Recently, the long-awaited tax regime for the BES islands was approved by the Dutch House of Representatives. Subject to approval by the Dutch Senate, a new tax regime will be introduced which will exist alongside the more common regimes of Curaçao, Aruba and St Martin with effect as from 2011. On October 10, 2010, the Netherlands Antilles ceased to exist as a constituent part of the Netherlands with Curaçao and Saint Martin taking on the status of autonomous countries within the Netherlands – a status adopted by Aruba already in 1986. Bonaire, Saint Eustatius, and Saba (“the BES islands”) are now overseas public bodies of the Netherlands.
Curaçao and Saint Martin
Curaçao and Saint Martin now have tax sovereignty. However, until new legislation is adopted, and barring a few changes, Curaçao and Saint Martin will maintain the current tax regulations of the Netherlands Antilles. The Ministry of Finance is currently considering a new fiscal framework for Curaçao. Further information is not yet available.
Tax regime BES Islands
On October 7, 2010, the tax regime for the BES islands was approved by the Dutch Lower House. If the Dutch Upper House also approves the Bill, a new tax regime will be introduced which will exist alongside the tax regimes of Curaçao, Aruba, and Saint Martin. As an overseas public body of the Netherlands, the BES islands is not permitted to levy taxes on sales, income, profit or capital; these taxes will be levied by the Dutch Government.
Transitional period
The current tax regime of the Netherlands Antilles will remain in effect during a transitional period that runs from October 10, 2010, until December 31, 2010. As of December 31, 2010, an interest-free pro forma profit tax assessment will be imposed on the unrealized profits of companies which remain established in the BES islands. This assessment will be due upon emigration from the BES islands. However, if the company is still resident in the BES islands in 2016, then the assessment will be waived. A comparable arrangement exists for permanent establishments.
2011 and beyond
The BES islands’ proposed tax regime will introduce a number of specific federal taxes, and new income tax rates, while Dutch corporate income tax and dividend tax will be amended. After the transitional period the Netherlands will, in effect, have two separate tax law regimes. The basic rule will be that all companies established in the BES islands are deemed to be established in the Netherlands, and therefore subject to Dutch corporate income tax and dividend withholding tax.
Pending approval of the 2011 budget, the Dutch corporate income tax rate will be 20% for profits up to EUR 200,000 and 25% on the excess. The dividend withholding tax rate will remain unchanged at 15%. In cases where companies are deemed to be established in the Netherlands on January 1, 2011, the tax book values as at December 31, 2010, will apply to all assets and liabilities for Dutch corporate income tax purposes. The abovementioned “deemed establishment” in the Netherlands does not apply to entities such as foundations, mutual funds, and corporate bodies admitted to the bonded warehouse.
According to the proposed amendments, qualifying companies can opt for the BES islands’ property tax and distribution tax, instead of being subject to Dutch corporate income tax and Dutch dividend withholding tax. The following entities can opt for this possibility:
· entities active outside the financial sector, including the trust sector, with revenue not exceeding USD 80,000 and assets not exceeding USD 200,000;
· entities with assets consisting of a maximum of 50% company participations, passive investments or assets that are at the disposal of persons or entities living or established outside the BES islands (with the exception of individuals temporarily residing on the BES islands, such as tourists);
· entities that, with respect to non-qualifying assets such as participations, finance activities, royalties, etc., employ at least three BES islands residents on a full-time basis and have an office on (one of) the islands;
· entities with at least a 95% shareholding in one of the abovementioned entities or that are established in a customs-free zone.
Entities resident in Curaçao, Saint Martin or Aruba and with permanent establishments in the BES islands, will be subject to Dutch corporate income tax or the BES islands’ property tax respectively, on the same basis as if they were entities resident in the BES islands.
Property tax and distribution tax
Property tax will be levied annually at an effective tax rate of 1% on the value of real estate located on the BES islands.
Distribution tax will be levied on the proceeds derived from shares in companies established in the BES islands. Furthermore, distributions by foundations, mutual funds, and cooperatives established in the BES islands may be subject to distribution tax. Distribution tax will also be due if one of the abovementioned entities leaves the BES islands after December 31, 2010. A permanent establishment of a foreign company will not be subject to distribution tax. The distribution tax rate will be 5%.
Entities relocating to the Netherlands after December 31, 2010, will be subject to Dutch corporate income tax and dividend withholding tax. The main rule in such a case is a step-up of assets and liabilities for corporate income tax. For dividend withholding tax no step-up is available (which could lead to double taxation).
Consumption tax and transfer tax
The new tax regime proposals include a consumption tax levied on consumption generated by a business through the supply and import of goods and/or the providing of services. The standard tax rate will be 8%.
A transfer tax will also be levied on the acquisition of real estate and vessels located within the BES islands. The tax rate will be 5%.
Payroll tax and income tax
For the time being, the current tax regulations of the Netherlands Antilles, regarding payroll tax and income tax (including social premiums), will remain intact. The top rate is 35.4%. However, the tax rate for income derived from a material shareholding will be 5%, instead of the current 18.75%. The 5% distribution tax is deductible from the income tax due. Pursuant to the proposals, penshonado’s registered directly before the effective date of the new BES tax regime can make use of benefits for a maximum of four years. The intention is to implement a revised payroll and income tax regime as of January 1, 2011.
Double taxation relief
Taxpayers resident in Aruba, Curaçao, Saint Martin and the BES islands can still invoke the tax agreement for the Kingdom of the Netherlands. We assume that these taxpayers can also invoke (tax) treaties concluded by Aruba or the Netherlands Antilles with third countries.
Regarding the relationship between the BES islands and the European part of the Kingdom of the Netherlands, a tax agreement for the Netherlands will be introduced. Further information on this is not yet available.
It is likely that the tax agreement for the Kingdom of the Netherlands will be amended to correspond to the new constitutional amendments and the BES islands’ new tax regime. It is also possible that separate regulations will apply between the respective jurisdictions.