Investing in Real Estate on the BES II
In our first edition we elaborated on the tax implications of investing in real estate through an entity established on one of the BES-islands. In this edition we will highlight the tax implications for investing in real estate in private.
When investing in real estate in private the real estate will form part of the private equity of the individual owning the real estate. The main purpose for investing in real estate is to generate income with the real estate through rental income. All individuals (residents of one of the Bes-islands as well as non-residents) may invest in real estate located on one of the BES-islands.
Based on the current Income Tax legislation the rental income received by individuals (both residents and non residents) is not subject to tax unless the real estate qualifies as an asset of a sole proprietorship of the individual/owner.
The existence of a sole proprietorship depends on the facts and circumstances of the activities performed by the individual. There is no golden rule when qualifying the activities. However, practice has learned us that the management and exploitation of more than one property is often considered as conducting a business and therefore a sole proprietorship is acknowledged.
In order to avoid any doubt as to whether the activities performed by the owner of the real estate qualifies as conducting a business, the owner can approach a real estate agent to manage his real estate. Assuming that the investment in the real estate does not qualify for fiscal purposes as conducting an enterprise, no income tax is due over the rental income received.
Turnover Tax (Algemene Bestedingsbelasting)
The lease of real estate is in principle subject to Turnover Tax (hereinafter referred to as “ABB”) if an entrepreneur carries out the lease.
For ABB legislation purposes everyone who exploits real estate with the intention to receive lasting income from it is considered an entrepreneur. This entails that the lessor (the entrepreneur) must charge the lessee (the one who rents the real estate) ABB over the rent. The qualification of a lessor as an entrepreneur for ABB purposes is not related to the qualification of the individual for income tax purposes. These two taxes are not related.
The lease of real estate that is designed for and used as permanent residence by a BES resident (sedula) is exempt from ABB. Furthermore in case the real estate is leased to tourists, no ABB is due if the individual complies with the tourist tax legislation.
The ABB is charged over the rent. The lessor charges the due ABB to the lessee. The applicable tax rate in Bonaire is 6%, while the applicable tax rate for Saba and Statia is 4%.
The ABB tax return should be prepared and filed quarterly or on request annually. On the ABB tax return form the lessor must report the realized turnover and pay the due ABB.
Tourist tax (Toeristenbelasting)
Tourist Tax is levied from the tourist by the person who is providing him/her with a place to stay (room/apartment etc.). The Tourist Tax is a fixed amount per night spent on one of the BES-islands. Exemptions are made amongst tourists that have not yet reached the age of 13 years and are sharing a room with their chaperon (for example parent), and tourists that can prove that they reside on one of the islands of the former Netherlands Antilles or Aruba.
The tourist tax returns must be prepared and filed monthly within 20 days of the ending of a month. The due tourist tax must also be paid within these 20 days.
Real estate tax (Vastgoedbelasting)
Based on the Real estate tax regulation the benefits realized with a real estate located on one of the BES-islands is subject to tax. The benefit realized with a real estate located on one of the BES-islands is set at 4% of the economic value of the real estate.
The economic value of the real estate will be determined by the Tax Inspectorate and registered in a disposition. The value stipulated in the disposition is set for 5 years. Exceptions are made amongst others in case the real estate is sold, the value of the real estate has increased due to renovations or the value of the real estate has decreased due to destruction to the property.
In case the value of the real estate has increased due to for instance renovations, the new value of the real estate will be first taken into account in the 6th year following the renovations. This incentive is known as the investors’ incentive. The investors’ incentive is also applicable for the development of a property. Based on the amendments for the real estate tax regulation the investors’ incentive is applicable for a period of 10 years. Consequently the new value of the real estate will first be taken into account in the 11th year following the upgrade of the real estate.
In case the value of the real estate has decreased due to destruction of the property or the real estate has been sold, the new value of the real estate will be taken into account in the year following the sale of the real estate or the destruction here of.
The real estate tax rate for real estate not qualifying as a hotel is 20%. Based on the amendments for the real estate tax regulation its tax rate is reduced to 15% for the years 2013 and 2014 and set at 17,5% as for the year 2015. With the amendments the real estate tax burden will be reduced from 0.8% of the economic value of the real estate to 0.6% for the years 2013 and 2014 and 0.7% starting 2015.
The real estate tax rate for real estate qualifying as a hotel is currently 10%. Based on the amendments for the real estate tax regulation this rate is reduced to 5% for the years 2013 and 2014. The proposed tax rate for the year 2015 is 10%. The real estate tax burden on real estate qualifying as a hotel will temporarily be reduced from 0.4% of the economic value of the real estate to 0.2%.
Additionally to the amendments for the real estate tax regulation, there is one more amendment that is relevant in this scenario. Currently real estate (secondary homes) owned in private (residents of one of the Bes-islands as well as non-residents) do qualify for the tax-free base of USD 50.000. Per 2014 a tax-free base of USD 70.000 would be applicable.
For the sake of completeness, we state that this article is based on current BES tax legislation
at the time this article was written.
Source: Tax Office / Caribbean Netherlands
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