THE END OF THE SINT MAARTEN TAX EXEMPT COMPANY
November 13, 2023
On November 3rd, 2023, a notice of the Minister of Finance dated November 1st, 2023 on the implementation of Article 39, first paragraph, part a, of the General National Ordinance on National Taxes regarding the processing of requests for the granting of the status of the Tax Exempt Company (In Dutch: ‘Vrijgestelde Vennoot-schap’) as referred to in Article 1A, first paragraph, part f, of the National Ordinance on Profit Tax has been published in the National Gazette.
In 2015 the Organization for Economic Cooperation and Development (OECD) published the final reports in which the measures were presented to prevent base erosion and profit shifting, the so-called BEPS. The BEPS reports consist of 15 action points aiming to prevent multinationals from eroding the tax base of countries in which they operate. More than 100 countries, including Sint Maarten, have promised to (partially) implement these action points in their legislation. The report on action point 5 outlines a few measures that should be implemented to limit the impact of tax regimes that are deemed harmful.
On August 5th, 2021, the Forum on Harmful Tax Practices (FHTP) of the OECD ruled that the Sint Maarten Tax Exempt Company, contains elements that are considered potentially harmful due to the lack of substantial activities and ‘ringfencing’: the shielding of the domestic market against a tax-advantaged regime that is only accessible to offshore companies. In order to prevent the Sint Maarten Tax Exempt Company regime from being added to the international list of harmful regimes, the Minister of Finance has committed to the OECD to make efforts to abolish the regime.
The Sint Maarten Tax Exempt Company
The current tax legislation of Sint Maarten includes a form of tax relief for Sint Maarten private limited liability companies that are involved in financing, investment, holding company, and licensing activities.
Provided that certain conditions are met, a 100% exemption from profit tax in Sint Maarten is granted on request. The current profit tax rate is 34.5%.
For income tax purposes, the benefits derived from the shareholding in a Sint Maarten Tax Exempt Company are fictitiously set at 4% of the value of the shares at the beginning of the book year.
This notice anticipates a proposed amendment to the National Ordinance which is yet to be submitted with the parliament of Sint Maarten.
The proposed amendment would include amongst others the abolishment of the Sint Maarten Tax Exempt Company.
In anticipation of the afore-mentioned, any requests in connection with the granting of the status of the Tax Exempt Company would no longer be processed by the Inspectorate of Taxes.
Based on a transitional rule, existing Sint Maarten Tax Exempt Companies may benefit of the current regime until December 31, 2024.
Although the announcement does not include an alternative to the Sint Maarten Tax Exempt Company, the current tax legislation of Sint Maarten has alternative tax incentives that may be beneficial for your business.
For more information, please do not hesitate to contact our tax professionals.