The Senate Finance Committee decided not to provide input on the bill approval proposal.
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The Senate has treated the approval bill concerning the DOUBLE tax treaty between the Kingdom of the Netherlands, for the benefit of Curaçao, and Malta during a plenary session on July 9th, 2024. The main features of the double tax treaty are outlined below.
Background
The Treaty between the Kingdom of the Netherlands, on behalf of Curaçao, and the Republic of Malta (Treaty) aims to avoid double taxation and prevent tax evasion concerning income taxes. It establishes rules to determine whether Curaçao or Malta has the right to tax residents’ income according to their national laws. Additionally, the Treaty facilitates the exchange of tax information and mutual assistance in recovering tax debts and other measures to prevent tax evasion.
The Double Tax Treaty
Taxes covered
The Treaty applies to the following taxes: in Malta, the income tax (in Dutch: “inkomstenbelasting”) (hereinafter referred to as “Malta tax”); in Curaçao, the income tax (in Dutch: “inkomstenbelasting”), the wage tax (in Dutch: “loonbelasting”), the profit tax (in Dutch: “winstbelasting”), and the dividend withholding tax (in Dutch: “dividendbelasting”) (hereinafter referred to as “Curaçao tax”).
Resident
This Convention defines a “resident of a Contracting State” as anyone who is required to pay taxes in that state due to their home, residence, main place of business, or other similar reasons. However, this provision does not apply to individuals who only pay taxes on income earned within one of the states.
If a person qualifies as a resident in both states, residency is determined based on specific criteria. For companies, residency is determined by the location of their main management activities.
Immovable property
Income earned from immovable property (also known as real estate) located in one Contracting State by a resident of the other Contracting State may be taxed in the state where the immovable property is located.
Business profitsy
Under this Treaty, a business is generally taxed only in its country of establishment unless it has a permanent establishment (hereinafter referred to as “PE”) in the other contracting state. If a PE exists, that state may tax the profits generated by the PE. Each state may employ its traditional methods to determine the profits attributable to the PE, ensuring these calculations are consistent with the Treaty’s principles.
Adjustments made by one state to these profit calculations will lead to a corresponding tax adjustment by the other state, unless there is evidence of fraud or serious negligence. This Treaty ensures fair taxation and also addresses other specific types of income that are covered separately under its provisions.
Dividends
Dividends paid by a company in one contracting state to a resident of another can be taxed in both states but with limits. For dividends from a Curaçao company to a Malta resident, there’s no tax if the recipient owns at least 10% of the shares in the company; otherwise, it’s capped at 5%. For dividends from a Malta company to a Curaçao resident, the tax can’t exceed the tax on the company’s profits. This prevents excessive and double taxation.
Dividends linked to a business through a PE are taxed as business profits. States can only tax dividends paid to their residents or linked to a local PE.
Interests & royalties
Interest and royalties arising in a Contracting State and paid to a resident of the other Contracting State shall be taxable only in that other State.
Capital gains
Under this Treaty, gains from property sales are taxed based on the property’s location and the seller’s residency. Gains from immovable property are taxed in the state where the immovable property is located, irrespective of the seller’s residency. For movable business property, the taxation occurs in the state of the business’ establishment. Sales of internationally used ships, aircraft, or related property are taxed in the state managing the business. Shares primarily deriving value from immovable property in another state are taxed there. Other property sales are taxed in the seller’s home state, except for former residents with significant local ties.
Income from employment & directors’ fee
Under this Treaty, income from employment is generally taxed in the state where the employee lives unless they work in the other contracting state, in which case that state can also tax the income.
It is important to note that the income will only be taxed in the employee’s resident state if certain conditions are met. Directors’ fees received by a resident of one Contracting State from a board position in a company of the other Contracting State can be taxed in that other State.
Artists and sportspersons
Income earned by artists or sportspersons from performances in another country can be taxed in the other country, even if paid to someone else. However, if their activities are largely funded by their home country’s public funds, the income is only taxed in their home country.
Pensions
Pensions and similar payments for past employment are generally taxed only in the recipient’s country of residence. However, one-time payments for work done in another country can be taxed there. Public pensions and social security payments are taxed only by the country making the payments.
Government service
Salaries, wages, and similar payments from a government or its local authorities to an individual are usually taxed in that country. However, if the work is performed in another country where the individual is a resident and citizen, the income may be taxed in the other country instead.
Elimination of double taxation
In the case of double taxation, the Treaty includes provision for a tax credit or a tax exemption by means of a tax reduction.
Whether a tax credit or exemption is granted in a specific case depends on the facts and circumstances of the case.
Conclusion
In summary, the Curaçao SPF provides a robust legal framework for asset protection and estate planning. Establishing an SPF, guided by general legal aspects and tax considerations, empowers individuals to safeguard their wealth and streamline inheritance processes. The unique features of an SPF, such as the ability to make distributions and the global advantage for non-residents, offer unparalleled flexibility and advantages.
Keep in Touch
Our team of seasoned tax practitioners can assist you in evaluating how this tax treaty affects your specific situation.
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
Jeannitza Felix