New Tax Developments
2021-06-12
If you are just starting off, you may decide that the cost of setting up a B.V. or N.V. and all the extra compliance issues are more than you can handle. You can start a self employed business here instead. It less up front cost and less filing requirements but does have some trade offs. It probably makes sense to just be self employed if the profit of the business will be under $20,000, but let's look at the issues.

Bonaire side:

A self employed business here is called an "eenmanszaak." The shorthand is an "EZ." You complete some paperwork at the Chamber of Commerce and register with the tax office. The taxes you be paying will be the ABB/sales tax (quarterly) based on the tax you collect from local customers. Since you are self employed, there is no wage withholding on what you earn. But if you hire employees you will need to also register and file quarterly wage withholding tax forms. The profit of the business will be reported on your Bonaire personal income tax return. If you have no other sources of income, the first $12,575 (2021 rate) is tax free and the balance is taxed at 30.4%. Unlike the profit of a Bonaire company, there is no zero tax rate to apply to the profit. A loss can offset other Bonaire taxable income, if you have any that is not already excluded under the Double Tax Decree.

US Side:

Because there is no "entity" there is no Form 5471/8992 and all the complexity that adds to your US return. You would report the income and expenses on Schedule C on your US return. The net income is subject to ordinary income tax after the $12,550 Standard Deduction (2021 rate.) But because you are earning this income outside the US you can either exclude the income as Foreign Earned Income on a Form 2555 or claim the Bonaire tax paid as a foreign tax credit on Form 1118. Because you are self employed the net income is also subject the self employment tax of 15.2%. The exclusion and credits only apply to income tax, not SE tax, so this is an extra cost. On the other hand if you have a loss, that loss can be used against other income in the US or carried forward to offset future income. In that way it is better than the GILTI rules that apply to Bonaire companies.

So you can see there are a lot of moving parts when comparing having a business on Bonaire in the corporate form or not.
2021-06-12
Many of our clients have moved to Bonaire and either started or bought a business here. This short overview will highlight the primary tax considerations to consider if this is your plan. Owning a business here has both Bonaire and US reporting requirements. This article will not cover small unincorporated businesses, like a Schedule C self employment situation. We'll cover that in another article.

Bonaire side:

The local corporate tax rate is zero as long as you qualify as a BES domiciled company. That's normally an easy thing to do as long as you have less than $200,000 in assets or have three employees, including yourself. There are types of businesses that wouldn't qualify, but they are primarily businesses in the offshore finance or investment business. Bonaire is not equipped to regulate tax haven finance companies. If your idea is a normal operating business (retail, diving, restaurant, hotel, etc.) you'll qualify. The Notaris is the one who will prepare the documents to start a new company or handle the transfer of stock or assets of an existing company. You will need to register the company with the Chamber of Commerce and the tax office. The local taxes you will need to plan for are the quarterly wage withholding, the quarterly ABB/sales tax and an annual financial statement filing for the business. Distributions of profits from the company are subject to a 5% withholding tax, also reported and paid quarterly.

If your business is profitable there is a minimum salary of $12,000, but your salary should be commensurate with what someone doing your job on Bonaire would earn. The remainder of the profit is not subject to Bonaire income tax. So there is an obvious tension between the desire to keep salary low and profit high. At the same time there is a similar tension between these two types of income on the US side. The overriding goal is to come up with a "sweet spot" solution that works for you as well as for both governments.

US side:

There has always been a requirement that you disclose the ownership of a foreign corporation to the IRS. But since 2018 the tax rules have changed dramatically. The typical situation we handle is a US expat that owns a corporate business here either as a B.V. or and N.V. The details of your ownership, the financials of the company (balance sheet, income statement, etc.) are included on Form 5471 and the numerous supporting schedules that go with it. In the past (pre-2018) the income of a normal operating business would not be taxed by the US until you took a distribution of profits, either in the form of a dividend or as a loan.

But since the TCJA of 2017, all the profit of the business (less a 10% return on tangible property you have in the company) is passed through and taxed in the US, even without a distribution. This is Code Section 951A with the shorthand name of "GILTI" which stands for Global Intangible Low Taxed Income. The pass through is taxed as ordinary income and is reported on Form 8992. If you paid a dividend out of the company's profits, there is no second US tax, and the 5% withholding tax can be used as a credit against the GILTI inclusion for that year. Losses do not pass through and do not carry forward. So the only US tax benefit of having a Bonaire company (rather than being self-employed) is that the salary and the profits are not subject to the 15.2% US self-employment tax.

That's a very simple overview and of course there are a lot of details to consider, but we're here to help you manage the financial and tax side of your (hopefully) successful business.
2021-06-12
What happens if you still want to keep working for your US employer but can work remotely from Bonaire? If you’re here as a tourist but spend some time online working for your employer back in the US, as a practical matter the local tax office doesn’t really care. And this type of short term work has no US tax impact either.

If you want to be on Bonaire more than 6 months, you do need to apply for residency.  Once you are a US Citizen and Bonaire resident two countries want to tax you but it works out that they split the tax. As a resident you are subject to Bonaire worldwide taxation.  Your salary for services physically performed while on island is subject to tax here. Services performed in the US or elsewhere are not. They are excluded from Bonaire tax because of our Double Tax Decree.  

For US tax purposes your Bonaire source salary income would still be reported in the US but it would be tax free there, either due to the Foreign Earned Income Exclusion or by using foreign tax credits.  Your US source income is taxed the same as if you hadn’t left the US.

If you are working for a US company and it is solely your own company and you are a director of the company, that company would be “doing business” on Bonaire. The company would have to register here with the Chamber of Commerce and the tax office.  There is no corporate level income tax as long as you meet the requirements of the BES 0% rate. But the salary you earn here would be subject to quarterly withholding taxes.   As long as you are a director there are no employer payroll taxes.

If you are an employee of a company which you don’t own, say “Giant USCo”,  the rules get a bit fuzzier.  Technically an employee working for Giant USCo could create a “permanent establishment” of Giant USCo here by having an “office” here. Giant USCo would have to register same as the example above.  This is a typical international tax rule and now a big deal everywhere due to Covid.  Most US companies do not like the extra registration and paperwork that goes with establishing a branch in a foreign country so you’d need to discuss that with your employer.  This is especially true if the company has customers on Bonaire, or if you are an officer of the company.  The extra cost to Giant USCo if registered would be a 13.4% employer’s payroll tax on your salary, plus the filing requirements above.  

If you are a lowly regular salaried employee and there are no customers of the Giant USCo on Bonaire, it would be an exposure for the company but unlikely to be investigated by the local tax office.  So far I have not seen the local tax office try to get the foreign company to register in this case, but that does not really mean your employer is home free, just seems to be under the radar.  It’s better to have the discussion with your employer first than to have them be contacted by the tax office with a request for years of back taxes.

To avoid the exposure entirely, some employers will only allow you to continue to work for them outside the US on a consulting basis, not as an employee. You would set up your own US or Bonaire company, which collects a fee from Giant USCo, and that company pays you a salary.  That company would be yours to register here.  This provides a buffer between Bonaire and Giant US Co. You would cease to be a direct employee of Giant USCo and in most cases would lose employee benefits like health care, vacations, etc. You’d have to decide if it’s worth it, but I have had this solution work for some clients, especially if they are nearing retirement.

Some US employers will not agree at all to allow an employee to work from another country and won’t agree to the "contract with your company" idea, so then you’re kind of stuck; guess it's time to retire!
2021-06-12
General rules: Bonaire has a “Double Tax Decree” (DTD) that lowers or eliminates income tax on certain types of income earned by residents if the income is taxed in another country. It is basically an incentive to get US expats to settle here and spend their money on island. In exchange you get free health care.

Pensions, 401(k) and IRA withdrawals are income tax free here if you are 65 or over as of January 1. If you are under 65 and have that type of income, the DTD will not eliminate all the local tax. The 30.4% is made up of not just income tax but also “premiums” for things that are the equivalent of FICA and Medicare. On the first $32,235 of taxable income (2020 rate) the “tax” not offset by the DTD is about $8,500/person. Above that deferred compensation is tax free. If you can wait to start those withdrawals until you are 65, the "tax" drops to about $160/year, which is your health care premium. The same rules apply for Social Security but the 15% not taxed by the US is taxed here, so that can add between $500-$1,000/year depending upon how much your SSA benefit is.

Rental income is not taxable on Bonaire at all, nor are capital gains. There is a tax free allowance of approximately $12,500/person (changes with inflation) The first $5,000 of interest and $5,000 of dividends, both per person, are tax free. Over that the DTD kicks in to lower the tax but the rate is 30.4% as a start. The tax on dividends can be reduced by up to 5%. The tax on interest is reduced by the amount of US tax allocated to it.

The taxes you pay to Bonaire are not allowed as a credit against the US tax because the source of the income is US, not foreign. But if you have a salary while working on Bonaire or own a business here, see the sections on “US Expat working on Bonaire” and "Owning a business on Bonaire" as different rules apply.
2021-06-12
The property tax assessment values are reset every 5 years and 2021 is the reset year for the whole island. The Bonaire Property tax is due annually and is 0.91% Vastgoedbelasting for vacation or rental homes with a $70,000 tax free base and 0.345% Grondbelasting for principal residences. In general, the value is fixed for the next 5 years.

If you receive an assessment notice and it is significantly more than a recent purchase price, you need to file an objection within 2 months of the date of the assessment notice. For example, if a property you bought in 2020 for $500,000 was assessed at $750,000 in the 2021-2025 cycle and you don't object you will be liable for more tax than you need to pay for the next 5 years.

Keep an eye out for that notice! They likely start mailing out VGB notices in July if they follow the pattern of the 2016 cycle. GB notices will follow shortly. Contact us if you have any questions.
2021-06-12
Basic rule. Your principal residence is subject to one type of annual property tax called "grondbelasting." The tax rate is 0.345%. Other real estate owned is taxed under the "vastgoedbelasting" method, which for 2021 and forward is 0.91% on the assessed value over $70,000. If your property is on leased land there is an additional long lease payment called "erfpacht" and the amount varies depending upon the location of the property.

We're often asked how you should title the ownership of real property on Bonaire. In the US rental real estate is often owned by a single member LLC. Direct ownership or joint ownership are the most common for your principal residence, with some clients owning such property in a revocable grantor trust ("living trust.") In most states, the ownership through such a trust will not cause problems with special tax rates and exemptions for homesteads. But it's almost never wise to put your principal residence (US or Bonaire) in an LLC. Doing so would cause the ownership to be separated from you, and as a result the gain on sale will not qualify for the $250,000/$500,000 exclusion and you will lose the ability to deduct mortgage interest and real estate taxes on Schedule A. (Since 2018 Bonaire real estate taxes on a principal residence are no longer deductible in the US.)

On Bonaire it is also not advisable to own your principal residence through an LLC, for reasons in addition to the loss of US tax benefits above. If you own your principal residence directly, you can qualify for the lower property tax rate, "grondbelasting," If you own the principal residence through an LLC it will be treated as owned by an entity separate from the person living there and will be taxed at the higher "vastgoedbelasting" rate.

Passive rental income is not taxable on Bonaire but is taxable by the US.

If you have questions, please give us a call or use the contact page to send us a message.
2018-03-14
To put it mildly, we all got thrown under the bus by Congress, first and foremost by Section 965. If you own a Controlled Foreign Corporation the accumulated profits in the company are treated as a dividend to you on 12/31/17 and you have to pay tax on that full amount starting April 15, 2018. The payments are calculated at two different effective tax rates, 15.5% for the share related to cash and net receivables and 8% on the share related to everything else. There is an election you can make to spread the payments over 8 years. The details are here.

https://www.irs.gov/newsroom/questions-and-answers-about-reporting-related-to-section-965-on-2017-tax-returns

The two primary takeaways from the announcement are that the 965 Tax needs to be paid separately from your regular taxes, by wire, check or money order. Second the reporting and elections are to be prepared on a PDF file to be attached to the return. Needless to say the details to be provided and the calculations to determine the proper amount to pay are going to require a lot of work. We strongly advise clients to make their best effort to calculate what is due but then extend the tax return until we get additional guidance.

The second hit we will all take is based on the fact that humans don't get treated as well as corporations. We're called "GILTI" by the new law, quite intentionally. Global Intangible Low Taxed Income is what we have. For 2018 and future years the profit of your Bonaire business will be treated as a direct flow through and reported on your US tax return every year. There is no more deferral of income. There may be a small amount that won't be taxed if you have a Bonaire company which owns tangible assets like machinery and equipment; you're given a 10% return on that type of investment to subtract from the earnings on which you have to pay tax. The only "solution" would be to be like one of the beneficiaries (i.e., campaign contributors) of the bill and create a US C corporation to own your Bonaire company. Those shareholders don't pay tax in the US on the distributed foreign profits; they do have GILTI income to report but at a lower tax rate. Of course you'll incur additional costs of setting up a new US company and filing tax returns for it, and you'll eventually pay tax on a dividend from the C Corp to you, but in some cases it might be worth considering.

We're here to help, deal with the compliance problems as well as look at any cost-effective solutions going forward for you. Contact us if you have fallen into this hole.
2017-02-22
For the first few years of business we ran our company as American Consulting Group, B.V. Beginning in 2017 we have created a new sister company, International Tax Advisors, B.V. to perform all the tax consulting and compliance services that ACG previously provided to our international clients. And we recently hired Bernice Stephens to be an associate with the firm, so we now have added someone with native Dutch language ability. She will be helping with the growth we have had in both bookkeeping and tax compliance services for Bonaire and the US, and will provide an ability for us to increase our business in the future. We look forward to serving you for years to come.
2015-08-18
Beginning in 2016 the tax filing deadlines for a number of items affecting international taxpayers will be changing. The one affecting most Bonaire clients is the change of Foreign Bank Account reporting. Instead of the old June 30 deadline with no extension, the due date will change to coincide with the filing of individual tax returns. So for individuals living in the US the FBAR will be due April 15 and a 6 month extension to October 15th will be automatically granted. For individuals living outside the US, the due date will be June 15 with a 4 month extension to October 15. There are a number of other changes to other forms, such as corporate and partnership returns, but these will affect returns filed after 2016.
2015-05-28
(Originally posted May 2015, updated June 2021.) If you are a US citizen but nonresident for Bonaire tax purposes and you own rental property on Bonaire the rental income is tax free on Bonaire. (It's still reportable on your US return.) The local property tax is called "Vastgoedbelasting" (VGB) and is an annual tax. The VGB rates for the years 2011 through 2014 were 0.6%+15% island surcharge, so 0.69% of the value that was set in 2011. The tax is based on that value but with the first $70,000 being tax free. The VGB rates for the years 2015 forward are 0.7%+15% island surcharge so 0.805%. In 2021 the VGB rate is now 0.91% (0.7% plus 30% island surcharge.)

If you become a resident of Bonaire, your primary residence is taxed at 0.345% annually (called "Grondbelasting" or GB for short.) Any second property you own is taxed at the same VGB rates as above with the exception that undeveloped land is not taxed at all. And as above, there is no income tax on rental income.

There is also a new “improvement incentive” starting 2015. Let’s say you buy a piece of property for $500,000 and builds a $1 million second home on it. The current property tax on the land is $500,000 less the $70,000 allowance and the balance is taxed at 0.805%, so $3,461.50 per year. The tax office has a form (2014_WEB_Form_VGB_Investeringsvrijstelling) you will need to file with the tax office within one year after construction starts. The benefit of completing the form is that the value of the property will not be increased for the value of the improvements for the next 10 years; this is up from 5 years for improvements started in 2013 and 2014. So there is no tax on the value of the house for the first 10 years.
2015-03-30
Owning property on Bonaire just got a big boost, as you can now stay on island much longer without residency. And for people becoming resident here, the annual renewal process has been replaced by a new 5 year residence permit. Way less paperwork and cost. (Details from Bob Bartikoski, Re/Max Bonaire)

Good News for American Passport Holders!

We have just received some exciting news from the Immigration Office concerning visitation and residency for American Passport Holders: The Immigration Office of the RCN has informed us that USA passport holders will now be afforded the same visitation and residency right as Dutch passport holders who are originally from the Antilles. These changes will be implemented within the next few months and are outlined briefly below.

Visitors: American Passport holders will now be allowed to visit Bonaire for up to six months in any 12 month period. The old visitation rule limiting stays to 3 months out of six months no longer applies.

Prospective Residents: American Passport holders will now be allowed to apply immediately for “resident” status “by rule of law” which will allow them to apply one time for a Bonaire Residency permit that will remain valid for five years. This new policy applies to both “first-time” applicants for residency AND for those who are in the process of renewing their residency permits.