Curacao

Curaçao: An Unintended Consequence


By Priscilla Lotman, Operations Manager, Front Shore N.V. and Tamara Stienstra, Tax Advisor, Spigt Dutch Caribbean (01/03/2013)

If you have ever studied history or even read a mere biography of any noteworthy person it might have occurred to you that there are unintended (yet successful) consequences to the actions and decisions people make every day. In the years during the Second World War a solution to ‘saving’ European companies was found in the ability to register them abroad. The term ‘offshore’, at that point, did not have the international and financial significance it has now. The obvious unintended consequence was the creation of a global phenomenon of which tiny, remote and never-before-heard-of islands took advantage off (let’s not even mention the European nations who have taken ‘offshore’ to a whole other level).

 

In the passing years regulation, fiscal, legislative and monetary policy, politics and business have significantly changed. Throughout this change, people have stuck with their instinct to succeed and to continuously search for the ‘best’ way of doing business internationally. ‘Best’ can be an awfully vague term in this context,, for some it is the simple pursuit of a tax advantage (simplicity depending on the country of origin and residence of course), for others the preference to simplify and streamline their globalised businesses and then there are the value and profit seekers. In the process of these changes, international businesses have provided some unprecedented ways and reasons to go ‘offshore’. Reasons being an important attribute in this narrative; your reason for going offshore depends very much on where you go offshore.

 

The options are endless. Not if accurately measured of course, however considering that even certain ‘onshore’ jurisdictions are at times considered offshore, the options are in any sense increasing. This is particularly interesting considering the accumulation of rules, regulations and information exchange. In the scheme of things, Curaçao is a jurisdiction often overlooked. Not for any other reason than there simply being an abundance of jurisdictions to choose from. And unless the financial offshore advantages of Curaçao specifically meet your needs (or when you are looking for a paradise island as a vacation destination), there might not be a particular reason to have the island on your short list.

 

One might wonder if the intention was for Curaçao to become a renowned offshore jurisdiction when the companies were incorporated and transferred to the island out of Europe for protection purposes. The result was that for decades to come the fiscal and legislative policy in Curaçao would be dictated by this event (naturally this is a simplified analogy of the exact events). The incentives to attract individuals and companies remain a vital part of the economic and fiscal structure of the island.

 

History plays an important role here in the manner of experience and expertise. Offshore jurisdictions have gone out of their way to attract and keep highly skilled workers for their financial industry. Curaçao is no different in this sense; cultivating generations of educated individuals, either returning to or discovering the island, to keep the financial industry innovative and growing. This workforce is expected to supply two things; trust and exceptional service (expertise being an obvious prerequisite). The pull of the island has enabled it to, keep and grow its workforce while adding the friendly outlook in the life of each person.

 

Even in this electronic world location is essential. Curaçao is located beautiful between North and Latin America and brings in its European characteristics from its Dutch ties. Expectedly this is not an exceptional accomplishment in the Caribbean. What makes this situation slightly more unique is (again) the history of the economic importance of the island. The harbour and the refinery have ensured the forces of the Americas and Europe were combined and consequently (perhaps unintentionally) produced the multi-lingual, flexible and sound business environment the island enjoys today within its financial sector. The Cayman Islands, Bermuda and the British Virgin Islands have equally made exceptional progress in this regard. The differentiating factor here is the flexible civil law option that Curaçao brings to the table.

 

In the process of formulating the need to go offshore the fundamental choice of where to go is ever present. Your taxable residence, investment opportunities and confidence make all the difference. When your goal has been formulated you go out and look for the jurisdiction to make it all possible. This is where Curaçao comes in. Not just another Caribbean destination, but more interesting, a renowned financial jurisdiction.

 

Curaçao, known for its friendly financial environment, its innovation in offshore fiscal products and its flexible laws and regulations, remains a jurisdiction of choice for international companies, wealth management structures and more recently for listings on the Dutch Caribbean Securities Exchange. The availability of world-class professional services, high levels of back-through-front office support, up-to-date anti-money laundering legislation and mechanisms to ensure speed of establishment and flexibility in structures and products have kept the island a preferred jurisdiction.

 

The advantages of any offshore jurisdiction usually lie in the nitty-gritty details of its legislation. Although the tax and civil legislation of Curaçao expectedly shows many similarities with that of the Netherlands, it is in general more flexible and offers more alternatives for tax efficient structuring. Possibilities such as the new Curaçao trust and private foundation are an interesting place to start. Trusts can be used to segregate assets and are therefore by example used to create a protected cell company. A private foundation can be used for similar purposes as the trust, but differs in its essence, since it is a legal entity. Tax efficiency and certainty are obtained by a well-established ruling practice. This ruling practice sees for instance to financing structures where the Curaçao entity under certain conditions pays and receives interests for intra group financing can only have a taxable base of 0.25 per cent on the margin. The so-called ‘old offshore’ is ending in 2019, however a number of alternatives have been introduced since the year 2000. More alternatives are expected to be announced the coming years.

 

The normal corporate profit tax regime is known for its generous participation regime, under which, provided that certain conditions are met, dividends and capital gains from participations world-wide can qualify for a full exemption. A company can be exempted fully from corporate profit tax in case it functions as a financing or investment vehicle or for instance holds intellectual property rights.

 

Trading activities can, in the case of international trading, be structured via an e-zone in which the regular profit tax rate from 27.5 per cent is reduced to two per cent. The regular profit tax regime has a number of facilities such as accelerated depreciation, loss carry forward, investment allowances, which are, similar to the so-called ‘tax holidays’ intended to attract investors and thus increase investments in our island. Other legal advantages of the jurisdiction include the fact that shareholders of Curaçao entities are not registered in a public register. Privacy structures are therefore very common. Moreover, Curaçao is part of the Kingdom of The Netherlands and as a result the Dutch Supreme Court (in The Hague, The Netherlands) has ultimate jurisdiction over matters concerning Curaçao law.

 

The possibilities and their advantages within this jurisdiction can and should be explored. Each vehicle has its own characteristics and good consultation should therefore be sought. The list of options, and their added values, is of course longer than described above; however I am sure that in through further research regarding the jurisdiction as an offshore hub you will undoubtedly come across the whole spectrum of possibilities.