What is a Finance Company?
An intermediate finance company ('Finance Company') is a company whose main
purpose is to facilitate intra-group finance transactions, such as inter
-company loans. Typically, a Finance Company will borrow and lend funds.
Other financial services may include sale and lease-back constructions.
Why should my company consider incorporating a Finance Company?
By using a Finance Company, an international group can generally benefit
from reduced withholding tax rates on interest payments under relevant tax
treaties, whilst also enjoying domestic tax concessions that minimize the
tax liability of that Finance Company.
Tax deferral and/or tax savings often form an important objective to
incorporate a Finance Company. But there are valid commercial reasons for
doing so as well, such as, for instance, the consolidation and
centralization of a group's international financing operations and
management.
Curaçao Domestic Tax Benefits
When a Curaçao Finance Company ("CUR Finance Company") is used, the
corporate tax laws in the Curaçao impose corporate income tax on only a
small margin of the Finance Company 's interest receipts.
A CUR Finance Company need only report 0.25% of its average on-lent funds as
taxable income, resulting in an effective tax rate of 0.08625% or USD 862,-
on average for every million dollars lent. For sums in excess of USD 100
million, the effective tax rate will be halved, and for sums in excess of
USD 250 million, the effective tax rate is reduced to a quarter of the
standard rate.
A tax ruling is required to allow for the interest cost deduction. A ruling
can be obtained in advance to secure the tax treatment as described above.
In the case of non-interest bearing loans, an informal capital ruling is
possible allowing a notional amount of interest to be treated as a tax
deductible expense on those loans. This benefit accruing to the Curaçao
company is considered to be an informal capital contribution and is not
subject to any form of capital or profit tax in the Curaçao.
In the case of non-interest bearing loans, an informal capital ruling is
possible allowing a notional amount of interest to be treated as a tax
deductible expense on those loans. This benefit accruing to the Curaçao
company is considered to be an informal capital contribution and is not
subject to any form of capital or profit tax in the Curaçao.
International Withholding Tax
Curaçao imposes no domestic withholding tax on interest paid by the CUR
Finance Company to its ultimate lender.
Curaçao Finance Company using intermediary
A CUR Finance Company residing in Curaçao typically lends to an intermediate
finance company located in a country that has concluded double tax treaties,
for example the Netherlands.
The major advantage of using the Netherlands as a centre for intermediate
financing is that the Netherlands does not levy withholding tax on interest
paid and that, under the comprehensive Dutch treaty network, withholding
taxes levied in end-user countries on interest paid to Dutch residents are
significantly reduced, in many cases to nil.
The combination of low domestic taxation in both the Netherlands and
Curaçao, together with the significant reductions of withholding tax at
source through the Dutch tax treaty network, makes the CUR Finance Company
structure extremely tax efficient, although it should be noted that is not
strictly necessary to use a Dutch intermediate company: any jurisdiction
with a similar tax treaty network, domestic and withholding tax regime will
suffice.
Transitional provisions - existing finance companies
Under the transitional provisions of the NFR (New Fiscal Regime, in force as
of January 1, 2002), existing offshore companies formed before July 1, 1999,
that have obtained a finance tax ruling may report only 0.25% of its average
on-lent funds as taxable income in case of bank loans. Where loans from
related parties are concerned, the percentage to be reported is 1%, taxable
at the offshore rate of 3%.
In case taxation under the NFR proves to be more beneficial the existing company may at any time opt to be taxed under the NFR.
Contact PMP (Curaçao) N.V.
If you are interested in establishing a Curaçao Finance 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.
Finance Company