Budget Day 2023 – Caribbean Netherlands
September 26, 2023
Every third Tuesday of September it is Budget Day in the Netherlands. On this day, the Dutch cabinet proposes its new financial, legal and tax plans to the House of Representatives. The islands Bonaire, St. Eustatius and Saba are so-called special municipals of the Netherlands (Caribbean Netherlands). this means that the Dutch cabinet also proposes its new plans for these islands on Budget Day. In this article, we will inform you about the new proposed Tax Plan 2024, which includes the plans for changes in BES Tax Act (including the Revenue Withholding Tax, General Expenditure Tax as well as procedural legislation), the BES Income Tax Act, the BES Wage Tax Act and the BES Customs and Excise Act, as well as the proposed changes to the social security laws in the Caribbean Netherlands.
Important to address is that the below are proposals of the outgoing government ahead of the nation elections in November this year. Though the cabinet was keen to make some necessary changes, the custom for resigned cabinet ministers in the Netherlands is to leave substantial changes to the incoming parties. Also, plans announced on Budget Day often still have to pass through the House of Representatives and the Senate (Tweede en Eerste Kamer), and only become official after publication in the Staatsblad or the Staatscourant.
From the 1st of October, the Ministry of Social Affairs and Employment will increase the social relief for single persons who live independently and the widows’ and orphans’ pension (AWW) in Bonaire, Saba and St. Eustatius. This will increase all minimum social benefit levels for the old age pension (AOV), social relief and the widows’ and orphans’ pension to the social minimum reference point. The increase of the old age pension could also have its effect on employers within the Caribbean Netherlands (e.g. the question if the statutory ‘Cessantia’ is due upon retirement of the employee).
Among other things, the cabinet mentions that it is taking steps to achieve a social minimum on Bonaire, Saba, and St. Eustatius. Child benefit is going up by USD 90 per child per month. Furthermore, the government is maintaining the energy allowance of USD 1,300 per year for the lowest incomes as well as subsidising the fixed costs of electricity. Also, the subsidy of the fixed cost of electricity and the fixed rate of drinking water and the connection fee for internet will go down.
BES Tax Plan 2024 – Tax treatment of (passenger) cars
The government of the Netherlands has concluded that various tax laws use various different definitions to separate “cars” from “vans” and “trucks”. Within the General Expenditure Tax (hereinafter: “ABB”) “cars” are imported against a special rate of 25% (10% up to 30% in St Eustatius and Saba) with an exemption for CO2 neutral cars, whereas “vans” and “trucks” are imported against the general rate of 8% (6% in St Eustatius and Saba). Furthermore, the private use of “cars” by employees creates a fringe benefit in the Wage Tax and Income Tax, whereas it is almost impossible to impose private use on a “van” or “truck”.
The definition of “car” in the Wage Tax and Income Tax is very broad and also includes pick up trucks with a single or double cabin as well as trucks with ample space to transport people. In the ABB the definition of “car” refers to cars as defined in the Law for Taxation of Motor vehicles, which excludes vans and cars with a certain load capacity. Although the ABB does include in its definition any vehicle that can transport one or more persons, the definition is less broad than the definition in the Wage Tax and Income Tax and does not include certain pickup trucks and vans with a single cabin.
To ensure similarity between definitions in the tax legislation, the government proposes to use the Income Tax definition to define “cars”. As a result, as of January 1, 2024 the scope of cars which are subject to the higher ABB rate upon import is broader.
Passenger cars and delivery vans that are used for certain purposes or by certain services (such as ambulances, hearses and cars for the police, fire department, the Inland Revenue, Customs and the Royal Military Police) are, under certain conditions, not subject to the high ABB rate, but to the regular ABB rate. In addition – in accordance with the regulations applicable in the European Netherlands – no fixed addition to wages or income will be taken into account for a delivery van that is exclusively or almost exclusively suitable for the transport of goods. However, the high rate of ABB will apply to such delivery vans because it is often not (yet) possible to determine at the time of importation and/or commissioning whether this delivery van is or will remain exclusively or almost exclusively suitable for the transport of goods (and not also of persons).
BES Tax Plan 2024 – Market value wages director shareholder
Any person working in employment for a company in which they also have a major shareholding (if they hold more than 5% of the shares or profit rights in a company together with their partner) is deemed to earn a market value remuneration for their activities (in Dutch: gebruikelijk loonregeling). In the 2024 tax plan amendments have been made to the market value remuneration rules. The income from the director shareholder is at least set on the highest of the following:
- 90% of the wages earned in the most comparable employment situation;
- the highest wages earned by employees in the same entity or affiliated entities who are not shareholders in the entity or if no employees are working the company or affiliated entities 90% of the turnover less taxes and attributable costs of the company;
- twice the tax-free allowance as defined in article 24 of the Income Tax Act.
The proposed amendments in the legislation are underlined. The current legislation refers to the same wages in a similar employment contract, where the tax authorities had to prove similarity between the employment contracts and activities, which was hard to substantiate. The change to the most comparable employment contract alleviates this burden. In addition to the wages of other employees, the legislation now includes a calculation of the wages on the basis of turnover if the director shareholder is the only employee. And finally, the minimum amount has been raised from USD 25,000 per year to twice the tax-free allowance in the Income Tax. If the taxpayer can prove that the amounts mentioned under the last two bullets are higher than 90% of the wages earned in the most comparable employment situation, then the wage is set at 90% of the wage earned in the most comparable employment situation. Please note that the burden of proof is on the taxpayer.
Finally, the partner of the director shareholder providing their services to the company of their partner will also be included in the market value remuneration legislation.
BES Tax Plan 2024 – Dividend Exemption Income Tax
It is proposed to abolish the exemption of taxation of Income Tax on the first USD 5,000 of dividends received from investment by individuals as of January 1, 2024. This entails that all dividends received from investments will be taxed from the first USD received.
BES Tax Plan 2024 – Revenue Distribution Withholding Tax
A Revenue Distribution Withholding Tax (in Dutch: opbrengstbelasting) of 5% is imposed on any distributions of dividends or other profit sharing right by resident entities (in Dutch: lichaam) of the Caribbean Netherlands to their shareholders or participants. For the applicability thereof certain requirements should be met, amongst which the fact that the entities’ assets may not consist for more than 50% of passive investments. This condition would, in principle, not allow for holding entities to reside in the Caribbean Netherlands. In the current legislation an exemption has however been made for holding entities with a participation of at least 95% in entities that reside in the Caribbean Netherlands. For practical purposes the percentage of participation is lowered to 50%, but as an added condition all other activities of the entities (if any) need to fulfil the conditions mentioned in the Revenue Distribution Withholding Tax. This last part is to avoid the misuse of holding entities.
Furthermore, based on the current legislation, entities need to apply for an establishment decree (in Dutch: vestigingsplaatsbeschikking) from the tax authorities to be allowed to be a tax resident of the Caribbean Netherlands. This request had to be made within 6 months of the application of residency. For practical purposes the government proposes to extend this period to 24 months.
BES Tax Plan 2024 – Small Business Exemption General Expenditure Tax
The exemption for small business to administer for General Expenditure Tax (ABB) and withhold the tax will be applied on business held by individuals with a maximum turnover of USD 30,000, which is an increase of USD 10,000.
BES Tax Plan 2024 – Invoices for Producers ABB
In the current legislation service providers only need to provide an invoice upon request of the customer for ABB purposes. In the 2024 tax plan this difference will be adjusted, and producers will always have to provide invoices for the delivery of goods.
BES Tax Plan 2024 – Introduction of a Minimum Tax
In line with negotiations within the EU and OECD to prevent tax avoidance of large multinational entities, the European part of the Netherlands has committed to introduce a Minimum Tax Act in 2024. The Minimum Tax Act introduces a minimum profit tax rate of 15% on international companies with a turnover of EUR 750 million (USD 800 million).
The Tax Plan 2024 indicated that the Minimum Tax Act is also applicable for the Caribbean part of the Netherlands as of 2024, even though the Explanatory Notes recognize it may not impact many corporations in the Caribbean Netherlands.
BES Tax Plan 2024 – 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 also introduces the possibility of including a Ministerial Decree regarding situations in which taxpayers will be obligated to actively provide information about certain matters. In which situations this will be applicable is not clear yet.
Lastly, anyone who becomes an owner of real estate in the Caribbean Netherlands will have to report themselves as such to the tax authorities within 4 months of acquisition. Any changes made to real estate in the Caribbean Netherlands have to be reported to the tax authorities within 4 months of these changes and any taxpayer who has not received an assessment within a year after the year they owned a property in the Caribbean Netherlands need to report this within 4 months after the end of this year.
In case you wish to receive further information or discuss your tax position, kindly contact one of our tax advisors.