WILLEMSTAD - Curaçao has designed a unilateral arrangement to prevent double taxation. The national decree specifically regulates situations in which there is no tax treaty between two countries.
In cases where a resident of Curaçao has income from another country and there is a tax treaty between these two countries, the tax treaty determines which country may levy tax on the income.
If there was no tax treaty between these two countries, this would create a lot of uncertainty, with the risk that tax would have to be paid in both countries on the same income.
The National Decree brings the Curaçao tax system in line with internationally accepted standards, says the Ministry of Finance. The aim is to reduce tax obstacles for Curaçao as a place of residence or establishment, and thus to provide more certainty about where the income should be taxed.
Two methods
Avoidance of double taxation is granted in two forms, namely the exemption method and the credit method. Which method is applied depends on the type of income and the type of tax resource.
With regard to the exemption method, if a resident of Curaçao receives foreign income, the resident will be exempt from the tax relating to the foreign income.
For the application of the exemption method, it is important that the foreign income is actually subject to the foreign tax. It is important to note that the total exemption granted cannot exceed the tax payable under Curaçao tax law.
The settlement method offers the possibility to set off the tax paid abroad with the tax to be paid in Curaçao. Two limits apply here. The first limit concerns the tax paid in the other country.
The second limit concerns the tax that must be paid in Curaçao. The purpose of the second limit is to prevent that more foreign tax is settled than has to be paid in Curaçao on the income.