Owning a corporate business on Bonaire

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 an 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 pay a dividend out of the company's profits, there is no second US tax, and the 5% Bonaire 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, nor do tax credits. 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.