The Overseas Collectivity of St. Barthélemy - PART III
Yes, Yes Yes!…they bellowed in unison by over 95% of the vote. On December 7, 2003, a historical popular consultation occurred in which the population of St. Barthelemy was asked whether they would like to evolve semi-autonomously pursuant to Article 74 of the Constitution. The Commune of Guadeloupe decided by a crushing vote, that yes, its residents want the island to become an Overseas Collectivity of France. This means, as discussed in my first article of June 2003, that St. Barthelemy will become financially and administratively independent from Guadeloupe, to whom the island has been attached as a commune for the past 60 years.
Obviously, the change cannot occur overnight and now that the population has voted positively, it is necessary to establish what is referred to as an “orientation law” under which the island will operate. Part of that law will necessarily include the funding for the following powers, which will now belong to the Overseas Collectivity of St. Barthelemy:
The budget of the Collectivity shall be determined based on a fiscal year between January 1 to December 31, and shall include receipts, expenses and investments.
- Creation, application and collection of duties and taxes- the tax structure of the Collectivity replacing the National rules currently applicable relating to the same.
- Regulation regarding prices market regulations and the repression of fraud;
- Issues of zoning, building, management of public property, all subject to the provisions of the Code of Urbanism.
- Traffic Circulation, transportation and regulations applicable to vehicle rental companies;
- Management of public roads and registration of vehicles along with the management of the airport and port infrastructures;
- Registration of boats, airline connections with other islands and places, with the exception of the air traffic between St. Barthelemy and St. Martin;
- Water, energy and garbage;
- Postal and Telephone organization and setting of rates;
- Customs regulation-Tobacco sales;
- The management of social security, retirement and other labor issues;
- Organization and management of schools and school transportation;
- Management of Sportive and Cultural matters of territorial and regional interest;
- Definition of policy relating to tourism;
- Environmental Protection and matters of public domain as to property belonging to persons and to the Collectivity and with the approval of France, authorizations of occupancy of property belonging to the State;
- Operational Plans regarding natural catastrophes and civil security;
- The delivery of Long Term Visas in the Collectivity of St. Barthelemy;
- Employment regulations regarding foreign workers.
Although many American citizens appear very concerned that there will be property and other taxes levied upon them, it is important to note that at this time, property taxes are not viewed as a source of funding. It must be remembered that certain taxes, some of which are in fact indirect in nature, are and will continue to be received. Some new taxes may be levied. The most obvious taxes to be applied are the following:
Port Duty - All merchandise, whether new or used, brought to the island for use on the island is currently the subject of a 4% duty, based on its value. The same may in fact be increased to 5%, which is more likely than not.
Tourism Tax - Discussion has been made regarding a tourist tax to be paid at the time of departure from the airport
Rental Tax - There has also been discussion of the levy of a tax equivalent to 5% of the gross rental amounts for all persons renting their properties on a weekly basis. This tax would conversely, not be applicable to yearly rentals, which house island residents working and/or living on the island.
Garbage Tax - At this time a garbage tax is paid in the sum of 80 euros per year. The garage tax will remain and may increase in the future, if necessary.
Transfer Taxes - All persons purchasing real estate in St. Barthelemy are familiar with the notion of the payment of what is globally referred to as a “transfer tax”. The rate depends on several things, including whether the property is developed or not, and if not whether the same will be developed in the near future, whether the property was developed for a period exceeding five years, etc. The transfer taxes, which in fact include both the taxes associated with the transfer and the Notaire’s statutory fees, will continue to be applied. The big difference is that the bulk of the income generated from such transfers will in fact remain on the island of St. Barthelemy as opposed to being paid to Guadeloupe, where it has to this date, been paid.
The income to be received by the island of St. Barthelemy, from the transfer taxes, is in fact quite considerable and should considerably assist the island face its budgetary needs.
Capital Gains Taxes - The issue of capital gains taxes has been the subject of many questions by Americans owning property on the island of Saint Barthelemy. In fact, at this time, we are at the crossroads of the issue of capital gains imposition and taxation.
For a number of years now, foreign citizens of English and American nationalities as well as other nationalities have purchased real estate on the island of St. Barthelemy through an SCI (Societe Civil Immobiliere), which is a real estate holding corporation. This kind of corporation is civil in nature as opposed to commercial and essentially engages in acts relating to real estate such as the lease, purchase improvement, development and other either directly or indirectly related to its purpose, which is always related to real estate.
The major considerations viewed when purchasing through this kind of corporation include the fact that since corporate shares are viewed as “personal” as opposed to “real” property, the same is disposed of at death pursuant to the intestate provisions of the State or country of the decedent’s residence, or pursuant to the provisions of the Last Will and Testament of the decedent, under the laws of the country in which the same resides, without regard to the forced heirship provisions of French law and without the application of French inheritance taxes (pursuant to treaty).
Further, pursuant to a tax directive of April 2002, SCIs were determined to be residents within the meaning of the law in France, and as such, the payment of capital gains taxes were basically “on your honor”. As of January 1, 2004, the law has changed so as to provide that the Notaire (essentially, the equivalent of a US Title Insurer) is responsible for the withholding of the capital gains taxes from the income received as part of the sales price, for everyone, without exception. As such gone is the cry of being a physical resident for physical persons and therefore not subject to the tax based on historical tolerance and other, and also gone is the notion for an SCI that it will declare and pay the capital gains tax “on its honor”.
As of January 1, 2004, the capital gains tax is 16% along with a 10% social contribution. Arguably, non-residents owning property in their own names will not be responsible for the payment of the 10% social contribution, which will, however, be applicable to SCIs. Notwithstanding what may, at first blush appear to be a stigma for SCIs, it must be noted that my personal belief is that it is still highly advantageous to purchase through an SCI for non-residents and particularly Americans in light of the estate considerations set forth above as well as due to the fact that under the Federal Treasury Regulations, an SCI may elect, within a certain time of its formation, to be treated as a partnership for tax purposes. Failure to make the election can result in disadvantageous tax treatment in the United States, which I will not explore at this time.
It must be noted that the current situation regarding the rate of imposition of capital gains taxes on the island of St. Barthelemy is temporary. Once St. Barthelemy enacts its own tax statutes, capital gains and its tax will necessarily be considered. There is no reason to believe that no capital gains taxes would be due. In fact, it is normal and perhaps preferable that a tax be levied so as to enable the island to face its financial obligations. The capital gains tax paid on the island of St. Barthelemy will continue to be treated as a credit towards the amounts due in the United States as a capital gains tax, thereby avoiding double taxation. The notion of avoidance of double taxation is in fact the basis of a treaty and will continue to operate under the new Overseas Collectivity of St. Barthelemy.
In conclusion, there are many considerations and changes ahead for the island of St. Barthelemy. The exact nature of the laws to be enacted, including the notion of residency, that of taxation and the delicate balance necessary to be played out in order to keep the island at the forefront of the tourism industry, remain in the hands of the island resident, who are working towards creating a fair and evenhanded statute that will, on the one hand, enable the island to face its financial needs and on the other hand, keep the spirit and traditions of the island intact.