End of the Year Tax Alerts – Sint Maarten

November 28, 2024

With the end of the year approaching, we would like to take this opportunity to offer you some general information about possibilities for time-sensitive tax savings which may be implemented before the end of the year

Personal Income Tax

Reduction individual taxable income

Certain expenses incurred before the end of 2024 can reduce the taxable income. Some examples are:

• Donations to certain organizations. These reduce your taxable income with a maximum of 3% of that income, provided the requirements are met;
• Certain expenses related to your own home that may reduce your taxable income, such as financing costs (maximum of NAf. 27,500) and maintenance costs (maximum of 2% of the value for land tax purposes and not exceeding NAf. 3,000). Important is the date of actual payment, not the invoice date or due date. ;
• Interest paid on personal loans can reduce your taxable income for a maximum of NAf. 2,500 (or NAf. 5,000 for married couples).

Reduced or 0% tax rate

If you’re looking for opportunities to grow your savings tax-friendly, consider:

• Buying local treasury bonds on which the interest received is exempt from income tax;
• Invest[1] your assets in financial products (for example non-dividend paying shares, or cryptocurrency) with the aim of realizing tax-free capital gains instead of taxable annual income;
• Savings at a local bank, where the interest received on local savings deposits is taxed at the lower income tax rate of 5%.

Pensioners facility

If you have reached the age of 50 and you have recently moved to, or are planning to move to Sint Maarten, you might qualify for the ‘Penshonado Regime’ which features an attractive income tax rate on certain qualifying foreign income. If the applicable requirements are met, an advantageous 10% personal income tax rate could be applicable to most foreign income items.

Private entrepreneurs

If you are an entrepreneur for personal income tax purposes (sole proprietorship (in Dutch: ‘eenmanszaak’)), please also consider the items with an (*) in the below paragraph on profit tax as these may also apply to you in your income tax position.

Postpone income

The income tax increases progressively with the amount of annual income. If you’ve generated relatively high income in 2024, but expect lower income in 2025, it could be beneficial to postpone income (for example a bonus) to the next year, because the tax rate on the lower income that year could be considerable lower.

Wage tax

Tax-free allowances for employees

Under circumstances, it is possible to provide employees with a tax-free allowance, such as for instance:

• Allowance for work clothes;
• Allowance for professional / technical literature;
• Allowance for attending conferences and seminars;
• Allowance for expenses incurred for working from home (internet);
• Allowance for work-related car expenses and fuel.

Expatriate regime

It is possible for an employee to be classified as an expatriate and benefit from various tax exempt salary components if they meet the following conditions:

• The employee has a degree from a university or has enjoyed a higher professional education; or
• The employee does not have a degree from a university or has enjoyed a higher professional education but has at least five years of relevant work experience and receives a gross salary of at least NAf. 100,000 per year. We recommend verification of the salary threshold of qualifying employees before the end of the year. If the employee does not meet the salary threshold, the expat regime could be revoked.
• The employee has specific expertise which is not or limited available in Sint Maarten; and
• The request is filed with the Tax Authorities within three months after commencement of the employment.

Contractors

If you retained services from individuals offering their services as independent service providers, the names, address, identification number and telephone numbers of these individuals should be reported to the tax authorities no later than January 31^st 2025.

Turnover tax

Turnover tax on foreign services*

If you retained services from foreign services providers, you as a local entrepreneur established in Sint Maarten could be held liable for the turnover tax due on these services. Considering the penalties that can accumulate if incompliant, it is highly recommended that you verify with the overseas service providers if they are remitting Sint Maarten turnover tax on the services provided to you.

Voluntary disclosure procedures*

In case you have identified any underpayment of taxes due, before this underpayment has been addressed by the tax authorities, it could be considered applying for the voluntary disclosure procedure (in Dutch: ‘inkeerregeling’). For this procedure letter to the tax inspector is required and  if conditions are met, the fines imposed by the tax authorities are limited to 15%, instead of regular fines ranging from 25% to 50% and even 100%.

Real estate rental income*

Real estate entrepreneurs are advised to closely check to which extent they are engaged in commercial rental and rental of certain private dwellings. It is advisable to make a distinction between these two types, because of the different turnover tax consequences connected with it:

• Commercial lease is normally taxed with turnover tax;
• In case of lease for habitation it can be permanent habitation or short-term lease. If it concerns permanent habitation, i.e., habitation for at least one year, an exemption from turnover tax can be applied. If it concerns short-term lease on the other hand, turnover tax will in principle be due;
• We emphasize that if it concerns short-term lease to tourists, an exemption from turnover tax is applicable, provided that room tax is due.

Allocation formula costs for common account (cost contribution arrangement).

If you have entered into a cost contribution arrangement (in Dutch: “overeenkomst kosten voor gemene rekening)   but using a different allocation formula on e.g. an annual basis, we would like to draw your attention to the policy in this respect:

• This allocation formula can no longer be changed in interim;
• If the allocation formula is nevertheless adjusted in interim, this might entail that the mutual set offs can be taxed with turnover tax;
• Adjustment of the allocation formula is in principle only possible if the composition of the cooperating parties’ changes.

Profit tax

Request to report a lower taxable profit

The tax amount due to be reported in the provisional profit tax return should at least be equal to the tax due according to the most recent final profit tax return.

If you expect to owe a lower amount of profit tax for the year 2024 than in the preceding year, it will be important to timely file a substantiated request with the Inspectorate of Taxes stating that you wish to report a lower amount of taxable profit.

Tax provisions*

Under certain conditions it is possible to form a provision for future expenses. In that way, such future expenses may already be deducted from the taxable profit of this year.

Creating a provision can also be helpful to support your liquidity position. If there is a reasonable level of certainty that the expenses will arise in the future, it may be advantageous to form a provision for example for the following items:

• Expenses for legal proceedings;
• Medical expenses and other employee benefits;
• Risk of irrecoverable loan receivables and claims.

Pension provision

To reduce the taxable profit and to strengthen the pension provision, you may consider:

• If possible, to review the pension provision as calculated by an actuary; possibly the tax deduction in connection therewith can be increased.
• Any deficits in the reserved pension capital may be supplemented before the end of the year.

Tax Exempt Company

Existing Sint Maarten limited liability companies in Dutch Besloten Vennootschap (‘B.V.’) with exempt status for profit tax purposes, the so called Tax Exempt Company should be aware that this tax regime will at some point be abolished as announced in 2023 by the Minister of Finance.

If you have a Tax Exempt Company, you should in any event be aware of the following points of attention:

• A Tax Exempt Company must meet the legal requirements at all times. It is therefore of great importance to check whether your Tax Exempt Company has met and still meets all relevant conditions, so that the company can continue to use its exempt status.
• A Tax Exempt Company’s income may not exceed the allowed maximum of the so-called “tainted dividends”. It is therefore important to closely evaluate what the income of the Tax Exempt Company consists of.
• A private individual living in Sint Maarten will be taxed in the personal income tax based on the value of his shares in a Tax Exempt Company as per January 1^st every year. A dividend distribution from a Tax Exempt company is not taxed in St. Maarten. Doing so before January 1^st 2025 would lower the value of the shares, meaning a lower tax burden.

Private Fund Foundation (‘PFF’)

The PFF in Dutch Stichting Particulier Fonds (‘SPF’) is a useful instrument for investing and protecting your capital and/or assets as well as to facilitate estate planning for others. It may also be possible to invest your capital in a tax friendly manner by using a PFF. Investing through an PFF can be advantageous, because:

• Contrary to a regular Foundation, a PFF can make distributions to its founders and/or beneficiaries;
• Income derived by a PFF is exempt from profit tax, except if it arises from conducting a business;
• The PFF is a safe instrument to keep the family wealth intact for future generations.
• Please note that a single distribution as well as periodical distributions by PFF to a Sint Maarten resident individual shall be subject to Sint Maarten personal income tax.
• The PFF itself is not exempt from the turnover tax.

Sint Maarten trust

If you are in the market for an alternative instrument for investing and protecting your capital and/or assets as well as to facilitate estate planning for others possibly the Sint Maarten trust could be relevant for you. Note that the trust, in contrast to the PFF, has no legal personality.

As also is the case with the PFF, please note that a single distribution as well as periodical distributions made by a Sint Maarten trust to a Sint Maarten resident individual shall in principle trigger Sint Maarten personal income tax.

Investment deductions and accelerated depreciation*

Assets used within the company should be capitalized on the tax balance sheet and depreciated over time in accordance with the applicable rules. The depreciation rate depends on the life span of the assets and the remaining value. Alongside these established depreciation rates, there is also the option for accelerated depreciation, which allows the company to depreciate one-third of the acquisition cost of a business asset early in its useful life. This enables the company to recognize higher expenses in a year when it has higher taxable income.

If an amount exceeding NAf. 5,000 is invested in business assets in a financial year, 8% of the investment amount may be deducted from the taxable profit of that year as well as from the taxable profit of the next year. For real estate investments (not land), the deduction rate is 12%. This means that:

• It can be advantageous to enter into obligations before January 1, 2025 with regard to envisaged investments, in order to already claim the investment deduction this year.
• The (higher) depreciation basis will also be available sooner.

If your qualifying investments in 2024 are below NAf. 5,000, it could be considered to make additional qualifying investments before the year end to meet the threshold.

Disinvestments*

Besides the aforementioned possibility of profit reporting postponement, it can be important to postpone the transfer of a business asset until after December 31st, 2024. This particularly applies to investments made in 2018 and for real estate investments made in 2009 in light of a previously claimed investment deduction. The so-called disinvestment addition on the sales price will expire after 6 and 15 years respectively.

Tax deductible write-offs*

Under certain circumstances it is allowed to revalue assets, including debtors and stock. Such revaluation might lead to a write-off which is deductible for profit tax purposes. In times of economic crisis, for instance the following write-offs could be considered:

• Review the financial position of your debtors. If it is likely that some will not be able to meet their (re)payment obligations, you may take into account the amount that will presumably not be paid back when drafting your financial statements (provided no provision has been formed in connection therewith);
• Price declines in the market and/or the lapse of expiration dates of stock may give rise to write-offs on the balance sheet item stock.

Please do not hesitate to contact one of our advisers for the applicable conditions when considering such write-offs.

Postponement of profit reporting  (replacement reserve) 

If it is intended that sold inventory or business assets are to be replaced it is possible to postpone the reporting of profits from such sale, provided certain conditions are met. In connection therewith, it is recommended that you timely seek advice on the profit to be reported in the year of sale.

Gifts to charitable institutions

Gifts, that do not qualify as business expenses, are deductible to a maximum amount of 3% of the profit if made to religious, charitable, sport, cultural, scientific and (registered) public benefit organizations and insofar the amount of the gift is at least 1% of the profit made and exceeds NAf. 100.

If you made any deductible gifts, please keep the proof of payment to ensure deduction of the gift from the taxable profit.

Expiration of losses

If the calculation of the taxable profit leads to a negative amount, this will be considered as a tax loss. This loss can subsequently be offset against the taxable profit of the next ten years. The loss compensation should be applied in the sequence in which the losses were suffered, and the profits are realized.

We would like to emphasize that existing tax carry forward losses of the year 2014 may still be offset against the taxable profit which is realized in the year 2024. By using this possibility, you will avoid the fact that such losses will no longer be available for loss compensation.

Participation exemption

Income in relation to participations in other companies (e.g. dividends and capital gains) are exempt, if the participation exemption is applicable. The participation exemption applies for certain qualifying participations in local entities. In some cases, the participation exemption is limited, and only 70% of dividends derived from participations are exempt from taxable income. This occurs if more than 50% of the gross income of the participation consists of dividends, interest, or royalties outside the scope of an active business, and if the participation is not subject to a tax on profits with a nominal rate of at least 10%.

We advise to review annually before the end of the financial year whether the participation exemption applies.

Fiscal unity

For affiliated companies it can be considered to apply for a fiscal unity before the end of the year, so that a (fiscal) consolidation can be applied with retroactive effect to January 1, 2024.

• By forming a fiscal unity, losses of one group company can be offset against profits of another group company.
• Various conditions apply.

Transfer pricing

Please note that if a company is part of a group, its administration should include documentation that shows that the intercompany transactions are “at arm’s length”. The information that must be documented includes the transfer pricing method used, the reasons why that method was chosen, and a substantiation of how the price was determined. This will provide the Tax Authorities with guidance to better determine whether the contractual terms and conditions are at arm’s length. The transfer pricing documentation must be included in the company’s records. Failure to comply with this recordkeeping obligation will cause the burden of proof to shift to the taxpayer.

Please ensure that all your transfer pricing documentation is up to date and shows all intercompany transactions to avoid additional assessments and penalties.

[1] This fiscal year-end memorandum should not be considered investment advice.