WILLEMSTAD - Last week, the Curaçao tax authorities announced a tougher approach toward businesses that habitually fail to meet their tax obligations. On Friday, November 1, this approach was put into action with the closure of a hospitality business. This is not the first time the tax authorities have taken such a strict measure.
Due to mixed public reactions to this enforcement, it is essential to clarify when the tax authorities decide to implement a “store closure” and the goal of this measure.
As of the end of October 2024, the tax authority’s collection records show a total of 116,661 taxpayers with outstanding debts, amounting to NAf 3.3 billion. For context, total revenue from taxes and social security contributions in 2023 amounted to just over NAf 2 billion, meaning the nominal outstanding tax debt is more than 150% of annual tax and premium revenues. Internationally, a 40% cap on tax arrears is considered “good practice.”
While the NAf 3.3 billion figure does not represent the entire collectable debt, several hundred million in outstanding amounts are still likely to be recoverable.
More concerning, however, is that tax debts have risen again since the cleanup of records in January 2023 (involving assessments from 2017 and earlier), climbing from NAf 2.7 billion to NAf 3.3 billion. The outstanding balance of unpaid sales tax has increased by NAf 76 million since January 2023, while overdue payroll taxes and premiums have risen by roughly NAf 70 million. The January 2023 policy adjustment came with conditions, including that the collection backlog should not grow further. But, much like people who persist in illegal dumping, certain individuals and businesses continue to neglect their tax responsibilities. This is the group the tax authorities are now cracking down on.
The tax authorities have identified an initial group of 30 businesses that consistently fail to remit the required sales tax (OB). This group, sometimes involving multiple businesses from the same owner, collectively owes a debt of NAf 26.1 million, with amounts ranging from NAf 70,000 to NAf 2.2 million per business. A significant portion of these businesses has either not paid any sales tax in 2024 or has made only one or two payments despite having substantial outstanding debts. By neglecting these "ongoing tax obligations," these businesses contribute to the growing backlog of tax debt.
To illustrate the situation: the selection includes a restaurant that has not remitted OB since February 2015, accumulating a debt exceeding NAf 700,000, and a car dealership that last paid OB in March 2015, with an outstanding debt of NAf 1.2 million. The group also includes various hospitality businesses that have not met their tax obligations for years and have failed to adjust their behavior despite multiple enforcement actions.
A business that fails to remit its due OB first receives a tax assessment, followed by a reminder, and, subsequently, a writ of execution from a bailiff.
If payment is still not made, the bailiff proceeds to seize assets. After seizure, the business owner has about two months to reach a payment agreement with the tax authorities and make a down payment on the outstanding debt. This initial payment is essential, as experience shows that some business owners agree to a payment plan to avoid a public auction but then stop making payments after one month and continue to fall behind on their current tax obligations, which further increases the debt. The required down payment is determined by the responsible tax collector, based on the circumstances, and is at least two to three months’ worth of current tax obligations to ensure that the tax debt does not continue to grow.
The temporary closure of a business, as currently enforced by the tax authorities, occurs after prior asset seizure and shortly before an actual auction of the business assets is set to take place. This step serves as a final signal to the business owner to arrange a settlement with the tax authorities; otherwise, the auction will proceed. In previous cases where this policy has been applied, business owners have opted to arrange settlements with the tax office, allowing the business to reopen, sometimes even on the same day. It should be noted, however, that in the event of an auction, the business debt does not disappear. The business’s director may be held personally liable for the accrued debt, meaning that the auction does not provide a “clean slate” for the owner.
The tax authority’s collection guidelines include a debt relief option if a business owner consistently meets their current tax obligations for 48 months and also makes maximum payments toward the accumulated debt during this period. Any remaining debt after this period may then be set aside from collection.
It is emphasized once again that the tax authorities do not resort to closing a business lightly; this measure is actually intended to prevent a forced auction. The arrangements made with the business owner are tailored to the individual situation, depending on the debt amount and the severity of the circumstances.
The tax authority has a social responsibility to collect taxes and premiums owed and to ensure that businesses can compete fairly. Every business owner is expected to contribute to the national treasury in accordance with tax laws that apply to everyone, enabling the government to meet public needs.