Curaçao publishes guidelines on territorial tax system

Local contact

EY Global

22 Mar 2021
Subject Tax Alert
Categories Corporate Tax
Jurisdictions Curaçao

Executive summary

The Curaçao profit tax legislation was changed from a worldwide tax system to a territorial tax system as of 1 January 2020. Only benefits attributed to a domestic enterprise are now included in the taxable base. For a more extensive overview of the legislative changes and the introduction of the new territorial tax regime see EY Global Tax Alert, Curaçao amends profit tax legislation from a worldwide tax system to territorial system, dated 31 December 2019.

Following the explanatory notes to the new legislation, on 4 March 2021, a national decree (the Decree) was published. The Decree has retroactive effect to 1 January 2020 and it contains a definition of benefits from a domestic enterprise and provides guidelines (Guidelines) for determining the benefits obtained from a domestic enterprise.

The Decree is mostly a codification of the explanatory notes to the new legislation and contains minor changes thereto.

This Alert summarizes the benefits from a domestic enterprise, and the highlights and most significant changes contained in the Guidelines.

Detailed discussion

Benefits from a domestic enterprise

All profits generated with activities in Curaçao are considered benefits from a domestic enterprise. Profits that are considered derived from non-domestic entrepreneurial activities are excluded from the taxable base for profit tax purposes.

A few examples of activities as mentioned in the Guidelines are commercial, industrial, innovative and similar activities as well as income from professional or other services that are conducted, performed or exercised in Curaçao. Also, assets that are used in Curaçao give rise to domestic benefits, such as among others: the rental and use of movable and immovable property, and the making available of rights, knowledge or other intangible assets for use in Curaçao.

In principle, all profits will be considered benefits from a domestic enterprise, unless the taxpayer substantiates that a portion of the profits should be regarded as non-domestic. To determine whether profits are considered domestic or non-domestic, the profit before non-causal costs is allocated based on causal costs but excluding costs of materials. Exceptions apply for income from financing companies and insurance companies. Below is a simplified example (the definition of causal costs are discussed separately in this Alert):

Commercial profit
Domestic tax profit
Turnover   1,000    
Raw/ready materials   (200)    
Net turnover   800    
Domestic causal cost 150      
Foreign causal cost 350      
Total causal cost   (500)    
Gross profit   300 x150/500 90
Non-causal cost   (200) x150/500 60
Entity net profit   100   30

If the activities are conducted by a single entity in Curaçao, the domestic net profit is calculated as follows: [domestic causal cost/total causal cost]*net profit = (150/500)*100 = 30. This 30 is in principle taxed at a rate of 22%. If there are more entities in the Curaçao group, the non-causal costs will be allocated based on the causal costs on a group level rather than the causal costs at the entity level.

To determine whether income from financing activities are considered domestic or non-domestic, the ratio of causal costs is not considered, instead the income is allocated based on the place where the revenue is generated (i.e., local or foreign client). In the case of insurance activities, the place of the insured risks is key in determining whether the income is domestic or non-domestic. Based on where the taxpayer or risk is located, revenue is considered domestic or non-domestic. The following is a simplified example:

Commercial profit
Domestic tax profit
Revenue domestic 200     200
Revenue foreign 800      
Revenue total   1,000    
Domestic causal cost 100     100
Foreign causal cost 500      
Total causal cost   (600)    
Gross profit   400   100
Non-causal cost   (300) x 100/600 = 50
Entity net profit   100   50

Causal costs

Causal costs are costs which are incurred directly in relation to the active business enterprise and therefore have a direct causal relationship with the revenue of the enterprise. In other words, causal costs are those costs which directly underpin the profit earning capabilities of the active business enterprise.

Non-causal costs are those costs which do not have a direct causal relationship with the revenue of the active business enterprise. The Guidelines provide guidance as to what can be considered non-domestic causal costs and non-causal costs (summarized in the next section).

Guidelines highlights

To determine if and to what extent causal costs are considered domestic costs or foreign costs, it is decisive where the value-adding functions in relation to the incurred costs are performed. In the Guidelines the following guidance is given in this regard:

  • Examples of non-domestic causal costs are traveling costs, which occur in the foreign country, but also depreciation costs and financing of foreign assets.
  • Examples of non-causal costs are administration costs, costs regarding annual accounts and tax returns, directors' remuneration, costs regarding the financing of general working capital, etc.
  • It is noted that benefits derived from activities relating to real estate in Curaçao are almost always considered benefits from a domestic enterprise.

Material costs are defined as costs for physical materials, among others: raw materials, semi-finished products, auxiliary products and products used in the production process or finished products for stocks and stock movements.

Capital gains realized on the disposal of assets are allocated based on the location where the assets are used. Gains and losses on current assets are in general considered as non-causal costs.

Passive income, i.e., income that is not generated through active business activity, is considered domestic income. This may include interest, rents and portfolio dividend income. Royalty income will always be considered passive income, though it may be possible to apply the innovation facility to this income.

The income of a Curaçao investment company will be considered passive income, unless the company provides evidence that it conducts an active business enterprise.

Main differences between the Decree and the explanatory notes

The main differences between the Decree and the explanatory notes to the Profit Tax Ordinance are:

  • The definition of the Curaçao territory. The explanatory notes define Curaçao as the levy area mentioned in the Turnover Tax Ordinance. The definition of Curaçao in the Decree is based on the definition in the Constitution of Curaçao (Staatsregeling van Curaçao). This definition of the Curaçao territory also includes the e-zone and the envisaged customs zone, which will be replacing the e-zone in the future.
  • Income from international transport beginning or ending in Curaçao is no longer mentioned as income derived from domestic enterprise.


For Curaçao profit taxpayers in general, but especially those with cross-border activities, the changes in the profit tax legislation may have a considerable impact and, if documented correctly, may lead to a reduced taxable base. The newly published Guidelines offer some extra guidance in this regard.

The newly published Decree creates more clarity when analyzing the various costs in an operation’s general ledger to determine whether they should be labeled as causal or non-causal costs and as domestic or non-domestic costs. It's important to substantiate in the company’s files, what the policy is for labeling business costs. Such a policy paper is not only important to substantiate the tax position, but it's also a prerequisite when seeking advance approval from the tax authorities on the cost labelling and allocation.

EY Curaçao has the experience to assist taxpayers with both the cost labelling and the drafting of policy papers and discussions with the tax authorities.

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

Ernst & Young Tax Advisors, Curaçao
  • Bryan Irausquin 

  • Fong-Mang Cheong 

  • Zahayra de Lain 

  • Clarion Taylor 

  • Terrence Melendez 

  • Raisza Terburg-Ersilia 

  • Suhena Neuman 

  • Maybenette Lourens 

  • Rose Boevé 

  • Nicole Sillé 

  • Romalyn Epistola 

  • Merlyn Schelling-Garcia 

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