Published On: Thu, Mar 14th, 2013

Amendments to Profit Tax law to restore confidence in financial sector

Curacao ParliamentWILLEMSTAD - Draft legislation to amend the 1940 National Ordinance on Profit Tax now being discussed in the Central Committee of Parliament is to restore confidence and peace within the international financial services sector in Curaçao. The law proposal is meant as a fiscal arrangement comparable with the former “offshore regulation” that expires in 2019, according to the explanatory memorandum.

An offshore company, for example a trust office, is a business that is registered in a country with advantageous tax laws, on the condition that the activity is hardly performed in the territory of registration.

Government wants to avoid having these firms leave the island, because they are important economic pillars for employment.  “This sector has much potential, but will lose some of its strength without an adequate alternative for the offshore regulation that definitely expires in 2019. The proposal creates new possibilities for corporations that currently fall under the old law, but also for new internationally operating companies, so that Curaçao will remain attractive as a place of business.”

Although the offshore regulation was actually rescinded on January 1, 2000, and replaced with stricter legislation, companies were still guaranteed a so-called “grandfather clause” providing that certain profits would not be subject to tax increases for a period of 20 years, hence the year 2019.

Currently the sector falls under a tax percentage of 2.4 to 3.4. According to the draft enactment, the proposed new regulation offers an effective tax burden of approximately 3.4 per cent.  The amendment regards Article 9 of the existing national ordinance. Companies in the offshore sector are deemed to have earned 87.5 per cent of their profit abroad, so tax on that part must be paid abroad.

This means that 12.5 per cent is taxed on Curaçao. As the general tax on profits percentage in Curaçao is 27.5, the actual percentage on total profit is 3.4 per cent (27.5 per cent of 12.5 per cent).  The draft law further mentions that to qualify, business must actually perform activities from Curaçao, which means spending a minimum amount of NAf. 150,000 per year on the island.

Another condition is that the local office offers at least one person permanent employment. If the total labour cost of this employee is less than NAf. 150,000 per year, the remaining amount must be spent on goods and services.

It is the intention to introduce the amended ordinance retroactive to January 1. Both the Social Economic Council SER and the Advisory Council have already given their advice. The latter mentioned the urgency for the national ordinance to comply with Organisation for Economic Cooperation and Development (OECD) requirements, which prevent countries from becoming a tax haven. Government believes that the draft enactment meets these demands.

Source: Dutch Caribbean Business

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