Often considered the birthplace of the offshore finance industry, the Dutch Caribbean island is highly-regarded as a centre for international private client structures.
Update on Recent History
Curaçao became an independent country on October 10, 2010, when the Netherlands Antilles - consisting of Curacao, Sint Maarten, Bonaire, Saba and Sint Eustatius - was dissolved as an autonomous country. Since then Curaçao and Sint Maarten have been autonomous countries within the Kingdom of the Netherlands, along with Aruba and The Netherlands. Bonaire, Saba and St. Eustatius are now part of The Netherlands itself.
Despite the constitutional change, the laws and regulations of the Netherlands Antilles, including the court system (with the Supreme Court of The Hague as the highest court), were adopted by Curaçao. In addition, all tax rules and regulations remain unchanged, including the grandfathered offshore regime (and all rulings). All the existing Netherlands-Antillean tax treaties now apply to Curaçao as well.
As a jurisdiction Curaçao offers a strong, stable economy, a favourable tax regime, flexible corporate legislation, good quality professional advice and a long history as an offshore centre. Traditionally, Curaçao’s financial services have included international banking and management/administration of investment, holding, royalty, finance, trading and real estate holding structures. High service standards are reached through a well-regulated banking and trust services framework, special tax regulations and the presence of several reputable international banks, trust companies and professional services firms.
Its legal system is based on civil law and is similar in form to the legal structure of The Netherlands. There is specific tax legislation for different types of structures: funds, e-commerce, investments, finance, holding etc. The legislation governing companies and private foundations has been revamped in the past decade so as to offer up-to-date and flexible provisions.
The global spotlight on compliance in recent years has been reflected on the island with heavy investment in a robust regulatory regime that focuses on anti-money laundering / terrorist financing and tax transparency, not least through active participation in relevant international bodies, including the OECD and the Caribbean Financial Action Task Force. All financial services providers, including trust companies, are required to be licensed and supervised by the Central Bank of Curaçao and Sint Maarten.
Curaçao – Opportunities
There are a variety of entities and structuring opportunities available, and specialist local tax advice should be sought from a professional tax advisor. Below are two examples – one corporate and one private client – to demonstrate the possibilities available.
The Private Foundation
A Private Foundation is often referred to as the civil law alternative to the traditional common law trust; it was first introduced a decade ago. How has it faired? The statistics show that not only is it a very popular entity, but that it is increasingly attracting a genuinely international crowd. Its popularity stems from its ability to offer a multiplicity of uses: estate planning, holding activities, investment activities and asset protection. It can benefit: individuals with wealth/equity who want to start inheritance planning; individuals who want their status as ultimate beneficial owner of an asset to remain unknown; those who want to divide legal and beneficial rights; and those who want to transfer their wealth into an entity in a tax exempt jurisdiction. It is frequently used as the top holding in an international (family) holding structure.
As stated above, the Foundation has been used by a range of international clients. In particular it is popular for those residing in countries requiring the reporting and taxation of investments held, directly or indirectly, through entities established in jurisdictions which are considered to be ‘tax havens.
Typically, by legislation or regulation, Latin American countries produce blacklists of tax havens. These lists include well-regarded low or no tax jurisdictions such as the Bahamas, Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey and Jersey. While it is well known that these jurisdictions provide tax-efficient and confidential entities for structuring international business transactions and investments, it is less well known that many other jurisdictions provide for the establishment of entities which provide benefits similar to those ascribed to the low or no tax jurisdictions.
The Foundation can typically be used in conjunction with a Dutch CV or, for clients from Venezuela, a Barbados company (Barbados has entered into tax and asset protection treaties with Venezuela).
TIEA – Spain / Curaçao
A new favourable and effective method for distributing dividends and capital gains was made available as a result of the ratification of this Tax Information Exchange Agreement (TIEA), which came into force early last year. As a result Curaçao was removed from the Spanish blacklist and tax efficient structures can now be created between the two countries.
Companies with most to gain are those with equity investments in the European Union (and therefore may take advantage of the Parent Subsidiary Directive) or in countries with whom Spain has concluded a double income tax treaty. There are currently more than 60 double income tax treaties in force, and the list includes, perhaps most importantly, a large number of Latin and South American countries (including Argentina, Bolivia, Brazil, Chile, Ecuador, Mexico, Venezuela and Columbia), creating an excellent opportunity for investment in the region.
In addition to the favourable double income tax treaties signed with Latin American countries, Spain has also Bilateral Investment Agreements (BITs) in place with most Latin and South American countries, including some countries where the risk for nationalisation or expropriation of assets has increased during recent years, for example Bolivia and Venezuela. These BITs offer another protection level against the risk of exportation of equity investments held by Spanish companies as any expropriation of assets held by Spanish Companies has to be compensated at the market value of those assets immediately before expropriation. Disputes may be brought to the International Centre for Settlement of Investment Disputes (ICSID) or any other Court for International Arbitration.
The envisaged tax efficient structure essentially involves using Spain’s renowned ETVE holding company regime as a bridge between companies located in Latin and South America and Europe and the favourable Curaçao corporate taxation regime. In addition, Spanish is widely spoken in Curaçao, which is obviously well received by Latin American clients.
Current Position and the Future
Curaçao has long recognised the importance to its economy of being a globally competitive and trustworthy financial centre. The offshore regime will end in 2019 and, as a result, the industry is becomingly increasingly focused on its substance-based capabilities. A raft of TIEAs and DTAs are under negotiation or have been completed in recent times in response to this challenge and, as a result of independence, overall changes to the tax system are expected, in particular new agreements with the Netherlands. For example, in June of this year a delegation from the Ministry of Finance of the Netherlands visited the island to start negotiations concerning improvements to the TAK (Tax Agreement for the Kingdom) rate, which has a current Dutch dividend withholding tax of 8.3 per cent. The argument being that this rate has been in place for 10 years, during which time there has been an overall trend towards reduction of such rates worldwide, making it uncompetitive.
Alongside the proposed tax changes CIFA (Curaçao International Financial Services Association), the representative association of professionals in the international financial services sector, recently published its strategic objectives for 2011 – 2014 in order to focus the attention of the government and supervisory bodies on the best way forward to maintain and strengthen the industry on the island. Among those objectives are: development of new products to enhance competitiveness; development of new markets (particularly Latin America and Asia); further development of capital markets and infrastructure (2011 saw the launch of an electronic exchange for the Dutch Caribbean Securities Exchange); and the adjustment of the Shipping, Captive Insurance and Fund Administration environments to make these segments of the sector more competitive compared to other jurisdictions.
It is hoped that the existing strength of the island’s financial services, together with these proposed changes and new areas of focus, will help Curaçao maintain its position as a major financial centre in the coming decades.
Koen van Baren, ATC, Curaçao