By Mrs. Xandra M. Kleine-van Dijk and Mr. Hans J. Klaver
This article discusses the feasibility of setting up a company in the E-Zone of Curaçao. It addresses the Netherlands Antilles and other international tax planning aspects.
1. E-Zone in the Netherlands Antilles
Curaçao has appointed several geographical areas as Economic Zones ("E-Zones") with the purpose of facilitating international trade and service companies, especially companies performing their business through electronic means. In order to attract new business to the Netherlands Antilles, companies in such areas, i.e. "E-Zone companies" benefit from a favorable tax regime with respect to corporate income tax, custom and import duties, turnover tax and expatriate tax facilities.
2. Tax benefits
In summary, E-Zone companies benefit from a flat corporate income tax rate of 2%. This rate is guaranteed by specific E-Zone legislation until 1 January 2026. Consequently, an E-Zone company established in the Netherlands Antilles would help reduce the overall tax burden of an international group as that relates to benefits derived from international trade, services or e-commerce activities.
Further, business can also be conducted with companies residing in the Netherlands Antilles, provided (i) a license hereto has been granted and (ii) the volume of such transactions can not exceed 25% of the total turnover. The tax rate in Curaçao for such local transactions is 34.5%. In this respect, we note that other E-Zone companies are not considered Netherlands Antilles based and as a result, the 2% rate applies to profits on transactions between E-Zone enterprises.
An E-Zone company does not have to charge Antillean turnover tax in relation to transactions performed to (i) non-residents and/or (ii) other E-Zone companies. Further, goods delivered to and services performed for an E-Zone company are generally exempt from turnover tax. With respect to goods that are imported into the E-Zone, an exemption applies for customs and import duties.
In addition, expatriate employees who come to the Netherlands Antilles to work for an E-Zone enterprise can often benefit from the favorable expatriate income tax regime for a period of up to five years.
3. Admission to the E-Zone
The purpose for establishing the E-Zone is to promote the economical development of the Netherlands Antilles. In light of this fact, a company will be admitted to the E-Zone, provided it can be shown to contribute to the economy by attracting foreign currency or by, either directly or indirectly, generating employment.
Only a company, incorporated either in the Netherlands Antilles or elsewhere that has the form of a legal entity with its capital divided into shares can be admitted to the E-Zone. Most partnerships therefore do not qualify. An admission request must be filed, accompanied by supporting documents such as the Articles of Association, a business plan, an extract of the Chamber of Commerce and a description of the shareholders including the ultimate beneficial owners of the E-Zone company.
4. International tax planning aspects
Setting up an E-Zone company and benefiting from its tax regime in the Netherlands Antilles is rather straightforward. A challenge, however, is to incorporate such a company within the international group’s existing structure. With respect to such international tax planning, we would like to briefly point out certain relevant issues. It is important to note that local and international tax advice must be obtained prior to setting up a company in the Netherlands Antilles.
From a Netherlands Antilles tax perspective, the substance of an E-Zone company can be minor. The jurisdiction(s) of the group companies however may have additional and possibly strict requirements regarding substance. If these requirements are not met, the tax authorities may argue that the E-Zone company is a tax resident of that jurisdiction and not of the Netherlands Antilles. As a result, significant double taxation may occur. Accordingly, it is generally advisable to ensure that a (minimum) number of qualified staff is located in the E-Zone company. The company should also be effectively managed in Curaçao.
Further, if existing group activities, such as sales, are being transferred to the Netherlands Antilles, an issue could arise with the tax authorities in the country where the group is already engaging in sales activities. This could be the case if the tax authorities determine that the Group is trying to shift existing profits to the Netherlands Antilles. This result should, however, be avoided if there is a business rationale for using an E-Zone company, e.g. new activities such as sales, central purchasing or e-commerce.
In addition, as transfer pricing is becoming more and more important in intra group business, the conditions under which the E-Zone company performs its activities within the group should be at arm’s length, e.g. the margins attributable to the E-Zone enterprise. The substance of the E-Zone company may also have a beneficial effect on the margins that can be allocated to it.
Finally, as the tax rate in the E-Zone is relatively low and the Netherlands Antilles do not levy any dividend withholding tax, it is important to determine the tax position of the shareholder(s) of the E-Zone company. It would be important to establish, for example, whether or not a participation exemption or sufficient tax credits are available or whether Controlled Foreign Corporation ("CFC") legislation applies.
For instance, a Dutch company can be a suitable (intermediate) holding company, since the Dutch participation exemption normally applies to fully cover dividends and capital gains derived from an E-Zone company. The Netherlands furthermore is a party to numerous tax treaties by means of which the Dutch dividend withholding tax can be reduced, or in certain cases eliminated.
This article is of a general nature. Specific tax advice is necessary in order to make a clear determination with respect to the feasibility of an E-Zone company in the Netherlands Antilles.
Xandra M. Kleine-van Dijk is a tax partner with Spigthoff Attorneys at Law & Tax Advisers in Curaçao, the Netherlands Antilles. Hans J. Klaver is a senior tax associate working for both Spigthoff’s offices in Amsterdam and Curaçao.