Amendments to Curaçao tax legislation | Deloitte Netherlands

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Amendments to Curaçao tax legislation

Summary of the legislation proposed  

A set of coordinated actions by governments and unilateral measures designed by individual countries have brought about a rapid change of the international tax system. They are intended to both tackle concerns over base erosion and profit shifting (“BEPS”) and perceived international tax avoidance techniques of high-profile multinationals.

4 July 2018

Introduction

Amendments to Curaçao tax legislation

The recommendations of the BEPS Project led by the Organization for Economic Cooperation and Development (OECD) and published in October 2015 are at the root of much of the coordinated activity.

The Action Plan on Base Erosion and Profit Shifting ("BEPS Action Plan") of the OECD has identified 15 actions to address BEPS in a comprehensive manner. The G20 Finance Ministers endorsed the BEPS package in October 2015. It includes the report on Action 5: Countering Harmful Tax Practice More Effectively, Taking into Account Transparency and Subtsance. The Action 5 Report is one of the four BEPS minimum standards. Each of the four BEPS minimum standards is subject to peer review in order to ensure timely and accurate implementation and thus safeguard the level playing field. All members of the Inclusive Framework, including Curaçao, commit to implementing the Action 5 minimum standard into their local tax legislation and commit to participating in the peer review.

The minimum standard of the Action 5 Report consists of two parts. One part relates to preferential tax regimes, where a peer review is undertaken to identify features of such regimes that can facilitate base erosion and profit shifting, and therefore have the potential to unfairly impact the tax base of other jurisdictions. The second part includes a commitment to transparency through the compulsory spontaneous exchange of relevant information on taxpayer-specific rulings which, in the absence of such information exchange, could give rise to BEPS concerns.

As a consequence of the peer review in Curaçao, the proposal to write the OECD’s international reporting standards into Curaçao tax legislation was approved on June 7, 2018. This proposal includes multiple amendments to the tax legislation regarding administrative obligations. In addition, the proposal on remediation of the Curaçao Preferential Tax Regimes was offered to the parliament of Curaçao on June 14, 2018. The proposal includes amendments to align the preferential tax regimes with the internationally accepted standards as recommended by the OECD.

This newsflash outlines both proposals, including the proposed amendments.

Amendments to Curaçao tax legislation - Introduction of the international reporting standards

Implementation of documentation obligations on Curaçao

Documentation obligations

The new legislation includes documentation obligations for a multinational group of entities regarding the transfer prices within the group. The obligation to prepare the documentation starts retroactively from January 1, 2018 and, hence, it applies to the reporting year 2018.


Country-by-country reporting

Under the new legislation, the obligation to provide the Curaçao Tax Authorities with a country-by-country report arises in the following circumstances.

  • The multinational group has a combined turnover in excess of ANG 1,500,000,000; and
  • The Curaçao entity acts as a parent entity or a similar entity of a multinational group.


The Curaçao reporting entity must provide the country-by-country report to the Inspector of Taxes within twelve months after the last day of a financial year. It should include specific information regarding all countries in which the group operates. Not providing the country-by-country report to the Inspector of Taxes, or failing to do so within the permitted timeframe, or filing incomplete or incorrect documentation, due to willful misconduct or gross negligence, constitutes a failure to comply with the documentation obligation. If so, fines of ANG 100,000 up to ANG 250,000 may be imposed on the reporting entity.


Master file and local file

Under the new legislation, the obligation to provide the Curaçao Tax Authorities with a master file and local file encompasses the following circumstances.

  • The multinational group has a combined turnover in excess of ANG 100,000,000 in the year directly prior to the related tax year; and
  • At least one of the multinational group companies is a Curaçao entity.

A Curaçao entity is obliged to have a master file and a local file within the period set for the filing of the profit tax declaration. The master file and local file must contain specific information regarding the activities, cost and revenue allocation, and the transfer pricing analysis.

Obligation to file a tax return for a Private Foundation

As of fiscal year 2019, article 1 of the Profit Tax Ordinance will be amended. As a result, each Private Foundation (also referred to as ‘Stichting Particulier Fonds’ or ‘SPF’ in Dutch) must file a profit tax return every year. This declaration obligation applies whether profit tax is due or not. In addition, an appendix stating the beneficial owners should be attached to this profit tax return. A declaration obligation for profit tax already applies.

There are no changes for the Private Foundation in respect of the tax liability itself. If the Private Foundation does not carry on a business for profit tax purposes, the profit is basically exempted from profit tax under the applicable legislation.

Electronic filing of tax returns

The amended legislation on electronic filing of tax returns will come into force on the day following publication of the new text.

If a tax return is filed with the Curaçao tax authorities electronically, the Inspectorate will provide a proof of receipt. The Inspectorate must ensure that the tax return is encrypted in order to comply with the requirements regarding reliability and confidentiality. Please be informed that guidelines with general effect can be given by Ministerial Regulation.

Amendments regarding the administrative obligations and fines

As of the day following publication of the new text, the following amendments will enter into force and should be taken into account.
 

Administrative expansion

The group of taxpayers with administrative obligation has been expanded with:

  • The liquidator;
  • The person whom the court appoints for custody purposes, at the request of the liquidator.

Administrative amendments relating to ultimate beneficial owners

Taxpayers with an administrative obligation must register the ultimate beneficial owner of their equity in their records. The list of ultimate beneficial owners must be attached to the profit tax return. Depending on the legal form of the entity with the administrative obligation, specific requirements will apply in order to qualify as the ultimate beneficial owner of that legal entity. The definition of the ultimate beneficial owners may differ depending on the legal entity involved.


Amendments relating to administrative fines

Please be informed that the legislation on administrative fines has been amended. It should be noted that in certain situations this change could result in higher fines.

Introduction of costs of ruling requests

As of the day following publication of the new text, the price of a ruling request will be ANG 500. It should be paid to the Collector within one week after filing the request at the Inspectorate of Tax. Subsequently, the Inspectorate of Tax must be provided with a proof of payment.

Abolition of the notification in advance to taxpayers

As of the day following publication of the new text, the Minister of Finance is no longer required to inform a taxpayer in advance regarding its intention to provide information of the taxpayer to a foreign country due to an international information request. The notification requirement of the Minister of Finance is abolished under the applicable legislation. In this respect, taxpayers no longer have the possibility to request the Minister of Finance to reconsider its intentions to provide the information.

Preferential tax regimes - Amendments to meet international standards I

International standards

The OECD peer review considered the following preferential tax regimes in Curaçao tax legislation to be harmful. The OECD recommended adjustments to align the tax regimes with the internationally accepted standards to avoid base erosion and profit shifting.


E-zone company

As of July 1, 2018, the e-zone is limited to goods only. The e-zone facility allows goods to enter the Economic Zone without being subject to import duties and turnover tax. As of July 1, 2018, companies that no longer meet the requirements to stay in the e-zone can apply the new tax regime for services provided to customers outside Curaçao (the tax regime designed to replace the export facility). Please be informed that under certain circumstances certain repair and maintenance services can be provided within the e-zone.

Furthermore, the former distinction between local or foreign supply of goods (and services) is eliminated as of July 1, 2018. Under the new legislation, the tax rate applicable to all supplies of goods of a company within the Economic Zone is 2%, regardless of the place where the customers reside. Finally, the e-zone company must meet the new substance requirements.

The amendment of the e-zone has several sales tax consequences. First, once the goods leave the Economic Zone to be imported in Curaçao, the goods will be subject to a 9% sales tax rate. Furthermore, the exemption of Curaçao sales tax no longer applies to the supply of goods from the e-zone to a warehouse. In addition, the exemption of Curaçao sales tax no longer applies to the export of goods (or services) either.

It should be noted that a transitional arrangement applies to existing e-zone companies from June 30, 2018 through December 31, 2018.


Export facility company

As of 1 July 2018, the export facility will be replaced by a new tax regime in which a distinction is made between income derived from local sources and foreign sources. Income derived from local sources is taxed. Foreign source income is excluded from the taxable base for profit tax purposes in Curaçao. Under the new tax regime the provision of licenses of an export facility company will no longer be considered as qualifying activities.

As mentioned above, the exemption of Curaçao sales tax no longer applies to the export of goods or services. Such supplies are basically subject to sales tax.

It should be noted that a transitional arrangement applies to existing export facility companies from June 30, 2018 through December 31, 2018. In this respect, an existing export facility company must restructure its licensing activities before January 1, 2019.


Tax exempt company

As of July 1, 2018, tax exempt companies will be considered to be Curaçao investment institutions. Curaçao investment institutions are subject to a 0% profit tax rate, except for the income from IP that fails to meet the nexus approach. It should be noted that Curaçao investment institutions have the obligation to file profit tax returns.

The statutory purpose or actual activities of an investment institution are no longer permitted to include the licensing of intellectual and industrial property rights and similar property rights or rights of use, as of July 1, 2018. Tax exempt companies receiving such income will no longer have the exempt status. Please note, in this respect licensing companies can restructure before January 1, 2019.

A transitional arrangement through December 31, 2018 applies for tax exempt companies existing on June 30, 2018.

Preferential tax regimes - Amendments to meet international standards II

Substance requirements

As of July 1, 2018, substance requirements will be introduced. Please note, for Curaçao profit tax purposes real presence will be deemed to exist if a corporate entity carries out activities and generates income that meet the following two cumulative requirements:

  • The company (in)directly employs a number of qualified employees commensurate with the nature and extent of the activities of the company or the group of related entities; and
  • The company has annually recurring expenses, commensurate with the nature and the extent of the activities of the company or the group of related entities.

Nexus approach

According to the OECD’s nexus approach, income from IP in Curaçao may only be taxed at a low rate if it regards income obtained with an intangible asset for which actual research and development work is performed in Curaçao or for which a taxable person has instructed the development of such an intangible asset to a foreign company not belonging to the group of the taxpayer in Curaçao. Detailed legislation is introduced specifying the IP falling within the scope of the tax facilities and to what extent. Please be informed that the nexus approach legislation will be in force as of July 1, 2018.


Thin capitalization

On the basis of the current wording of the text, the provision would only take into account the equity and debt of the debtor. However, in the event that the debtor is part of a fiscal unity, the equity and debt of the fiscal unity should be taken into account for the thin capitalization scheme. As such, the term “debtor” has been changed to “taxpayer”.


Offshore companies may opt for transparency status

Companies with the “offshore status” based on the offshore profit tax regime, which will expire in 2019, may opt for the transparency status at the beginning of a new financial year, provided that all other requirements are met.


Fiscal unity regime

Based on the proposed legislation a fiscal unity may be formed during a year, as of the day indicated in the request to apply for a fiscal unity. However, the application of the fiscal unity regime cannot take effect earlier than 3 months prior to the moment of submitting the request.

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