New Fiscal Framework

On December 29, 1999, The Netherlands Antilles has approved three tax bills, which are known as the New Fiscal Framework (NFF). The NFF came into force retroactively to January 1, 2001. The NFF is complimentary to an amendment of the TAK (Tax Agreement of the Kingdom), which has taken effect on January 1, 2002.Since the introduction of the NFF the Netherlands Antilles has been abolished from the so-called blacklist of the OECD. Curaçao also meets the most important requirements of the American tax authority the IRS, since the introduction in 1997 of the law Melding Ongebruikelijke Transacties (MOT) and the law Identificatie bij Financiële Dienstverlening. The IRS has given the Netherlands Antilles the status of Qualified Intermediary.

The principal reasons for the enactment of the NFF are the objective of the Government of the Netherlands Antilles to part from its tax haven image and to revitalize its financial services industry.

The most important features of the NFF are:

• Abolition of the offshore regime. The distinction between offshore taxpayers and onshore taxpayers was in principle abolished as of January 1, 2001. The NFF provides for a 34.5% flat rate (consisting of a 30%, profit tax rate and 15% island surtax), which is applicable to all taxpayers. This flat rate is applicable from January 1, 2000.


• Transitional legislation. The NFF provides for a transitional legislation granting the advantages of the present offshore regime to qualifying offshore companies incorporated before January 1, 2002, provided certain conditions are met. These companies can benefit from the present offshore regime until the year 2019. However, taking into account the level one commitment of the Netherlands Antilles Minister of Finance to the OECD with respect to the abolishment of harmful tax regimes in the Netherlands Antilles, the grand fathering period may be shortened.

The elements of the NFF in the Profit Tax Ordinance are as follows:

• Introduction of a Tax Exempt Company (NABV) i.e., a company that is exempt from both the corporate income tax and the new dividend withholding tax.


• Introduction of a participation exemption.


• Extensions of the period for loss carry forward.


• Introduction of merger provisions.


• Introduction of a fiscal unity treatment (consolidated tax group).

The main elements of the NFF with regard to individuals are among others:

• Income Tax Ordinance. Introduction of deemed income provisions: Amendment of the substantial interest provisions.


• Introduction of a Dividend Withholding Tax of 10%. This tax will only take effect on a date that will be announced in a separate Ordinance, but that is not expected to happen in the near future.

E-zone legislation

As of March 1, 2001 the e-zone legislation entered into force. The main purpose of the e-zone legislation is to expand and strengthen the economic position of the Netherlands Antilles. The e-zone legislation provides potential (e-commerce) investors a variety of (tax saving) opportunities. The e-zone legislation is not only aimed at e-commerce, it is also a continuation of the former free zone legislation.

Taxes

An individual's specific circumstances determine residence for tax purposes. These circumstances include permanent home, habitual stay, and center of economic and social interest. Residents are taxed on worldwide income, while nonresidents are taxed only on certain specified income generated within the Netherlands Antilles. Individuals are taxed from their date of arrival. Accordingly, there is no significance as to the timing of arrival.

Profit Tax

Profit tax is levied on the profit of:

• limited liability companies (NV's);


• limited partnerships (commanditaire vennootschappen), and other companies or associations of which the capital is divided into shares;


• co-operative societies and mutual insurance companies;


• associations and foundations as long as they are conducting a business;


• entities established outside Curaçao but which receive revenues from Curaçao.

The basis of the profit tax is the taxable profit after deductions of all assigned costs, depreciations, investment allowance, donations and setting-off of losses. The tariff is stipulated at 34.5% inclusive the island surcharge.

Income Tax

Progressive rates are levied on taxable income. In addition, an island surcharge is levied on the amount of tax due. The maximum rate amounts to 57.2%.

Special reduced rates of tax apply to certain nonrecurring items of income, for example, liquidation proceeds from a company at a maximum of 39% and dividends from or capital gains on the sale of "substantial share interests" at 32,5%.

Tax returns are filed on a calendar-year basis. Each spouse is taxed individually on his or her personal income (e.g., income derived from a business, a profession or employment). Nonpersonalized income is, in principle, included in the taxable income of the spouse with the higher personal income.

Wage Tax (PAYE)

The Netherlands Antilles employs the pay-as-you-earn (PAYE) system, so tax is withheld from the employee's wage or salary according to the tax rate table stipulated by ministerial decree. The employer is liable for the withholding of wage taxes.

Dividend Withholding Tax

A dividend withholding tax has been introduced as of January 1, 2000. However, the provisions will become effective at a later date, but that is not likely to happen in the near future. Salaries and wages are subject to tax withholding at source. Provisional assessments can be issued during a fiscal year. Any additional tax is payable upon receipt of an assessment. Netherlands Antilles tax relief may be obtained for specific sources of foreign income.

Turnover Tax (OB)

The turnover tax (5%) is levied on the provision of services and deliveries by entrepreneurs and companies. A limited number of services and deliveries are exempt. "Services" do not include advisory and management services provided to or by offshore companies and offshore banks.
An entrepreneur liable to the turnover tax must file a declaration with the Tax Inspectorate before the 16th day of the following month at the Tax Collector's office. The rate amounts to 5%.

Property Transfer Tax (Overdrachtsbelasting)

The transfer of N.A.-located immovable property is subject to a 4% transfer duty.

Land Taxes (Grondbelasting)

A land tax is levied on real estate located in the Netherlands Antilles at an annual rate of 0.5% on the value of undeveloped land and 0.6% of the value of built-up land. The 15% island surcharge also is applicable.

Inheritance and Gift Tax

Gifts and receipts from an estate of an Antillean resident are taxable. Nonresidents owning real estate in the Netherlands Antilles also are subject to these taxes. The rates (2% up to 24%) depend on the amounts received and the relationship of the beneficiary to the deceased or the donor. Gifts and receipts from estates of a nonresident shareholder of a N.A. company are not subject to Antilles estate and gift taxes.

Social Security Taxes

As of 2004 (income year 2004) the employee's share of taxes for old-age pension, widows and orphans is 5% of a maximum of US$26,100 gross wages. The employer contributes 6%. Amounts over this are not charged. Expatriates may be exempt from this tax.
Coverage for workers earning up to US$25,600 is compulsory. Contributions are 2.1% for the employee, 8.3% for the employer.

Contributions for accident insurance amount to 0.5% to 5%, depending on employment on a maximum salary of US$25,600.

The AVBZ is a national social insurance from which the entire population of the Netherlands Antilles can derive rights. The AVBZ guarantees, among other benefits, medical care to persons suffering from a chronic disease or a mental or physical disorder. The premium charged to create the necessary funds amounts to, in general, 2% of taxable income, with a maximum charge of US$3,784 per year. The employer's share amounts to 0.5% of the employee's income, with a maximum of US$946 per year. Individuals qualifying for minimum income of US$2,921 (unmarried) or US$3,314 are charged at the rate of 1%.

Old-age pensioners are taxed at a rate of 1.5%.

Import and Excise Duties

Import duties are levied on the value of imported products, with exemption of primary foodstuffs. The rate varies from 5% to 22%, depending on the type of the product.
Excise duties are levied are levied on alcoholic beverages, cigarettes and fuel products.