Curaҫao: an attractive hub for international activities!

Curaçao is an attractive location for companies because of its geographical location, stable politics, legal system and special tax arrangements. With effect from 1 January 2020, the preferential territoriality regime has been introduced which makes the development of international activities from Curaçao very attractive considering that foreign profits can be excluded from the levy under certain conditions.

Let’s contemplate the history of Curaҫao as an attractive business location. After the Second World War, it was necessary to introduce special arrangements to stimulate the economy. Curaçao implemented the offshore regime with a profit tax rate of 2.4-3% to attract foreign investment companies. Curaçao grew into an international financial center. Residents of Curaçao could make use of the offshore regime. This distinction was later qualified as "ring fencing" and was considered harmful by the OECD and the EU. Curaçao has continued to comply with the international standards of the OECD and the EU over the years. For example, the offshore regime was abolished and ended on 31 December 2019 after a transition period. As of 1 July 2018, a new preferential regime was first introduced which was approved by the OECD. However, after the EU had concluded that this preferential regime still needed some additional changes, the territoriality regime was introduced in accordance with the EU's recommendations as of 1 January 2020 by means of the National Tax Revision Ordinance 2019. In order to keep a foreign profit in accordance with the territoriality principle out of the levy of Curaçao profit tax, the EU recommendation meant that foreign profits should be excluded from the definition of taxable profit as laid down in the National Ordinance on profit tax 1940, whereby taxable profit is only profit from domestic business. This domestic profit is in accordance with a proposition subject to the

regular profit tax rate of 15% on the first ANG 500,000 profit and 22% on the excess, which rates are lower than the average profit tax rate of the EU and Latin American countries. The preferential regime of the principle of territoriality, approved by the OECD and the EU, means that foreign profits made by a company with customers abroad are excluded from the levy of profit tax according to a cost formula. However, conditions of real presence must be met, such as that at least 50% of the directors must live in Curaçao and that the local directors must have sufficient professional knowledge to be able to perform his tasks and make decisions on his own responsibility. Curaçao residents can now also make use of the

territoriality regime to expand their export activities, while Curaçao also positions itself vis-à-vis foreigners as an attractive hub for international activities!

Zuleika Lasten is a Tax Partner at Soxia, headquartered at Cas Coraweg 1, Curaçao.

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