TAX LEGISLATION IN ARUBA
As already mentioned Aruba forms part of the Kingdom of the Netherlands. Still it has
full autonomy over its internal affairs, however, foreign affairs, defense, safeguarding of
fundamental human rights, legal security and fair administration remain Kingdom affairs.
This unique political structure implies, amongst other things, that Aruba has its own tax
legislation, which is the responsibility of its own legislative body.
The Aruban Tax System has its roots in the Dutch. Therefore there are quite some
similarities, but they are definitely not identical. The Aruban Tax System is less extensive
and also less complicated than the Dutch.
THE ARUBAN TAXES
In Aruba there are both direct and indirect taxes. The emphasis, however, is on the direct
taxes.
In short the most important direct taxes are:
• The Profit tax on income of limited liability companies, societies, foundations,
cooperative societies, mutual insurance companies, and permanent establishments of
foreign companies.
• The Income tax on income of individuals who are residents of Aruba (the worldwide
criterion), while non-residents are subject to such tax for income derived from certain
sources (the territorial source criterion).
• The Wage Withholding tax, which is essentially an advance collection of the
individual income tax.
• The Inheritance and gift tax is levied when property is acquired through inheritance
or as gift from a resident. Properties received from non-residents through inheritance
or as gift are only taxable by means of these taxes if the property is situated in Aruba.
• The Land tax levies a tax of 0.6% on the value of land including any building upon it,
which percentage is decreased to 0.5% if the land lies fallow.
The most important indirect taxes are duties on imported goods and excise duties on
mineral fuels, spirits, beer and cigarettes.
There are no withholding taxes on dividends, interests or royalties. Aruba does not levy a
capital or neither net wealth tax nor a value added tax.
75
Corporate Tax
Corporate or Profit tax is levied on:
1. The profits of locally established limited liability companies, limited partnerships,
and other companies or societies, of which the capital is wholly or partly divided into
shares, cooperative societies and mutual insurance companies;
2. The profits of locally established societies, of which the capital is not divided into
shares, and foundations other than those exclusively for the protection of a general
social interest;
3. The profits of institutions established outside Aruba, including all companies and
societies, of which the capital is wholly or partly divided into shares, and as far as the
profits are derived from a permanent establishment in Aruba, from locally located
immovable (real estate) properties, from non-commercial claims secured by a
mortgage on real estate properties located in Aruba.
Taxable Corporate Profit
Profits are understood as the sum of realizations, which by any name and in any form are
derived purely from business operations and from capital employed outside business
operations. No profit tax is levied on the profits (dividends income) made by an Aruban
company as a shareholder in other Aruban companies; however, profits and losses
resulting from the alienation of such participation are taken into account when calculating
the company's taxable income. Dividend income received by an Aruban company from a
non-Aruban company will be taxed at a rate of one tenth of the normally applicable rates
between 31.05% and 39.1%, provided the foreign company is subject to some sort of
profit tax and the participation of the Aruban company is at least 10%. For profits
realized with the sale of assets, there is the possibility of creating a so-called
"replacement reserve". Replacement, however, must take place within four years. Losses
in any fiscal year may be carried forward to be offset against profits of the following five
years.
Personal Income Tax
Under the provision of the Income Tax Ordinance, individuals residing in Aruba are
taxable according to their net income from any source per calendar year, the worldwide
criterion. There are deductions for personal obligations such as pension premium, life
insurance premium, interests paid on debts, certain gifts, and extraordinary expenses such
as sickness or invalidity, subsistence costs for certain relatives and next of kin, and the
burial costs of relatives. Tax allowance for children is granted to residents by allowing a
deduction from their net income.
A non-resident is subject to tax for income derived from certain sources, including gains
from the alienation of shares from a so-called substantial participation in an Aruban
onshore company, the territorial source criterion.
A substantial participation is defined as a participation of 25% or more of the nominal
paid-up capital either alone or together with certain relatives during the last five years.
76
A non-resident shareholder of an Aruban offshore company is specifically exempted
from the substantial participation provision and therefore will not be subject to any form
of personal income tax on dividends, interest, liquidation distributions or other payments
received from the company. Nor will such a shareholder be subject to income tax on
capital gains on the disposal of his participation in the company. There is no withholding
tax on such payments by an offshore company to its non-resident shareholder.
Income Tax Table
Effective January 1, 2002 the following rates are applicable:
Taxable Income
Payable Tax
Group I
12,300
13,900
377
20,000
965
30,000
2,222
50,000
6,192
75,000
13,883
100,000
23,969
150,000
46,966
200,000
73,143
250,000
100,784
Tax amounts are in Af and rounded off to the nearest florin.
Group II
371
519
1,143
2,555
7,003
15,486
26,462
50,954
78,943
108,255
Tariff group I is applicable to:
1. The married employee whose spouse, with whom he or she is conducting a marital
household, does not have an income from business or labor activity;
2. The employee who is permanently separated from his or her spouse and who has been
part of a marital household for at least five years;
3. The divorced employee who has been part of a marital household for at least five
years;
4. The unmarried employee who has the right on tax allowance for children.
Tariff group II is applicable to:
All other cases not mentioned under points 1-4.
Wage Tax (PAYE)
The Wage or Pay As You Earn (PAYE) tax is an advance levy on the personal income
tax. This tax is levied as an estimate of the taxable income and is a fixed percentage of
employee's wage or salary according to the table stipulated by ministerial decree. The
employer is liable for the withholding of wage taxes and has to transfer it before the 15th
of the following month to the Tax Collector's Office.
Capital Tax
There is no Aruban withholding tax on capital, and no obligation as to the declaration of
capital.
77
Dividend Tax
There is no levying of taxes on dividends or on interest.
Real Estate Property Tax (Grondbelasting)
This annual tax is levied on the value of the real estate. The tax rate amounts to 0.4% of
the value of both unimproved property and improved land with structure, and is charged
to the owner of the properties.
Property Transfer Tax (Overdrachtsbelasting)
This tax is levied on the acquisition of title to immovable property. The tax rate is 3 % of
the real estate value, and is payable by the purchaser.
Inheritance, Estate and Gift Tax
Under the Inheritance Tax Ordinance:
1. An inheritance tax (Successierecht) is levied on the increase in net wealth obtained as
heir or legatee from a resident of Aruba;
2. A gift tax (Schenkingsrecht) is levied on the increase in net wealth obtained as a gift
from a resident of Aruba.
3. An estate tax at the rate of 8% is levied as an heir, a legatee or as a gift from a nonresident of Aruba.
The inheritance and gift taxes range between 2% and 24%, depending on the degree of
kinship and the value obtained from the resident. In case of death, the maximum rate is
6% for goods left to the surviving spouse, children, grandchildren and parents of the
deceased.
Import Duties
The standard tariff of the import duty is 7.5%. Primary foodstuffs are generally taxed at
0%, while higher tariffs apply to luxury items.
Excise Tax
Excise taxes are levied on alcoholic beverages, cigarettes and fuel products.
Transit and Export Duties
No duties are levied on exports, except on irregular transit. In the latter case a low levy is
applicable.
Gambling Licenses
Casinos pay fixed gambling license rights of AFL 5,000 monthly, together with a 3%
levy on the gross income.
Room Tax
A tax payable by the guest, at a rate of 6% over the cost of accommodation is levied.
78
THE ORGANIZATIONAL STRUCTURE OF THE TAX ADMINISTRATION
The Director of Taxes heads the Tax administration. As such he is accountable to the
Minister of Finance for the execution of the Government Tax Policy. The Inspectorate of
Taxes executes the daily implementation of the tax ordinances. The office of the Tax
Collector carries out collection, which is the final administrative stage in the taxation
process. While the field audit is carried out by the Tax Audit Service. The decisions of
the Inspector of Taxes can be appealed at the court of Appeal, which consists of members
appointed by the Queen of the Kingdom of the Netherlands.
Taxation procedures
Companies must file annual financial statements, comprising a balance sheet and a profit
and loss account, with their return profit tax with the Inspector of Taxes. The tax is levied
over the financial book year, which normally is the calendar year. Corporate tax rates
range from 31.05% to 39.1% on taxable profits.
Corporate Tax Rates
Taxable Profits
Minimum
Maximum
Tax Payable
Minimum
Plus for every AFL 100 in
excess of amount in first
column
31.05
34.50
37.95
41.40
44.85
47.15
49.45
37.95
39.10
100
40,000
31
40,000
50,000
12,420
50,000
60,000
15,870
60,000
70,000
19,665
70,000
80,000
23,805
80,000
90,000
28,290
90,000
100,000
33,005
100,000
1,000,000
37,950
1,000,000
379,500
The tax rates are in AFL and they range from 31.05% to 39.1%.
When calculating the tax rates, taxable profits are rounded downward to the
nearest hundred AFL.
79
FISCAL INCENTIVES IN ARUBA
A variety of incentives have been created to promote investment as a way to broaden the
economic base and to procure employment in the country. These incentives can be
classified as follows:
1. General incentives, like accelerated depreciation, investment tax credit, carry
forward of losses, and other;
2. Specific incentives for certain type of businesses, like export, new industries, land
development, hotels, and free zone.
In general the incentives are only granted to corporations incorporated under Aruban law.
Requests to provide the fiscal incentives in cases that are not automatically granted by
law can be directed to the Governor of Aruba. A special committee formed by
functionaries of several government agencies advises the Government in these matters.
1. General incentives (i.e. both in the Income Tax and the Profit Tax)
A. Accelerated Depreciation
Accelerated depreciation for 1/3 of the initial cost of the investment in working assets is
allowed for business assets such as premise and machinery.
B. Investment allowance
For investment exceeding AFL 5,000, a deduction from the profit of 12% on new
buildings, including the improvement of existing buildings and 8% on other assets is
allowed annually for the year of investment and the following year. However, business
assets such as land, houses, passenger cars and yachts are excluded.
C. Carry-Forward of losses
An enterprise, whose accounting year resulted in a loss, may carry-forward this loss to be
offset against profits made in the five subsequent years. With a few exceptions, this rule
is applicable to all entities.
D. Other
With respect to different types of activities, rates as low as one tenth of the regular tax
rate are applicable, and gains related to these activities are exempt (Profit Tax).
80
2. Specific incentives
Nature
A. Free Zone Companies
Conditions
Taxation
Corporate Tax rate of 2%
on profits derived from
international sales.
Exemption from import
duties on goods imported in
the free zone for
re-exports.
Corporate Tax 2.4% and
3%
B. Offshore Trading and
Offshore Banking
Companies
C. Investment and
Royalty Companies
D. Aruba Exempt
Companies
E. Manufacturing
Industries
Not applicable to banking
or life insurance companies
Corporate Tax 2.4% and
3%. No Profit Tax on
capital gains
Tax Exempted
Exemption from import
duties on packing materials,
raw materials, semimanufactured products and
components.
In addition to the fiscal incentives with respect to free zone activities and offshore
companies, manufacturing industries are allowed to import free of duty packing
materials, raw materials, semi-manufactured products and components, to be used in the
production process.
DOUBLE TAXATION IN ARUBA
With the exception of a limited double taxation treaty with the United States of America,
Aruba has no tax treaties; however, within the Kingdom of the Netherlands, Aruba is
party to the Tax Arrangement for the Kingdom ("Belastingregeling voor het Koninkrijk
or BRK"). The “BRK” has the character of a tax treaty but is in fact a State Act
containing inter alia provisions for the avoidance of double taxation. The main benefit of
the BRK for Aruban companies relates to the reduction of Dutch dividend withholding
tax on dividends received by the Aruban Company on shares in a Netherlands company.
Whereas the principal Netherlands dividend withholding tax rate is 25%, the BRK
provides rules for the reduction of said rate to 15% or, in the event that the company
owns at least 25% of the nominal paid up capital of the Netherlands company, to 7.5%, or
even to 5% if it makes the so-called 8B Election. In the latter case the company must be
subject to a profit taxation of at least 5.5%.
81