Corporate income tax is due on profits of a company located in Aruba, for example the profits of a limited liable company (a NV, a VBA, an AVV). Corporate income tax is also due of foreign entities which are based on actual circumstances located in Aruba. Also foreign entities which have taxable presence in Aruba such as a permanent establishment or representative are subject to taxation in Aruba.
If an entity has a taxable presence on Aruba, the income resulting from these activities is subject to 28% corporate income tax. In that respect we note that losses of a year can be set off against future profits during a period of five years. It is not allowed to carry back tax losses.
Resident tax payers
Resident taxpayers are subject to corporate income tax on their world-wide income. For certain foreign income, double tax relief may be granted based on the BRK (the tax regulation for the Kingdom of the Netherlands) or based on the basis of the State Ordinance Avoiding Double Taxation.
Foreign taxpayers are entities which are not located in Aruba and which have taxable presence in Aruba, such as a permanent establishment or permanent representative. Also interest income of non-resident companies received from loans which are secured by real estate located in Aruba are subject to corporate income tax in Aruba.
Corporate income tax is due on the realized profits of that financial year. The tax profits have to be indicated in the corporate income tax return. This return has to be filed on an annual basis. In principle the profits which are stated in the financial statements will be the base to calculate the tax profit. However there are certain specific tax rules in Aruba based on which the taxable profits will be calculated. We will discuss below certain important rules which should be taken into consideration, such as the arms length principle, the participation exemption, the facility of the tax unity and the limitation of deduction of interest.
Arms length principle
The arm’s length principle stipulates that affiliated companies should deal with each other against third party conditions.
That means that the conditions should be equal to conditions which would be set by independent companies. If not, the tax inspector might adjust the price into an arms length price. The calculation of the arms length price can be based on comparable transactions. Also, the cost plus method or the resale minus method can be used. The best method to be used will depend per situation.
There are also specific documentation requirements for inter-company transactions. If it will not appear from the administration that the transaction is arms
In that respect the transactions should be described in the administration. The transactions should also be laid down in an agreement, for example in a loan agreement in case of a loan, or in a management agreement in case of management services.
Also the calculation of the arms length price should appear from the administration.
Dividends or capital gains resulting from a qualifying share participation in another company can be received untaxed based on the participation exemption.
The participation exemption covers dividends as well as capital gains. In case shares are held in a non-resident entity, the participation exemption only applies if that non-resident subsidiary is subject to corporate income tax and if the company, from which the shares are held are not considered a passive investment. It is important to note that costs related to the participation are not tax deductible in Aruba.
If a parent company owns at least 99% of the shares in another company located in Aruba the companies can apply to enter a tax unity. If the conditions are met then a consolidated corporate income tax return can be filed. Another advantage would be that within the tax unity the tax losses and profits of the separate companies can be set off against each other in a year.
Limitations on the deduction of costs
There are specific rules in Aruba which will limit the deduction of payments of costs if these payments will be made to affiliated parties. For this purpose entities are considered to be ‘affiliated’ if there is a direct or indirect share participation of 1/3.
A payment to a related party is only fully tax deductible if the payment is arms length and in case the company which will receive the payment is taxed at a rate of at least 15%. If the revenues are subject to taxation for that company but at a rate lower than 15% the payments are for 75% tax deductible in Aruba. If the revenues of that related company are not subject to tax at all the payments are not deductible.
The Tax Authorities will normally issue a tax return approximately 6 months after the end of the accounting year. Tax returns have to be filed within 2 months. The tax authorities can, at the request of the taxpayer, extend that period.
We would be pleased to assist you further with the corporate income tax issues. You can contact: firstname.lastname@example.org.
Individual income taxes
Resident taxpayers are individuals residing in Aruba. The place of residence has to be determined based on actual circumstances. In that respect, the duration of stay in Aruba, the place of living of the family and the place of working are the most important facts. Resident tax payers are subject to income tax based on their total world-wide income even if this income is received abroad. For certain foreign income a tax relief of double taxation may be granted.
If this income is earned in for example the Netherlands or Curacao, the tax regulation for the Kingdom of the Netherlands can apply in order to avoid double taxation. For income received in other countries than those of the Kingdom of the Netherlands, the State Ordinance Avoiding Double Taxation could avoid double taxation for certain types of income.
Non residents are subject to taxation in Aruba with respect to certain sources of income from Aruba. Non-resident taxpayers are individuals not residing in Aruba which receive income from Aruban sources, such as:
* Labor and employment income actually performed in Aruba.
* Income received from a position of managing director of a company in Aruba even if these activities are performed outside Aruba.
* Income from business activities in Aruba which will be considered as a permanent establishment.
* Income from real estate located in Aruba.
* Interest income loans which have been secured with a mortgage on real estate located in Aruba.
* Income from shares in a company located in Aruba which share interest can be considered as a substantial interest (more than 25% of the shares of the company).
The income tax rate is progressive. Individual income tax is due in Aruba on income exceeding approximately Afl. 20.000.
The maximum rate amounts to 58.95%. This rate applies to income exceeding Afl. 317,000 per year.
Special tax rate
If conditions are met an individual can apply a special 25% rate on dividends and gains derived from the sale of shares which will qualify as a substantial interest. Also income received for indemnity payments, dismissal or other income substituting payments, like buying off a pension plan or a lump sum for the termination of a labor contract, can be subject to the special tax rate of 25%.
Deductions on the income
Certain amounts can be deducted on the income. The income may be decreased by certain deductible items, such as:
* An employee can deduct a standard amount of 3%
of the gross income with a maximum of Afl. 1,500 (USD 843) as employment costs.
* Interest on a loan in connection with the purchase or construction of a house that constitutes the main residence of the tax payer.
* Interest on personal loans with a maximum of Afl. 5,000 (USD 2,809) per year.
* Payments in connection with illness of the tax payer or his family members.
* Premiums for life insurances or annuities (except for qualifying pension plans) can be deducted up to a maximum of Afl. 5,000 (USD 2,809).
* A maximum amount of Afl. 3,360 (USD 1,888) can be deducted for payments made to a qualified savings plan.
*Donations made to qualified institutions are deductible, with a maximum of Afl. 10,000 (USD 5,618) per financial year.
* Payments for a study for a profession.
The first Afl. 2,400 (USD 1,348) of the profit of enterprises, not being a corporate legal entity, are exempted in the individual income tax.
Also interest on savings received from qualifying financial institutions established in Aruba and similar financial institutions established abroad are exempted from individual income tax. Individuals are not subject to tax on capital gains unless the gain is realized within an enterprise or within the exercise of a profession.
Enterpreneurs can also apply and additional investment deduction. Per January 1, 2011 the investment allowance of 6% on the amount of the investment has been reintroduced. The following conditions apply:
- In 2 011 an entrepreneur should invest at least Afl. 5,000 in a year via local entrepreneurs. Investments bought directly from abroad will not qualify.
- The allowance can for example not be claimed on the purchase of for example:
- Land, houses, licenses, goodwill, personal cars, boats, assets that are rented out to third parties Within 6 years a capital disposal charge of 6% of the selling price (with a maximum of the purchase price) needs to be added to the taxable income.
The tax will be calculated on the total taxable income minus the deductible costs in a year. The Tax Authorities will generally issue a tax return approximately 3 to 6 months after the end of the calendar year. Tax returns have to be filed within 2 months. The tax authorities can, at the request of the taxpayer, extend that period.
We would be pleased to assist you further with the individual income tax issues. You can contact: email@example.com
Wage tax is an advance levy to the income tax. The tax rate is also similar as the income tax rates. Wage tax has to be withheld by the employer if there exist an employment relation. If it involves a foreign employer, the Tax Department may appoint a foreign employer as a withholding agent if persons are employed in Aruba (even if there is no permanent establishment).
Normally, an employment relation exists if there is from a legal point of view an employment agreement. However, the term employment will be interpreted broadly based on Aruban and Dutch case law. The decisive criterion is if the employee is obliged to follow instructions from an employer.
Furthermore, the law also appoints certain fictitious employment relations for amongst other the following kind of work (if these persons are not considered as an entrepreneur):
* Construction of work
* A trainee
Fringe benefits regulation
Furthermore the following fringe benefits can be reimbursed untaxed.
In case an employee, as a part of his remuneration, is provided with a company car, the taxable benefit of this wage in kind is currently determined at 15% of the catalogue value of the car.
Car and representation allowance
If the employee uses his personal car for more than 25% for business purposes, the employer may opt to provide the employee with a fixed car allowance. Also a representative allowance could be granted in certain cases. The amount that can be reimbursed tax-free will depend on the position of the employee within the company. The following fixed car and representation allowances can be provided tax-free to the following category of employees:
In the event the employer provides an employee with free housing, the wage in kind is set at 8% of the fair market value of the house, with a maximum of 15% of the annual gross income of the employee. In the event the house is furnished, the percentage of the wage in kind is set at 10% or 20% of fair market value of the house.
An employer can reimburse the airline ticket of an expatriate and his/her family tax exempt, as well as the costs related to shipping the household of the employee. Furthermore, the employer can reimburse the hotel accommodation, lodging and car rental of the expatriate tax free for the first two months.
The employer can provide the expatriate with a refurbishment allowance of two times the monthly gross salary, with a maximum of AWG 15,000 (USD 8,427), tax exempt. The employer can provide the expatriate and his/her family annually with one free ticket to the country of origin during the first 5 years of continuous residence on Aruba.
An employer can provide his employee with a telephone allowance of Afl. 1,680 (USD 943) per year, of which an amount of Afl. 480 (USD 269) will be considered as taxable wage. If the allowance exceeds the amount of Afl. 1,680 (USD 943) the excess could be considered as a taxable salary.
Every withholding agent for wage tax purposes is obliged to record the identity of his employees in his payroll administration. The withholding agent should receive the concerning information in the form of an employees statement (in Dutch: werknemersverklaring) and a copy of a valid passport or ID, from the employee.
In order to avoid that due to this missing information incorrect amounts of wage tax are withheld, a so-called anonymous tax rate (anoniementarief) has been introduced. This tax rate is equal to the highest marginal income tax rate mentioned in tariff group II, being 58.95%. In order to avoid this risk it is very important to have the required documents on file.
We would be pleased to assist you further with the wage tax issues. You can contact: firstname.lastname@example.org
Turn over tax
Some exemptions are applicable. For example no BBO is levied over the supply of an immovable property if in relation to this supply transfer tax is due. Furthermore exemptions apply to:
- The export of goods.
- Prescription medicines.
- Renting out of real estate that is used as a private dwelling.
- Renting out of apartments or hotel rooms, in as far as room tax is due.
- Providing the opportunity to gamble, in as far as gaming tax is due.
- International transportation of goods and persons by ships or airplanes.
- Investment income, such as interest and dividends.
- Qualified bank transactions.
- Insurances and the services performed by intermediaries of insurance companies.
A parent company that owns all the shares in a subsidiary can request to enter into a tax Unity for BBO purposes. If a tax unity exists the turnover generated with intercompany transactions is exempt from BBO.
Cash or invoice method
The BBO is levied on a cash basis. However, upon request the entrepreneur may opt to apply the invoice method.
The tax returns have to be filed on a monthly basis. The tax return has to filed within 15 days after the end of that month.
We can assist you further with this issue. If you have any questions you can contact: email@example.com.
Dividend withholding tax
There is dividend withholding tax due by resident companies on the distribution of profits to the shareholder. There is also dividend withholding tax on interest paid on profit sharing loans.
The tax rate amounts to 10%. A rate of 0% applies if the shareholder is entitled to the ‘participation exemption’ for corporate income tax purposes. As a result of this domestic dividend distributions to a company located in Aruba are usually not taxed with dividend withholding tax.
The tax rate can be lowered on the basis of the Tax Regulation for the Kingdom of the Netherlands. A rate of 7,5% is applicable if an entity that is located in the Netherlands or Curacao or Sint Maarten owns at least 25% of the shares in the Aruban
The withholding agent has to file a tax return regarding dividend distributions with the Tax Authorities within 15 days after the dividend distribution. Even if the 0% rate is applicable a dividend withholding tax return has to be filed. The withholding agent has to pay the DWT to the Tax Authorities within 15 days after the dividend distribution.
We can assist you further with this issue. If you have any questions you can contact: firstname.lastname@example.org.
Social security premiums
The following social security premiums are levied:
- The Old Age Pension (AOV AWW)
- The General Health insurance premium The Sickness, Accident (AZV premiums)
- Cessantia insurance premium.
The premiums will be withheld on the salary. There is an employers part and an employees part.
Please find below the overview of the premiums:
AOV/AWW (Old Age Pension/ Widow and Orphans Pension insurance)
The percentage amounts to 13,5%. The employees part amounts to 4% and the employers part 9,5% up to certain maximum amounts.
|Total premium percentage||13,5%||8,782||(USD 4,906)|
|Employees part||4%||2,602||(USD 1,454)|
|Employers part||9,5%||6,180||(USD 3,452)|
|Maximum salary base||65,052|
The AZV premium are is paid by the employee and the employer and is only applicable for residents in Aruba. There is an Employers part (8,9%) and an employees part (2,6%) up to certain maximum amounts.
|Total premium percentage||11,5%||9,775||(USD 5,461)|
|Employees part||2,6%||2,210||(USD 1,234)|
|Employers part||8.90%||7,565||(USD 4,227)|
|Maximum salary base||85,000|
SVB (Sickness, Accident and Cessantia Insurance Premium)
This premium is only paid by the employer. The premium consists of, 2.65% for sickness insurance, and a flexible rate of up to 2.5% for accident insurance. We would be pleased to assist you further with the social security issues. You can contact: email@example.com.
Foreign exchange commission
In the text of the law a payment abroad is defined as:
- A payment with domestic instruments of payment or to the debit of an account denominated in Aruba florins.
- A payment with foreign instruments or to the debit of a foreign currency account.
- A payment made to the debit of an account denominated in foreign currency held abroad.
Payments that the Central Bank of Aruba deems similar can be offset over the balance. This is generally the case if a new loan will be entered in order to redeem a current loan.
A license of the Central Bank is required before a transfer abroad by a resident or legal entity exceeding the amount of AWG 750,000 (USD 421,348) per calendar year (for a resident individual AWG 300,000/ USD 168,539).
We would be pleased to assist you further with the corporate income tax issues.You can contact: firstname.lastname@example.org.