Doing business in Curaçao
Curaçao is often described as ‘a tropical island without weather forecasts’. It’s an island located in the southern Caribbean Sea, off the Venezuelan coast. Curaçao has a warm and sunny climate with an annual average temperature of about 27 degrees Celsius (around 80 degrees Fahrenheit). Refreshing trade winds bring cooling during the day. The average temperature difference is only 2.5 degrees Celsius (36.5 degrees Fahrenheit) between summer and winter and the sea temperature is warm and varies little from its annual average temperature of 26.8 degrees Celsius (around 80 degrees Fahrenheit). Curaçao’s climate is characterised by a wet season (October, November and December) and a dry season (January to September). The warmest months are August, September and October and it tends to cool down a little during the months January and February. The total annual rainfall averages only 570 mm (22 inches). Curaçao lies outside the hurricane belt, which means it’s only very occasionally affected by hurricanes and sometimes affected by pre-hurricane tropical storms. Curaçao is the largest island of the former Netherlands Antilles, has a surface area of 444 square kilometres (171 square miles) and has 151,000 inhabitants.
In 2001, Curaçao (part of the Netherlands Antilles back then) enacted E-zone legislation which offers an advantageous fiscal framework. The purpose of the Economic Zones (E-zones) in Curaçao is to promote Curaçao as an international business hub, both as an international distribution centre and as an international e-commerce centre.
There are two different types of E-zones in Curaçao. On the one hand, you have specific zones where goods can be stored, processed, assembled, packaged, released and traded. On the other hand, you have specific zones where international trade and its supportive services may be performed, on the condition that these activities are supported by electronic communication and electronic information equipment. There’s no requirement to store the goods you’re selling online in the e-zone, meaning that the online sales and the distribution of the goods can be completely separated. A large group of entrepreneurs who are making use of the E-zone opportunities in Curaçao, is active on the World Wide Web through online sales of goods and services. We will, however, focus on the latter category of E-zones. There are several E-zones in Curaçao but the E-Commerce Park sets the tone and offers the most facilities. In order to persuade entrepreneurs to invest in Curaçao, the E-zone legislation contains some attractive features.
An E-zone company offers the opportunity to enjoy, in all openness, taxed income within the scope of electronic commerce activities. The E-zone legislation clearly states that the corporate income tax rate is fixed at 2% until the end of 2025. More specifically, E-zone companies pay 2% tax on their profits and are exempt from turnover tax, import duties, export duties, sales tax and excise duties.
The company administration has to take place in Curaçao. A local accountant has to be appointed to prepare the financial statements and to file the company’s income tax return. The taxable profit is determined in a similar manner to that in the EU for example. Apart from the 2% corporate income tax, the E-zone company pays no taxes in Curacao, except when the E-zone company employs personnel. Curaçao also doesn’t levy withholding tax on dividends distributed to the shareholders of the E-zone company.
After the company is incorporated, the Chamber of Commerce in Curaçao completes the application process and a request for a CRIB number (tax registration number) can be made. While the licence is still pending, the company can already start its activities. As mentioned earlier, these activities need to target foreign markets by means of electronic communication and infrastructure (ideal for e-commerce companies).
The conditions that need to be met in order to obtain an E-zone licence valid until the first of January 2026 are the following:
– Establishment of a company in Curaçao. This could be a private or public company limited by shares;
– Opening a company bank account with a bank in Curaçao. Additional bank accounts can be opened elsewhere;
– Registering the company in an Economic Zone. Therefore, a (small) physical office in the E-zone needs to be rented by the company.
– Managing the company from Curaçao by local directors (fiduciary service providers are specialised in delivering these services).
The purpose of the company has to be in accordance with the rules and regulations of Curaçao. Doing business with other E-zone companies is allowed and if an E-zone company wants to do business with a domestic company of Curaçao, approval is required from the local Department of Economic Affairs. In the latter case, the profits generated through the sale of goods or services to these domestic companies will be taxed at the standard tax rate of 34.5%.
The National Ordinance on Economic Zones 2000, which constitutes the legal framework for the E-zones in Curaçao, was examined in the European context in the scope of the Code of Conduct and potentially harmful tax competition. The conclusion of this investigation (Primarolo Group) was that the legislation is internationally accepted, but that companies active in the financial services industry can’t benefit from the E-zone legislation.
Therefore, the following individuals and companies can’t obtain the E-zone status:
– Accountants, administrative assistants and tax consultants;
– Trust offices;
– Financial service providers such as mortgage companies, brokers and insurance companies
Opportunities for European residents
The E-zone legislation isn’t considered as harmful tax competition and is accepted throughout Europe. In other words, one can perfectly implement an E-zone company in existing business structures!
The goal for European residents should be that the shares of an E-zone company are owned by a Dutch company (a company from the Netherlands). That’s the way to transfer money back into the Netherlands. You pay 2% corporate income tax on your profits in Curaçao and the remaining balance of 98% is distributed as a dividend to the Dutch parent company. The Netherlands doesn’t impose any additional corporate income tax on such dividends received (the so-called participation exemption).
We can now even go further and illustrate how ALL European citizens can benefit from this! Suppose another European company (an Austrian, Bulgarian, Belgian, French, Spanish, etc. company) in its turn owns the shares of the Dutch company. The dividends can then be transferred again, without further tax losses in most cases, to that particular European company, in accordance with the Parent-Subsidiary Directive which applies in the EU. The bottom line: the profits flow from the E-zone company through the Dutch company into the other European company and are subject to a total effective tax rate of only 2%. One can then decide to retain the dividends in the European company (the Austrian, Bulgarian, Belgian, French, Spanish, etc. company in our example) or to look for tax-efficient ways to transfer the money to the shareholders’ personal accounts.
Value Added Tax implications in the EU
Whether you like it or not, you have to take into account the Value Added Tax (VAT) implications being an online entrepreneur actively selling in Europe. Depending on whether you sell goods or (electronic) services to European customers, depending on whether your sales exceed a certain threshold in a certain member state, depending on whether you sell Business to Business or Business to Consumer, depending on whether you’re running a EU or non-EU business which sells the goods and/or services, your business will have to be structured differently if you wish to optimise the tax burden of both your business and your customers (VAT-wise). Expert guidance is a necessity.