wants sell an asset with a fiscal book value of 100 and a market value of 200, it could transfer this asset to a newly incorporated entity within a fiscal unity.

After that the shareholder could sell the shares of this newly incorporated entity, using the participation exemption. To avoid this, standard condition 18 stipulates that if:

  • an asset or liability is transferred to a subsidiary within a fiscal unity, and
  • the parent company has received a payment for the hidden reserves, including goodwill, by selling the shares in the subsidiary, and
  • less than 6 book years have lapsed after the transfer of the asset or liability to the subsidiary.

The assets and liabilities are set at the market value at the end of the book year immediately preceding the split of the fiscal unity.

All the entities which form part of the fiscal unity are joint and several liable for taxes and premiums due by all the entities within the fiscal unity. After the end of the fiscal unity or after one of the entities leaves the fiscal unity, the liability remains in place for the period the entity was part of the fiscal unity[74].

Costs which relate to a participation of shares are not deductible[75]. This conditions relates to article 11, paragraph 6, SOPT. This limitation of deduction of costs is explicitly mentioned in the standard conditions, because it can be argued that within a fiscal unity the subsidiary does not “exist” anymore and therefore the costs are deductible.

However, at this moment the interest relating to a participation are deductible after 2 years (and the costs of year 1 and 2 in year 3, 4 and 5) according to article 11, paragraph 6 SOPT (for participations acquired in the financial year 2013 or later). This change in article 11 SOPT is not reflected yet in the fiscal unity conditions.

I.2.3.2.2. Treatment of Losses

Losses can be carried forward for 5 years after the year the loss is suffered. If a company applies the so called oil refinery and oil terminal regime[76], losses can be carried forward indefinitely.

I.2.3.2.3. Tax Holidays

Tax holidays have been abolished in Aruba as of January 1, 2003.

I.2.3.2.4. Insurance companies

A special regime exists for insurance companies in Aruba[77]. Entities as mentioned in article 1, paragraph 1, letters a and b, which operate an insurance company, can request to determine the profit on 10% (life insurance) or 20% (other) of the received premiums and capital. For insurance coverage outside of Aruba the percentages are 5% (life insurance) and 10% (other). This method is referred to as the premium method.

If an insurance company elects the premium method, it must be elected together with the filing of the tax return and each time for a period of 5 years. If the insurance company does not elect the premium method, the normal rules of sound business principles apply.

A permanent establishment must use the premium method, it does not have the possibility to use the normal use of sound business principles[78].

I.2.3.2.5. 10% regime and hotel regime[79]

In Aruba certain companies can apply a different tax rate if these companies have a certain kind of activities. A tax rate of 10% applies for the following activities:

  • Shipping and aviation
  • Royalties
  • Holding of shares and other participation rights
  • Financing (not as credit institution)
  • Passive investments
  • Sustainable energy
  • Agricultural, tuinbouw, fishing, imkerij, vee, of visteelt
  • Scientific and cultural activities
  • Medical tourism
  • Rehabilitation for alcohol, drugs and other addiction
  • Sustainable transportation with a low CO2 emission
  • Start up companies with respect to digitalizing company processes, 3D printing, Internet of Things, Big Data, robot- and nano technology and comparable start up companies

Hotel companies can apply a tax rate of 10%, 12% or 15%, depending on the Revenue per Available Room (“RevPar”) of the hotel. The rate depends on the category which applies to the hotel. The following RevPar categories exist:

Category I: RevPar Afl 331 per day (excl. tourist levy) (CIT rate 10%).

Category II: RevPar Afl 313 per day (excl. tourist levy) (CIT rate 12%).

Category III: RevPar Afl 286 per day (excl. tourist levy) (CIT rate 15%).

Category IV: Diamond status (CIT rate 12%).

For each category investment requirements apply:

Category I: investment Afl 240K (more than 100 rooms); Afl 120K (100 rooms or less).

Category II: investment Afl 165K (more than 100 rooms); Afl 75K (100 rooms or less).

Category III: investment Afl 90K (more than 100 rooms); Afl 45K (100 rooms or less).

Category IV: investment Afl 165K (more than 100 rooms); Afl 75K (100 rooms or less).

The investments have to be made as follows: 1/3 sustainability and environment, 1/3 training local employees, 1/3 locally produced products.

I.3. Corporate Income Tax on International Level

I.3.1. Tax Regulation for the Kingdom of the Netherlands (“BRK”) and various bi-lateral agreements within the Kingdom of the Netherlands

I.3.1.1. Introduction

Tax matters within the Kingdom of the Netherlands used to be regulated by the BRK[80]. The BRK has many characteristics of a Tax Treaty to avoid double taxation between 2 countries. However, the BRK is a Kingdom law (in Dutch: “Rijkswet”) which gives rules for (cross border) taxation of countries within the Kingdom of the Netherlands. As of the constitutional reform of the Kingdom on October 10, 2010, the BRK as such did not apply anymore since some islands became an independent country within the Kingdom (Curaçao and Sint Maarten; Aruba already had that status). The Netherlands and Aruba, Curaçao and Sint Maarten had the wish to conclude bi-lateral agreements regarding fiscal matters. The bi-lateral agreements are modeled after the OESO model treaty. However, certain specific matters are arranged differently in the bi-lateral agreements. For example, the reduction of the dividend withholding tax to 0%, taxation of substantial interests, pensions, inheritance and gifts.

The bi-lateral arrangements have the advantage that no agreement is necessary between all countries within the Kingdom so that specific wishes and circumstances can be taken into account[81].

At this moment the bi-lateral agreements have been closed between The Netherlands and all the Dutch Caribbean islands[82] accept between The Netherlands and Aruba. Between the Dutch Caribbean islands itself no agreements have been closed yet. Based on the Kingdom Conference regarding Fiscal Affairs of 19 and 20 November 2009 in Aruba the BRK will remain applicable between the countries within the Kingdom that did not close a bi-lateral agreement[83].

The first regulation to take effect was the Tax Regulation Netherlands (in Dutch: “Belastingregeling Nederland”)[84], which applied as of January 1, 2011, which applied between The Netherlands and the BES. After that Sint Maarten, Curaçao and Aruba negotiated their bi-lateral tax arrangements with The Netherlands, which resulted in bi-lateral agreements between The Netherlands and Sint Maarten and The Netherlands and Curaçao in 2015. Aruba stayed behind and does not have a bi-lateral tax agreement yet[85] with The Netherlands.

In general, the similarities and differences between the different tax regulations within the Kingdom of the Netherlands will be discussed. For each of the topics we will start with the bi-lateral tax arrangements between The Netherlands and Curaçao[86] (“BNC”) and The Netherlands and Sint Maarten[87] (“BNS”) (which are almost similar).

These bi-lateral tax arrangements will be compared with the tax arrangement between The Netherlands and the BES-islands and the BRK (applicable between The Netherlands and Aruba, and Aruba, Curaçao and Sint Maarten).

I.3.1.2. Scope/area of application
BNC/BNS

The BNC and BNS only applies to taxation on income[88]. Residents of both countries can apply the treaty[89]. Natural persons who are residents of Curaçao and The Netherlands can apply the tie-breaker rule. In that case the usual rules of circumstances apply like center of (social) life, home, etc.

For entities the country of residence is the country where the entity is established according to the corporate income tax (The Netherlands) or profit tax (Curaçao), provided that the income of the entity is considered as income of the entity itself and not as income of its participants according to the legislation of The Netherlands or Curaçao[90] (for example the Private Foundation under certain conditions).

The BNC/BNS has a specific regulation for hybrid entities. A hybrid entity is an entity that is considered transparent for one country, but an entity for another country. This can cause double taxation or no taxation at all. If, for example, Curaçao considers an entity, established in Curaçao, as transparent and The Netherlands (place of residence of the shareholders) considers this entity as non-transparent, income might not be taxable in either country (not in Curaçao because Curaçao does not recognize the entity and allocates the income to the shareholder and not in The Netherlands because The Netherlands assumes the income is taxable with the entity itself).

The hybrid entity rules in the BNC/BNS aim to avoid double taxation of income and no taxation of income. Both countries will consult each other in case of hybrid entities[91]. For certain specific situations a consultation is not necessary and the BNC/BNS will be applied[92].

BRK

In general the above-mentioned principles also apply to the BRK. The BRK does not have a regulation for hybrid entities.

BNB

In general the above-mentioned principles also apply to the BNB.

I.3.1.3. Dividend withholding tax

Based on article 10 BNC/BNA, the dividend withholding tax in the relation The Netherlands/Curaçao or Sint Maarten will not be levied in certain specific situations. If the conditions for the 0% rate are not met, the dividend withholding tax will be increased to 15%. Under a transitional regulation, the rate will be 5% through 2019, the year in which the offshore regime on Curaçao will expire[93].

To be eligible for the 0% rate for the dividend withholding tax, certain so-called limitation on benefits (“LOB”) rules apply[94]. The LOB rules are similar to the Discussion Draft Action 6, based on the Action Plan on the Base Erosion and Profit Shifting of the OESO.

The 0% rate applies to pension funds and government entities[95]. Furthermore it applies for entities that hold at least 10% in an entity which is established in the dividend distributing country (in this case The Netherlands), provided that it meets one or more of the following conditions[96]:

  • The entity is Stock Exchange listed at a qualifying Stock Exchange or the majority of the shares is held by a Stock Exchange listed entity [97];
  • The entity is the head office of a multinational company[98];
  • The entity employs at least 3 qualifying employees[99];
  • The entity employs less than 3 qualifying employees but has real trading or business activities and the dividend relates to these trading or business activities[100];
  • The entity has real business activities and less than 3 qualifying employees and the authorities of the distributing entities’ country determine the incorporation, acquisition or maintenance of the entity does not have the purpose qualify for the benefits of the BNC/BNA[101] [102];
  • The shares are for at least 50% held by a natural person, living in Curaçao or The Netherlands.

Dividend distributions from the BES islands are always subject to 5% revenue tax.

BRK

Under the BRK, the dividend withholding tax was 8.3%, on dividends from The Netherlands to Curaçao with an interest of at least 25% of the contributed capital[103].

The Netherlands had the obligation to transfer the dividend withholding tax immediately to Curaçao after it had been withheld. For dividends from The Netherlands to Aruba the general rule applies (dividend withholding tax 7.5% or 5% with an interest of at least 25% of the contributed capital)[104].

Since the BNC and BNS have been introduced, the BRK does not apply anymore on dividends from The Netherlands to Curaçao and Sint Maarten. However, the BRK still applies between The Netherlands and Aruba.

Curaçao itself does not levy a dividend withholding tax, so no dividend withholding tax is due on dividends from Curaçao to The Netherlands.

BNB

According to the BNB, dividends paid are taxable in the country of residence of the shareholder. The country of residence of the distributing entity is also entitled to levy tax on the dividend according to its domestic tax rules[105].

However, if the ultimate shareholder is established in the BES islands and has an interest of at least 10% of the shares of the distributing entity in The Netherlands, the dividends are not taxable in The Netherlands.

I.3.1.4. Pensions and annuities
BNC/BNS

According to the BNC/BNS, the taxation rights on pensions are divided between the source state and the country of residence. Normally, cross border situations, pensions are taxable in the country of residence, except in case of surrender of pensions and government pensions. The BNC/BNS determines that in case of private pensions, the source country has the right to tax to a maximum of 15% on pensions[106]. The country of residence also has the right to levy tax on pensions, however, the tax levied by the source state must be offset against the tax levied by the country of residence. Surrender of a pension remains taxable in the source state and government pensions remain taxable in the source country. The afore-mentioned rules are also applicable to annuities which are fiscally facilitated[107].

BRK

According to the BRK pensions are taxable in the country of residence of the person who enjoys the pension[108]. If the pension is surrendered, transferred or the pension is enjoyed in another manner, than the pension is also taxable in the country in which the pension was built up in the past[109]. This last-mentioned rule also applies to government pensions[110]. The taxation of pensions under the BRK and under the BNC has been changed in the sense that under the BNC also the country from which the pension is paid can levy a tax of up to 15% in case of an annuity. This was not possible under the BRK.

BNB

According to the BNB pensions are taxable in the country of residence of the persons who enjoys the pensions[111]. If the pension is surrendered before the date the pension would start, the pension is also taxable in the country in which the pension was built up in the past[112].

The last-mentioned rule also applies to government pensions[113]. Therefore the BNB still follows the BRK with respect to pensions.

I.3.1.5. Inheritance and gifts
BNC/BNS

Under the BNC/BNA this term is extended to 5 years in case of gifts and death.

BRK

Under application of the BRK rules, the gift tax can “follow” an emigrated person for 1 year. With other words, if a gift is done within 12 months after emigration, the former country of residence still has the right to levy an additional amount of gift tax (on top of what was already levied by the country of residence). The total amount of gift tax cannot exceed the amount that would have been levied by both countries together, if the emigration would not have taken place.

In case of death, the right to levy inheritance tax goes to the country of residence on the first day after the emigration[114].

BNB

The BNB does not apply to inheritance and gift tax.

I.3.1.6. Anti-abuse

According to the BNC/BNA[115] the countries can apply its domestic regulations in case of fraud or abuse.

I.3.1.7. Tax treaties in force
General

Curaçao currently has tax treaties in effect with Aruba (BRK), the Netherlands (BNC), Norway, St. Maarten (BRK) and Jamaica.

The Dutch Caribbean islands mostly have Tax Information Exchange Agreements (TIEA’s). TIEA’s have been signed by Curaçao with several countries, including Australia, Canada, Colombia, Denmark, Mexico, New Zealand, Spain, Sweden, and the United States. In the Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews 2015: Curaçao 2015 (phase 2: Implementation of the Standard in Practice) of the OECD, Curaçao has been rated as partially compliant. Following the phase 1 Curaçao made significant improvements to its legal framework, which ensures the availability, access and exchange of information. However, according to the review there was a lack of oversight and enforcement of this legal framework.

Please note that the tax treaties of The Netherlands do not apply to Aruba, Curaçao and Sint Maarten. However, tax treaties which are closed after the constitutional reform of the Kingdom in 2010 can apply to the BES islands. According to the Dutch Treaty policy, The Netherlands include the European part of The Netherland and the BES islands Bonaire, Sint Eustatius and Saba[116].

In the Tax Treaty between The Netherlands and China the BES islands are – for example – explicitly mentioned in article 3, paragraph 1, letter b, under (ii). Curaçao signed an IGA (“Intergovernmental agreement”) with the United States on 16 December 2014. Financial institutions in Curaçao must file the required reporting with regard to the Foreign Account Tax Compliance Act (FATCA) through a website set up by the Curaçao government.

I.4. Anti-Avoidance Legislation

I.4.1. Abuse of law

I.4.1.1.BES islands

The BES islands do not have specific anti-abuse regulations.

I.4.1.2. Curaçao

Curaçao does not have specific anti-abuse regulations.

I.4.1.3. Aruba

Aruba does not have specific anti-abuse regulations.

I.4.2. Thin capitalization rules

I.4.2.1. BES islands

No thin capitalization rules exist in the BES islands.

I.4.2.2. Curaçao

No thin capitalization rules exist in Curaçao. The limitation in the deduction of certain costs can work as a thin capitalization in some circumstances. We refer to the chapter regarding the limitation in deduction of costs in Curaçao.

I.4.2.3. Aruba

No thin capitalization rules exist in Aruba.

I.4.3. CFC legislation

I.4.3.1. BES islands

No CFC legislation exists in the BES-islands.

I.4.3.2. Curaçao

No CFC legislation exists in Curaçao.

I.4.3.3. Aruba

No CFC legislation exists in Aruba.

I.5. Tax treaty law

I.5.1. BES islands

No specific tax treaty law exists in the BES-islands. Since The Netherlands include the BES islands in their most recent tax treaties, the tax treaties law of The Netherlands applies to the tax treaties of the BES islands.

I.5.2. Curaçao

No specific tax treaty law exists in Curaçao.

I.5.3. Aruba

No specific tax treaty law exists in Aruba.

I.5.1. Adherence to UN or OECD Model Tax Convention

I.5.1.1. BES islands

Since The Netherlands include the BES islands in their most recent tax treaties, the general adherence to the OECD Model Tax Convention applies to the tax treaties of the BES islands.

I.5.1.2. Curaçao

Since Curaçao does not have any recent tax treaties, this question does not apply to Curaçao. The bi-lateral agreements between the islands and with The Netherlands are modeled after the OECD Model Tax Convention.

I.5.1.3. Aruba

Since Curaçao does not have any recent tax treaties, this question does not apply to Curaçao. The bi-lateral agreements between the islands and with The Netherlands are modeled after the OECD Model Tax Convention.

I.5.2. Special Features commonly present in Tax Treaties

1.5.2.1.BES islands

Since The Netherlands include the BES islands in their most recent tax treaties, the treaty policy of The Netherlands applies to the tax treaties of the BES islands.

I.5.2.2. Curaçao

Since Curaçao does not have any recent tax treaties, this question does not apply to Curaçao.

I.5.2.3. Aruba

Since Curaçao does not have any recent tax treaties, this question does not apply to Curaçao.

I.5.3. Treaties currently in force

I.5.3.1.BES islands

The tax treaties of The Netherlands do not apply to Aruba, Curaçao and Sint Maarten. However, tax treaties which are closed after the constitutional reform of the Kingdom can apply to the BES islands. According to the Dutch Treaty policy, The Netherlands include the European part of The Netherlands and the BES islands Bonaire, Sint Eustatius and Saba[117]. In the Tax Treaty between The Netherlands and China the BES islands are – for example – explicitly mentioned in article 3, paragraph 1, letter b, under (ii).

I.5.3.2. Curaçao

Curaçao currently has tax treaties in effect with Aruba, the Netherlands, Norway and St. Maarten.

I.5.3.3. Aruba

Aruba currently has tax treaties in effect with Curaçao, the Netherlands and St. Maarten.

1.6. Community law

I.6.1. Participation in a Community/Union
I.6.1.1.BES islands

The BES islands form part of the (European) Netherlands as special municipalities. The BES islands are so-called public entities as referred to in article 134 of the Dutch Constitution. The Netherlands are a EU member state. Although the BES islands are part of the Netherlands as special municipalities, the BES-islands maintained their status as Overseas Territory[118].

I.6.1.2. Curaçao

Curaçao has the status of Overseas Territory of a member state of the European Union.

I.6.1.3. Aruba

Aruba has the status of Overseas Territory of a member state of the European Union.


  1. Staatsblad 2010, nr. 333.
  2. Article 1, paragraph 1 Statute.
  3. Article 5, paragraph 2 Statute.
  4. Article 41, paragraph 1 Statute.
  5. Article 3 Statute.
  6. Article 2, paragraph 3 Statute.
  7. Explanatory Notes Tax Law BES, page 13.
  8. Explanatory Notes Tax Law BES, page 43.
  9. BNB 1957/208.
  10. Article 4, paragraph 5 SOPT
  11. BNB 1998/409
  12. Article 4, paragraph 3 SOPT.
  13. Article 4, paragraph 4 SOPT.
  14. Article 1, paragraph 1, letters I and j SOPT.
  15. Article 5 SOPT.
  16. Article 5A SOPT.
  17. Article 5A, paragraph 2 SOPT.
  18. Article 6 SOPT.
  19. Article 6 paragraph 2, letter c.
  20. Article 1A, paragraph 1, letter a.
  21. Article 11, paragraph 3 State Ordinance Income Tax.
  22. Article 1A, paragraph 1, letter f juncto paragraph 5.
  23. Article 6, paragraph 2, letter d.
  24. Article 6, paragraph 2, letter h.
  25. January 1, 2016
  26. Article 1, sub 1, paragraph b State Ordinance profit tax.
  27. Mr. J.P. Ruiter, AJV newsletter 2000, page 19 through page 26.
  28. Decisions Tax Appeal Court July 28, 2000, nrs. 1999/090 and 1999/091.
  29. Article 1, paragraph 2 SOPT.
  30. Vakstudie 16, Taxation of the Caribbean Kingdom Parts, note 7.2 to article 3 SOPT Aruba
  31. BNB 1957/208.
  32. Article 4, paragraph 5 SOPT
  33. BNB 1998/409
  34. Article 4, paragraph 2 SOPT.
  35. Referral is made to exempted companies as meant in article 2, sub c SOPT.
  36. Article 4, paragraph 7 and 8 SOPT.
  37. Article 4, paragraph 9 SOPT.
  38. Article 5a SOPT.
  39. Article 5b SOPT.
  40. Article 6 SOPT.
  41. Article 6, paragraph 3 SOPT.
  42. A cost-plus ruling calculates the taxable profit as a mark-up of a certain percentage of the costs.
  43. Article 1, sub 1, paragraph b State Ordinance profit tax.
  44. Mr. J.P. Ruiter, AJV newsletter 2000, page 19 through page 26.
  45. Decisions Tax Appeal Court July 28, 2000, nrs. 1999/090 and 1999/091.
  46. Article 1, paragraph 3 State Ordinance profit tax.
  47. AB 2005/88: qualifying activities are (i) holding of shares and other participations, (ii) financing of other companies or entities, within or outside the own company, (iii) the investment of assets, except real estate, (iv) the licensing of industrial ownership rights and similar proprietary rights or rights of use according to the laws of Aruba and the laws of other countries.
  48. Article 11, paragraph 1 SOPT.
  49. According to article 1A, paragraph 11, foreign tax regime can be appointed as tax regimes which can be considered as similar to the Curaçao tax regime.
  50. Article 11, paragraph 7 SOPT.
  51. Article 14 SOPT and Ministerial Regulation Standard Conditions Fiscal Unity (P.B. 2002/151)
  52. Article 14, paragraph 3 SOPT.
  53. Article 14, paragraph 2 SOPT.
  54. Article 14, paragraph 1 SOPT juncto article 4 paragraph 1 Ministerial Decision Standard Conditions Fiscal Unity.
  55. Article 14, paragraph 1 SOPT.
  56. Article 11, paragraph 1 MB Standard conditions fiscal unity.
  57. Article 15, paragraph 10.
  58. Article 16 MB Standard conditions fiscal unity.
  59. P.B. 1985, no. 146.
  60. P.B. 1953, no. 194.
  61. In the BES islands and Aruba the tax holidays have been abolished.
  62. Article 8 SOPT.
  63. Article 8, paragraph 5 SOPT.
  64. Article 1A, paragraph 1, letter f.
  65. Article 1A, paragraph 2.
  66. Article 9 SOPT.
  67. Article 9, paragraph 1 SOPT stipulates that 95% of the profit is considered as foreign profit. This 95% is taxable against 10% of the normal tax rate as mentioned in article 15 SOPT.
  68. Article 9 State Ordinance Economic Zones 2000.
  69. Conditions Joint Venture 2006 (no date of publication).
  70. Standard condition 1.
  71. Standard condition 2. In practice Aruban VBA’s are also allowed to form part of the fiscal unity.
  72. Standard condition 3, 4 and 5.
  73. Standard condition 11.
  74. Standard condition 20.
  75. Standard condition 21.
  76. Article 15, paragraph 6 through 12 SOPT.
  77. Article 8 SOPT
  78. In this respect referral is made to the decision of February 5, 2016, BBZ nr. 73890 of the Court in First Instance of Aruba.
  79. Article 4 SOPT
  80. Stb. 1964, 425, Kingdom Law of 28 October 1964
  81. WFR 2014/1437, De Belastingregeling voor Nederland en Curaçao, mr. A. Kattouw, mr. S. Vanenburg, prof. dr. R.P.W.C.M. Brandsma
  82. Agreements have been concluded between The Netherlands and Curaçao, The Netherlands and Sint Maarten and The Netherlands and the BES-islands.
  83. Kamerstukken II 2013/14, 33 955, nr. 3, p.1.
  84. Stb. 2011/107.
  85. In June 2016.
  86. Staatsblad 2015, nr. 348.
  87. Staatsblad 2016, nr. 21.
  88. Article 2, paragraph 1 BNC. Since article 28 BNC applies to inheritance and gift tax, this seems not completely correct.
  89. Article 1, paragraph 1 BNC.
  90. Article 4, paragraph 2 BNC
  91. Article 4, paragraph 6 BNC
  92. Article 4, paragraph 7 BNC
  93. Article 30 BNC. This transitional regulation only applies if the entity was established in Curaçao on June 5, 2014.
  94. Article 10, paragraph 4 BNC
  95. Article 10, paragraph 3, letters b and c BNC.
  96. Article 10, paragraph 3, letter a BNC.
  97. Article 10, paragraph 4, letter a BNC.
  98. Article 10, paragraph 4, letter b BNC.
  99. Article 10, paragraph 4, letter c BNC.
  100. Article 10, paragraph 5, letter a BNC.
  101. Article 10, paragraph 5, letter b BNC.
  102. Besluit van 14 juni 2014, Behandeling van verzoeken om zekerheid vooraf in de vorm van een Advance Tax Ruling (ATR), Stcrt. 2014, 15956.
  103. Article 11, paragraph 3, letter a BRK.
  104. Article 11, paragraph 3 BRK.
  105. Article 2.4, paragraph 2 BNB.
  106. Article 17, paragraph 3 BNC.
  107. Article 18, paragraph 4 BNC.
  108. Article 15, paragraph 4 BRK.
  109. Article 15, paragraph 6 BRK.
  110. Article 17 BRK.
  111. Article 2.9, paragraph 1 BNB.
  112. Article 2.9, paragraph 2 BNB.
  113. Article 2.10 BNB.
  114. Article 29 BRK.
  115. Article 22 BNC/BNA.
  116. WFR 2013/1474, Het nieuwe belastingverdrag met China: “Black cat or white cat: If it can catch mice, it’s a good cat!”, Mr. J. Adeler.
  117. WFR 2013/1474, Het nieuwe belastingverdrag met China: “Black cat or white cat: If it can catch mice, it’s a good cat!”, Mr. J. Adeler.
  118. Decision 2013/755/EU of the Council of 25 November 2013 regarding the association of overseas territories with the European Union.


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