Export facility

The Curaçao export facility, introduced in the Curaçao profit tax legislation on January 1st, 2014, forms an important step in creating competitive tax legislation for companies that are established in Curaçao or wish to establish an export business on the island. The facility can also apply to companies that are currently applying for the Curaçao offshore tax regime.

The export facility was brought forth to compensate for possible competitive disadvantages of Curaçao and as an incentive to stimulate the export industry of Curaçao. It’s also beneficial to export sector-related employment opportunities. In this article, we will outline what the export facility entails and how it can benefit certain companies.

Tax incentives
The export facility is a tax incentive for companies and branches in Curaçao whose activities primarily revolve around the export of goods and/or services; i.e. at least 90% of their profits must be derived from activities outside of Curaçao. The export facility will allow enterprises to have their income taxed against an effective profit tax rate of approximately 3.9%. This effective tax rate is comprised of a combination of the general profit tax rate of 27.5% being applied to 5% of the profit, and the remaining 95% of income being taxed against 2.75%. In the future, the effective tax rate may even become lower if the general profit tax rate is further reduced. Furthermore, enterprises that have an exchange license will not be subject to turnover tax in Curaçao. Most international operating companies fall into this category. Additional benefits are that the incentive is not restricted to certain designated areas and that (advance) permits are not required to apply the facility.

Qualifying activities
As mentioned previously, one of the requirements for the application of the export facility is that a company derives its profits exclusively or almost exclusively (at least 90%) from activities outside of Curaçao. The following activities allow a company to qualify for the export facility:
1. The export of goods
2. Maintenance and repair of goods of companies established outside of Curaçao
3. Maintenance and repair of machinery and other materials located outside of Curaçao
4. E-commerce activities
5. Other forms of services that are oriented abroad, including storage activities, financing and licensing activities, the granting of the use or user rights of assets, the holding of shares in other companies or the membership in a cooperative.

Substance
In addition to fulfilling the criteria laid out in the qualifying activities, certain substance requirements should be met. For a company to qualify for the export facility, the company, or the concern of entities in Curaçao to which the company pertains, should have real and appropriate substance in Curaçao for the nature and size of the activities in Curaçao. By codifying this already international standard requirement in national law, Curaçao shows its commitment to comply with international standards and its focus on substance business. The latter is also important in ensuring that the facility will be sustainable in the future, considering the international developments and the focus on substance. The Minister of Finance will issue further guidelines on how the substance requirements should be interpreted in practice.

Potential candidates
The combination of the export facility’s focus on both the export of goods and services, as well as substance, makes the facility especially interesting for service centers, international mobile activities, trading companies, so-called offshore banks, coordination centers and headquarters of multinationals or companies that already have a presence in Curaçao but want to extend their activities to clients abroad.

For companies that are already established in Curaçao and are still subject to the offshore tax regime, the export facility might also be of interest. The offshore tax regime was abolished in the year 2002, but grandfathered up to and including the year 2019. Although there are still six years left, many business commitments are made for a longer period of time, making it imperative to assess well in advance the impact of the expiration of the offshore tax regime in 2019. As such, in specific cases, it could prove interesting to start applying the export facility as soon as possible, even before the termination date of the grandfathering period of the offshore tax regime.

Summary
In short, the new export facility provides an interesting incentive for companies that want to set up a business in Curaçao and provides continuity for certain companies currently applying the offshore tax regime on the island. These incentives, combined with Curaçao’s geographical location, its strong tax and legal infrastructure, its multilingual and highly educated workforce, plus the fact that it forms part of the Dutch Kingdom, make Curaçao a very attractive hub for business.

*Article prepared by Ron Van der Born and Kimberly Schreuders of Ernst & Young Dutch Caribbean (+5999 4305000).