What is a Holding Company?
A 'Holding Company' is a company, whose main objective is to hold shares in
other companies. The participation, as it is typically referred to, can
either take the form of a passive investment (i.e., a portfolio minority
interest in a (listed) company), or an active participation in a subsidiary,
allowing the shareholder to control or influence the management and business
operations of that subsidiary. In this memorandum we will focus on the
latter category, i.e., the active participation.
Inbound Tax Treaty Benefits
Via the Netherlands
The tax treaty between the Netherlands and its' overseas independent
territories (the "BRK") provides Curaçao companies access to the benefits
available via the Netherlands' extensive tax treaty network.
Under the amended BRK, which came into effect on January 1, 2002, dividends
paid by a Dutch BV to any Curaçao NV shareholder holding 25% or more of the
paid-in share capital (or voting rights) in the Dutch BV, will be subject to
Dutch dividend withholding tax at a rate of 8.3%. If the shareholder's
interest falls below this 25% threshold requirement, then the applicable
rate of Dutch dividend withholding tax rate rises to 15%;
In recent years the way of structuring has changed in such a way that the
Dutch BV is being held by a Dutch Cooperation, whereby the Dutch Cooperation
has two or more members in Curaçao. A Dutch Cooperation is not liable to any
Dutch withholding tax.
The underlying Dutch BV itself typically functions as a holding company,
receiving dividends from subsidiaries subject to deduction (if any) of the
minimal amounts of withholding tax applicable under relevant tax treaties or
under the EU Parent-Subsidiary Directive. The Dutch BV is subject to Dutch
corporate tax on its profits.
Outbound Tax Benefits
No form of withholding tax exists in Curaçao, which means that all dividends
declared and paid by a Curaçao company are free from tax irrespective of the
location of the recipient shareholders.
Domestic Tax Benefits
Curaçao is not a low-tax jurisdiction. Curaçao companies are usually subject
to profit tax on their worldwide net income at a flat rate of 34.5%
(including surcharges).
But a Curaçao holding company can take advantage of a domestic tax
concession (known as the 'participation exemption') under the New Fiscal
Regime ("NFR"), which exempts that company from profit tax on dividends
received from, and capital gains realized on the sale of shares in
qualifying subsidiaries.
But a Curaçao holding company can take advantage of a domestic tax
concession (known as the 'participation exemption') under the New Fiscal
Regime ("NFR"), which exempts that company from profit tax on dividends
received from, and capital gains realized on the sale of shares in
qualifying subsidiaries.
The participation exemption is applicable as of the first day the shares in
a qualifying subsidiary are held.
In order to qualify for the participation exemption under the NFR, one of
the following conditions should be met:
- The Curaçao' company should own at least 5% of the paid-in share capital, or voting rights or profit certificates of the subsidiary; or
- The acquisition price of the participation should amount to at least ANG 1,000,000 (approximately USD 560,000).
Where the 100% exemption applies, none of the expenses incurred in relation to the qualifying participation (including interest expenses and capital losses) are tax deductible. Where the 95% exemption applies, a maximum of 5% of those expenses are tax deductible.
Advance tax ruling
The NFR introduced a new tax ruling policy in 2002, which complies with the
latest international standards regarding transparency and ring fencing. The
new tax ruling provides new opportunities for holding company activities and
is similar to the former policy in place in the Netherlands.
It is now possible to obtain a ruling that provides certainty as to whether
or not an interest held by an Antillean company in a foreign subsidiary
qualifies for Curaçao participation exemption. A ruling can also be obtained
to ascertain the conditions under which an Antillean holding company is
deemed to hold the interest in the foreign participation for its own
account.
If a Curaçao resident company fully or partially carries on its enterprise
by means of a foreign permanent establishment, an advance tax ruling can be
obtained to determine what proportion of the company's profits are
considered foreign profit and thereby 95% exempt from Curaçao profit tax.
Alongside the standard rulings, it will be possible to negotiate tailor-made
rulings, which adds further advantages. All rulings are usually valid for a
five-year period, with an option to renew for a further five-year period.
Transitional provisions - existing holding companies
Under the transitional provisions of the NFR, existing offshore companies
formed before July 1, 1999 as part of a 'Dutch Sandwich' can qualify for the
100% participation exemption with respect to dividends paid by a
Netherlands' company. As a result the combined effective tax burden of Dutch
withholding tax and Curaçao' profit tax on such dividends will amount to
8.3%.
Capital gains realized on the sale of participation are fully tax-exempt and
dividends received from outside the Netherlands remain taxed at a rate of
2.4 - 3%. If the company seeks an advance tax ruling, however, it may be
possible to reduce this rate further.
If at any time the company would be subject to less tax under the NFR, the
existing company may at any time opt to be taxed under the NFR.
Contact The PMP Group N.V.
If you are interested in establishing a Curaçao Holding 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.
Holding Company