Dear Weekender,
Right in the middle of the Carnival madness, I am here to share some knowledge on a very common tax issue in St. Maarten – double taxation.
In cross-border situations, it often occurs that an individual or a company is confronted with double taxation. Although tax administrations of the respective countries would generally consider double taxation as undesirable, there are certain cases in which double taxation cannot be avoided in absence of a specific tax treaty – an agreement between two countries that prevents individuals or companies from paying tax twice on the same income.
Based on the applicable legislation of St. Maarten, the residency of a taxpayer is determined based on the actual facts and circumstances of his or her situation. In fact, this means that a St. Maarten visitor, who extends his or her stay in St. Maarten with or without adhering to the immigration laws and procedures, could be considered a tax resident of St. Maarten for taxation purposes, if the centre of his or her economic and social life is in St. Maarten.
In case law and (international) literature on double taxation of cross-border employment, more criteria can be found for interpretation of the aforementioned terminology: “facts and circumstances” and “the centre of one’s economic and social life”. For instance, facts and circumstances such as, having a bank account, a sport subscription, a registered car, having children going to school or having a fixed dwelling, in St. Maarten, could result in the tax authorities considering such an individual a tax resident of St. Maarten for taxation purposes.
To the untrained eye, the most practical way for avoiding double taxation would be excluding income from abroad from the taxable base in St. Maarten. However, based on the applicable legislation and the tax system of St. Maarten, tax residents of St. Maarten are subject to income tax in St. Maarten for their worldwide income. Therefore, the individual who qualifies as a tax resident of St. Maarten and would opt to exclude the foreign income from his or her personal income tax return, would be acting against the law, and as such could face fines and even criminal prosecution based on article 49 of the General Ordinance on Taxation (in Dutch: Algemene Landsverordening Landsbelastingen).
Based on the tax system of St. Maarten, the individual tax resident of St. Maarten should declare all income in the tax return and claim relief for double taxation from the tax authorities in the indicated section of the tax return form.
According to the personal income tax return form for tax residents (Form A) and the applicable legislation, the following sources of income generated outside of St. Maarten should be declared in the St. Maarten tax return of the tax resident:
- Income from shareholding in foreign companies (dividends and capital gains)
- Income from real estate located overseas
- Income from employment or physical activities overseas
- Income from periodical payments received from abroad (similar to pensions)
- Income from overseas bank accounts and investments (interest and dividends)
The tax authorities of St. Maarten may upon request grant relief for double taxation in cross-border situations where no tax treaty for avoidance of double taxation applies. To claim tax relief for double taxation, it is important to mention the following details of the income received from abroad in the indicated section of the tax return form: the country, the amount received and the income tax paid in the other country. The exact conditions applied by the tax authorities are documented in internal policies, which have not been officially published, although referenced in case law.
In case there is a tax treaty for the avoidance of double taxation, the entire treaty would be published via the official channels. St. Maarten has concluded such tax treaty only with Norway (dating back to 1989) and similar arrangements with The Netherlands and the former Netherlands Antilles.
Now you might be wondering if the aforementioned also applies for income received from sources on the French part of our island, St. Martin – well, your assumption is correct. Unfortunately, some instances of double taxation would continue to exist between tax residents of St. Maarten (Dutch part) and St. Martin (French part) until a tax treaty for avoidance of double taxation has been concluded between these two island states. Enjoy the Carnival season and stay tuned for some tips to mitigate tax risks, especially for the entrepreneurs out there. #knowyourtaxes
Sincerely,
Nicole Echobardo | HBN Law & Tax
