How are Curaçao companies taxed?

How does the tax system work on the island of Curacao, and are there any taxes at all?

In general, Curacao is famous as a haven for offshore gambling, but gambling licenses are far from all the benefits that this wonderful Caribbean island can give. At the same time, there are those for whom Curacao is known as a simple offshore zone, and it really is.

Being an offshore zone, the island of Curacao provides its residents with many tax advantages that local companies have enjoyed for many years.

Despite the fact that Curacao is far from being a young offshore jurisdiction- many of its residents, and not only, still do not really know how the local tax system works.

Some argue that Curacao has an effective corporate tax rate of 22%, while others believe there are no taxes on the island.

In this article, we will describe the operation of the entire Curacao tax system in simple terms so that no one else misleads you.

Curacao’s standard corporate tax rate is 22%, but how is this rate applied?

Income tax legislation in Curacao has undergone significant changes since January 1, 2020, moving from a global taxation system to a territorial one. What does this mean? In simple terms, this can be explained as follows: the amount of tax will be calculated based on the income and expenses that the company had for the year directly on the island.

According to Curacao’s territorial tax system, all profits from activities in the country’s territory are classified as taxable profit companies. Conversely, profits derived from business activities outside the country are excluded from the taxable base and are not subject to income tax.

There is a presumption that all profits come from a source in Curaçao and, accordingly should be taxed. However, taxpayers have the opportunity to provide evidence and justify that part of the profit should be classified as received outside Curaçao.

It should be said right away that payment for any benefit in the territory of Curacao, such as office rent, use of movable property, and use of intangible assets in the country (ex. hosting), will be considered expenses within the country and will directly affect the calculation of the taxable amount arrived, which we describe in more detail below.

How is the tax base calculated?

For example, let’s take a company in Curacao, the main commercial activity of which is carried out outside the island or through a subsidiary. The calculation formula is quite simple:

(The sum of all expenses in Curaçao / the sum of all expenses of the company) * the total income of the company.

Looks difficult? Let’s look at an example:

Suppose your company in Curacao develops software outside of Curacao and also orders and provides services exclusively outside the island.

1. The total income of your company (from selling software outside Curaçao) for the year amounted to $500,000
2. The total cumulative third-party expense was $200,000; (Spending outside Curaçao)
3. At the same time, your company simply needs maintenance in the form of a legal address, hosting, renewal of the company itself, etc. ($5000); (Expenses in Curacao)

So back to our formula:

Expenses in Curacao ($5,000) / Total expenses ($200,000) * Total company income ($500,000) = $12 500

In this case, $12,500 would be your taxable base, subject to the effective corporate tax rate of 22%. The total amount of tax will be $2750. 

Conclusion

Changing the structure of the tax system from international to territorial affected every legal person registered in Curacao, both those who actually conduct their operations on the island and those who just want to take advantage of the benefits of the offshore zone, conducting their main operational activities outside of Curacao itself.

As you can see from the example, with proper tax planning and the correct structuring of expenses, the updated tax system of Curacao can save a significant amount annually.

For more detailed advice on the Curacao tax system and the correct structuring of your business, contact Legarithm Legal Services; our lawyers will be happy to help you save more!