International funds and fund management survey
1.1 Taxation of funds
1.2 Taxation of shareholders
1.3 Taxation of fund management companies
1.4 Capital tax and stamp duties
As from 10 October 2010 the previous Netherlands Antilles have been dismantled.
Curaçao and St. Maarten are now countries within the Kingdom of the Netherlands like Aruba and the Netherlands. The islands Bonaire, St. Eustatius, and Saba are part of the Netherlands.
In Curaçao mutual funds are usually organized as limited liability companies (NV or BV). Most mutual funds are low taxed “offshore companies” or so called “Tax Exempt Companies”. Below we will provide you with more background information regarding these companies.
Although offshore companies cannot be incorporated anymore, offshore companies existing on 31 December 2001 are eligible for a grandfathering until 2019 if certain conditions are met. To qualify as an offshore company its shares should, among others, be owned by non-residents of the previous Netherlands Antilles. Mutual funds qualifying as offshore companies are subject to profit tax, generally at rates of 2.4 percent to 3 percent. Capital gains are exempt, while capital losses are neither taken into account in determining the taxable profit.
The annual tax liability for a mutual fund qualifying as an offshore company may, however, be limited to USD10,000 by means of a ruling approved by the tax inspector. Under such a ruling the tax liability is determined on a gliding scale, based on the fund’s net asset value. No Curaçao profit tax will be levied on funds with a minimum capital of USD50,000,000, having 50 shareholders or more, and employing at least 4 resident citizens of Curaçao. According to the offshore ruling policy a fund may also qualify for this tax treatment if it has a minimum capital of USD300,000,000 and employs at least 2 resident citizens.
Tax Exempt Companies
The current Curaçao profit tax legislation provides for the possibility to obtain a tax exempt status. Such company is referred to as the Tax Exempt Company (hereinafter TEC). In order to obtain the status of a TEC certain conditions must be fulfilled. As indicated above, the company must be organized as a BV. Subsequently, the activities of the TEC may only consist of explicitly mentioned activities, amongst which the typical mutual fund activity of investing in securities and deposits. Management should consist of individuals who are residents of Curaçao or certified Curaçao trust companies. Moreover, the management should keep a register of the names and addresses of the ultimate shareholders having an interest of 10 percent or more in the TEC and an independent expert must provide for a declaration in which he approves the financial statements within 12 months after the end of the company’s book year.
The independent expert must provide a declaration that the dividends received in a year from abroad consist for at least 95 percent of dividends from foreign companies which are subject to a profit tax comparable with Curaçao profit tax. In general companies established in countries with a nominal profit tax of at least 15 percent will qualify.
According to a Decree dividends from companies established in OECD and EU countries will qualify in this respect. Further also dividends will qualify which are distributed by companies established in countries which have concluded a Tax Information Exchange Agreement with Curaçao or the previous Netherlands Antilles unless a special low tax regime would apply for such company. Finally dividends from less than 5 percent participations are deemed to qualify.
On request a company organized as a NV or BV is transparent for profit tax purposes if specific requirements are met like the approval of its shareholders. This means the company itself is not taxable. Its non-resident shareholders are taxable only if their share in the company's income is attributable to specific Curaçao sources of income like a permanent establishment in Curaçao. A transparent company (Vrijgestelde Vennootschap) may be feasible as an investment fund for foreign shareholders as its income may effectively be tax exempted in Curaçao.
The mutual fund will be liable for a marginal one-time registration fee and a marginal annual fee imposed by the Chamber of Commerce and Industry Curaçao
Non-resident corporate shareholders are, in principle, not subject to Curaçao profit tax on income derived from a Curaçao mutual fund. Non-resident individual shareholders are neither subject to tax in Curaçao. Only if they are a so-called “substantial interest shareholder” (in short: owner of 5 percent or more of the share capital), they are subject to Curaçao income tax provided that they did reside in Curaçao somewhere in the past 10 years.
Resident corporate shareholders might be subject to 27.5 percent profit tax. This rate can be substantially lowered or even reduced to nil depending on the specific situation. Resident personal individual shareholders are, in principle, subject to personal income tax on income derived from a Curaçao mutual fund. Different rules apply for substantial interest shareholders and other shareholders. For the last-mentioned other shareholders not acting in the course of a business enterprise, capital gains upon the disposal of shares are exempt.
A Curaçao company acting as a fund manager is, in principle, subject to 27.5 percent profit tax. Attractive rulings are, however, available. Moreover, also grandfathered offshore companies may act as a fund manager. The effective offshore tax rate for management income amounts to 2.4 percent to 3 percent.
No capital tax or stamp duties are payable on the acquisition or disposal of units in a fund. In the absence of capital tax, the contribution of funds to the capital of a Curaçao mutual fund is tax free.
In cases involving notarial deeds and other official documents, marginal stamp duty may be levied. Stamp duty will also have to be paid if any document showing the unitholder’s right is introduced in evidence before a Curaçao court of law.
Although neither Curacao is, nor the previous Netherlands Antilles have been part of the European Union (EU), they are a signatory to an association agreement with the EU. By virtue of the association agreement, Curaçao may enjoy certain trade privileges. Curaçao is not required to incorporate Directives promulgated by the EU. However, the previous Netherlands Antilles have committed to adopt the EU Savings Directive in its domestic fiscal legislation. This legislation is known as the Netherlands Antilles Savings Tax Ordinance and is also applicable in Curaçao.
The previous Netherlands Antilles are a signatory to the OECD/ Council of Europe 1988 Convention on Mutual Administrative Assistance on Tax Cases, with effect for income tax and profit tax. In connection therewith Tax Information Agreements were and will be concluded by Curaçao with various countries.
The previous Netherlands Antilles had introduced a Decree for dividend withholding tax 2000. This Decree became however not effective and there is no announced intention to levy dividend tax in Curaçao.
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