The Kingdom Act on the regulation for the Netherlands (including the Caribbean part of the Netherlands) and Curaçao for the avoidance of double taxation and the evasion of taxes on income and a deemed residence rule (for inheritance tax purposes) in respect of inheritance and gift tax was adopted by the Senate on September 30, 2015. The Kingdom Act is referred to as the “Belastingregeling Nederland Curaçao” (BRNC), a tax treaty on the prevention of double taxation (hereinafter: the Treaty). The Treaty was published on October 9, 2015 and will become effective on January 1, 2016. When the Treaty comes into force the Tax Regulations for the Kingdom (“Belastingregeling voor het Koninkrijk” - BRK) will no longer apply between both Kingdom countries. A few transitional provisions have been included for certain persons and types of income.
For the time being the BRK will continue to apply between the Netherlands and Sint Maarten and Aruba, respectively. Between those two latter countries and Curaçao the BRK will also continue to apply. The intention is to also conclude a treaty between the Netherlands and Sint Maarten and Aruba, respectively. As regards the Netherlands and Sint Maarten, a bill (the “Belastingregeling Nederland Sint Maarten”, or BRNS) was presented to the House of Representatives for approval on August 21, 2015. It is practically identical to the Treaty between the Netherlands and Curaçao. The date this treaty comes into force has been set at January 1, 2017.
The intention is that at some point in time bilateral treaties will be concluded between the three Caribbean countries.
In summary, the key elements of the Treaty that have been changed compared to the current legislation and insofar there is a deviation from the agreements the Netherlands commonly concludes that corresponds with the OECD Model Tax Treaty, are as follows. Unless stated otherwise, the changes also apply to the Treaty between the Netherlands and Sint Maarten.
- The Treaty applies to residents of both countries; for the Netherlands this includes the residents of Bonaire, Saba and Sint Eustatius (BES). The Private Foundation (“Stichting Particulier Fonds” - SPF), the trust, the exempted Netherlands Antilles company (“NA Vrijgestelde Vennootschap”) and the tax-exempt investment institution (“vrijgestelde beleggingsinstelling” - VBI) cannot invoke the dividend, interest and royalties provisions. The SPF and the trust will solely be able to invoke the dividend, interest and royalties provisions if they opt for a 10% tax liability. Curaçao intends to introduce a regime for investment institutions for tax purposes. The Netherlands will be informed as soon as this has been effected, after which the consequences for the Treaty will have to be determined. If companies are considered to be established in both the Netherlands and on Curaçao, mutual consultation will take place to conclude the place of business for treaty purposes.
- The Treaty applies to income, as well as to donations and inheritances that may be payable in accordance with the applicable provisions during five years after migration from the Netherlands. For the Netherlands the Treaty applies to both taxation levied in the European part of the Netherlands as the Caribbean part of the Netherlands (BES).
- The Memorandum of Reply relating to the Treaty between the Netherlands and Curaçao states that there are no mismatches between both countries regarding hybrid loans because the Appeals Tribunal has decided to follow the case law of the Supreme Court as a guideline for all (former Netherlands) Antilles Islands (Appeals Tribunal April 27, 1994, no. 1993-040).
- The main rule for dividends is that the right to tax is assigned to the country of residence. The source state may levy 15%. This levy is reduced to 0% in a number of cases:
- If a beneficial owner holds a shareholding of at least 10% in:
- a listed entity (including listings on the Dutch Caribbean securities exchange; DCSX);
- an entity of which at least 50% of the shares is held directly or indirectly by a resident of the Netherlands, Curaçao, or Sint Maarten, respectively;
- the head office of a multinational group;
- an entity that structurally provides work for three or more classifying employees who reside in that country (substance);
- The beneficial owner is a legal entity under public law;
- The beneficial owner is a pension fund;
- The beneficial owner performs real business activities and receives dividends from the other country which relates to the business activities;
- The tax authorities of the dividend distributing country declares that the main purpose of the dividend receiving company and the dividend distributing company is not to avoid withholding tax on the dividend;
o At least 50% of the shares in the entity receiving the dividend are held directly or indirectly by individuals who are residents of one of the countries and the receiving entity holds at least 10% of the shares in the distributing body.
- A transitional provision applies for offshore entities that fail to qualify for the dividend withholding tax exemption. They will continue to be subject to the present regulation until 2019, insofar it concerns dividends and capital gains that are distributed by a Dutch subsidiary to a parent company established in Curaçao, provided the latter has a shareholding of at least 25%. The levy, however, is 5% instead of the current 8.3%. In this case, the Netherlands will not apply the so-called Dutch substantial interest rules for the subsidiary established in the Netherlands.
- The EU Savings Directive will be revoked as from 2016. As from that moment the exchange of information (whether automatic or otherwise) will be based on the expanded Directive on the exchange of information (Directive 2011/16/EU), which is to become effective in 2016.
- In addition, a specific regulation has been included for interest. It settles the application of the Savings Directive of the EU, which formerly applied to Curaçao and Sint Maarten (and the other Islands). The application of the Savings Directive has now effectively been incorporated into the tax treaty. Hence, Curaçao and Sint Maarten will apply a 35% taxation in the source state in the event of interest payments to a Dutch resident who is able to settle the withholding tax. The article solely relates to Curaçao and Sint Maarten, because the Netherlands applies an information exchange system. As part of the replacement of the Savings Directive by the system of automatic information exchange, both Curaçao and Sint Maarten will soon adopt to the information exchange method.
- During a period of ten years after emigration gains on the disposal of substantial interest shares may still be taxed in the former country of residence. Nevertheless, this period will be set at five years if a taxpayer has emigrated before June 5, 2014 (Curaçao), or August 21, 2015 (Sint Maarten), respectively. In these cases the tax imposed will be the regular substantial interest rate of 25%.
- The source state will have the power to impose a tax on benefits of 15% (at the most) on account of pensions and annuities, which levy is settled by the country of residence. Any persons living in Curaçao and Sint Maarten who had already lived there on June 5, 2014 or August 21, 2015, respectively, and who were paid a pension and/or an annuity with a periodic character on that date, are not subject to the 15% source taxation.
- Under certain conditions, contributions paid by or on behalf of a person who is employed in a country or who works there as a self-employed person, into a pension scheme that is recognized by the treaty state, will be treated in the same way as contributions paid into a pension scheme recognized in the other treaty state.
- The Treaty States may invoke anti-abuse provisions under the respective national laws.