End of the Year Tax Alerts – Caribbean Netherlands (Bonaire, Saba and Sint Eustatius)

December 6, 2023

With the end of the year approaching, we would like to take this opportunity to offer you some general information about possibilities for tax savings which may be implemented before the end of the year as well as some general tax advice to avoid any additional tax costs by preparing you for the end of the tax year.

Wage Tax
Cost Allowances
Under certain circumstances it is possible to provide tax-free cost allowances to staff members. Examples of these cost allowances include:

• phone allowance;
• reimbursement of study costs;
• travel expenses including a daily allowance for meals;
• representation costs;
• costs for the workspace at home.

Please note that the employer, if desired, can, under certain circumstances, make tax-free contributions to the pension plan of the staff members.

Optimizing the cost allowances taking into account the conditions set in the tax law, may lead to significant tax savings.

Benefits in kind valuation
If an employer provides benefits in kind, these benefits are considered taxable wages. However, under circumstances, the prescribed method to calculate the benefit of the use of certain company assets, such as a car or a house or even a company meal, can lead to tax savings for the employer and employee.

Optimizing the salary package with benefits in kind may lead to tax savings.

Expatriate ruling and administration
Additional tax-free allowances and other benefits are available for employees who have not worked in the Caribbean Netherlands for a period of at least 5 years and will earn at least USD 83,500 per year.

These benefits include:

• tax free allowance for school fees;
• tax free fringe benefits up to USD 8,380 per year;
• tax free allowances for the removal costs, the additional costs for housing in the first months and a rental car in the first months.

Also, the employer and employee can agree upon a net wage contract. The wage tax will then be calculated on the net wages and not be grossed up. Applying for the expatriate ruling can allow for a more competitive offering to potential candidates overseas.

Salary of the director-shareholder
Director-shareholders are obliged to take into account a fair market salary (in Dutch: gebruikelijk loon) for their services to the company in which they hold at least 5% of the shares.

In the Tax Plan 2024 changes to the conditions of the market salary are proposed to include a market salary to be set at the highest of:

• 90% of the wages earned in the most comparable employment situation;
• the salary of the employee that earns the most without having shares in the company or if no employees are working in the company or affiliated entities 90% of the net turnover;
• twice the tax-free allowance as defined in article 24 of the Income Tax Act.

Please note that the legislation allows for a taxpayer to deviate from these conditions if they can prove why the salary should be set at a different amount. It is important to correct any omissions in the correct calculation of the salary of the Director-Shareholder or to administer why the salary deviates from the conditions described above.

Reconciliation of wages
It is important to ensure that the wage tax summary and the wage costs in the annual accounts are reconciled and accounted for to avoid corrections and penalties in the future.

General Expenditure Tax (in Dutch: Algemene Bestedingsbelasting / ABB)

Refund of input ABB for manufacturers
The ABB allows for manufacturers to receive a refund of the ABB charged to them by other manufacturers or on import of goods when these goods are used by the manufacturer as raw materials or semi-finished products to produce their products.

Please note that refunds are only allowed if the invoices and import documents are prepared according to the prescribed format and the documents are available in the administration of the manufacturer. It is important to ensure all input ABB has been refunded.

Combination of services and supplies, what rate to use?
A lot of services provided are a combination of the supply of goods and services. For instance, the repair of a boat demands goods as well as the installation of these goods, installing a new bathroom is a combination of supply of goods and services and even the delivery of food by restaurants is a combination of both supply of goods and services.

Since the supply of goods is only taxable when provided by a manufacturer, but taxed at a higher rate, it is important to verify whether the correct taxation of the combination of services and supplies has been applied and whether an entrepreneur should be considered a manufacturer.

In principle, all provisions should be considered on a standalone basis, even if the combination is charged in one price. However, if the average consumer cannot distinguish the various stages, the combination of supplies and services are closely related and do not have any purpose on their own, the combination will be taxed on the basis of the main component. Therefore, it should be determined whether the provision of services or goods is the main component.

To avoid additional taxation at a later stage it is important to assess the tax returns for the application of all combinations of supply of goods and provision of services prior to the end of the year.

Refunds on ABB from bad debts and discounts
Please note that the ABB will be refunded upon invoices that are not (fully) paid and which will not be paid in full, as well as with regard to discounts provided on invoices.

It is important to check before the end of the year if a refund has been requested for all discounted invoices and bad debts.

Cost sharing agreements
The legislation ABB does not have the possibility for affiliated entities to join in a so-called fiscal unity to avoid ABB on intercompany transactions. However, when a group of affiliated companies have certain expenses that are incurred by one entity, but have been used by multiple entities, a cost sharing agreement may provide a solution to avoid ABB-taxation on intercompany transactions.

A cost sharing agreement is a legal agreement whereby the costs of services or intangibles are shared by the group in a pre-defined manner based on the utilization of these services by the other entities and the entity incurring the costs passes on the exact costs for the services to the other group entities.

Since the allocation of the costs has to be pre-defined it is important to ensure that the agreement has been entered into and the allocation key has been provided for before the year-end.

ABB on solar panels and wind turbines
As per January 1, 2023 the Tax Law BES includes an exemption and zero rate for the ABB on the supply and installation of solar panels and wind turbines. In the Caribbean Netherlands, the import, supply, and installation of solar panels, solar collectors, and wind turbines were previously subject to ABB. In that case both entrepreneurs and private individuals could not reclaim this ABB by registering and filing a tax return for the ABB, since the ABB is not a VAT. By exempting the abovementioned products and services for private individuals and non-electricity companies for ABB purposes, and by applying a zero rate for electricity companies, the Dutch government wishes to stimulate investments in solar panels, solar collectors, and wind turbines on these islands and to treat the Caribbean Netherlands in a manner comparable to the European part of the Netherlands from a taxation perspective.

Small Business Exemption
The small business scheme is regulated in Article 6.22 of the Tax Law BES. In short, the scheme means that the ‘small entrepreneur’ who is eligible for this scheme does not have to file an ABB return and does not have to pay the ABB in that year, the entrepreneur receives an exemption for this.

To be eligible for the small business schemes, the following conditions must be met (in short):

• the entrepreneur is a natural person and lives in the Caribbean Netherlands or is located in the Caribbean Netherlands or has a permanent establishment in the Caribbean Netherlands;
• the natural person in question is the owner of a company (sole proprietorship);
• the yearly turnover does not exceed the threshold of USD 20,000 (which is proposed to be increased to USD 30,000 in the Tax Plan 2024).
• if the entrepreneur has more than one business or exercises more than one profession, the companies or professions will be taken into account jointly for the purposes of this regulation.
• the entrepreneur needs to provide periodic updates on their turnover to the tax authorities.

If during the calendar year the turnover threshold of USD 20,000 is exceeded, the ‘small entrepreneur’ is obliged to file and pay an ABB return for the amount due over that year, which needs to be filed with the first tax return in the year following the year the threshold is exceeded.

Personal Income Tax
Increase of the tax-free allowance for personal income tax
The Tax Plan 2024 proposes to set the tax-free allowance in wage and income tax in the Caribbean Netherlands to the amount of minimum wages. The minimum wages have been increased as per January 1, 2023 and will be increased again in July 2024 in which it will be set at USD 21,000 per year.

Dividend exemption Income Tax
It is proposed in the Tax Plan 2024 to abolish the exemption of taxation of Income Tax on the first USD 5,000 of dividends received from investments.

Deductible Costs Main Residence
The costs of any interest on loans for the main residence are deductible from the taxable income for Personal Income Tax purposes up to an amount of USD 15,364. Furthermore, the premiums for fire and natural disaster insurances are deductible, as well as maintenance costs to an amount of USD 1,676 or 2% of the value of the main residence (please note that a maximum applies).

It is important to spread out the maintenance costs when possible, over a period of multiple years to ensure maximum deduction of these costs.

Cost Deduction for Study and Children
The costs for study for a job and the costs for study and necessary cost of living for children can be deductible from the taxable income for Personal Income Tax purposes.

It is important to not just keep the invoices of these costs, but also the proof of payment, since for deduction purposes you need to prove you have paid the expenses.

Procedural Tax Changes

The 2024 Tax Plan also proposes some amendments with regard to procedures in the tax legislation, including liabilities of taxes from subcontractors or employment agencies including the social security contributions.

Furthermore, the obligation to file annual financial statements to the tax authorities will be extended to foreign companies who do business through a branch in the Caribbean Netherlands, whereas it is currently limited to entities residing in the Caribbean Netherlands. It is important to start preparing the financial statements on time.