Double taxation agreements

Curaçao has many small and medium-sized companies that want to grow their business by either expanding internationally or by working together with foreign partners. In order to facilitate this growth, it is crucial that Curaçao as a country creates optimal circumstances for international expansion and cooperation.

One of the more important factors is corporate tax. In order for local companies to be competitive in the world market, they would greatly benefit from operating under tax conditions that are equal to those of companies in other countries, and preferably under better circumstances. Our government is helping to improve the tax conditions by working on double taxation agreements.

Double taxation agreements (DTAs) are meant to mitigate the effects of double taxation between two countries. Double taxation is the levying of tax by two or more jurisdictions on the same declared income, asset or financial transaction. Double taxation might become an issue whenever a business or an individual earns money outside of the home country; the business or individual may find that he or she is obliged to pay tax on that income locally and also in the foreign country where the money was earned. The foreign taxation might be based on tax filing, but many countries in the world also collect tax from nonresidents by applying withholding tax on the disbursement of different types of income. Such income often includes interest, dividends, royalties, and payments for technical assistance.

Tax treaties
This unwelcome double taxation can be avoided by forming tax treaties between countries. Such tax treaties tend to reduce double taxation in two ways. The foreign country will often reduce their withholding tax rate, and the home country will generally allow an exemption for the foreign income, or a tax credit for the foreign withholding tax, in order to reduce or eliminate double taxation of the same income.

Because DTAs mitigate the risk of paying taxes on the same income both in the country in which the company is established as well as in the foreign country from which the company receives income, DTAs can facilitate cross border trading. Signing a DTA with a country can open up trade between the treaty countries, as businesses and individuals will look for trade opportunities with countries that do not cause double taxation. Large corporations always look for efficient taxation, but often cannot avoid being present in countries that do not have a DTA. Small and medium-sized enterprises, on the other hand, are more flexible in their choice of trade partners and they will generally avoid double taxation. They will look for countries that have a DTA in place, in order to optimize their margins, improve their competitive position and facilitate international growth.

At this moment, Curaçao has (negotiated) a DTA with seven countries: Aruba, Jamaica, Malta, Netherlands, Norway, Seychelles and Saint Maarten. The Minister of Finance, Dr. Jose Jardim, is working on expanding the number of DTAs and is currently in contact with countries like Dominican Republic, Ecuador and Suriname to assess the possibility of entering into a DTA. This is an important development; the more DTAs Curaçao has in place, the easier it is for Curaçao to promote itself as a good trade partner, and the easier it is for companies on the island to conduct business abroad.

Agreements
This year, Minister Jardim reached an agreement with the Republic of Malta and the Republic of Seychelles on a DTA. The authorities of Malta and the Seychelles, as well as the authorities of Curaçao, have initialed the agreements, which still need to be signed and ratified. As soon as they are, it will be more attractive for companies from Curaçao to do business with companies in Malta and the Seychelles and vice versa.

CIFA believes that the negotiation of DTAs is a relatively inexpensive and fast way to promote business development and to improve Curaçao’s business network and name recognition around the globe. It fully supports the expansion of Curacao’s DTA portfolio.