PHILIPSBURG:--- As your representative in Parliament, let's take a deeper look at a critical economic issue facing our island: the proposed 10% dividend withholding tax, slated for implementation on January 1, 2026. While the stated intention might be to broaden our tax base, a closer examination reveals that this measure, as it stands, poses significant risks to our fragile economy, particularly for our local businesses and our long-term competitiveness.
We are a Small Island Developing State (SIDS), inherently vulnerable due to our small size and reliance on a narrow economic base, predominantly tourism. Our limited capital markets mean that local business reinvestment is not just important; it's the lifeblood of our economy. It’s how businesses grow, create jobs, and foster innovation. Any policy that hinders this vital reinvestment must be scrutinized thoroughly.
The Reality is, It’s Not Just for Foreigners
There’s a dangerous misconception being spread that this 10% dividend withholding tax (DWT)will primarily impact foreign investors and that for local shareholders, it’s simply a creditable advance payment. Let me be clear: while the tax may theoretically be creditable against a local shareholder's income or profit tax, the economic reality on the ground, especially for our micro, small, and medium-sized enterprises (MSMEs), is far more nuanced and concerning.
Consider this: our businesses already face a substantial Corporate Profit Tax (CPT) of 34.5%. When you add this new 10% dividend withholding tax on top, the effective combined tax burden on distributed profits for a company becomes a whopping 41.05% ($100 profit - 34.5% CPT = $65.55 remaining. A 10% DWT on $65.55 = $6.555. Total tax = $34.5 + $6.555 = $41.055). This is a substantial chunk of profit being siphoned away before it can be reinvested into the business or stimulate further economic activity.
Even if technically creditable, the imposition of a withholding tax means an immediate cash outflow for businesses at the point of dividend distribution. For many of our local MSMEs, retained earnings are their primary source of capital for expansion, purchasing new equipment, training staff, or simply weathering economic downturns. Forcing an earlier payment, even if offset later, directly reduces their immediate liquidity and hinders their ability to reinvest. This is not just a theoretical accounting exercise; it’s a tangible hit to the cash flow of the very businesses we rely on to drive our economy. To claim this primarily impacts foreigners ignores the vast majority of our local business landscape.
The Minister's Comparison and the Reality
The Minister of Finance has cited regional comparisons to justify this new tax, suggesting that a dividend withholding tax is common practice among our neighbors. While it's true that some regional countries do levy such a tax, a closer look at the overall tax landscape reveals that Sint Maarten is quickly making itself an outlier, especially when considering the complete picture of corporate taxation and reinvestment incentives.
Consider our neighbors. Aruba, for instance, boasts a more competitive Corporate Income Tax (CIT) of 22% (significantly lower than our 34.5%) and offers incentives like a 10% investment allowance, despite a 10% dividend withholding tax for individuals. Curaçao also maintains a CIT of around 22%, generally levies no withholding taxes on dividends for non-residents, and provides aggressive incentives, including tax holidays as low as 3% for significant investments.
Looking further, Barbados employs a tiered CIT system with a general rate around 9%, much lower than ours. While they have a 12.5% dividend withholding tax for resident individuals, they offer a reinvestment exemption, and for non-residents, the DWT is often 5%. They also provide investment allowances up to 40% for certain industries. The BES Islands (Bonaire, Sint Eustatius, Saba) present a remarkably different system; most local businesses face no traditional corporate profit tax, instead imposing a 5% Revenue Distribution Withholding Tax on dividends, and crucially, offering a "reinvestment reserve" that defers taxation on profits, directly incentivizing reinvestment.
When we compare our proposed 41.05% combined tax on distributed profits to these regional examples, it becomes starkly clear that Sint Maarten is quickly making itself an outlier. Our existing 34.5% corporate tax is already one of the highest in the region, potentially acting as a deterrent to foreign direct investment and local business expansion. Adding a new 10% dividend withholding tax, even with the promise of future creditability, further damages our image as an attractive place to do business and encourages capital flight rather than reinvestment.
Why the Timing is All Wrong
The timing of this proposed tax could not be worse. Our economy is still recovering from the dual shocks of Hurricane Irma and the COVID-19 pandemic. Businesses are struggling with rising costs, supply chain issues, and the need to rebuild and innovate. Imposing an additional tax burden, whether directly or through cash flow reduction, at such a critical juncture risks stifling the very recovery we are striving for. This measure could lead to reduced business reinvestment, meaning less capital for expansion, fewer jobs, and slower economic growth. It risks eroding investor confidence, both locally and internationally, potentially leading to capital outflows and deterring new investments. Ultimately, it will result in diminished long-term competitiveness; if our neighbors offer lower taxes and stronger incentives, businesses will naturally gravitate towards those jurisdictions.
Smart Tax Reform for Sint Maarten
Instead of adding another layer of taxation that burdens our local businesses, we should be pursuing intelligent tax reforms that genuinely stimulate our economy. I have consistently advocated for an alternative approach, one that truly understands the unique challenges of a SIDS.
Firstly, we must focus on lowering the Corporate Profit Tax. We need to reduce our current 34.5% corporate tax rate. On June 3rd I submitted a draft initiative law, with amendments to the Profit Tax Law which addresses this. This law proposes a tiered profit tax system: a significantly lower rate, perhaps 15%, for businesses earning up to ANG 600,000, which would provide crucial relief and incentive for our small and medium sized enterprises that form the backbone of our economy. For larger businesses, a more competitive rate, such as 20%, would bring us more in line with our regional competitors and encourage larger investments.
Secondly, instead of taxing dividends, let's implement targeted reinvestment incentives. We could offer tax credits for job creation or for businesses investing in specific strategic sectors. Furthermore, deductions for employee wages and training costs, potentially at 150% as I have previously suggested, would encourage businesses to invest in their human capital and expand their workforce.
Finally, a significant portion of our potential tax revenue is lost due to inefficient collection and a large informal sector. Instead of introducing new taxes, let's prioritize improving tax compliance and efficiency. This means strengthening tax administration to ensure existing laws are properly enforced, simplifying tax processes to make compliance easier for businesses, particularly MSMEs, and broadening the tax base by bringing more informal businesses into the formal economy through education and support, rather than new levies.
We need a comprehensive fiscal strategy that fosters economic growth, encourages local business reinvestment, and makes Sint Maarten genuinely attractive for both domestic and foreign capital. This means even if we bring laws in batches it needs to align. A 10% dividend withholding tax, on top of an already excessively high corporate profit tax, is a step in the wrong direction. Let us choose a path of smart, growth oriented tax reform that benefits all Sint Maarteners.