Curaçao publishes first unilateral decree for the avoidance of double taxation

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EY Global

20 Oct 2022
Subject Tax Alert
Categories Corporate Tax
Jurisdictions Curaçao
  • Curaçao has published its first unilateral decree for the avoidance of double taxation.

  • The decree is intended to introduce a consistent means for the avoidance of double taxation and provides rules that allow for either an exemption or credit for various types of income.

  • The Decree has different effective dates for the different taxes that it covers (Personal Income Tax, Wage tax, Profit tax for corporate entities, and Inheritance tax).

Executive summary

On 18 October 2022, Curaçao published its first unilateral decree for the avoidance of double taxation (the Decree).For years the avoidance of double taxation in wage, income and inheritance tax was based on unpublished policy, resulting in an inconsistent approach by the tax authorities and inconsistent case law. To introduce a consistent means for the avoidance of double taxation, the Decree now provides rules that allow for either an exemption or credit for various types of income. At the same time, the Decree expands the rules for the avoidance of double corporate income taxation.

This Alert summarizes these rules in more detail.

Detailed discussion

Personal income tax
Exemption with progression method

In the field of personal income tax, the Decree provides rules that allow for exemption with the progression method for income from:

  • Foreign permanent establishments, including real estate property that is part of the assets of the foreign enterprise. The income is determined based on the Organisation for Economic Co-operation and Development (OECD) Tax Convention on Income and on Capital and the corresponding commentary

  • Employment exercised in another jurisdiction

  • Employment exercised on behalf of a foreign government entity

  • Directorships or activities as a board member of a foreign corporation

  • Labor performed outside of the territorial waters of Curaçao on board of a ship or aircraft operated by an enterprise which is effectively managed in another jurisdiction

  • Sports and entertainment exercised in another jurisdiction

  • Real estate in a foreign jurisdiction, as well as rights pertaining to such real estate

  • Shares in the profits of an enterprise that is managed in a foreign jurisdiction (except from employment or securities)

  • Entitlement to periodic payments from foreign government entities or foreign funds incorporated by such government entities

Relief is given provided that the income is subject to tax in another jurisdiction. This requires the income to be subject to tax based on the tax laws of another jurisdiction. Factual tax payment is therefore not required. However, if employment in a foreign jurisdiction is less than 30 continuous days, the employment income is only considered to be subject to tax if foreign tax in the other jurisdiction is effectively paid.

The exemption is based on the “per-country method.” In other words, the exemption must be calculated per jurisdiction. The exemption is calculated as a reduction of the tax on worldwide income. The reduction is calculated as “the tax on worldwide taxable income” multiplied by “the foreign source income” divided by “the worldwide taxable income plus personal deductions.” Foreign income that cannot be exempted, for instance because of domestic losses, can be carried forward for five years. Foreign losses of the previous five years must first be recovered before an amount of foreign income can be exempted.

Ordinary credit method

A credit against Curaçao income tax is given for foreign tax on dividends, interest, and royalties paid by a foreign person. The terms dividend, interest, and royalty are aligned with those of the 2017 OECD Model Tax Convention on Income and on Capital. The “overall method” applies, so the credit is effectively calculated by considering all dividend, interest and royalty income that has been subject to tax in the source country. Income that has already been included in the exemption mentioned under section 1 cannot be included (exemption income trumps credit income). The credit is calculated as the foreign tax levied on the income, the upper limit however being the Curaçao tax, which is due on the net income, being the gross income minus the allocable expenses, under the Curaçao tax legislation. Like the exemption system outlined in section 1; the upper limit of the credit is calculated as the “Curaçao income tax on worldwide income” multiplied by the “net income subject to foreign tax” divided by the “worldwide income plus personal deductions.” Any unused foreign tax can be carried forward for five years. Alternatively, a taxpayer may deduct the foreign tax as an expense from his/her income.

Simplified method

Taxpayers with different types of income from different countries may find the combination of per-country exemptions for certain types of income and an overall credit system for dividends, interest, and royalties too complex. Hence, the Decree offers taxpayers the option to apply the credit system to all income from which foreign tax has been levied. Applying this overall method, and thus obtaining a credit for all foreign tax incurred on all income that has been subject to foreign tax, may significantly simplify the calculations and still generate an effective relief from double taxation. A potential drawback of the simplified method is however that the unused exemptions and foreign taxes are forfeited.

Wage tax

Employees who are residents of Curaçao are exempt from Curaçao wage tax in respect of salaries that will enjoy the income tax exemption described under paragraph A, section 1, above. This provision will avoid negative financial consequences for the employees and will reduce the administrative burden on the tax authorities that otherwise have to collect and subsequently deal with the requests for refund from the employees.

Profit tax for corporate entities

As of 1 January 2020, the profit tax system of Curaçao is based on a system of territoriality. This implies that only domestic income is subject to Curaçao profit tax. In this respect, passive income is always considered as domestic income.2 Foreign tax incurred on income that qualifies as foreign income (exempt) is neither creditable nor deductible. Foreign tax attributable to domestic income (taxable) can be credited. However, this credit will not exceed the Curaçao profit tax which is due on the net domestic income based on the Curaçao taxation rules.

The explanatory notes to the Decree consider that the system described above may not be entirely fit to deal with income from foreign real estate property. Based on case law, real estate property is generally considered passive income (taxable), unless it is part of an active business enterprise. Income from foreign real estate property is therefore generally considered passive income and as a result fully subject to Curaçao profit tax (with a credit for foreign tax). The Decree prescribes an exemption of such foreign real estate income provided that such income is subject to a tax on income in the source country. Any unused exemption can be carried forward for ten years and any foreign losses from the previous ten years must be recovered first.

Inheritance tax

Inheritance tax is levied on the estate of or gifts from a resident of Curaçao. In some situations, this may lead to double taxation. A relief from foreign inheritance tax can be obtained where this is levied from a foreign enterprise or foreign real estate, using the per-country method, provided the foreign inheritance tax does not exceed the Curaçao inheritance tax which is due on that part of the estate or gift under the Curaçao inheritance tax rules. The value of estate or gift is reduced by the associated debts. Foreign inheritance tax on other items may be taken as a deduction/decrease in the value of the items.

Effective date of the Decree

The Decree has different effective dates for the different taxes that it covers:

  • For personal income tax the Decree applies to all tax years for which the tax assessment has not yet been irrevocably determined. This implies that tax assessments relating to tax returns which included income that has been subject to foreign tax and that have not been finalized should be carefully reviewed.

  • For profit tax the effective date is 1 January 2020. This was the date of a significant tax reform. Before 1 January 2020, foreign source income was exempted, or a credit was provided.

  • The wage tax provisions apply as of 1 January 2023.

  • For inheritance tax the Decree will apply for all inheritances and gifts still outstanding on or after the date of entry into force of the Decree and for all years for which the tax assessment has not yet been irrevocably determined.


For additional information, with respect to this Alert, please contact the following:

Ernst & Young Tax Advisors, Curaçao
  • Bryan Irausquin
  • Fong-Mang Cheong
  • Terrence Melendez
  • Clarion Taylor
  • Raisza Terburg
  • Ian de Brabander
  • Suhena Neuman

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.

  • Show article references#Hide article references

    1. LANDSBESLUIT, HOUDENDE ALGEMENE MAATREGELEN, ter uitvoering van artikel 58 van de Algemene landsverordening Landsbelastingen (“Landsbesluit voorkoming van dubbele belasting”).

    2. Click here for more information regarding the territorial profit tax system which was introduced on 1 January 2020.