The Curaçao Closed Corporation (NABV)

Introduction
On December 29, 1999, the Parliament of Curaçao approved three tax bills, together known as the New Fiscal Framework ("NFF"), published under P.B. 244, 245 and 246.

The principal reasons for the enactment of the NFF are the objective of the Government of Curaçao to part from its tax-haven image and to revitalize its financial services industry. In order to do this, the off-shore legislation which is enacted in Articles 8A, 8B, 14 and 14A of the Profit Tax Ordinance 1940 and the 1979 and 1993 Guarantee Ordinance on Profit Tax will be removed. Also, a new corporate vehicle has been introduced: Curaçao Close Corporation (besloten vennootschap or: "B.V."). Below, we will highlight the most important civil and fiscal law features of the B.V.

Curaçao B.V.
The traditional and widely used corporate entity at present is the limited liability company (naamloze vennootschap or: the "N.V."). A N.V., if it qualifies as an offshore company, will be subject to the current off-shore tax regime (2.4% to 3% tax rates) as laid down in the Profit Tax Ordinance 1940. If it qualifies under the new Fiscal regime (NFF) it will be subject to a flat profit tax rate of 34.5% The B.V. has the following characteristics:

• The incorporation can be done quickly and without many formalities. There is no need for a Ministerial Declaration of no Objection. Solely a notarial Deed of Incorporation is required;
• The B.V. does not have any minimum capital requirements.;
• The only requirement is that the equity of the B.V. at the time of its incorporation shall not be negative (a declaration by the incorporators confirming this shall be annexed to the Deed of Incorporation) and shall not become negative during the existence of the B.V. Any resolutions to distribute profits to the shareholders when the equity is negative are null and void;
• The Deed of Incorporation of the B.V. can be stated in any language. In case of a language other than Dutch and English, a certified translation will be annexed to the Deed of Incorporation;
• Shares may, but do not necessarily have a nominal value.Non- or limited voting right shares and shares that do not,or partly, give right to profits, are permitted and at least one share needs be issued to another party than the B.V itself;
• Bearer shares do not exist; there are only registered shares. At all times a shareholders' register shall be kept by the Management Board of the B.V.;
• The management structure is flexible and is similar to Anglo American concepts. Aside from a Management Board being appointed by the shareholders, as is customary in Curaçao , it is possible to have a General Board of Directors and an Executive Board of Directors. The General Board, inter alia, will in this structure appoint and supervise the executive Board of Directors. The executive Board has a similar role as the Anglo American executive officers;
• Directors are liable for improper performance of duties. Such liability exists for all involved directors in respect of the general course of business, while each director can excuse himself by proving that considering his particular scope of activities, he cannot be blamed in a particular matter;
• Any and all shareholders whose interests are being prejudiced, can request for a court order to the effect that its shares are being purchased by its co-shareholder(s);
• The B.V. can be converted into a traditional N.V. and vice versa. There is a possibility for legal mergers, i.e. a merger in which both companies, by way of law, merge into one company;
• The B.V., when it qualifies as an exempt B.V., is not subject to Curaçao Profit or Dividend Withholding Tax.

Fiscal consequences
Profit Tax
The B.V. is, in principle, subject to Profit Tax as any other taxable entity. The profit tax rate as of January 1, 2002 is 34.5% flat (consisting of a 30% Profit Tax rate and 15% Island Surtax), which is applicable to all taxpayers. Beside this standard rate, the low off-shore rates of 2.4% - 3% are applicable for qualifying off-shore companies.

Exempt B.V.
The B.V. may request to be subject to tax against a rate of 0%, provided that the following criteria will be met:

1. A request to be subject to the 0% rate should be filed with the tax inspector. The approval of the tax inspector will be applicable for the financial year of the company following the year in which the request is filed. If it is intended that the 0% rate is applicable upon the incorporation of the B.V., a request thereto needs to be filed prior to or within three months after the incorporation of the B.V.
2. The Board of Managing Directors of the B.V. should maintain a register with the names and addresses of all shareholders, who hold more than 5% of the paid-in capital and, should any of these shareholders be legal entities, the names and addresses of all ultimate beneficiaries of the B.V. that (indirectly) hold more than 5% of the paid-in capital.
3. The Board of Managing Directors may consist only of individuals residing in the Curaçao or certified trust companies residing in the Curaçao and their directors or employees. The Minister of Finance will publish the conditions that need to be met to qualify as a certified trust company.
4. The Board of Managing Directors shall annually prepare financial statements that are audited and approved by an independent expert.
5. The purpose of the B.V. and its actual activities exclusively or nearly exclusively consist of:
   (i) lending and investment; or
   (ii) financial services; or
   (iii) services or other activities in connection with the aforementioned.
6. The B.V. is not a bank or other financial institution being subject to the supervision of the Bank of the Curaçao.

Change of regime The possibility exists for an exempt BV. to become a normally taxed company and vice versa. If an exempt B.V. makes a request thereto, the tax inspector will consider the company as a normally taxed company as from the year following the year in which such request was filed. If, however, a tax exempt B.V. no longer meets (one or more of) the aforementioned criteria, the exempt status is lost from the beginning of the year in which the criteria are no longer met. For Profit Tax purposes the change of regime by an exempt B.V. into a normally taxed company and vice versa, is considered dissolution of the company whereupon the capital of the company is considered distributed to its shareholders, deemed to be followed by a contribution of capital by the shareholders.

Participation exemption The NFF grants an exemption from Profit Tax in respect of benefits (dividends and capital gains) arising from a qualifying participation. Expenses incurred in connection with a qualifying participation (including capital losses) are not deductible, unless it can be demonstrated that these expenses are indirectly incurred in respect of the realization of profit that is subject to tax in Curaçao . With regard to the scope of the exemption, a distinction should be made between a foreign qualifying participation and a domestic qualifying participation. A full exemption from Profit Tax is applicable for benefits received/realized in connection with a domestic participation. If the benefit is received/realized in connection with a foreign participation, the exemption from Profit Tax is limited to 95% of the benefits. The remaining 5% is subject to the standard Profit Tax rate (34.5%). In this context, the exempt B.V. is considered to be a foreign participation.

A qualifying participation is defined as an interest of 5% of the paid-in share capital (or voting rights or profit certificates) of a company.

An interest which does not meet this criterion may nevertheless be considered a qualifying participation if the acquisition price of the interest amounts to at least ANG 1,000,000 (approximately US$ 562,000).

Residency for tax treaty purposes Since the exempt B.V. is not liable to tax by reason of domicile, residence, place of management or any other criteria of similar nature, the company is not a resident as defined in the OECD model double taxation convention. Therefore, the company will not be entitled to protection from source country tax for income from other countries under tax treaties.

Conclusion
With the introduction of the B.V. a new internationally competitive corporate entity has come into existence. Due to the great flexibility of the B.V. in respect of capitalization and management, we anticipate that it will be useful in international structures, such as joint ventures.

The aforementioned information on Curaçao Close Corporation is designed to provide a general understanding of the principal corporate law features of the new Curaçao corporate entity and the fiscal treatment thereof. The information provided should be used for guidance only. The summary is not intended to be comprehensive, and no specific action should be taken on the basis of this information without consultation of a tax lawyer/consultant.

Contact PMP (Curaçao) N.V.
If you are interested in establishing a Curaçao closed company, or would like further information, please contact our offices via email (info@pmpgroup.biz) or call us at (+599) 9 737 0754.

Disclaimer:
The information contained in this memorandum is of a general nature only and should not be construed as legal or tax advice. Readers should obtain appropriate professional advice before setting up any structure. If required, PMP can refer readers to a panel of reputable tax- and legal advisory firms.