The fact that the six islands making up the Netherlands Antilles were one of the first offshore financial and tax planning centers offering a combination of low tax rates and a tax treaty network has proved an attractive feature to international investors, notwithstanding the unilateral termination of the U.S.-Antilles Income Tax Treaty in 1987.
The Caribbean island of Aruba, located 15 miles off the coast of Venezuela and some 78 miles square miles in area, was annexed by the Dutch in 1860. On January 1, 1986, Aruba assumed a separate status within the Kingdom of the Netherlands with full internal autonomy. The legal system is based on the law of the Kingdom of the Netherlands.
According to research from American investments bankers Goldman Sachs, the Netherlands Antilles accounted for the third highest net purchase of US shares in the second quarter of 1995, with deals worth $4bn and the UK with $2.8bn.
With a population of just 170.000, the purchase of $2.1bn worth of US equities may seem astonishing, but as Ms Abbey Cohen analyst at Goldman Sachs suggests "many financial intermediaries are based in these locations. Hence net purchase attributed to them may well be on behalf of individuals or institutions domiciled in other countries."
But why, even though the favorable U.S. tax treaty with the islands was repealed nearly ten years ago, are investors still accessing the US via Curacao'? Braham offers the following explanation: "Because companies incorporated here has been used so much in the past. The Lawyers and everybody in the US are very familiar with a Netherlands Antilles company." And he adds there are "additional benefits such as confidentiality and some tax advantages."
Offshore companies incorporated in the Netherlands Antilles are taxed at between 2.4% and 3% on offshore income and are exempt of capital gains tax. Companies have to obtain authorization to be formed but it appears there are rarely any difficulties in obtaining permission. Apart from purchasing shares, companies formed in the Netherlands-Antilles are often used to buy real estate in the US.
US clients remain important for a company like CITCO, but the operation also draws on its origins in the Netherlands, to exploit an important client base of European nationals.
Dutch names such as ABN Amro, Meespierson and ING still dominate the Antilles business directories. The Dutch connection goes back a long way, with Curacao, the largest of the islands that make up the Netherlands Antilles, having been in Dutch possession since 1634, apart from a brief period during the Napoleonic Wars. And Dutch is also the official language.
The financial services industry was kickstarted by the Dutch in the 1940s when Dutch corporations moved their assets to the region to escape seizure by the Nazis. After the war, many of the companies returned their headquarters to the Netherlands but left behind the infrastructure of an offshore center.
That infrastructure includes around 70 banks, more than 50 of them international, an established fund management industry with around $60bn of assets under administrations, trusts and insurance companies.
All the major international audit firms are here doing both international and local work and there are numerous law firms. Most of these institutions are based in and around Willemstad, the capital of Curacao, about 30 miles off the coast of Venezuela.
Aruba (Tax) Exempt Corporation
On Janurary 1, 1988 the Government of Aruba introduced a new companies ordinance to attract foreign investors. The preamble to the legislation reads: "…in connection with the further development of Aruba as a financial center it is desirable that there shall be in addition to the limited liability company a new form of legal entity, the Aruba (tax) exempt corporation, of which the structure compared to that of the limited liability company shall be simplified."
The National Ordinance for the registration of the Aruba (Tax) Exempt Corporation (or AVV) was promulgated on June 30, 1988. An AVV is a legal entity with limited liability and an authorized capital divided into shares. It is similar to the International Business Corporations (IBCs) in use in the Bahamas, the BVI and other offshore centers, but it is based on Dutch civil law, as opposed to English common law statutes.
Some of the more important features, aside from complete income tax exemption, of the AVV are:
(1) Freedom from exchange controls;
(2) A minimum authorized capital of US$5,600 and only one share is needed to start-up an AVV;
(3) Shares of an AVV can have full, limited, par or no par, voting or no voting rights, bearer or registered;
(4) Directors can be of any nationality;
(5) No requirement for annual financial statements or annual shareholders meetings, if "Articles" permit;
(6) Shareholders meetings can be held anywhere in the world and shareholders can be represented by proxy;
(7) An AVV cannot operate as a bank or insurance company, and does not qualify for any benefits under the tax regulations of the Kingdom of the Netherlands (i.e., the Participation Exemption).
(8) No withholding taxes on any payments by an AVV to its shareholders, and no estate, inheritance, gift or wealth taxes on the shares.
Company formation
An AVV is incorporated by notarial deed executed by at least one incorporator before a civil law notary in Aruba. Before the Deed of Incorporation can be passed, a draft must be submitted to the Ministry of Justice for a Declaration of No Objection.
The Deed of Incorporation should be in the Dutch language, but it is standard practice that the Deed is accompanied by a certified translation.
Costs for Aruba Exempt Company (AVV)
- Notarial expenses and first year Government Registration fee = $US$710.
- Annual Government charges = US$285.
- Contribution to the Chamber of Commerce = US$35.
- Professional fee for incorporation = US$450.
- Annual fee for registered office, registered agent = US$500.
- Managing Director's (optional) fee = US$350.
Naamloze Vennootschap or NV
Limited liability companies called NVs can still be incorporated in the "Antilles". Minimum annual maintenance costs of about US$1,500 can be expected. Such companies, if fully owned by non-resident shareholders, pay a profits tax of 2.4% to 3%. The advantages of paying a small tax (as opposed to none at all for AVVs) is important for purposes of obtaining the Netherlands "Participation Exemption". Dutch based holding companies that own shares in an NV can receive dividends and other distributions (including capital gains and liquidations) from an NV free of Netherlands income tax if it owns at least 5% of the NV's stock. AVVs are not eligible for this tax exemption.
Offshore companies are not allowed to carry on any business within the Netherlands Antilles unless they get approval from the Central Bank. The N.A. profits tax is 32-39% on incomes drawn from the locally economy.
Netherlands Antilles Mutual Funds
Under the Profits Tax Ordinance (PTO), the tax payable by mutual funds is limited to US$10,000 per annum, irrespective of the funds (realized) gains or profits. The $10,000 profits tax is reached when the net asset value of the fund reaches approximately US$43,000,000. More than 45 mutual funds were registered in the Antilles through June, 1988. Famous Wall Street money managers George Soros and Michael Steinhardt run N. Antilles funds. Recently, these managers have run into a streak of poor stock picks after years of outperforming the markets.
Federation of five islands
The Netherlands Antilles, an autonomous part of the Netherlands, is a self-governing federation of five Caribbean islands. Aruba had been the sixth member of the federation until Jan. 1, 1986, when it gained autonomy. The total land area is 1,821 sq km (703 sq mi), and the population is 176,000 (1987).
The two largest and most populated islands -Curacao, and Bonaire - lie off the Venezuelan coast. The other three - Saint Martin (whose northern half belongs to France), Saba, and Saint Eustatius
- are about 800 km (500 mi) to the northeast, approximately 350 km (220 mi) east of Puerto Rico. These three small islands, with a total area of 88 sq km (34 sq mi), are part of the Leeward Islands group. The annual mean temperature in the Netherlands Antilles is 27 deg C (80 deg F), and the rainfall varies from 560 mm (22 in) in the southern islands to 1,015 mm (40 in) per year in the northern group. The capital, Willemstad, is on Curacao. The Federation is governed by a prime minister and a legislative council.
The generally prosperous economy of the federation is based on tourism. Oil refining, which was once the principal industry, declined considerably in the 1980s. Natural resources are phosphates (Curacao) and salt (Bonaire). Corn and pulses are grown.
The inhabitants are descendants of Indians, Dutch, Portuguese, Jews, and former African slaves. The inhabitants of the southern islands speak Papiamento (mixture of Dutch, Portuguese, Spanish, and African), and those of the northern group speak English. Illiteracy is almost nonexistent, and the standard of living is the highest in the Caribbean.
Originally inhabited by Arawak (in the south) and Caribbeans (in the north), the islands were conquered by the Dutch in the 17th century. They have been self-governing since 1954, and referendums on independence are scheduled to be held.
(Courtesy of New Providence Press: Tax Havens of the World).
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