Take advantage of the opportunities presented by the decrease in the profit tax rate!
In order to boost the economy, the Minister of Economic Development and the Minister of Finance in Curaçao have made the decision to lower the profit tax rate, effective from 1 January 2023. The “Aanschrijving Wijziging belastingtarief winstbelasting” was recently published in the Government Gazette on 22 September 2023, outlining the significant changes. This article aims to highlight the key modifications, allowing you to take advantage of the opportunities provided by the profit tax in Curaçao.
In Curaçao, N.V.’s, B.V.’s, foundations from companies, and branches of foreign companies pay business income tax. The standard business income tax rate is 22%, lower than the EU and Latin American countries. Curaçao also has specific profit tax regulations. Economic zone companies enjoy a 2% profit tax rate, and companies with a tax holiday get a 3% rate. Additionally, Curaçao follows the territoriality principle, potentially excluding foreign taxable profits from business income tax.
In contrast, sole proprietorship earnings face progressive income tax, ranging from 9.75% to a maximum of 46.5%.
To stimulate economic growth, job creation, and economic activity, Curaçao plans to reduce the profit tax rate. It’ll implement a two-tiered bracket system. The initial ANG 500,000 of domestic taxable profits will have a reduced rate of 15%, while profits exceeding ANG 500,000 will face the standard 22% rate.
The impact of the profit tax rate reduction
Let’s examine the impact of reducing the business income tax rate with an example. A company earns ANG 650,000 domestically. Under the previous tax system, the company had to pay 22% on the ANG 650,000, leading to a profit tax of ANG 143,000.
Starting in 2023, the company will face a lower rate of 15% on the initial ANG 500,000 in domestic profits (equating to ANG 75,000) and the standard rate of 22% on the remaining ANG 150,000 (amounting to ANG 33,000). This reduces the company’s total income tax liability to ANG 108,000, saving ANG 35,000 for the company.
Lowering the profit tax rate grants companies increased financial flexibility to invest and promote growth. Hence, it’s essential to factor in the reduced 15% profit tax rate when filing profit tax returns from 2023 onwards.
Furthermore, sole proprietors should assess whether converting their businesses into a B.V. or N.V. would offer more advantages, considering the potential benefits of lower personal income tax rates. Also, evaluate whether your company qualifies for special schemes like a tax holiday with a business income tax rate of 3% or the territoriality principle, which excludes foreign profits from the taxable profit base.
To optimize your company’s imcome tax position and make the most of Curaçao’s regulatory opportunities, gather information and insights. This will help you effectively navigate the tax landscape and seize the available benefits.