Proposed Regulation to Promote the Participation of Youth and Young Adults - In a nutshell
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Recently, the initiative proposal for the promotion of labor market participation among youth and young adults was adopted by Parliament. The proposal aims to help job-seeking youth and young adults between the ages of 18 and 29 find employment and to make it more attractive for employers to hire a young person or young adult. Additionally, this draft regulation aims to harmonize the levying of Wage Tax and Social Premiums on overtime pay. The proposal has not yet come into effect. It will come into effect upon a national decree and will take effect on the publication date.
The Regulation
To that end, the draft initiative proposes (in summary):
1. To exempt employers, under certain conditions and guidelines, from the
obligation to withhold Wage Tax and Social Security Contributions on the wages of qualifying employees;
2. To harmonize the taxation and contribution levies on overtime pay by stipulating that overtime wages,
will not be considered part of taxable wages; and
3. To repeal the “Lei di Bion”.
“Lei di Bion”
Initially, the ‘Lei di Bion’ was aimed at reducing the growing unemployment among youth and young adults. Employers who hired a jobseeker aged 18 to 30 were exempt from paying the employer’s share of Social Contributions and received a subsidy in the form of not having to withhold the Wage Tax. This result in a reduction of labor costs for the employer.
The difference with the present draft National Ordinance and the “Lei di Bion” lies in the fact that this proposal seeks to reduce labor costs through the application of a fiscal policy instrument, whereby, under certain conditions, the employer is granted an exemption from the obligation to remit both the employer’s and the employee’s share of Social Security contributions as well as the employee’s Wage tax.
The Conditions
The mentioned exemptions are subject to the following conditions:
• The employee must be older than 18 years but younger than 30 years.
• The annual wage of the employee must not exceed XCG 37,168 per year.
• The employer has not been imposed with a penalty or administrative sanction in the past two years.
• The employer maintains a proper accounting system, with regular annual closures.
• The employer contributes to the employee’s training costs to support the development of the necessary competencies to properly perform the job.
• The employer enters into an employment contract with the employee for an indefinite term or for a minimum of six months.
Overtime Pay
For overtime pay, the condition is that the employee has a gross annual wage of no more than
XCG 81,229 per year. The exemption is limited to a maximum of 10 hours per week.
When applying for the exemption, the employer is required to provide an estimate of the overtime that employees are expected to perform during the current year.
Request
The employer should submit a request to the Inspector for the application of the exemption.
This request should be submitted within three months after the beginning of the employee’s employment. The Inspector should decide on the request within two weeks of its receipt. If no decision is issued within this period, the request is deemed granted, subject to applicable conditions.
The request should include the following information:
• The CRIB number of both the employer and the employee;
• The employee’s curriculum vitae;
• A copy of the employment contract, including an external training plan;
• An extract from the basic personal records administration of Curaçao;
• If applicable, copies of the valid work and residence permits.
The decision issued by the Inspector is valid for a maximum period of two years, starting from the first day of employment.
If prior to the expiration of the two years, the employer demonstrates that they have fully complied with the obligations and conditions, the period may be extended once, for a maximum of three additional years.
Benefits
The present draft initiative benefits not only the employer but also the employee. The reduction in labor costs for the employer can be specified as follows:
• Contributions under the National Ordinance on General Old-Age Insurance and the National Ordinance on General Widows and Orphans Insurance: 9.5%.
• Contributions under the National Ordinance on General Insurance for Exceptional Medical Expenses: 0.5%.
• Contributions under the National Ordinance on Basic Health Insurance: 9.3%.
• Contributions under the National Ordinance on Sickness Insurance: 1.9%.
Benefits
The present draft initiative benefits not only the employer but also the employee. The reduction in labor costs for the employer can be specified as follows:
• Contributions under the National Ordinance on General Old-Age Insurance and the National Ordinance on General Widows and Orphans Insurance: 9.5%.
• Contributions under the National Ordinance on General Insurance for Exceptional Medical Expenses: 0.5%.
• Contributions under the National Ordinance on Basic Health Insurance: 9.3%.
• Contributions under the National Ordinance on Sickness Insurance: 1.9%.
• Contributions under the National Ordinance on Accident Insurance: 0.5% –5%
The reduction in labor costs for employers amounts to a percentage between 21.7% and 26.2%.
The employee’s share of Social Security Contributions and Wage Tax is deducted from the employee’s gross salary. This corresponds to 12.3% in Social Security Contributions and 9.75 % in Wage Tax, totaling 22.05%.
Termination Employment Contract
The employer is required to notify the Inspector within two weeks after the termination of the employment contract, or upon the expiration of the agreed term, or the occurrence of a dissolving condition of the employment contract. If the employment contract is terminated within six months of the commencement of employment, other than through the fault of the employee or due to circumstances attributable to the employee, the exemption will never be applicable.
Notional Return for Substantial Interest Holders
Currently, the notional return for substantial interest holders with shares in a Curacao Investment Institution and foreign investment companies is 4% of the economic value that can be attributed to the shares, membership rights and interests at the start of the calendar year. Personal Income Tax is then payable on the notional return of 4% at a rate of 19.5%.
The 19.5% Personal Income Tax rate is calculated over 4% of the actual value which may be attributed to the shares, membership rights and interests at the beginning of the calendar year, provided that the value should be increased by (amongst others) the dividend payment made in the preceding calendar year. This entails that if the actual value of the shares is high, a high amount of personal income tax is due. This results in an effective tax rate of 0.78% (19.5% of 4%).
It is proposed to increase this notional return of 4% to 10% in order to compensate for the lost tax revenue due to this proposal. This would result in an increase of the effective tax rate to 1.95% (19.5% of 10%).
Contact
Our team of seasoned tax practitioners can assist you with more information.
Should you have any questions regarding this announcement, please do not hesitate to contact us. Our team would be more than happy to assist you with your questions.
Key Contact
Vivian Pieters