CURACAO TAX REFORM 2011-2014

As we have informed you in our newsletter of December 2010, as a consequence of a Constitutional Reform, the Netherlands Antilles, which had existed since 1954 as an autonomous Caribbean country within the Kingdom of the Netherlands, was dissolved on 10 October 2010. At the same time Curacao became a constituent state within the Kingdom of the Netherlands.

Effective from 1 January 2012
Partly as a result thereof, Curacao drafted a bill of amendment to the country’s tax regime, the Tax Provisions of 2011, which was approved by the Curacao Parliament on 15 September 2011, published in the Official Gazette on 29 December 2011 and is generally effective from 1 January 2012.

The Tax Provisions of 2011 is part of Curacao’s tax reform process for the period 2011-2014 and is focussed on enhancing the competitive edge of the Curacao jurisdiction, whilst broadening the tax base, shifting from a reliance on direct to indirect taxes and moderately increasing overall tax revenue. It is important to note that the overall tax regime broadly remains the same as that of the former Netherlands Antilles. The most important changes are summarized below.

Corporate income tax rate reduced to 27.5%
The corporate income tax rate of 34.5% was reduced to 27.5%. The aim is to further reduce the rate to 15% percent in the near future, though no draft legislation has been presented at this point.

Participation exemption
The Curacao participation exemption applies if:

  • A resident company owns at least 5% of the paid-in share capital, or 5% of the voting rights of another (resident or non-resident) company; or
  • A resident company holds a participation of less than 5%, but with a value of more than USD 500,000.
  • A resident company is a member of a Dutch co-operative (Coöperatie) or of a Dutch mutual insurance company (Onderlinge Waarborgmaatschappij).

Subject to the application of the participation exemption, dividends, stock dividends, bonus shares, hidden profit distributions and capital gains (including currency gains) realized on the disposal of (part of) a qualifying participation in a resident or non-resident company are fully exempt from corporate income tax.

Dividends from low-taxed passive investments – exemption reduced from 70% to 63%
However, until 1 January 2012, the participation exemption regarding dividends from so-called low-taxed passive investments is only 70% (in stead of 100%), resulting into an effective tax rate of (30% x 34.5% is) 10.35%, if:

  • The subsidiary is not subject to a nominal profit tax rate of at least 10% (“subject to tax” test); and
  • More than 50% of the subsidiary’s assets consists of passive investments (“asset” test).

Effective 1 January 2012, the participation exemption regarding dividends from low-taxed passive investments is reduced from 70% to 63%, resulting into an effective tax rate of (37% x 27.5% is) 10.175%, to ensure that the effective tax rate on dividends from-low taxed passive investments will at least be 10% (note that an exemption of 70% under the new corporate tax rate of 27.5% would have lead to an effective tax rate of 30% x 27.5% is 8.25%) and thus will not potentially trigger anti-avoi