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(Private) Foundations
and Associations subject
to Profit Tax
This fact sheet applies
to St. Maarten. You
will find information
with regards to:
Expanding group of
Profit Tax subjects
General Social Interest
Taxable Profit
Benefits from capital
(Associations)
Registration and filing
of Profit Tax returns
Prevent fines
In this newsflash we will discuss the impact that the National Ordinance Trust introduced by the St. Maarten Government in April 2014- has on (Private)
Foundations and Associations in St. Maarten.
On 1 April 2014, the St. Maarten Government
has introduced the National Ordinance Trust
(A.B. 2014 no. 7). The purpose of the Trust
Ordinance is to strengthen St. Maarten’s
position as an international financial sector.
The implementation of the Trust Ordinance
resulted in, apart from the introduction of the
Trust as an entity, textual amendments of the
National Ordinance on the Profit Tax (NOPT).
However – intentionally or unintentionally 1 –
one of the amendments will have a serious
negative impact on (Private) Foundations and
Associations.
Expanding group of Profit Tax
subjects
Until the introduction of the Trust Ordinance in
2014, Foundations and Associations which did not
operate a business, or which did operate a business
but were dedicated to the promotion of the general
social interest, were not subject to Profit Tax 2.
These Foundations and Associations did not have
to submit Profit Tax returns. Based on
jurisprudence, operating a business means: the
intentional realization of profit through an
organization of capital and labor while
participating in social and economic life.
Applicable as of fiscal year 2015 the legislation
relevant to Associations and Foundations has
changed. The Profit Tax Ordinance now states that
all trusts, associations and foundations are subject
to profit tax, except those that are dedicated to the
promotion of the general social interest. The
ordinance further states that the term Foundation
also includes Private Fund Foundation. The
Inspectorate of Taxes has issued a publication in
which they state that this means that all
Associations, Trusts and Foundations, including
the Private Foundations, are subject to Profit Tax
and have to submit Profit Tax returns. Only the
Foundations, Associations and Trusts dedicated to
the promotion of the general social interest
exclusively are still exempted from filing Tax
returns.
this amendment was to include the trust in this
exemption. However, as a result of the new
wording of the exemption, which now refers to
foundations and trusts as listed in Title 6 Book 3
Civil Code if and insofar they do not operate an
enterprise as mentioned in article 1 sub 3, all
Foundations and Trusts are exempt from profit tax
if and insofar their activities do not include
business activities. The reference to article 1 sub 3
is a strange one; this article establishes that the
term enterprise also includes all undertakings,
activities and services of any kind 3.
Because of the fact that article 1 sub 1 letter b still
includes the word “profit”, the explanation of this
word becomes relevant. Profit means the product
of all benefits (meaning revenues and expenses) in
whatever name or form gained from enterprise as
well as benefits from capital not used therein
(article 4 Profit Tax Ordinance). Given the fact that
profits, including benefits from capital not used
therein, can only be gained by a trust or foundation
which operates an enterprise, Trusts and
Foundations that do not operate an enterprise are
exempt from profit tax. Even though the
exemption does not mention Associations, it could
be argued that insofar an association does not earn
profits (from enterprise) its net surpluses will not
be subject to profit tax.
As stated before however, the Inspectorate of
Taxes is of the opinion that all Associations, Trusts
and Foundations will have to register (if they have
not already done so) with the Inspectorate of Taxes
and file profit tax returns. It can be assumed that
the Inspectorate of Taxes will be of the opinion
that net income realized, unless an exemption is
applicable, will be subject to profit tax.
Support of General social interest
In which situations are Foundations, Trusts and
Associations exclusively dedicated to the
promotion of the general social interest and do
they not have to submit Profit Tax returns?
•
The ordinance also amended the profit tax
exemption for Personal Foundations. The goal of
Although the implementation of the Trust Ordinance is
intended to be an incentive measure for the international
position of St. Maarten, the Legislator has expanded the group
of tax subjects for Profit Tax purposes also. Surprisingly the
Ordinance was not co-signed by the Minister of Finance and the
Legislator did not explain the expansion of the tax
liability/burden for Foundations and Associations in the issued
Explanatory Memorandum.
2 We refer to article 1 sub 1 letter b of the Profit Tax Ordinance.
1
Activities have to be in support of the general
interest. In general, religious, ideological,
cultural, charitable, and scientific institutions
meet the requirements for a
Foundation/Association dedicated to the
Case law indicates that these undertakings, activities and
services must be profit oriented and those profits must be
reasonably expected. In a decision dated 15 October 1999, the
Fiscal Court indicated that the legislator’s intention, under the
old text, was to not include enterprises that were operated by
Associations or Foundations that were solely promoting the
general social interest.
3
promotion of the general interest. However,
Homeowners Associations and most of the
Private Foundations for example do not
promote the general but the private interest of
a person or a group of persons and do have to
submit Profit Tax returns.
•
Activities have to pursue the general interest
directly. Based on Dutch case law, activities in
the socio-cultural atmosphere in itself do not
directly pursue the general interest. Examples
of Foundations and Associations which do not
promote general social interest directly are
sports, music and scouting
Foundations/Associations.
•
Activities have to affect the general interest
exclusively. If a Foundation or Association is
dedicated to the promotion of the general
social interest, but also performs activities
which do not meet the requirements, the
entity has to submit tax returns.
Taxable Profit
The fact that Profit Tax returns have to be
submitted for Foundations, Trusts and
Associations does not mean that the realized
surplus of the Foundations, Trusts or Associations
qualifies as profit and is taxable.
•
As mentioned in the first paragraph there is an
exemption from Profit Tax for (Private)
Foundations and Trusts which do not operate
a business. However this exemption is not
applicable to Associations.
•
The realized surplus of Associations is only
taxable if it qualifies as Profit. According to
the NOPT profit shall be understood to mean
the sum of the benefits acquired net, under
any name and in any form whatsoever, from
business operations and from capital not used
therein.
•
Except for the administrative burden of
submitting Profit Tax returns, nothing
changes for Foundations which do not operate
a business. This is also the case for
Associations which do not operate businesses,
unless these Associations gain benefits from
capital 4.
Normal wealth management does not qualify as business
activities so that it is included in the general exemption for
Foundations.
4
Benefits from capital for
Associations
•
As stated above, it could be argued that
Associations that do not operate an enterprise
will remain exempt from profit tax.
•
The Inspectorate of Taxes will most likely be
of the opinion that Associations which were
not subject to Profit Tax and did not have to
file Profit Tax returns because they do not
operate a business, will, as of fiscal year 2015,
have to file Tax returns and pay Profit Tax
over their income on capital, such as interest,
rental income and profits on the sale of real
estate.
•
Associations which are liable to Profit Tax for
their benefits from capital only, cannot make
use of fiscal facilities such as (accelerated)
depreciation, investment allowance and
reinvestment reserve. These fiscal facilities are
only applicable to business assets.
Registration and filing of Profit Tax
returns
•
Before you register your (Private) Foundation,
Trust or Association with the Inspectorate of
Taxes you first have to determine if the
Foundation, Trust or Association is a tax
subject for Profit Tax purposes. This is not the
case if your Foundation, Trust or Association
is dedicated to the promotion of the general
interest.
•
All other Foundations, Trusts and
Associations have to be registered with the
Inspectorate of Taxes and Profit Tax returns
have to be filed for the fiscal year 2015.
•
A Provisional tax return has to be filed and, if
applicable, payments have to be made within
three months after the end of the financial
year. The Final Tax return has to be filed and
payments have to be made within six months
after the end of the financial year, unless an
additional period of six month is granted.
Prevent Fines
If you have determined that your Foundation or
Association is subject to Profit Tax you are obliged
to file Profit Tax returns. If the (provisional) Profit
Tax return is not filed or not filed on time, the tax
authorities will impose an (additional) assessment
including a fine. The fine amounts to:
•
ANG 500 for the first omission;
•
ANG 1,000 for the second omission;
•
ANG 1,500 for the third omission;
•
ANG 2,000 for the fourth omission;
•
ANG 2,500 for the fifth omission and up.
If Profit tax is due, the fine can be raised based on
a percentage of the indebted Profit Tax to a
maximum amount of ANG 2,500 (first omission)
ANG 5,000 (second omission) or ANG 10,000. The
percentages of the first, second and third omission
amount to respectively 5, 10 and 15%
How PwC can help
If you would like to learn more or have questions or remarks regarding the contents of this newsflash,
please contact:
Paul van Vliet (Director)
[email protected]
Jeroen van Dorresteijn
jeroen.van.dorresteijn @an.pwc.com
Marco Aalbers
marco.aalbers @an.pwc.com
PwC St. Maarten
P.O. Box 195
Emmaplein Building
Philipsburg
Sint Maarten
T: +(1-721) 542 2379
F: +(1-721) 542 4788
Or send an e-mail to: [email protected]
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