Tax revisions 2015

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Tax revisions 2015
This information applies to
Curaçao.
This newsflash discusses the
following topics, amongst
others:
• Limitations to deductions
for homeowners.
• Real estate depreciation
restricted.
• Customary wage
regulation.
• Income and profit tax rates
lowered.
Introduction
As of January 1st 2015 a great number of amendments to the tax
laws have taken effect. The rates for income tax and profit tax were
reduced, for instance. On the other hand, a number of tax
deductions were either abolished or restricted, including the
maintenance costs for one's own home and the depreciation on
company real estate. Also, a withholding tax on interest was
introduced. In this memo we will discuss the most important
changes.
General
The tax revisions for 2015 concern changes in the
income, wage and profit taxes.
The income tax rate will be lowered over a twoyear period. The current tax brackets range from
12% to 49%. In 2015 they will span from 10.75% to
48.25% and in 2016 the brackets will be further
decreased to a range of 9.75% to 46.5%.
Profit tax will also be lowered, from the current
rate of 27.5% to 25% in 2015 and 22% in 2016. For
taxpayers with a so-called "split" financial year the
above-mentioned rates will apply as of the first
fiscal year that starts after January 1st 2015 and
January 1st 2016, respectively.
In combination with the tax rate reduction, the
deduction of a number of expenses will be
restricted or abolished in its entirety and a number
of other measures will be introduced.
Profit tax
-
Investment deduction
As of 2015, a one-time only investment deduction
of 10% (25% for national historic landmarks)
applies to investments. Up until 2014 a deduction
of 2 x 8% applied (2 x 12% for investments in new
buildings or the improvement of existing
buildings).
-
Accelerated depreciation
The possibility of accelerated depreciation to a
maximum of one third of a business asset's
purchasing price will be cancelled as of 2016.
Contrary to earlier proposals this deduction option
has been left untouched for 2015 in order to not
frustrate investment plans that were in an
advanced stage on January 1st 2015 yet not so far
advanced that the early depreciation could be
claimed in 2014.
-
Depreciation of up to 50% of OZB value
As of 2016 depreciation on real estate is only
possible up to a maximum of 50% of the value at
which each object is taxed for municipal property
tax (OZB) per January 1st of the year in question.
For the value determination both the land value
and the value of the buildings should be included.
This also applies if the buildings and land don't
have the same owner but belong to affiliated
people or bodies. Affiliation is considered to be the
case, for example, if a natural person has 5% or
more of the shares in a company or if a natural
person holds 5% of the shares in two companies.
For taxpayers who have purchased or built real
estate prior to January 1st 2015 and have
depreciated it, but for less than 3 years, the new
rules apply only after depreciation has taken place
for at least 3 years according to the old scheme.
For taxpayers who at the end of 2014 have already
depreciated more than 50% of the property tax
value, the difference in depreciation will not be
revalued.
-
Costs of food, beverages, representation
Up until 2014 the deduction of food, beverages and
representation, also including celebrations, study
trips and excursions, was limited to 80% of the
expenses. As of 2015 the deduction of these costs is
amended as follows.
• Gifts, promotional presents and the costs of
courses, conferences, seminars, symposiums
etc. are fully deductible.
• The costs of food and beverages, as well as
travel and accommodation expenses related to
courses, conferences, seminars, symposiums
etc. remain deductible for 80%.
• The costs of representation, including
receptions and parties, excursions, study trips
etc., with the exception of the costs of food and
beverages, are no longer deductible. For
receptions, for instance, this basically means
that the costs of venue hire, personnel and
performers are no longer deductible.
Interest deduction
If a company pays interest to an exempt company
belonging to the same group then this interest is
deductible only up to a loan of maximally three
times the debtor's equity.
As of 2015, this restriction also applies to entities
belonging to the same group which are seated
outside of Curaçao and are not subject to profit tax.
In this regard it is not important whether it
concerns an investment company or an active
business; tax subjectivity is the only thing that
matters.
Special Purpose Fund
Up until 2014 only a private foundation (SPF) or
trust was able to obtain the status of a special
purpose fund. Upon request a special purpose fund
was subject to a rate of 10% rather than the general
rate of (at that time) 27.5%.
As of 2015, the status of a special purpose fund can
also be achieved by a public company (NV) or
private limited liability company (BV). In order to
be eligible for this, the conditions must be met that
also apply to exempt companies, for instance with
regard to the management, keeping a share
register of beneficial owners and the statutory and
actual activities. Unlike for an exempt company it
is no obstacle for a special purpose fund if more
than 5% of the income received comes from
dividend of tax exempt investment companies.
Curaçao. The deduction applies per person for a
maximum period of 10 years.
Transparent company
In addition, it will be possible for employers to pay
a tax-free compensation of up to ANG 10,000 per
year for a maximum period of 10 years.
Up until 2014 only an NV or BV could opt for a
transparent status. As of 2015 it is also possible for
bodies founded outside of Curacao with a capital
that is divided into shares to opt for this status,
provided that these bodies are situated in Curaçao.
This makes the transparent company regime more
flexible and attractive to international investors.
Income tax private persons
-
Own home
The expenses for the maintenance of one's own
home, which were deductible to a maximum of
ANG 3,000 up until 2014, are no longer deductible
as of 2015. As of 2016, the deduction of fire and
accident insurance premiums will also be
cancelled. In contrast to earlier reports the
deduction of mortgage interest and the interest on
personal loans will not be changed.
Because of the elimination of the deduction of
maintenance costs and fire insurance premiums
some homeowners may enjoy little net benefits
from the tax cuts.
-
Health care costs
The premium for health insurance, along with
other medical expenses, will remain deductible
considering a threshold of 5% of the income. As of
2015, however, the premium for the Basic Health
Care Insurance (BVZ) will no longer be deductible.
It is remarkable that the legislator has chosen to
exclude a specific category of health insurance
premiums from deduction. This deduction
limitation is disadvantageous primarily to people
who are insured for the BVZ but are not employed,
or for those who enjoy supplemental income in
addition to income from employment, such as
capital income, and whose income is less than
ANG 150,000. They have to pay a BVZ premium of
13.6% on their (additional) income and can no
longer deduct it as an extraordinary expense. This
can give a disadvantage of almost ANG 10,000 for
an income of ANG 150,000, which is more than
the benefits offered by the tax rate reduction.
-
Study loan interest and repayment
As of 2015 it is possible to deduct not only the
interest but also the repayment of student loans
from one's income. It concerns a new separate
deduction up to an amount of ANG 10,000 per
year. The objective of this new deduction is to
make it more attractive for graduates to return to
-
Special rate local bank interest
The interest on accounts and deposits with local
banks was taxed at a rate of 6.5% up until 2014. In
addition, social security premiums (AOV/AWW
AVBZ) had to be paid. For someone under the age
of 65 this could add up to 24.5%. For those who
also had to pay BVZ premiums the total levy on
bank interest could add up to approximately 37%.
As of 2015 the tax rate on local bank interest is
increased to 8.5%. This is counterbalanced by an
exemption to pay premiums, however, which
constitutes a significant tax advantage.
-
Special rate capital income
As of 2015, a special tax rate of 19.5% applies to
capital income. Up until 2014 this rate applied only
to revenue from a so-called substantial
shareholding but it will now apply to all capital
income except for income from real estate rental.
In contrast to the levy on bank interest, social
security premiums and, if applicable, BVZ
premiums also must be paid on this capital
income, in addition to income tax. Nonetheless,
the introduction of this special rate is an important
reduction in the tax burden because up until 2014
the progressive rate of maximally 49% was levied
on these revenues (excluding revenues from a
substantial shareholding). Therefore, effectively
this represents a tax rate reduction that can be as
high as 29%.
-
Withholding tax on interest
As of 2015, a new withholding tax on interest
income is in effect. This tax is levied by local banks
on interest paid to residents of Curaçao. The rate is
8.5%, which is equal to the income tax rate for
these revenues.
The withholding tax does not apply to interest
payments to foreign account holders and to locally
based companies and other legal entities.
The withholding tax is comparable to the tax on
savings income which the local banks are already
required to levy under the treaties on savings
income that Curacao has entered into with the
countries of the European Union. The government
has opted for this withholding tax instead of a
requirement for local banks to provide information
to the tax office on interest payments (the so-called
interest disclosure requirement). The local banks
are obliged to report and pay the withheld interest
per calendar quarter. The deduction and
remittance will take place for the first time per July
1st 2015 for the period of January 1st through June
30th.
-
Tax rebate for foreigners
As of 2015, foreigners are no longer eligible for tax
rebate. This means, for example, that a nonresident who owns a house in Curaçao which he
rents out must pay income tax on the rental
income and will no longer enjoy tax exemption for
the first (approximately) ANG 18,000.
Under the Tax Agreement for the Kingdom (BRK),
this will not apply to residents of one of the
Kingdom's other countries. As for now they will
retain the right to the tax rebate. When the new tax
agreement with the Netherlands (BNC) shall enter
into force, which is expected to be in 2016, the tax
rebate will no longer apply to residents of the
Netherlands either.
Wage tax
-
Customary wage
As of 2015, someone who is employed by a
company in which he also holds a substantial
interest (5% or more of the shares) has to declare a
salary of at least ANG 50,000 or 50% of the
company's turnover if that amount is lower. The
company must withhold and pay wage tax and
social security premiums on this salary. In this
regard it is irrelevant whether or not the salary is
actually paid. In the following cases it is possible to
deviate from the above-mentioned amount.
Lower pay
If it is probable that a lower pay is common for
similar employments, this lower pay may be
assumed. In the year of creation and the three
years thereafter the body's commercial profit may
be used.
Higher pay
If the company employs other personnel, the salary
shall effectively be set at minimally the highest
salary of the other employees.
Excluded bodies
The customary wage regulation does not apply to
employment with certain excluded bodies, such as
exempt companies, offshore companies and EZone companies.
Third-party rewards
It is possible that an employee works for another
body on behalf of the company that employs him.
Although this can be considered an employment
the employee does not have to declare the
compensation as income, provided that it is paid
directly by the other body to the employer and that
the other body does not award other
remunerations to the employee.
A prerequisite is that the paying body and the
employer file a joint request for this arrangement.
-
Fictitious employment
As of 2015, a fictitious employment applies to
employees who are employed through a temporary
employment agency. Often a relationship of
authority will exist between the temporary
employee and the hirer. However, since the hirer
only pays a fee to the temporary employment
agency and the agency pays the temporary worker
the relationship between the agency and
temporary worker is designated as employment by
fiction.
The same is true for trainees and students who do
an internship or receive professional training at a
company. If the reward for the trainee or student
also consists of a monetary compensation or
another type of compensation other than receiving
training, this is considered to be a fictitious
employment and wage taxes and social security
premiums must be paid on the received
compensation.
-
Student loan interest and repayment
As noted earlier, as of 2015 it is possible for an
employer to pay an amount of maximally ANG
10,000 per year free of tax towards the interest
and repayment of an employee's student loans.
This can be done for a period of ten years at most,
including the years in which a previous employer
has made similar payments.
Distributions from life insurance
Income tax is levied on the interest comprised in
life insurance benefits that were paid out. Up until
2014, the interest included in such capital
distributions was calculated using a formula.
Effectively, the interest was therefore not fully
taxed. As of 2015, however, the interest included in
these capital distributions will be fully taxed at a
rate of 19.5%.
There are two exceptions, in which cases the
interest can be enjoyed free of tax by the recipient:
1st. The capital is paid as a result of death before
the age of 70;
2nd. The benefits, along with other similar benefits,
do not exceed ANG 15,000 and are paid after the
age of 70.
Conclusion
As of 2015 the tax laws have undergone a number
of important changes. Some additional
amendments will follow in 2016. In general the
totality of measures can be considered beneficial,
in particular since the income tax and profit tax
rates were reduced significantly. On the other
hand, however, a number of measures were taken
that broaden the tax base and will affect certain
groups of taxpayers. Home owners, for instance,
will enjoy little net benefits from the rate reduction
because they lose two important deduction options
and are also affected by the property tax that was
introduced on January 1st 2014 and which
constituted a major increase in the tax burden.
With regard to profit tax, companies will have to
take into account the loss of the accelerated
depreciation, greater limitations to investment
deductions and restrictions to the real estate
depreciation. On the other hand, the tax rate will
be lowered from 27.5% to 22% over a two-year
period.
Given the many changes it is useful to identify the
effects of the total package for your specific
situation or for your business. Of course we are
happy to assist you in determining which of these
changes, if any, can help you to optimize your tax
position.
How PwC can help
If you would like to learn more or have questions or remarks regarding the contents of this newsflash,
please contact:
Steve Vanenburg (Tax partner)
T: +599 (9) 430 0000
[email protected]
Zuleika Lasten (Tax partner)
T: +599 (9) 430 0001
[email protected]
Lennart Huijsen
T: +599 (9) 430 0006
[email protected]
René Kempkes
T: +599 (9) 430 0010
[email protected]
Farine Torres Larmonie
T: +599 (9) 430 0004
[email protected]
Ingemara Bak
T: +599 (9) 430 0127
[email protected]
Arne Kattouw
T: +599 (9) 430 0455
[email protected]
Terrence Melendez
T: +599 (9) 430 0456
[email protected]
Or send an e-mail to: [email protected]
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