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TAX NEWS - DECEMber 2009 | |||||||||||||||||||||||||||||||||||||||||||
Netherlands Antilles tax: Participation exemption and exempt companies rules amendedsignificant consequences for international operating companies with business in the Netherlands Antilles. The amendments include the following: - New requirements to qualify for the benefits of the participation exemption; - Expansion of qualified activities for limited liability companies to become tax-exempt (accompanied by stricter rules on foreign dividend income received by tax-exempt companies); and - New rules for licensing activities and intergroup financing (cost-plus activities). Participation exemption Under the participation exemption, dividends and capital gains derived from a participation in a subsidiary are 100% tax exempt for Netherlands Antilles and Netherlands participations that are not tax-exempt companies, and 95% exempt for foreign participations and participations in a tax-exempt company. Two principal changes are made to the participation exemption rules: 1. The 95% exemption will be abolished and the 100% exemption will be available for all types of subsidiaries, i.e. those in the Netherlands Antilles, the Netherlands and participations in foreign subsidiaries; and 2. Foreign subsidiaries will be subject to stricter conditions to obtain the 100% exemption. The parent company will be required to hold 5% or more of the share capital or voting rights in the foreign subsidiary and the foreign subsidiary may not be considered a passive investment company ("activity test") or the foreign subsidiary must be subject to profit taxation in its country of residence at a nominal rate of 10% (the "subject–to-tax test"). Even if a Netherlands Antilles parent company does not hold 5% or more of the share capital or voting rights of the subsidiary, the participation exemption still may be claimed if the purchase price (cost price) of the participation is at least USD 500,000 (ANG 890,000). However, if neither the activity test nor the subject-to-tax test is met, the 100% participation exemption will not apply. As a relief measure, the Netherlands Antilles parent company will be able to exempt 70% of all benefits from the subsidiary, resulting in an effective profit tax rate of 10.35% (30% will be taxed at the statutory rate of 34.5%). Tax-exempt LLCs Another important change will be an expansion of the scope of permitted activities of Netherlands Antilles tax-exempt companies. In addition to investments in shares, debt instruments, securities and deposits, tax-exempt companies will be able to engage in activities related to the licensing of intellectual and industrial property. However, this expansion will be accompanied by stricter rules for limited liability companies (LLCs) receiving dividend income from abroad: dividend income will need to be subject to an effective tax rate of at least 15% for the Netherlands Antilles LLC to retain its tax-exempt status. Further, the LLC will need to submit a declaration issued by an independent auditor affirming that the dividends were subject to tax. The declaration will have to be submitted to the Netherlands Antilles tax authorities and should form an integral part of the company's annual accounts. If the amount of foreign dividend income does not exceed 5% of the total income of the tax-exempt company in that year, the auditor report will not be required. Codification of cost-plus rulings The amendments will codify in the Profit Tax Act the policy of taxing on the basis of cost-plus agreements and will include non-risk-bearing intragroup financing and licensing activities that are concluded on a cost-plus basis. These new rules are not different from the ruling policy that applied in the Netherlands Antilles from 2003 to 2007. Grandfathering of older IBC companies The amendments discussed above result from commitments (to the OECD in 2002 and the EU Primarolo group in 2000) that the Netherlands Antilles would amend its rules to avoid being branded as a "tax haven." Thus, the changes will only affect companies that are not subject to profitable 3% tax rulings and that are regarded as "IBC entities" of offshore companies, which are grandfathered until 2019. | |||||||||||||||||||||||||||||||||||||||||||
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