Location
Welfare Rd 68,
Commercial Center 2
Cole Bay, St. Maarten
Our hours
8:00 AM – 5.00 PM
Monday – Friday
Contact us
Phone: +1721 524 2833
Email: [email protected]
Introduction
On Prinsjesdag 2024, the Schoof Cabinet presented the 2025 Tax Package, which includes the BES Islands Tax Plan 2025. This plan introduces several significant changes to the tax regime of Caribbean Netherlands (Bonaire, Saba, and Sint Eustatius), scheduled to take effect from January 1, 2025. While these changes still require approval by both the Lower and Upper Houses of Parliament, it is essential to analyze their potential impact and take appropriate actions to prepare for their implementation.
Below are the key proposed changes, their potential consequences, and our recommendations for the necessary actions.
Revenue Tax
- Change: The rate for withholding tax and the income tax rate on substantial interest income will increase from 5% to 7.5%.
- Consequences: For individuals and entrepreneurs with a substantial interest, this means that future profits and dividend distributions will be subject to higher taxes. Additionally, no compartmentalization rule has been proposed, meaning profits earned before 2025 may also be taxed at the new rate if distributed after 2025.
Recommended Actions:
- Consider distributing dividends or other profits before December 31, 2024 to benefit from the lower tax rate.
- Review your tax strategy for profit distributions to anticipate the higher tax rates starting in 2025.
Real Estate Tax
- Change:
- The investment facility period will be shortened from 10 years to 5 years, meaning real estate will become fully taxable after 5 years. An exemption period will apply for existing cases.
- The real estate tax rate for hotels will increase from 10% to 11%, with the possibility of further increases in the future to gradually align the hotel rate with the general rate of 17.5%.
- Consequences: This directly impacts real estate investors, particularly in the hotel sector, as long-term tax burdens will increase. The shortened investment facility means investments will become taxable sooner.
Recommended Actions:
- Analyze existing real estate investments and assess the impact of the shorter tax-free period.
- Hotels should revise their cash flow planning to account for the higher tax burden in the future.
- Take advantage of the exemption period for existing investments to mitigate the effects.
- Change: A separate transition rule is introduced for the minimum tax, establishing specific deadlines for fiscal years ending before March 31, 2025.
- Consequences: The introduction of minimum tax may result in administrative burdens for businesses, particularly for fiscal year-end reports overlapping with the new rule’s start date.
Recommended Actions:
- Ensure timely review of financial reports and accounting procedures to comply with the new deadlines.
- Consider seeking professional advice to ensure your business is fully prepared for the impact of this tax measure.
Income Tax
- Change:
- The threshold for entering the second income tax bracket will be significantly lowered from USD 322,769 to USD 50,000. The rates for the first and second brackets remain 30.4% and 35.4%, respectively.
- The tax-free allowance will be linked to the statutory minimum wage.
- The annuity exemption will be abolished, and the definition of primary residence will be tightened.
- Consequences: More taxpayers will enter the second bracket faster, resulting in higher tax pressure on middle incomes. This can have a significant financial impact on both individuals and entrepreneurs.
Recommended Actions:
- Review your income structure to anticipate changes in the bracket thresholds and consider optimizations to avoid unnecessary tax burdens.
- Consider the implications of the annuity exemption abolition and adjust your financial planning accordingly, particularly for pension plans and annuities.
Wage Tax
- Change:
- The 10% margin for determining customary wages will be limited, especially if the wage falls below the norm amount of USD 40,848.
- The working relationship of the partner of a substantial interest holder will be classified as a deemed employment relationship.
- Consequences: Entrepreneurs with a substantial interest may face higher wage tax pressure due to the new norm. Additionally, partners working in the business of a substantial interest holder will be subject to stricter tax rules.
Recommended Actions:
- Review the compensation for substantial interest holders and their partners, and adjust as needed to align with the new wage tax rules.
- Ensure your payroll administration complies with the revised requirements and consider the implications of the deemed employment relationship.
Conclusion and Recommendations
The proposed changes in the BES Islands Tax Plan 2025 will have a broad impact on both individuals and businesses. It is essential to act proactively and adjust your tax strategies in a timely manner to benefit from the current regulations and prepare for the new tax structures.
Recommended Actions:
- Review dividend distributions before December 31, 2024, to take advantage of the current low withholding tax rate.
- Optimize real estate investments and prepare for the shorter investment facility period and higher real estate taxes.
- Ensure that your income and wage structures are aligned with the new rates and brackets in income and wage tax.
- Consider seeking professional tax advice to accurately assess the impact of these changes and make informed decisions for the future.
By taking these steps, you can effectively prepare for the changes in the BES Islands tax landscape.
BES: Proposed Tax Amendmends 2025
Revenue Tax
5% to 7.5%
Investment Facility Period
10 to 5 years
Deadlines for Minimum Tax
Some as early as March 31st
Second Income Tax Bracket USD 322,769 to USD 50,000
