The new constitutional order means that Bonaire, Saba and St Eustatius will be subject to a new tax regime. Before they became special municipalities of the Netherlands, the islands were fiscally autonomous: they themselves decided on the structure of their tax system and how taxes were administered.
New tax regime
Bonaire, Saba and St Eustatius became special municipalities of the Netherlands on 10 October 2010 and are now part of the Dutch state. That means that the Netherlands is responsible for levying taxes on the islands.
A new, simplified, tax system was introduced on the islands on 1 January 2011. It consists of as many general tax measures as possible, making it easier for both individuals and businesses to comprehend. Tax rates have also been lowered and the number of taxes levied by government will be kept to a minimum. The island tax regime differs from the system applied in the Netherlands in that respect.
More indirect taxes
The authorities wish to levy more indirect taxes, rather than impose direct ones. When a country imposes too many direct taxes (for example on income), businesses retain fewer profits. Employees who pay a higher wage tax will demand a higher before-tax wage, putting pressure on the economy. By recalibrating the tax system, businesses and consumers have more money in hand to invest in the economy. They are, however, obliged to pay more sales tax on the goods they purchase. More and more governments are making the transition from direct to indirect taxation. For example, wage tax used to be the largest source of tax revenue in the Netherlands. Today, that is value-added tax (VAT).
Components of the Netherlands-Antillean tax system
The new system of public finances is based on three legislative bills:
- the BES Taxation Act;
- the BES Customs and Excise Duties Act;
- and the BES Tax System (Implementation) Act.
- Components of the Netherlands-Antillean tax system were used as building blocks for the new tax regime.
Prevention of double taxation
Having a separate tax regime for Bonaire, St Eustatius and Saba means there is a risk of double taxation or double exemption from taxes. To remove this risk as much as possible, two schemes have been introduced. One scheme (in Dutch) prevents double taxation between the European region of the Netherlands on the one hand and Bonaire, St Eustatius and Saba on the other. The other, a unilateral scheme (in Dutch), prevents double taxation between these islands and third countries.
Total annual tax revenues generated by the new regime are estimated at USD 52 million. That is equal to the current tax revenues on the three islands. Bonaire, St Eustatius and Saba have a combined population of approximately 20,000. About half of these people are taxpayers.
The Dutch Senate will be considering the bill proposing the new tax regime later this year. The House of Representatives has already passed the bill.