Curaçao: Tax rules for businesses to change as budget law is approved by parliament
The Curaçao tax budget was approved by parliament on July 23 2016 and published in PB 2016 No. 37. The changes will come into force by a separate state decree (Landsbesluit). At the time of writing, only the provisions to stimulate pension savings have come into force.
Emile G Steevensz
The other approved measures, which are expected to enter into force on January 1 2017, include, among others:
Tax measures to regulate mergers, demergers and conversions;
Updated share merger exchange rules;
Rules to comply with the OECD's BEPS Project; and
General amendments in the profit tax ordinance, sales tax and real transfer tax.
Tax rules for mergers, demergers and conversions
With the introduction of Book II of the Curaçao Civil Code in 2004, mergers, demergers and conversion rules were introduced in Curaçao corporate law. However, the accompanying tax measures, like in the Netherlands, were not introduced. Various proposals have been circulated and finally the accompanying measures were approved by parliament.
The final rules intend to prevent profit tax and/or income tax being levied as a result of a merger, demerger or conversion, provided certain conditions are met. The rules include strict anti-abuse measures.
Modernisation of share merger exchange rules
A decree stating the rules for accompanying tax measures for a share exchange merger were published in 1997. This decree made it possible to acquire a company by an exchange of shares without taxes being levied, subject to certain conditions. In order to avoid or minimise the substantial interest rules, the decree was slightly amended in 2012 to prevent tax exempt companies from acquiring shares in operational companies.
Under the Curaçao personal income tax regime and as outlined in the substantial interest rules, dividends and capital gains are, on request, subject to 19.5% personal income tax. Provided certain conditions are met, taxation of dividend income under the substantial interest rules can be reduced significantly under the fictitious return of investment rules.
The share merger rules are applicable on the acquisition of resident entities, as well as foreign companies. Company shares can be purchased in exchange for shares, as long as the Curaçao parent company acquires enough shares to own more than 50% of the voting rights in the acquired company. In cases where the parent company possesses 50% of the voting rights, the share merger rules apply when more shares and voting rights are acquired.
Transfer pricing rules
In July, Curaçao signed the OECD Multilateral Competent Authority Agreement for the automatic exchange of country-by-country reports (the CbC MCAA). As result, Curaçao introduced transfer pricing rules in the General Ordinance for Taxes (Algemene Landsverordining Landsbelastingen).
The rules apply for legal entities that directly or indirectly participate in other related companies or participate in the management, or supervise the management, of other companies and conclude transactions with that related entity. The legal entity is responsible for keeping a record, or being in possession, of the following:
1) Documents that describe the conditions under which the transactions are concluded; and
2) Documents that show that the price of the transactions are at arm's length.
The rules also apply in case the same individual participates in different companies or participates in the management or supervises the management.
The rules also apply on transactions that existed before the transfer pricing rules are effective. Transfer pricing documentation regarding transactions performed after the rules come into force must be available when the transaction takes place.
The transfer pricing documentation is part of the administration of the company. Non-compliance may result in the company having the burden of proving to tax authorities that corrections applied by the tax authorities are incorrect.
Ultimate beneficial ownership register
Legal entities must keep a register with all the names of their beneficial owners.
Beneficial owners are the individuals who, based on articles of association or otherwise, possess 25% or more of the capital of the company.
In the case of a limited partnership, the names of the limited partners must be kept by the business.
Real transfer tax
The real transfer tax ordinance has also been modernised.
Ships larger than 20 cubic meters are exempt from the provisions to stimulate the registration of ships in the Curaçao maritime register and therefore the 4% real transfer tax will not apply.
Furthermore, exemptions from the real transfer tax were introduced for mergers, demergers and internal reorganisations in which real estate is involved, provided certain conditions are met. The same applies when a private owned business is acquired by a limited liability company.
Emile G Steevensz (firstname.lastname@example.org)
Steevensz|Beckers Tax Lawyers
Tel: +599 9 736 05 06