Although this island in the Netherlands Antilles has had captive legislation since 1992, its presence among the world's captive domiciles has been a well kept secret. That is about to change.

Early this year, a handful of the island's captive managers set up the Captive Insurance Association of Curaçao. Still in its formative stages, the association intends to raise the profile of Curaçao which its members believe offers a sound and flexible basis for the establishment and domicile of captives.

In a realm where perhaps 20 different countries and states are competing for captive sponsors' business, Curaçao does have some unique features and advantages. The Netherlands Antilles are an autonomous part of the Netherlands and as a result, have political stability and a reputation for high business standards. The captive association is proud that Curaçao has never experienced a scandal or an involuntary liquidation, nor is it tainted with a reputation for money laundering.

Curaçao is very much the closest domicile to the much sought-after South American market; it is only 40 miles away from Venezuela and members of the business community speak not only Dutch but English, Spanish and sometimes French and German as well. There are many links with the continent thanks to Curaçao's important ship repair industries and its oil refining and trans-shipment activities.

Although not at present a major insurance domicile, Curaçao is already a well developed offshore financial centre, which is the largest contributor to the island's GDP.

At present, the island has 17 captives, all but one with European parents. According to Tillinghast's Captive Insurance Company Reports (CICR) which published a detailed report on Curaçao in December after a visit there, these captives are owned by such household names as Italy's Costa Group and Pirelli, Ikea, Kingfisher and Nedlloyd.

Captive regulation comes under the Central Bank of Curaçao, which evaluates each company on a case-by-case basis. There is no minimum level of capitalisation required. Instead, it is decided on the basis of the business plan and the minimum solvency margins. The bank requires annual submission of financial statements. Supervision is both "at the desk" within the bank and in the form of periodic, on-site reviews.

The captive management association is also keen to stress that Curaçao is not a tax haven. It has a low, competitive tax structure which many captive parents will regard as preferable. The tax treatment will depend on whether the captive's income comes from the countries with a double taxation treaty with the Netherlands Antilles - Norway and the Netherlands - or not.

Captives whose income comes mainly from outside the treaty countries may choose to pay a low, fixed annual fee. Those whose income is mainly from Norway or the Netherlands, or who have to satisfy their domestic authorities that they are paying a real tax on their profits, have the option of a tax on their profits or investment income.

The CICR report summed up the Curaçao tax position for captives in this way: "Although it is not a no-tax domicile like Bermuda or Cayman, its low tax structure is competitive and is even considered preferable by those who do not want to be viewed as choosing a tax haven."

Currently, there are four firms which provide captive management services, but where a captive sponsor needs additional expertise which is not available on the island, it is said to be straightforward to get work and residence permits for expatriates. Expatriates working in Curaçao may also qualify for special tax concessions. Adequate office space is readily available.

A captive can be managed from outside Curaçao, but all captives must have a local representative who is responsible for compliance with legislation. "Mail-box" operations are not permitted.

Tillinghast's CICR concluded: "Curaçao has cultural and historic links to both Europe and Latin America that facilitate captive business. Most of the necessary infrastructure is present, and more insurance experts may eventually come. There is plenty of space, and expatriates with insurance expertise can get work permits.

"Up until now, Curaçao has kept a low profile, but the island's reputation as a place to do business is good, untainted by scandal or a reputation for money laundering. It is considered more legitimate than other domiciles by some European regulators."