It sometimes happens that income is taxed twice or not at all. This concerns, for example, a resident of Curaçao who receives income from abroad. Double taxation is not desirable and is countered by tax treaties between countries or unilateral arrangements. This involves dividing taxes between countries or providing compensation for foreign taxes. Curaçao currently has a very limited treaty network that must ensure that double taxation is reduced or prevented. Curaçao also did not have a unilateral arrangement that indicates how to deal with situations of double taxation. This has finally come to an end with the publication of the National Decree on the Prevention of Double Taxation. Before we discuss the National Decree, we will first consider the question of when a certain income can be taxed twice.
Double taxation can arise when two countries want to tax the same income. This can best be illustrated with the following example. Mr. It does not matter whether the income comes from domestically or abroad. In Country A, taxes are then charged based on the place of residence of Mr. Mr. This is called the source place principle . Suppose Country A and Country B have not concluded a tax treaty with each other. Neither country has a unilateral double taxation scheme. In such a case, Mr.
It is not inconceivable that being confronted with double taxation can leave a bitter taste. Paying tax on income once is already unpleasant for many. Paying tax twice on the same income is then completely unacceptable. Through unpublished policy of the tax authorities, an attempt was made to provide some relief to people who are faced with double taxation. However, the tax authorities' policy was not clear because it had not been published. It then becomes difficult to rely on tax authorities' policies that are not known or publicly accessible. In practice, the methodology for preventing double taxation could be referred to the Dutch Double Taxation Decree 1989, because Curaçao itself did not have its own published regulations.
Curaçao now has its own National Decree on the Prevention of Double Taxation. The National Decree was published on October 18 and came into effect on October 19, 2022. The National Decree is a unilateral arrangement to prevent double taxation. Naturally, there are rules attached to this, such as that it only applies in situations where double taxation is not prevented in any other way, for example through tax treaties. Furthermore, a so-called submission requirement applies. For the application of the National Decree, the income must also be subject to taxation abroad. Being subject means that income abroad is included in the tax. Being subject does not necessarily mean that tax must actually be levied abroad. This is only different for income from work performed abroad for less than thirty consecutive days. The scheme only applies to specifically described foreign income.
It is important that the National Decree only applies to a number of taxes mentioned. This is the income tax for all years for which an assessment has not yet been irrevocably determined. Also the payroll tax, but only with effect from January 1, 2023. Furthermore, the National Decree applies to profit tax for all financial years starting on or after January 1, 2020 and the inheritance tax for all tax on or after the date of entry into force of the National Decree. outstanding inheritances and donations and for all years for which the assessment has not yet been irrevocably determined. The decision does not apply to other taxes or levies. For example, no compensation is given for double taxation of social insurance premiums.
The prevention of double taxation for foreign income components takes place according to the exemption method or the settlement method . With the exemption method, the Curaçao tax is reduced by an amount that is calculated based on a complicated formula. This formula takes into account, among other things, the ratio between foreign income and total income. The exemption method is the most advantageous in practice. With the credit method, the tax paid abroad is offset. The type of income component for which avoidance of double taxation is requested is important for the question of which method should be applied.
Requests for double taxation must be submitted when filing a tax return. If there are any questions about whether there is double taxation, whether the National Decree applies or which method should be used to prevent double taxation, please contact a tax advisor.