This is for the expert tax pros on Bonaire. I've just spent the last hour going over a google translation from Dutch to English of the just released B/CN tax proposal. I realize this will be voted & finalized to accept or reject in it's entirety scheduled for 10/12/10 by the Senate.

However some questions arise:
1. the new schedule will be implemented 1/1/11. From what I can glean, there will be no income tax ramifications for off island owners who are not a resident and rent property or hold a second private home. The "income tax" will be included in the property tax. Correct interpretation?

2. it is irrelevant whether a property is rented or not. The only taxes will be property taxes. The tax authorities will value the property, assume a 4% yield & tax 25% of that figure. Correct?

3. Those who reside on the island & own property as a primary residence will NOT pay any property taxes. Correct?

4. Does anyone know if the hotel tax of $5.50 pp/pn will still be assessed?

5. Looks like the duties on imports have been substantially changed. General duty will be 8%.

6. Import duties will still be excised on tobacco, liquor & gasoline.

7. Import duty on cars will be 25% unless they meet the definition of "very clean cars" however that will be determined.

If my interpretation is correct I believe the change will be extremely favorable for just about all folks. Again. I am not a tax expert & would appreciate the input of those who are.

Still working on the translation, I want to be sure I have it all correct before posting anything, but as soon as I have it I'll post something.

and when you are done Bruce, they will still make changes or have a different interpretation!!!

OK, translation courtesy of PWC, here is what we know and my thoughts. First, this has passed the Dutch Second Chamber and needs to pass the First Chamber as well. Vote is Tuesday, and apparently it's an up or down vote, no amendments (but don't ask me about Dutch Parliamentary procedures, please!)

Please be advised this is general information and not legal advice, should not be relied upon as such, and if these issues are of concern to you personally you should certainly seek professional tax advice.

Effective 1/1/2011:

Personal income tax for residents:

1. First $9,750 tax free, then 30.4% flat rate which includes income tax, AOV (like SoSec) and AWW (Widow's and orphan's pension). At $250,000 the rate increases to 35.4%. For people at the minimum wage it is a tax cut as they no longer have to pay the payroll taxes.

2. Mortgage interest is deductible on an owner occupied dwelling. No word about a dollar limitation as we currently have or if it applies to refinanced debt post-acquisition.

3. Penshonado status is abolished and existing penshonado's will have a 4 year (not 5) transition.

4. First $5,000 of interest and $5,000 of dividends is tax free.

5. Dividend withholding on a "substantial interest" will be 5%. Employees of companies in which they have a substantial interest will be deemed to earn a salary of $20,000 taxed at regular rates (unless a lower or higher salary is customary for such employment.)

Real estate:

1. Property owners will no longer be subject to income tax on rental income. Instead there will be a flat 1% tax on the value of the property annually. The value will be reset every 5 years. I think the 0.3% existing local property tax (grondbelasting) will still apply as well, but I am double checking. Based on my experience, most non-resident rental owners paid little or no income tax as either their rent was low enough to stay in the 0% bracket or they had mortgage interest to offset their net income. So for most rental property owners this is probably a tax increase, but not a huge cost. Probably less than typical US property taxes.

2. No property tax on a dwelling used as a principal residence (I assume you must be a resident to qualify), farms, $50,000 kunuku land or real estate belonging to a business.

3. Transfer tax on sale of real estate increases from 4% to 5%.

Sales taxes and duties.

1. The old 5% OB which applied to most everything purchased on island will be replaced with a one time 8% ABB. This is generally a tax decrease because the OB was charged at every step of the process (import, wholesale, and retail) and now will only be charged once. Now the tax will only apply once: (1) at import, (2) at manufacture and (3) at delivery of the service.

2. Most duties will be abolished, so appliances, cars, etc. will be cheaper. (Tough for people who need a new fridge before 12/31!) Duty on cars drops to 25% unless low energy use, then duty free. I read alcohol and cigarettes still have a duty

Business Tax:

1. The 35% business profit tax is abolished for BES companies. Tax free business income! 5% withholding tax on distributions. But the presumption is that a company doing business here is a Dutch company subject to normal Dutch internal tax law, which I think is 20-25.5% with a 15% withholding tax rate. The 0% rate only applies if the company is really "doing business" on Bonaire.

2. Considered a BES company if:

(a) not in financial services business or insurance, sales not more than $80,000 and assets less than $200,000 (I'm not sure if these are three separate categories, but I'll find out); or

(b) not more than 50% of the assets of the business are passive-type investments or made available for use by people outside the BES; or

(c) provides permanent employment to at least 3 persons living on BES, and has real estate worth at least $50,000 used as an office in the financial services business. (Not sure if this translation is very broad "local business" or just for local financial services); or

(d) Admitted to a bonded warehouse for commerce and services. (Not sure what that means.)

Nothing about capital gains being taxed or not. I'll see what I can find.

Treaty? No mention, and since the definition of Holland in the US-Dutch treaty is "comprises the part of the Kingdom of the Netherlands that is situated in Europe" I do not think it applies. But the internal Dutch law does have a provision for a foreign tax credit for foreign income so we may finally have a solution for individuals residing on Bonaire who have pensions or social security income taxed in the US. That would be great news for retirees. I need to do more research on this as well and to see if it will apply to BES.

That's what I know so far. More later.

Thanks Bruce..Your expertise on this is much appreciated.
I saw nothing about the hotel occupancy tax of $5.50 pp/pn charged to visitors. If you learn anything on this please post.

So lets now see what transpires in the Senate on Tuesday! I suspect it'll pass in toto. But there's an old adage that it ain't over until the fat lady sings. And right now I don't hear any singing.

Thanks for posting Bruce, great information.

Patrick

Useful information. I am not sure that the 1% tax on the value of a property can be regarded as 'not a huge cost', as mentioned by Bruce. On a property value, say 250000 then 1% p.a. is a lot. (2500)

Trevor -

Based on my experience with property taxes in the US, a property tax of 1% of the assessed value of the property is lower than most areas. In addition, I think there will still be a ZERO tax rate on Bonaire on the capital gains upon the sale of your property, which can be very advantages if you are a long term investor. Although the amount of 1% may not be "cheap", I would guess that it is still less than what you are paying now for your "first" home in the US.

RE: Tourist Tax
The $5.50 per person per night "Tourist Tax" is a local island tax which is NOT a tax from Holland. This means it is not covered by the current tax legislation in Holland.
According to the General Manager of TCB it will remain in effect until further notice. It can be changed by the island government at their discretion.
The taxes that are currently being discussed in Holland are to retain or replace taxes that were formerly imposed by the central government of the Netherlands Antilles. With the dissolution of the Antilles these taxes or their replacements will now be imposed on the BES islands by the Dutch Tax Authorities.

Bob..Thanks for the clarification on the hotel occupancy tax.
Trevor: Well where I come from (North Jersey) I'm paying approximately 3% of the assessed value in the wonderful "Garden State". Also, bear in mind the tax legislation strongly favors those who reside on the island and own property as their primary residence. Personally I don't have a big problem with that.

So if I understand what has been said so far. If my 100,000 apartment which is not a rental and only I stay there......and at this point in time, nowhere near 3 months a year, taxed a $1000 annually in addition to the grondbelasting.Long term (over 5 years)it might be in my best interest to apply for residency and pay the bond.

Hey Trevor I too pay about 3% on property here in the Lone Star state.Having to pay 1% on accessed value is an increase from last couple years rental income tax.If I am understanding this right I(non resident) would pay 1.3% tax for property and so called income tax on rental. This would not vary no matter how much or little rental income may be. Correct?

Still confused about real estate taxes - sorry.

Thoughts on what a Bonaire resident (someone with a residency permit) living in principal (non-rental) property pay in total for "real estate taxes"? I can see four options:

1) 0%
2) .3%
3) 1%
4) 1.3%

Thanks.

Everett: You read it correctly. The decision to become a resident is a different decision, and tax is just a small part of it. You would pay BES income tax on all your worldwide income and still be subject to US tax as a citizen. Possibly now a foreign tax credit, also still need to check. Obviously the details of how that works out vs. the $1,000/year would be something to review with an international tax specialist. The bond is just a NAf1,000 deposit and you get it back after 5 years or when you leave if earlier.

Mike: Yes, 1.3% (still checking on the 0.3% rule) regardless of whether rented or not. Rental income will be tax free on Bonaire. Rental income is still taxable by the US.

I should add that because the BES tax will now be based on value and not income, it is no longer possible to take it as a foreign tax credit in the US. It will be allowed as a deductible property tax on Schedule A.

Barton: According to the PWC translation regarding the real estate tax:

"Exemptions apply i.e. to the dwelling that
serves as the principal residence, real estate
with a value not exceeding USD 50,000 (the
'kunucu' house), and land that is being
commercially operated for agricultural or
forestry purposes. Furthermore, real estate
belonging to the business capital of a sole
entrepreneur will be exempt, as income tax is
already levied over this real estate."

I read that to say the 1% tax will not apply to a principal residence regardless of value, but I would really like to see the statutory language instead of an accounting firm brochure to be sure.

I have heard that the 0.3% is a local government tax (not BES) and would still apply, and I have also heard that if the 1% applies the 0.3% does not. Still trying to nail that down too.

So, for now, in your case, but subject to revision, I think you would pay 0.3% in 2011, same as you do today.

Hi Bruce, Please understand that I am not debating what you just said about deposit bonds for residents being paid back after five years--I'm just giving "my side" of the story based on what I've experienced.

I was able to apply for permanent residency after ten years--got that, and asked for my deposit bond back. The answer was, "No, we keep that until you leave the island."

Then I was told exactly what you stated, above four years ago. I tried again, and it was (again), "No, we keep that until you leave the island."

So now, I'm entering year 19 on the island, and have never seen a penny of my deposit bond back. Just so you know what is actually being done.

Of course, all that might change now, but that's what I've experienced.

Bruce - Thank you for the quick response. I'm in full support of your interpretation .

Susan:

WOW! That sucks. So if you die and are buried here do your heirs get it, or will they still say you never left the island? ;-)

Here is what I have been able to confirm, in conjunction with my local accountant:

Property Taxes:

Bonaire Residents: Residents will pay property taxes under the current property tax system. These taxes are called “grondbelasting” and are currently set at 0.00365% of the assessed value of the property. This applies to their principle residence only. Properties under $50,000, kunuku's and being operated for agricultural or forestry purposes will be exempt from property taxes.


Non-Residents: Non Residents will pay a "property tax" on their vacation property equal to 1% of the assessed value of the property. Non Residents DO NOT pay grondbelasting. Rental income is not longer subject to income tax.

So, residents pay 0.365% of the assessed value of their property (grondbelasting) as property tax.

Non-residents pay 1.0% of the assessed value of their property, as property tax.

I confirmed that there is still no BES capital gains tax on the sale. There would still be a capital gain taxed in the US (unless it is a principal residence and meets the Section 121 exclusion (2 of 5 years and under $500,000 gain for a married couple.))

Next question: Regarding the personal income tax of - First $9,750 tax free, then 30.4% flat rate. On Bonaire do they have things like "filing status" of single, married, filing jointly, etc as in the USA? More specifically, does the $9,750 tax free get modified if the filing status is married, or "filing jointly", or is it basically $9,750 per household?
Thanks.

Barton:

Currently no, we don't have different filing statuses so I would not expect that to change. Exemption of the first $9,750 of income applies to each person earning income. So two working people would get $9,750 tax free each. If just one had income, just one would get the $9,750.

Thanks again Bruce. You are a wonderful knowledge resource!!

Thanks to Bruce and Bob. This was a great help.

Excellent thread & thanks to all for their respective contributions on these important issues. I believe by tomorrow we should have verification as to how the senate voted today.

Regarding the property taxes. I did confirm that if you pay the 1% vastgoedbelasting you don't pay the 0.3% grondbelasting and vice versa. So the total tax for non-resident or non-owner occupied property is 1% per year and for residents on their principal residence (or farm or kunuku house) is 0.3%.

I also got clarification (again thanks to Peter Muller) that to qualify as a "principal residence" and get the 0.3% rate on your own non-rental house, you must be a resident of Bonaire. Low rate does not apply to vacation homes. Similar to the US definition of "principal residence."

Very informative thread. Thank you.

Bruce, do you know how many non-resident Bonaire property owners there are from the U.S.?

I don't know exactly or even approximately, but if I were to guess I'd say about 200-300.

Thanks. I had no idea it was that high (understanding that is a guess). With that many, it seems reasonable to expect the island government would make the information available in English.

They may eventually but there's 15,000 local Dutch and Antillean just on Bonaire, plus a few thousand more on Saba and Statia. It makes sense they get the info first.

If the non resident property tax jumps to 1% of real value. There is going to be a massive amount of property dumped on the market very quickly and property values are going to seriously tank!!

Not only are there alot of US non-residents there are far more South American ones who would view this level of taxation as larcenous.

The moral of this story is:
1. If you own property it is TOO LATE!!
2. If you are thinking of buying... DONT BUY UNTIL THE CRASH

This has the potential to have a truly profound effect on construction employment not only for the the Bonaireans but also the recent immigrants who have supported this. The potential impact on the expense of supporting this unemployed population for the foreseable future will far out weigh the relatively small actual income the island might recover from the taxation.

Hold on this is going to get real interesting. Glad I am not trying to sell real estate!!

Ummm John...Now really, why don't you take about 10 DEEP breaths and eschew the histrionics. Do you really know anything about market forces and economics? You are certainly entitled to your opinion, however it's quite wrong.

Vince

Thank you for your concern. Realistically 1% of a high end residence is going to more than pay for the typical years stays at the best resort on the island for these people. This resolves to 2 questions:

1. Why tie up this amount of capital for a depreciating investment?

2. Why purchase something that now has an ongoing rapidly increasing cost attached to it that can be experienced for far less with no deep personal involvement.

You may not yet have made this personal adjustment but many of us have. Other carribean islands have faced these issues and come up with very different scenarios. I realize that the final analysis of this will only come retrospectively. I just hope your optimism is validated. I just seriously doubt that if non-residents are held to 3 times the tax level as residents for the same level of service that this can be a viable situation. This far exceeds the level of obligation that I am aware of in the states or europe.

Well John I think we'll just agree to disagree on this. If you think the R.E. market on Bonaire is going to come crashing down because of the new B/CN tax structure being implemented I don't see that at all. So if you think that's truly the case, keep your gunpowder dry! I wish you a lot of luck.

Contrary, I am optimistic that for all intents & purposes they will be doing away with the staggering import duties & tariffs which have hindered growth & commerce. See this table outlining the various ways this stuff was "taxed to death".
http://www.sunbeltbonaire.com/index.php?page=bon%20tariffs

I am optimistic,that for off island owners there will no longer be an income tax rendered against rental revenue by the Bonaire government. Now the law will level the playing field for those off island owners who participated in legal rentals & paid their "fair share" of income taxes as opposed to those who were in the "illegal rentals" market.

I could provide many additional examples to buttress my argument to you (perhaps over a few beers someday), but as I started out this post, I think we'll just agree to disagree. I strongly believe that time will show that the integration of Bonaire with the Netherlands will prove to be a major inflection point and will usher in a very favorable development for the island, it's people, it's businesses and also for the environment.
Check back in five years.

To Vince's point - myself as an owner of a rental property, the new tax structure as it reads should be beneficial. 1% property tax rather than the grondbelasting plus rental income tax is a break even for me or slightly better.

To John's point - if you are a non-resident owner without rental income then I think you are quite correct in that you just started paying higher taxes.

I, for one , am not a fan of "commerce and growth" on the island (yet). Bonaire cannot handle its current level of growth - one example - sewage. It seems Bonaire is incapable of protecting what it has right now. Before lowering tariffs and the like the island needs to become prepared to handle an influx of growth.

So obviously everyone wont be happy with the new rules.

Speaking as someone in the business, the 1% property tax on your second home is about the same, or even lower than you would pay for property taxes on a similar property in most states in the US. Holland also charges a similar tax on rental/vacation property there, although I am not sure what the actual tax rate is.

Up until 2010 most if not all of the second home owners on Bonaire where not paying even 0.3% of the real value of their home in property taxes, since no new appraisals had been done since 2000. Those owners were essentially getting a free ride, or close to it up until now.

Although some people think the 1% is high, it is a good way (and really the only way) for the government to have the people who own second homes on Bonaire pay their fair share of the islands costs for roads, police protection and other government services.

It may not be the perfect solution but if you want to see the public services on Bonaire be improved, everyone has to pay their far share of the costs.

John -

I doubt that this new tax will have ANY effect on the real estate market on Bonaire. Real Estate prices on Bonaire have gone up steadily since I arrived here in 2003. Oceanfront homes that you could have purchased for $300,000 back then now sell for $900,000 to $1 Million.
Other Examples:
- Lot in Sabadeco Keys sold for $260,000 in 2004, now selling for $600,000.
- Lot in Sabal Palms sold for $24,000 in 2004, now it sells for $80,000, or more.
- 2 bedroom/2 bath unit at Sand Dollar sold for $170,000 in 2004, now it would sell for $250,000, or more.
- 3 bedroom/2 bath house in Hato sold for $175,000 in 2005, now it would sell for around $325,000

As you can see real estate investment on Bonaire has been a great long term investment, based on just on price appreciation. If you add in rental income as well that only makes the numbers better.

The real estate market on Bonaire is not like the market in the U.S.. There are virtually no bank repos, so we don't have that factor driving down sales prices.

Since the market high in 2007, I would say that the selling prices for most types of real estate have gone down less than 10%. However, during that same time the prices for waterfront properties have remained relatively unchanged.

The real estate market in Bonaire is now being driven by four sets of buyers:
- European Buyers: At the present time, the Euro is hovering at around 1 Euro = $1.40 which makes Bonaire an attractive place to buy based on the very attractive exchange rate. The fact that the BES islands are now part of Holland also makes many Dutch buyers even more comfortable with investing money here.
- North America: For US and Canadian buyers, Bonaire is still a pretty good deal. As the economy in the US recovers, we are seeing American buyers back in the market for property on Bonaire.
- Curacao: The transition of Curacao toward independent rule carries with it some risks about how it will turn out. Will Curacao be able to make the jump to the Aruba model and bring prosperity to it's residents, or will the island continue to struggle with a lack of jobs and the problems that come with that? This uncertainty is making Bonaire an very attractive investment alternative for people living/working on Curacao.
- Venezuela: Bonaire's location only 50 miles from Caracas makes it an attractive investment and vacation destination for those Venezuelans who have the income and dollars to invest here. We are seeing an increased number of buyers from Venezuela who want to invest here in vacation homes.

I think that all of these items will serve to stabilize the local real estate market going into 2011, and I am predicting that real estate prices will start to go up again in the 2nd or 3rd quarter of 2011, as the integration with Holland continues.

I think that now is a great time to buy. Of course every situation is different and everyone needs to do their own research before deciding if buying real estate on Bonaire is the right investment for them.

(Message edited by nauticlue on October 14, 2010)

Bob..thanks for shedding some additional light together with your professional expertise on the subject. I am absolutely in agreement with what you have posted. Personally I've been carefully monitoring the Bonaire real estate scene now for at least the last 8 years. ALL tax policy has winners & losers, that's the nature of the beast. Overall, I think what they've done is fair and equitable.

Additionally I think the folks on Bonaire made a great decision when they decided to make the US dollar the official currency. Our Federal Reserve is now involved with additional quantitative easing. Yes, this will lower the international value of the $ making Bonaire a real bargain for the folks from The Netherlands (and all of Europe) together with little adverse currency impact for the Americans. This decision will positively affect their 2 major markets. A prescient choice to say the least. IF they had chosen the Euro, they would have really hurt their US market.

Just adding the finalization of the subject.
As of January 1 2011 property owners on Bonaire will either pay Real Property Tax (“vastgoedbelasting”) or Land Tax (“grondbelasting”).

Land Tax will be paid by owners who use their property as their home. The calculated Land Tax per year will be 0.3% over the economic value of the lot and its building(s).

15% Island Surtax* (“eilandse opcenten”) will be added over the 0,3% making a total payable Land Tax per year of 0,345% over the economic value of the lot and its building(s).

Real Property Tax needs to be paid for all properties not used by the owners as their home. The calculated Real Property Tax per year will be 1% over the economic value of the lot and its building(s). Island Surtax*: Unknown.

Exception: Kunukus (farm land) owned by BES residents with an economic value of less then USD 50,000.

Vince, That sounds like great news for home owners. Just to be clear it's Property Value X .00345%. A 100,000 property would have an annual tax of $345. Do I have that right? Also, who does the property assessment?How is a baseline value determined?

The property value is based on a determination by the assessor, similar to the US model but based on 100% of FMV. Last round they sent a letter and said tell us what you think it's worth and show us how, and if you didn't respond they threw a number out there to see if it would stick. They were pretty reasonable to deal with in my experience. It is my understanding the values won't reset every year, maybe every 4-5 years?

The island surtax will apparently apply to both grondbelasting and vastgoedbelasting, so the tax rates will be 0.345% and 1.15%

Other tidbits (cleaning up what is above):

The 8% ABB applies to rentals unless the owner pays the $5.50/day tourist tax, so property owners who rent their own homes should either register to pay the tourist tax or plan to contribute 8% of their rental income to the government.

ABB also applies to some inbound services (sort of like the use tax side of the sales tax rules in the US). So if you are a business on Bonaire and you pay a US or Curacao lawyer to do work for you, you pay 8% on the fees charged. The theory is that a local lawyer would have to charge ABB so this prevents "unfair competition." This area (sourcing of services and goods) is quite complicated; we had a three hour English presentation on ABB only last Friday. There was a standing room only presentation on all the taxes in Dutch the Saturday before.

The $5,000 exclusion from income tax for both interest and dividends only applies to the higher earner of a married couple. On Bonaire the higher income earner reports the passive type incomes. So only $10,000 max per married couple.

Mortgage interest on a principal residence remains deductible subject to a limit of $15,364 (plus up to $1,676 for maintenance.) Same limits as before 2011.

Capital gains on investments are still tax free, but the gain if you are a substantial (>5%) shareholder) selling a BES domiciled company is a part of the opbrengstbelasting (distribution withholding tax) and is taxed at 5%.

The US-Netherlands Tax Treaty does not apply to the BES Islands. The existing decree for double taxation also does not apply but something is in the works, when I know for sure I'll post. (This could be great news, but I don't want to speculate about what might or might not happen.)

For anyone really interested in the details, the Belastingdienst has a website which now has a number of brochures and handbooks on the various taxes, and they are all in Dutch, Papiamento and English. They are really doing the best they can to get the public informed. They are all here:

Tax Brochures and Handbooks