Selling Property in Sint Maarten: What the Exit Actually Costs

Nearly everything written about Sint Maarten property tax is written for the buyer. Transfer tax, holding costs, whether to buy personally or through a company, the Penshonado property requirement. All of it is acquisition-side, and all of it is easy to find.

The exit gets almost no attention, which is odd, because the exit is where every decision taken at acquisition is finally tested, and it is the point at which a structure chosen for convenience five years ago turns out to be either helpful or expensive.

This guide covers what a seller faces: the gain question, who actually bears transfer tax, what the transaction costs, and the structural problem that decides most of it.

The Question That Governs Everything

The first thing to establish is not a rate. It is a characterisation: was this property a private asset, or was it part of a business activity?

The distinction runs through the whole of Sint Maarten's treatment of property, and it produces genuinely different answers on disposal. A private individual disposing of a personally held asset sits in one position. A business disposing of an asset that formed part of its enterprise sits in another, with the result flowing through profit and being taxed accordingly at the company rate.

The complication is that a great many owners on this island sit somewhere between the two and have never been asked which side of the line they are on. Consider the common patterns:

• A villa bought as a holiday home, then let to visitors for eight weeks a year, then twenty, then permanently listed
• A condo bought as an investment, held through a company for liability reasons, and let continuously
• A property bought to renovate and resell, described by the owner as a personal project
• Two or three units acquired over several years and let, with the owner still describing themselves as a private individual

Frequency, intention at acquisition, the scale of the activity, whether the property was let and how actively, and whether the owner has done this repeatedly all bear on the characterisation. Somebody who buys, renovates and sells three properties in four years is describing a trade, whatever they call it. This is exactly the analysis that ought to have been done at purchase, and it is why the acquisition decision is the one with the long tail.

Transfer Tax on the Exit

Sint Maarten charges transfer tax, overdrachtsbelasting, at 4% of the purchase price or the assessed value, whichever is higher, on the transfer of real estate.

As a legal matter it attaches to the transfer and is customarily borne by the buyer. As a commercial matter, it is part of the total cost of acquiring your property, which means it forms part of what a buyer is willing to pay you. In a soft market that is your problem as much as theirs, and it is one reason why the sale of a property-holding company is sometimes explored as an alternative structure for a transaction. Whether that works, and whether it achieves anything, is a question to put to an advisor early rather than a technique to assume.

Note also that the proposal currently before Parliament to abolish inheritance tax and land tax explicitly preserves transfer tax. This charge is not going anywhere. Our guide to the inheritance and land tax abolition covers what is and is not included.

The Other Costs of Getting Out

Sellers consistently underestimate the gap between the headline price and what reaches them. The recurring items:

• Agency commission, which in this market is a meaningful percentage and is usually the largest single deduction
• Notarial costs, since transfers of Sint Maarten real estate pass through a civil law notary
• Mortgage discharge and the formalities of releasing any security registered against the title
• Turnover tax on the services you buy, because agency and professional fees are supplies like any other and carry the 5%
• Outstanding holding costs, including any association or building charges, utilities and insurance apportioned to completion
• Deferred maintenance, which on this island is rarely small and is usually discovered by the buyer's inspection rather than volunteered

There is also a timing cost that is specific to here. Sales of Caribbean property to overseas buyers can take considerable time, financing is not always straightforward, and hurricane season affects both inspection and insurance. A holding period that runs six months longer than planned carries six months of costs you had stopped budgeting for.

The Structure Problem

The reason so much of this is decided in advance comes down to one asymmetry: choosing a holding structure at acquisition is nearly free, and changing it afterwards is expensive.

Moving a property from personal ownership into a company, or out of one, is a transfer. Transfers of Sint Maarten real estate attract transfer tax at 4% of price or assessed value. So the structure that could have been arranged at completion for the cost of some incorporation work costs several percent of the value to arrange two years later, at which point most owners decide to live with what they have.

Which is why the questions worth answering before you buy, not before you sell, are these: do you intend to sell the asset or the entity that holds it? Are there co-owners now or likely to be? What is the succession plan? Will this be let, and how actively? Our guides to real estate tax in Sint Maarten and choosing a structure cover the acquisition side, and the honest advice is to read them before completing rather than before listing.

If the property was let

Letting the property changes the exit in two ways beyond characterisation. Any depreciation or capital allowances claimed against rental profit over the holding period may be relevant on disposal, and the letting activity itself should have been declared and its turnover tax accounted for throughout. A sale is a natural point at which the whole history of a property becomes visible, and an undeclared letting history discovered during a transaction is a poor moment to discover it. See short-term rental tax.

A Seller's Sequence

1. Establish the characterisation before you list. Private asset or business activity, advised rather than assumed.
2. Model the net proceeds properly, with agency, notarial costs, discharge, turnover tax on professional fees and apportioned holding costs deducted, so the number you negotiate against is the real one.
3. Bring the filing history up to date, particularly if the property was let. Do this before diligence rather than during it.
4. Test whether the asset or the entity should be sold, if the property is held in a company, and get that advised early because it changes the entire deal structure.
5. Deal with the entity afterwards. Selling the property out of a company leaves a company holding proceeds, which then has to be dealt with properly. See closing or liquidating a company.

The Short Version

How a Sint Maarten property sale is taxed depends first on whether the property was a private asset or part of a business, and that characterisation is a matter of facts accumulated over the holding period rather than a label chosen at the end. Transfer tax at 4% attaches to the transfer and is customarily the buyer's, but it is part of what the market will pay you. The transaction costs are larger than most sellers model.

Most of what determines the exit was decided at acquisition, when it was nearly free to decide differently.

If you are selling a Sint Maarten property, or buying one and want the exit modelled before you commit, talk to us. Confirm current rates, the characterisation of your specific position and any relief with the Belastingdienst or your advisor before relying on any figure in this article.