New tax regime in the BES Islands approved by Dutch parliament

Written by Jeroen Starreveld
Wednesday, October 13, 2010

As of 10 October 2010, Curacao is an autonomous country within the Kingdom of the Netherlands.

Aruba and St. Maarten have the same status with their own tax legislation. The so-called BES Islands, which include Bonaire, St. Eustatius and Saba, are now special municipalities within the Kingdom of the Netherlands with their own beneficial tax regime.

In general, Curacao and the BES Islands both strive to create simple tax regimes with low profit and personal income tax rates. A swift from direct to indirect taxes can be recognized in the newly introduced tax regime for the BES Islands as well.

BES Islands

The new tax legislation of the BES Islands, approved by the Dutch Parliament on 7 October 2010, will not include corporate income tax or profit tax at all for local active and qualifying entities. Instead, a distribution tax (‘DT’) at a rate of 5% and a real estate tax (‘RET’) will be introduced. The underlying reason for the introduction of the DT rather than a normal profit tax regime is to encourage reinvestments in the BES Islands.

Personal income tax will be introduced at a flat rate of 30.4% up to USD 250,000 and 35.4% for income exceeding this amount. As a result, the number of facilities and exemptions will be limited. For instance, the favorable penshonado facilities will be abolished gradually. Property transfer tax will be introduced at a rate of 5% and a consumption tax of 6% (Saba and St. Eustatius) or 8% (Bonaire) will be levied on import of goods, supply of produced goods and services rendered.

DT

In general, DT at a rate of 5% will be levied on direct and indirect distributions of profits and liquidation proceeds exceeding the contributed capital. The distributing entities are obliged to withhold the DT. Note that distributions include distributions in kind as well.

Distributions made by private foundations will be subject to 5% DT as well. Distributions made by permanent establishments do not fall within the scope of the DT. Furthermore, an important full exemption applies in case of a distribution to BES Islands (corporate) shareholders with an interest of at least 5% in the distributing entity.

Please note that the DT regime contains specific anti abuse measures to avoid an explosion of passive investment, finance and holding companies. An entity is deemed to be established in the Netherlands and subject to Dutch corporate income tax and Dutch dividend withholding tax, unless:

  1. the assets of the entities do not consist for more than 50% of investments, participations, liquidities, assets that are put at the disposal of persons outside the BES Islands or assets used to directly or indirectly finance persons outside the BES Islands, or;
  2. the entity employed at least 3 BES Islands residents engaged independently with activities as described under 1 and the entity has an office space at its disposal (with a value of at least USD 50,000) for a period of at least 24 months, which contains the facilities to run and execute the business activities, or;
  3. the entity has a permit for a trade or service depot, or;
  4. the activities of the entity do not consist of financial services, the annual turn over does not exceed USD 80,000 and the total amount of assets does not exceed USD 100,000.
    To benefit from the above-mentioned safe harbor rules (under 1, 2 and 4), the entity should file a request with the BES Islands tax authorities within 6 months after the calendar year.

Furthermore, if a BES Islands individual holds an interest of more than 95% of the share capital or holds more than 95% of the voting power in an entity, which in its turn holds an interest of at least 50% in one of the above mentioned qualifying entities, the deemed residency provisions do not apply.

Needless to mention that BES Islands taxpayers must perform an active role and file for a permit with the BES Islands tax authorities to ensure that they are not deemed to be a resident of the Netherlands. In this respect, please note that the Dutch corporate income tax rate will be 25% as of 1 January 2011.

RET

RET will be introduced at a rate of 25% for real estate held privately or as a business asset. Owners of real estate are deemed to realize a return of 4% calculated over the fair market value or replacement value if higher of the real estate. The most important exemptions are created for owner-occupied dwellings and real estate allocated to an enterprise which is subject to the BES Islands personal income tax act.

Please note that the value of real estate will be determined by the BES Islands tax inspector. A taxpayer can file an appeal against this decision within 2 months after the date of the decision. An appeal should be considered carefully, since the value of the real estate as determined by the tax inspector will in principle apply for a period of 5 years!

Jeroen Starreveld
Spigthoff Attorneys and Tax Advisors

(Source: Spigthoff Attorneys at Law and Tax Advisors)

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