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Pension savings schemes, remediation and modernization of tax ordinances.
Tax Newsflash July 2016
The parliament of Curacao recently adopted the National Ordinance on the pension savings scheme, modification and modernization of the tax ordinances. The proposed amendments will enter into force by national decree and will have retroactive effect for certain components. This newsflash only outlines the main changes.
In order to comply with the international exchange of information requirements, the legislation with respect to the administration has been amended.
When mutual legal agreements are arranged between entities that are part of the same business structure additional information with respect to the agreements should be documented in their administration. This information must be sufficient for the tax inspector to be able to assess the arm’s length nature of the conditions agreed upon. Failure of the documentation requirement will lead to a reversal for the burden of proof.
With respect to the exchange of information for third parties, the ultimate beneficial owner is considered to be the natural person that under the articles of association, a contract, or otherwise, is entitled to distributions from capital and who also holds an interest of 25% or more in the capital.
For the discretionary trust, as well as the Private Foundation (“Stichting Particulier Fonds” - SPF) the information relating to the settlor should be reported instead of the information relating to the ultimate beneficial owner.
In addition to the modifications of some omissions, the refusal or failure to take a timely decision by the tax inspector is considered as a decision which an objection can be filed against. For such cases, the objection period starts when the legal term for taking a decision has expired, or, if such legal term has not been indicated, the objection period will start two months after the date of filing the request. Hence, it is important to take note of the indicated periods.
Under the current legislation a tax deduction for contributions relating to an annuity or a pension insurance is already possible. The deduction is capped at NAf 1,000. To encourage the saving for an additional old-age pension the deductible amount will be increased in tranches. The deduction cap will amount NAf 1,500 in 2016, NAf 3,000 in 2017 and 2018, and NAf 5,000 as from 2019. The last increase may, however, be postponed with at the most two years.
Together with this increase of the deductible amount the possibility to save for an old-age pension at the bank is introduced. With this possibility, taken into account certain conditions, it will be relatively simple to accrue additional pension. The pension accrual should be made into a blocked bank or investment account with a local bank. A major benefit from this is that the savings will be safeguarded at bankruptcy, while no amounts may be withdrawn in times of financial shortage. This ensures the availability of an additional old-age provision on the pension date.
Deemed income from equity
The yearly profit from a substantial interest in a so-called NA B.V. is set at a deemed income of 4% of the market value attributed to the shares at the start of the calendar year.
With the proposed amendment dividend distributions made in the preceding calendar year will be added to the fair market value of the shares at the start of a calendar year. The distributions received during the year (both from sale and regular income) will of course still be tax-free.
Facilities for merger, split and conversion
The policy which has been applied for many years on the tax facility for mergers, splits and conversions of companies, has been codified. The facility now also applies to passive companies. Note! As yet the facility is limited to companies established in Curacao.
Late payment interest
Different late payment interest rates are currently applied for the various types of tax. Also the tax collector do not always, or only partly, charge late payment interest. The amendment of the legislation now introduces a fixed 3% tax debts rate (legal interest rate) applicable to all the types of tax.
Exemption for Sales tax
New exemptions for the sales tax have been introduced. It concerns the supplies to, by or through an LNG transfer station, the delivery of goods within the jurisdiction that are not yet or should have not been imported into Curacao.
Furthermore, the use of goods manufactured within the own business as well as the installation of an LNG (Liquefied Natural Gas) transfer station are not considered to be taxable for sales tax purposes.
Transfer tax amended in favor of shipping tonnage regime
The amendment of the transfer tax regulation means that the transfer of ships will no longer be qualified as taxable. As a result, transfers and purchases of ships and pleasure crafts that are registered or being registered in the shipping register in Curacao are exempt from transfer tax.
Enter into force
It is not quite clear when the various amendments will enter into force. The amendments with respect to the pension scheme will come into force the day after the regulation is officially announced, retroactively starting January 1, 2016. The dates for the deduction of annuity contributions and the pension savings account have been mentioned above. Finally, the amendment of the deemed income for equity will apply as of January 1, 2017.
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