Corporate tax in Saint Martin

Summary

Corporate Income Tax Rate (%) 34.5 (a)
Capital Gains Tax Rate (%) 34.5 (a)
Branch Tax Rate (%) 34.5 (a)
Withholding Tax (%) 0
Net Operating Losses (Years)
Carryback 0
Carryforward 10 (b)

a) A surtax of 15% is levied on a rate of 30%, resulting in an effective tax rate of 34.5%.

b) Losses incurred by certain companies during their first four years of business may be carried forward indefinitely. Losses incurred during the first six years by an entity that has the objective of engaging in a business in the shipping or aviation industry may be carried forward indefinitely. Companies under the Sint Maarten offshore tax regime may carry forward tax losses for five years.

Taxes on corporate income and gains

Corporate income tax. Corporate income tax is levied on resident and nonresident entities. Resi dent entities are those incorporated under former Netherlands Antilles or current Sint Maarten law, even if their management is located abroad, as well as entities in­corporated under foreign law, but effectively managed in Sint Maarten. For resident entities, corporate income tax is, in princi­ple, levied on the aggregate amount of net profits earned from all sources during the entity’s accounting period. Nonresident enti­ties are subject to tax on specific Sint Maarten income items, such as profits earned through a permanent establishment and income related to real estate property in Sint Maarten, including interest derived from a mortgage on such real estate property.

Tax rates. The net profits earned by resident and nonresident en­tities, including branches of foreign entities, are taxed at a stan­dard rate of 34.5%. However, other rates may apply to companies qualifying for tax holidays, E-zone companies, offshore compa­nies, tax-exempt companies, and taxed private foundations and trusts.

Withholding taxes are not imposed on remittances of profits by branches to their foreign head offices.

Tax incentives. Reduced tax rates and other tax incentives (tax holidays) are available to new business enterprises that engage in certain activities, including tourism and land development.

Offshore companies. The offshore tax regime was abolished in 2001. However, under grandfathering rules, special incentives are available for qualifying offshore companies in existence before 1 Jan uary 2002. Offshore companies are resident companies own­ed by nonresidents that perform their business activities abroad; that is, they earn mostly foreign-source income. Income derived by offshore companies (for example, royalty, financing, holding, portfolio investment, mutual fund, real estate and service activi­ties) is taxed at corporate income tax rates of 2.4% to 3%. For trading and service companies, offshore status may result in re­duced rates. Capital gains on securities, loans, intellectual prop­erty and immovable property are exempt from corporate income tax. In addition, advance tax rulings can be obtained for deter­mining the offshore tax status and method of calculating the tax­able basis of offshore companies. Profits derived from real estate located outside Sint Maarten are exempt from corporate income tax. The offshore tax rates are guaranteed through 2019.

Tax-exempt companies. Tax-exempt companies (TECs) are ex­empt from Sint Maarten corporate income tax. Only private lim­ited liability companies incorporated under former Netherlands Antilles or current Sint Maarten law may qualify as TECs. TECs are allowed to solely or practically solely (more than 90%) en­gage in the extending of loans, investing in securities and depos­its and licensing of intellectual and industrial property rights and similar property rights. To qualify as a TEC, a written request must be submitted to the Tax Inspector and certain conditions must be satisfied. TECs are not eligible for benefits under the Tax Regu la-tion for the Kingdom of the Netherlands or for benefits under any other double tax treaty of the former Netherlands Antilles or Sint Maarten. However, exchange-of-information provisions in this tax regulation, tax treaties and tax information exchange agreements apply to TECs. If a TEC loses its tax-exempt status, it is treated as a regularly taxed company subject to tax on its worldwide in­come, and it receives a tax-free step-up in basis.

Taxed private foundations and trusts. The corporate income tax law provides an option for private foundations and trusts to be subject to a reduced effective corporate income tax rate of 10% (including surtax). In principle, Sint Maarten private foundations and trusts are fully exempt from corporate income tax if they do not conduct an enterprise. After the option is exercised, the re­duced effective rate of 10% applies for a period of at least three full fiscal years. After this three-year period, the private founda­tion can request that it no longer be subject to the reduced effec­tive rate of 10%.

Ruling policy. Sint Maarten has an extensive advance tax ruling practice. These rulings include the following:

  • Cost-plus rulings for intercompany support activities
  • Minimum gross margin rulings for finance activities
  • Participation exemption rulings for holding activities
  • Informal capital (or cost-plus) rulings for intercompany trading activities

These rulings are usually valid for a three-year period, with an option for extension.

Other incentives. Sint Maarten also offers other incentives for specific activities, such as the international use of aircraft and ships and the insurance of risks outside Sint Maarten.

Capital gains. Under the current corporate income tax rules, in general, except for offshore companies, no distinction is made between the taxation of capital gains and the taxation of other income. All income is taxed at the applicable corporate income tax rate (34.5%). Taxation of capital gains on qualifying share interests (participation exemption) is discussed in Section C.

Administration. The standard tax year is the calendar year. How­ever, on request and under certain conditions, a company may use a different financial accounting year as its tax year.

Companies must file a provisional tax return within three months after the end of the financial year. In principle, this return must show a taxable profit that is at least equal to the taxable profit shown on the most recently filed final tax return. Any tax due must be paid at the time of filing of the provisional tax return. An extension of time to file the return and pay the tax is not granted. On request of the company, the Tax Inspector may consent to the reporting of a lower taxable profit than the taxable profit shown on the most recently filed final tax return.

The final tax return must be filed within six months after the end of the financial year. Any difference between the tax due based on the provisional return and the tax due based on the final return must be settled at the time of the filing of the final return. An extension for filing the final tax return on a later date can be obtained.

To ensure compliance with the rules described above, penalties may be imposed. The tax authorities may impose arbitrary assess­ments if the taxpayer fails to file a tax return. Additional assess­ments, including a penalty, may be imposed if insufficient tax is levied. A penalty of 100% of the additional tax due may be levied. Depending on the degree of wrongdoing, this penalty is normally 25% or 50%.

In general, offshore companies must file their tax returns within six months following the end of the financial year. In practice, the tax authorities do not strictly enforce this deadline for offshore companies.

Dividends. Sint Maarten does not levy dividend withholding tax on dividend distributions.

Foreign tax relief. A 100% exemption from Sint Maarten corpo­rate income tax is available for foreign business profits. For this purpose, foreign profits are profits earned in another country through a permanent establishment or a permanent representative in the other country, or profits earned from immovable property located in a foreign country, including the rights related to the property that is part of the business activities of the taxpayer but is deemed to be part of the foreign business. If the foreign profits are derived from a business that can be considered a low-taxed portfolio investment, a reduced exemption of 70% applies.

Determination of taxable income

General. Taxable profit must be calculated in accordance with “sound business practices.”

All expenses incurred with respect to conducting a business are, in principle, deductible. However, if expenses exceed normal arm’s-length charges and are incurred directly or indirectly for the benefit of shareholders or related companies, the excess is con­sidered to be a nondeductible profit distribution (dividend). In ad dition, certain expenses, such as fines, penalties and expenses incurred with respect to crimes, are not deductible. Only 80% of representation expenses, as well as expenses incurred on meals, beverages, gifts, courses and seminars, is deductible.

In principle, interest expenses are deductible for tax purposes if the interest rate is determined on an arm’s-length basis. However, certain restrictions apply to the deduction of interest on loans con­nected to certain tax-driven transactions and intragroup reorgani­zations. Under thin-capitalization rules, the deductibility of inter­est accrued or paid directly or indirectly to an affiliated TEC may be restricted.

Participation exemption. In principle, a 100% participation ex­emption applies for all qualifying share interests held by Sint Maarten corporate taxpayers.

In general, a shareholding qualifies for the participation exemp­tion if it represents at least 5% of the share capital or voting power in a company or if the amount paid for the shareholding amounts to at least USD500,000. In addition, any member of a cooperative association can apply for the participation exemption.

For dividend income, additional requirements are imposed for a participation to be considered a qualifying participation. To apply the 100% exemption on dividends, either of the following condi­tions must be met:

  • The qualifying participation is subject to a (nominal) profit tax rate of 10% (subject-to-tax clause).
  • Dividends, interest or royalties received from other sources than the business of the participation do not account for 50% or more of the gross income of the participation (non-portfolio-investment clause).

The above conditions may be met on a consolidated basis. If nei­ther of the above conditions is met, a lower participation exemp­tion of 70% applies to dividends. The subject-to-tax clause and the non-portfolio-investment clause do not apply to the 100% par­ticipation exemption on capital gains and income received from participations that exclusively or almost exclusively hold immov­able property.

Expenses that are connected with the participation, including financing expenses, are not deductible if the income is 100% tax-exempt.

Tax depreciation. In general, assets are depreciated using the straight-line method, with the residual value taken into consider­ation. The following are some of the applicable rates.

Asset Rate (%) Residual value (%)
Buildings 2 to 2.5 10
Office equipment 10 to 50 Nil
Motor vehicles 10 to 33 15
Plant and machinery 10 10

The rates listed above provide a general overview of the depre­ciation rates. The actual depreciation rate depends on the type of asset used by the company.

Fixed company assets acquired by companies operating in Sint Maarten may qualify for accelerated depreciation at a one-time maximum annual rate of 331/3% of the acquisition costs of the assets. Fixed company assets are assets used for a business pro­cess for at least one business cycle, unless the assets are intended to be processed or sold.

An investment allowance deduction of 8% (12% for new build­ings or restorations of buildings) is granted for acquisitions of fixed assets exceeding approximately USD2,800. The allowance is deducted from taxable income in the year of the investment and in the following year. The investment allowance de duction is recaptured in the year of sale and the subsequent year if the asset is sold within 6 years (15 years for buildings) of the date of the investment.

Groups of companies. On written request, Sint Maarten resident companies may form a fiscal unity (tax-consolidated group) for corporate income tax purposes. To qualify for a fiscal unity, the parent company must own at least 99% of the shares in the sub­sidiary. A fiscal unity may include, among others, a company incorporated under Dutch law that has its place of effective man­agement in Sint Maarten. The whole group is taxed for corporate income tax purposes as if it were one company and, as a result, the subsidiaries in the fiscal unity are no longer individually subject to corporate income tax.

Advantages for corporate income tax purposes of fiscal unity treatment include the following:

  • Losses of one subsidiary may be offset against profits of other members of the fiscal unity.
  • Reorganizations, including movements of assets with hidden reserves from one company to another, have no direct tax con­sequences for corporate income tax purposes.
  • Intercompany profits may be fully deferred.

The fiscal unity does not apply for revenue tax purposes.

Relief for losses. Losses in a tax year may be carried forward for 10 years. No carryback is available. Losses incurred by certain companies during their first four years of business may be carried forward indefinitely. Losses incurred during the first six years by an entity that has the objective of engaging in a business in the shipping or aviation industry may be carried forward indefinitely. Companies under the Sint Maarten offshore tax regime can carry forward tax losses for five years.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
Revenue tax; levied on turnover generated from goods sold and services rendered in Sint Maarten
Standard rate 5
Real estate transfer tax 4
Import duties 0

Miscellaneous matters

Foreign-exchange controls. The currency in Sint Maarten is the Antillean guilder (ANG).

For foreign investors that obtain a foreign-exchange license from the Central Bank of Curaçao and Sint Maarten, no restrictions are imposed on the movement of funds into and out of Curaçao and Sint Maarten. In general, the Sint Maarten Central Bank automat­ically grants foreign-exchange licenses for remittances abroad. Residents are subject to several foreign-exchange regulations im­posed by the Sint Maarten Central Bank. However, residents may be granted non resident status for foreign-exchange control pur­poses. Some reporting requirements exist for statistical purposes.

Transfer pricing. In general, intercompany charges should be de­termined on an arm’s-length basis.

Tax treaties

Provisions for double tax relief are contained in the tax treaty with Norway and in the Tax Regulation for the Kingdom of the Netherlands (consisting of Aruba, Curaçao, the Netherlands, and Sint Maarten). Under a measure in the Tax Regulation for the Kingdom of the Netherlands, dividend distributions by a qualify­ing Dutch subsidiary to its Sint Maarten parent company are ef­fectively subject to an 8.3% Dutch dividend withholding tax. Sint Maarten does not im pose withholding tax on payments from Sint Maarten to residents of other countries. Also, see the last para­graph of this section.

The Netherlands Antilles has entered into tax information ex­change agreements with Antigua and Barbuda, Australia, Bermuda, British Virgin Islands, Canada, Cayman Islands, Costa Rica, the Czech Republic, Denmark, Faroe Islands, Finland, France, Ger­many, Greenland, Iceland, Italy, Mexico, New Zealand, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Spain, Sweden, the United Kingdom and the United States. As a result of the constitutional reform of the Kingdom of the Netherlands, the tax treaties entered into by the Netherlands Antilles became automatically applicable to the surviving countries, which are the legal successors of the Netherlands Antilles. Negotiations are ongoing with the United Kingdom.

Under the latest published Organisation for Economic Co-operation and Development (OECD) list, Sint Maarten qualifies as a white-listed jurisdiction.

The government of the former Netherlands Antilles entered into bilateral agreements with the European Union (EU) member states with respect to the application of the EU Council Directive on taxation of savings income. The Sint Maarten (former Nether­lands Antilles) law to implement the directive took effect in July 2006.

The Kingdom of the Netherlands has entered into many bilateral investment treaties that also apply to Sint Maarten.

Sint Maarten also signed the OECD Convention on Mutual Administrative Assistance in Tax Matters.

A tax treaty between Sint Maarten and the Netherlands, which will replace the Tax Regulation for the Kingdom of the Nether­lands, has been finalized and is expected to enter into force on 1 January 2016.