Traditional Shop Versus Online Shop: Turnover Tax

A visit to the local post office will give one a glimpse of the growing popularity of internet shopping, which has also affected Curaçao. This trend has also become apparent to many retail businesses on the island, which have seen their customer base decline during the past years, partly due to this.

TEXT BY: ANGELA RASIMAN, MEIJBURG & CO CARIBBEAN

That this trend will continue for at least a little while proves the enormous growth of Amazon’s net revenue from its online stores segment, from USD 91.43 billion in 2016 to USD 108.35 billion in 2017. In an attempt to boost sales local retail businesses may decide to engage in the online shopping business, therewith creating the possibility to expand their customer base both domestically as well as across the borders. How the switch from a traditional to an online retail store will affect the turnover tax obligations of the business will be briefly highlighted in this article.

For the businesses to be successful, research ing the market and careful planning will be essential. Research has showed that the factors which motivate most consumers to buy online instead of going to a shop are flexibility of time and cost savings. The elements which hold the potential for the business to optimize costs and to be successful are the physical store, warehouse locations and logistics. How that is, may become clear when the tax impli cations are explained. It is important to understand in advance what the turnover tax implications may be, since it enables proper managing of the business’s tax obligations such as the timely and correct col lection, reporting and remittance of turnover tax, thus preventing penalties, fees or closed shut downs for non-compliance. It also gives entrepreneurs the opportunity to plan and manage the business accordingly. From the consumer’s point of view turnover taxes add to the overall cost of a good.

First of all one needs to understand that Curaçao turnover tax implies the taxation of: • the delivery of goods and the rendering of services within the territory of Curaçao with the exclusion of the economic zone, by entre preneurs within the course of their business.

• the import of goods.

The place of delivery is defined as the location of the good the moment it is delivered. In case the good has to be shipped or transported, the place where the shipment/transportation starts is considered to be the place of delivery. The place of delivery is essential in determining if a taxable delivery/sale of a good has occurred.

Turnover tax and the traditional retail business In the traditional retail business, done from a physical store, goods are generally purchased from one or more suppliers abroad, then shipped to Curaçao, where they will be trans ported to the store/ warehouse and eventually sold to the customer.

Two taxable occurrences will take place: 1st import of goods and 2nd a delivery/sale of goods by the entrepreneur, at his shop as indi cated below in illustration by 1 and 2.0.

Turnover tax on the import of goods is calculated from the import value, (customs value). Under certain conditions an entrepreneur can be granted an exemption on the import of trade goods. Turnover tax on the sale/delivery of

goods is calculated from the selling price and is charged to the customer. The entrepreneur has to report and remit these taxes to the tax authorities. If granted permission, the entrepre neur may settle the taxes paid at import with the taxes charged at sales. Entrepreneurs with annual sales of ANG 30.000 or less may be exempted from the reporting and remittance. When an online segment is added to the traditional business, resulting in sales to customers outside Curaçao, a turnover tax liability will occur at import (point 1), but not at point of sale (point 2.1), since this delivery is exempted from turnover tax. Note though, that some sort of sales tax will probably be levied by the country where the customer resides. It is there fore recommended to also get informed about possible tax implications and obligations in the countries that you have targeted.

Online business The mere addition of an online segment to the business concept may increase sales, but may not necessarily result in the desired outcome. For the business to gain more than just a turnover tax exemption and an expansion of customer base, entrepreneurs may want to take better advantage of the possibilities of selling online. For instance: • By introducing direct shipment from suppli ers to customers, turnover tax liability will still occur at both levels for local sales and at level 1 for cross border sales, but certain cost reductions will be possible (i.e. warehousing, shipping) which may result in a more com petitive price. • By reducing physical store presence to a min imum or completely, certain costs, such as costs of rent, electricity, water and personnel, may be reduced. • Implementing advanced inventory manage ment, accounting, and invoicing software, may maximize efficient replenishment and may for instance reduce the risk of non-com pliance, thereby avoiding penalties.

With this contribution an attempt has been made to shed some light on how tax implica tions may change positively as a result of thorough planning and using the possibilities that the online shopping business has to offer.