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February 10, 2022
Curaçao releases new guidance on innovation box regime
On 5 February 2022, the Curaçao Ministry of Finance released new guidance on the innovation box regime.
This Tax Alert provides information on the key highlights of the issued guidance for using the innovation box.
Innovation box overview
Benefits of the innovation box
Income from intellectual property (IP) in Curaçao may be subject to a reduced profit tax rate of 0% to the extent that the income is realized in with intangible assets for which research and development (R&D) is performed in Curaçao or with intangible assets developed for the account and risk of Curaçao tax-resident entities by a foreign unaffiliated enterprise. Where the development has been outsourced, it should be demonstrated that the taxpayer is (capable of) directing the R&D from its own expertise.
As a general rule, a taxpayer may apply for a reduced effective tax rate of 0% for qualifying income from qualifying intangible assets upon filing the profit tax return.
Qualifying intangible assets
Qualifying intangible assets are intangible assets from R&D activities for which the taxpayer obtained an R&D certificate issued by the Bureau of Telecommunication and Post of Curaçao (BTP) and:
Intangible assets may also qualify if the applicant is a “small taxpayer,” and the IP is non-obvious, useful, and novel. However, certain limitations apply.
Small taxpayers are taxpayers of who meet the following criteria:
Changes in the new guidance
Framework to assess eligibility for R&D certificate
Since the introduction of the Curaçao innovation box in 2018, the BTP had insufficient guidance on the framework on which R&D certificate applications should be assessed. As a result, BTP did not issue any R&D certificates, which effectively restricted the applicability of the regime. With the publication of the guidance, the necessary framework has been provided. This means BTP should take applications into consideration.
In principle, BTP will assess whether the IP relates to one of the following:
In respect of the IP itself, the application should include proof of IP protection (such as a patent registration etc.). For software, however, a Curaçao attorney needs to confirm: (i) that the software has been published; (ii) which parts of the software the copyright is claimed for; and (iii) that the software has been documented (by notarial deed or in a so called I-envelope).
For “small taxpayers,” it is sufficient to demonstrate that it concerns an intangible which is non-obvious, useful and innovating. In this regard, however, a series of activities are explicitly excluded. Among others, these include:
The regulations further stipulate the submission of relevant information such as a description of the R&D activities, which activities were conducted by the taxpayer and which were outsourced and details about the person(s) to which activities were outsourced. Importantly, the regulations also request a description of the capabilities of the persons that direct the R&D from Curacao.
If, eventually, it turns out that copyright protection was not available, the profits taxed at 0% under the innovation box regime will be subject to full tax in the year the copyright protection was denied.
Finally, the regulations require that the taxpayer that requests application for the innovation box carries an administrative organization that gives a clear insight into its R&D costs per project per year.
Retroactive effect to 1 July 2018
For projects which would have been eligible and which have been concluded after 1 July 2018, a request for an R&D certificate can be requested within six months of publication of the additional guidance. Granted all conditions are met, this means that the innovation box can be applied retroactively to 1 July 2018.
For additional information, with respect to this Alert, please contact the following:
Ernst & Young Tax Advisors, Curaçao