Portfolio investment / holding companies

Portfolio investment and holding companies fall within the definition of Article 14 of the Netherlands Antilles Profit Tax Ordinance 1940. Their income is taxed at the rates 2.4%-3%, unless the company elects another rate. Capital gains realized on the alienation of capital assets are not subject to tax. Capital losses are not deductible.

If a company borrows funds to finance its investments, the interest payable on such a loan will be deductible for tax purposes provided the loan is obtained from a bank or a similar financial institution.

If a company borrows from other than a bank or similar financial institution, the interests on such loan will not be deductible for tax purposes except if a tax ruling is obtained from the Inspector of Taxes and only to the extent provided for in the tax ruling. Such ruling is usually granted provided that the transaction can be considered as having been carried out at arm's length, which generally will be considered the case if the company reports a certain minimum taxable income.

Real Estate Companies

Article 12 of the Profit Ordinance 1940 was amended in 1987 to provide that no tax will be levied on income derived from real property situated outside the Netherlands Antilles. In the ruling policy it is agreed that the Article 12 exemption extends not only to direct real property income, such as rental income, but also to indirect income such as dividends received from a subsidiary provided the income of such subsidiary is derived entirely or almost entirely from foreign real property.

Finance Companies

In the Netherlands Antilles, finance companies may also benefit from preferential rates and/or a reduced tax base.

Interest income earned by a finance company will qualify under Article 14 of the Profit Tax Ordinance 1940 and be subject to tax at the rate of 2.4%-3%. Interest paid by a finance company will be deductible for tax purposes under the Profit Tax Ordinance 1940 if paid to a bank or similar institution. If the interest is not paid to a bank or similar institution, it will only be deductible if a ruling is obtained from the Inspector of Taxes. Such a ruling is usually granted provided the transaction can be considered as at arm's length. This will be the case if the company reports an agreed margin between the interest on funds borrowed and lent.

Royalty Companies

Royalty companies which are described as companies that derive income from patents, copyrights, licenses etc. fall within the provisions of Article 14A of the Profit Tax Ordinance 1940; they are subject to tax at the rate of 2.4%-3%.

If the Netherlands Antilles company operates as a sub-licensee, royalty and license fees paid will be deductible for tax purposes, provided the payments are at arm's length. To the extent that the payments are made to a related party, the arm's length nature of the transaction will be assumed if a certain minimum spread is reported as taxable income. This spread will be determined by tax ruling. If the Netherlands Antilles company is the owner of the particular right or patent, the amortization of the cost of the right is in principle not deductible for tax purposes. However, by ruling deduction of depreciation can be agreed. The company will be required to report a certain minimum income.

Management, Consulting and Trading Companies

Taxation of Netherlands Antilles companies that earn foreign source management or consultants fees or trading income is usually agreed in a tax ruling. Usually this type of income is subject to profit tax at the rate of 24% on the first ANG 100,000 and 30% on the excess. In most cases, limiting the tax base substantially reduces the effective tax burden.

Mutual Funds

Mutual funds incorporated in the Netherlands Antilles, which meet certain requirements, are exempt from profit tax on non-treaty related income. For the application of the exemption, a mutual fund should have either minimum net assets of US$ 50 million, at least 50 shareholders and four local employees, or alternatively minimum net assets of US$ 300 million and two local employees.

Mutual funds that do not meet these requirements will be taxed annually on non-treaty related income calculated on the average net assets as follows:

The resulting income calculated as above will be taxed at the rate of 2.4%-3% with a minimum tax of US$ 1,000 and a maximum of US$ 10,000.

Captive Insurance Companies

The income of qualifying international captive insurance companies and reinsurance companies that do not earn treaty related income is fixed at ANG 100,000; the income is taxed at the rate of 2.4%. This results in a tax payable of ANG 2,400 (US$ 1,350). Treaty related captive insurance companies are taxed as follows: The premium income is taxed at 24-30%. By ruling 80% of the net premium income is exempt. Taxation of Captive Insurance Companies is regulated by ruling.

International Banks in the Netherlands Antilles

International banks require a license from the Central Bank. They are subject to the supervision of the Central Bank. There are two types of licenses applicable.

A type "A" license will be used to qualifying banks that are either branches or majority-owned subsidiaries of banking institutions or bank holding companies which them-selves are subject to adequate consolidated bank supervision in their country of incorporation.

A type "B" license is issued to a bank or a financial institution that is either not subject to any consolidated bank supervision in its country of incorporation or is subject to a standard of supervision that is not considered adequate by the Central Bank.

In the legislation there are no special provisions relating to the taxation of international banks in the Netherlands Antilles. Investment and interest income that qualify under Article 14 of the Profit Tax Ordinance 1940 will be subject to tax at the rate of 2.4%-3%. Other income will be taxed at the rate of 24%-30%; the effective tax rate may be reduced by ruling agreed with the Inspector of Taxes.

Shipping Companies

Shipping legislation of the Netherlands Antilles is based on that of The Netherlands. The Netherlands Antilles Ship Register has been established for over 100 years. To qualify for registration in the Netherlands Antilles a ship must be an ocean-going vessel that measures at least twenty cubic meters. A Netherlands Antilles resident (an individual or a company), must own the ship. There are no nationality requirements for the officers and the crew except that the master has to be a Dutch national. Dispensation can be granted and is usually granted if the master holds a recognized qualification. There are no specific crew requirements and the crewmembers are not subject to any Netherlands Antilles wage or income tax nor are they entitled to any social security benefits. The Netherlands Antilles is a member of the International Maritime Organization and the International Labor Organization.

Under proposed new legislation, the Netherlands Antilles' Ship Register also has the facility to register bareboat charters.

Article 9A of the Profit Tax Ordinance 1940 applies to both shipping and aircraft companies, including leasing and chartering companies. To qualify for taxation under this Article the company has to be organized under the laws of the Netherlands Antilles and its daily management must be conducted from within the Netherlands Antilles. If a company qualifies under Article 9A, then 80% of its profit will be taxed at the rates of 2.4%-3% whereas the remaining 20% will be taxed at the rates of 24% to 30%. With the 15% applicable surtax for onshore companies, the effective tax rate averages 7.73% on the first US$ 56,000 of profit and 9.66% on the balance. Like onshore companies, shipping and aircraft companies are entitled to an investment allowance of 8% of the cost of the ship or aircraft that may be deducted from the taxable income for the year the investment is made and the consecutive year. They are also entitled to an accelerated depreciation of one third of the cost of the ship or aircraft is also provided for.

The Shipping Registration Ordinance Tax provides for an alternative tax treatment for Netherlands Antilles shipping companies. Under this ordinance qualifying shipping companies are taxed for each vessel at the rate of US$ 0.22 per gross register ton with a minimum tax of US$ 560. Companies electing to be taxed under this Ordinance are exempt from Netherlands Antilles profit tax.