Are Caribbean tax holidays still justified?
GREAT BAY/WILLEMSTAD--As the Caribbean rides a wave of tourism and construction growth, long-standing tax holiday regimes in countries like Curaçao and Sint Maarten are coming under renewed scrutiny. Once considered critical tools to attract foreign capital and large-scale development, these generous incentive programs are now being questioned for their continued relevance in a thriving market.
In Curaçao, where the tax holiday system dates back to 1953, economists and legal experts are calling for a fundamental rethink. Rob van den Bergh, a respected economist known for his work across the Dutch Caribbean, and Jeff Sybesma, a legal authority and former head of the Legal Department at the Central Bank of Curaçao and Sint Maarten, say the tax breaks no longer align with the island’s current economic trajectory. With tourism booming, construction projects surging, and government revenues under pressure, they argue the time has come to evaluate whether these policies still serve the public good.
Under Curaçao’s current tax holiday scheme, companies investing at least 5 million guilders (around USD 2.8 million) qualify for a reduced profit tax of just 3 percent for up to eleven years, alongside sweeping exemptions from import duties, sales tax, property tax, and dividend income tax. Notable beneficiaries include international giants such as Damen Shipyards, Sandals Resorts, FLOW, TUI Blue, and entities tied to the oil refinery.
However, this threshold effectively excludes most locally owned small and medium-sized enterprises (SMEs). The result, critics say, is a two-tiered system where multinational firms enjoy state-sponsored relief while local entrepreneurs bear the full tax burden.
In St. Maarten, tax holidays are offered under a series of national ordinances designed to incentivize investment in hotel development, land projects, and business expansion. Qualifying projects must meet investment thresholds, XCG 1 million (USD 562,000) for hotels or businesses and XCG 2 million (USD 1.1 million) for land development, and create at least five local jobs. The benefits include reduced profit tax (2–3 percent), exemptions from import duties and sales tax, and full relief from dividend withholding taxes for a duration of up to 11 to 15 years depending on the project.
But these thresholds, much like in Curaçao, have drawn criticism for favoring foreign-backed or large-scale developers. Moreover, it is unclear if criteria, in terms of investment, are being adhered to.
Local business owners and several Members of Parliament have raised concerns that the system marginalizes homegrown enterprises. This debate has intensified in light of ongoing fiscal reform discussions, including plans to introduce a dividend withholding tax in 2026 and improve tax collection mechanisms to support broader economic equity.
Elsewhere in the region, governments have taken a different tack. Aruba eliminated its tax holiday regime in 2002. Contrary to fears that investment would dry up, the island’s tourism industry has continued to grow steadily, buoyed by consistent policy, infrastructure investment, and a strong regulatory environment.
This contrast raises the question: are tax holidays truly the linchpin for foreign investment in the Caribbean, or are they an outdated mechanism draining public revenue without delivering proportional returns?
In Curaçao, the evidence suggests diminishing value. Despite decades of tax breaks, the island experienced only modest tourism growth until a recent post-pandemic surge driven largely by global travel patterns and increased interest in vacation real estate. Since 2020, coastal property prices have risen between 40 and 75 percent, and historic Willemstad has seen jumps of 25 to 40 percent. Construction activity is at a historic peak, and cash flows from tourism-related projects are reportedly the strongest in decades.
Yet, the fiscal cost is staggering. Import duty exemptions alone are estimated to cost the Curaçao government 100 million guilders annually. When combined with lost profit, property, and sales tax revenue, the total cost of these incentives becomes even more significant. Some developers reapply for new tax holidays during renovation phases, effectively extending their tax-free status indefinitely. For large projects, the accumulated savings can represent 20 to 30 percent of total costs, benefits rarely within reach for smaller firms.
Meanwhile, the social and environmental costs are also growing. Locals face mounting traffic, rising living costs, limited access to beaches, and increased pressure on infrastructure and natural resources. Labor shortages in the hospitality and construction sectors further complicate the picture, with many of the highest-earning positions filled by workers brought in from abroad. The Curaçao Tourist Board has even launched a study into the island’s carrying capacity to assess the sustainability of continued growth.
Van den Bergh and Sybesma argue that Curaçao’s tax incentives have outlived their original purpose. “We’re giving away public revenue to companies that would likely invest here anyway,” said Van den Bergh. “Meanwhile, local businesses, those that employ residents year-round and reinvest in the community, are taxed at full rates. That’s not a sustainable or equitable strategy.”
Sybesma, who has worked extensively in administrative law and serves on Curaçao’s Constitutional Legal Advisory Board, echoed those sentiments. “It’s time to move beyond tradition and ask whether the law, as written in 1953, still meets today’s needs. The burden of proof should lie with the beneficiaries: show us why you still need this tax break.”
The call for reform comes amid broader discussions across the Caribbean about how to balance investment incentives with fiscal responsibility and social impact. From tax reform in Sint Maarten to post-holiday economic success in Aruba, the region is grappling with how best to structure its development model for the 21st century.
As Caribbean governments face increasing demands for infrastructure, climate resilience, and social programs, the pressure is mounting to ensure every dollar of public money delivers measurable benefit. For many, that means rethinking the legacy of tax holidays, and whether it’s time to sunset them for good.