Taxation of property on Bonaire, new investment incentive

(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 (2021) property tax on the land is $500,000 less the $70,000 allowance and the balance is taxed at 0.91%, so $3,913 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. Note this rule only applies to investment property subject to VGB. If you later move here and become a resident and make the house your principal residence, the lower GB rate will apply but the "improvement incentive" will end and you'll be subject to the lower tax rate on the full improved value of the property.