Tax Arrangement between the Netherlands and Curaçao: New opportunities in international holding structures
On September 10, 2015 the Second Chamber of the Dutch Parliament and on September 29, 2015 the First Chamber of the Dutch Parliament approved the bilateral tax arrangement for the avoidance of double taxation between the Netherlands and Curaçao: Tax Arrangement between the Netherlands and Curaçao (“TANC”). The TANC contains significant changes in comparison to the current Tax Arrangement for the Kingdom of the Netherlands (“TAK”).
The TANC will enter into effect as per January 1, 2016, thereby replacing the TAK. This new tax arrangement was necessary to make the tax system within the Kingdom of the Netherlands compliant with new international standards and aligned with the constitutional reform of the Kingdom of the Netherlands on October 10, 2010, when the Netherlands Antilles ceased to exist as a jurisdiction and Curaçao became a separate jurisdiction within the Kingdom of the Netherlands.Requirements for a 0% withholding tax rate regarding dividends
A rate of 0% dividend withholding tax applies to a shareholding of at least 10% by the entity receiving the dividend (in most cases the entity distributing the dividend is a resident of the Netherlands and the entity receiving the dividend is a resident of Curaçao) if one or more of the following criteria are met by the entity receiving the dividend:
- its shares are traded on a recognized securities exchange (direct securities exchange test);
- at least 50% of its shares are held directly by a shareholder whose shares are traded on a recognized securities exchange (indirect securities exchange test);
- the entity is the headquarters of a multinational group of companies or provides an essential part of the financing of the multinational group;
- the entity has sufficient ties with the country of residence, i.e. at least three full-time active employees who are residents of the country in which the entity is resident and who manage the assets of that entity at a substantial level (“sufficient ties test”);
- the entity carries on a business in the country of residence and the dividend paid out in the other country derives from the carrying on of that business (activities test);
- at least 50% of the shares are held directly or indirectly by individuals who are residents of one of the countries or both countries.
In case of non-compliance with any of these criteria but compliance with the 10% shareholding criterion, a request can be made on the basis of the catch all provision. This request will be granted if it is clear that obtaining a tax exemption is not the main purpose or one of the main purposes of incorporating, acquiring or maintaining the entity receiving the dividend.
Based on the Explanatory Memorandum (‘Memorie van Toelichting’) this provision is included in the TANC to facilitate the entity receiving the dividend if it meets the Dutch nexus requirements for holding entities and the shareholding forms part of business assets.Other withholding tax rates applicable
The standard withholding tax rate for dividends paid from the Netherlands is 15% and applies in all other cases, although there is a transitional rule which provides an exception to the 0% or 15% rule. If a reduced rate of 8.3% was applied under the TAK, but was not reduced to 0% under the TANC, a rate of 5% applies as a transitional measure in the case of a shareholding of at least 25%. This special rate of 5% applies until the end of 2019. A commitment has been made that the Netherlands will not tax on the basis of the anti-abuse rules for a technical substantial interest.Tie-Breaker
In case of entities with dual residence, the residence for purposes of the TANC will be determined in mutual consultation between the Netherlands and Curaçao. This will involve an examination of the tax motivation for the (re)location of the entity. Other relevant factors to be examined include the place where management activities are carried out, the place where board meetings are held and the place where the head office is located. However, the place of effective management (POEM) will not necessarily be decisive. If no agreement can be reached, the entity can request arbitration, which will be binding on both jurisdictions. For existing situations, where facts and circumstances remain unchanged, the residence will not change from its current residence for purposes of the TAK.Recognized securities exchange
In article 10, paragraph 7 of the TANC is explicitly mentioned which securities exchanges qualify as ‘recognized securities exchange’. The following securities exchanges qualify for purposes of the TANC:
- each securities exchange in member states of the European Union;
- the Dutch Caribbean Securities Exchange (DCSX) in Curaçao;
- the NASDAQ and each securities exchange in the United States of America which is registered with the U.S. Securities and Exchange Commission;
- the Bolsa Mexicana de Valores;
- the Toronto Stock Exchange;
- the Chilean Bolsa de Comercio, Bolsa Electrónica de Chile and Bolsa de Corredores;
- each other securities exchange mutually agreed upon by the Netherlands and Curaçao.
The Netherlands has an extensive tax treaty network (approximately 100 DTAs) and attractive tax legislation (e.g. participation exemption, fiscal unity, no withholding tax on interest and royalties paid out from the Netherlands). The Tax Arrangement between the Netherlands and Curaçao in combination with the extensive tax treaty network of the Netherlands and attractive legislation in the Netherlands and Curaçao provide for excellent tax planning opportunities. Curaçao also has an attractive participation exemption regime (comparable to that of the Netherlands) and does not levy any withholding tax, regardless whether dividend, interest, royalties or any other type of distribution is paid out and regardless of the beneficiary (natural persons, legal entities, partnerships or trusts).
This new Tax Arrangement between the Netherlands and Curaçao provides new opportunities for routing dividends in international holding structures through the Netherlands and Curaçao whereby a 0% withholding tax rate applies, provided that the Curaçao holding company has sufficient substance in Curaçao, which can be achieved by meeting one or more of the above-mentioned requirements (listing on a recognized securities exchange, headquarters or treasury center, economic ties, business operations).
If you have any questions, we will be delighted to assist you. For assistance and further information, please contact your nearest Amicorp office or Amicorp Curaçao or Amicorp Netherlands.