Overview Aruban tax system
Hereafter you will find a brief overview with respect to the Aruban tax system.
The employer has to withhold wage tax from the employees’ salaries. The wage tax withheld, together with the AOV/AWW and AZV premiums due has to be paid over to the Collector of Taxes no later than on the fifteenth day of the following month. Also in case no employees were employed in a certain month for whatever reason, one still has to make a (nil) return. If the amounts due are not paid over in time, the Inspectorate of Taxes may impose a penalty. New employers have to report to the Inspectorate of Wage Tax. For this purpose, a registration form has to be filled out, and a recent extract from the Trade Register of the Chamber of Commerce has to be submitted.Certain benefits can be provided by the employer without withholding wage. In case you have any specific questions regarding this subject please feel to contact us, we are more than willing to inform you.Once a year, a so-called summary statement of wages and salaries has to be submitted to the Inspectorate, the Social Insurance Bank (SVB), and the Directorate of Labour.We can provide you with professional services with respect to your payroll records.
Premiums in respect of Old Age Insurance (AOV) and Widows’ and Orphans’ Insurance (AWW) are levied by the Tax Authorities. The Social Insurance Bank (SVB) is charged with the payment of the benefits under these insurances.Each person between 15 and 60 who is a resident of Aruba is insured for the AOV and AWW. Non residents are not insured for the AWW.The total AOV/AWW premium amounts to 13.5% of the premium income which is determined every year.
Resident individuals are subject to income tax on their worldwide income.In general only the following income sources are taxed:
- real estate
- movable property
- business and labour
The capital gains on the alienation of a source of income are not taxable and capital losses are not deductible. However, there are exceptions. The most important exceptions are:
- capital gains realized on the transfer of shares if the shareholder has a substantial interest in a corporation; and
- capital gains and losses on the transfer of a business or business assets
The capital gains realized on the transfer of shares are taxed at a flat rate of 25%.Non resident individuals are subject to income tax on certain income derived from Aruba, such as rental income from real estate, income from labor, government pension, profits realized by carrying out business in Aruba through a permanent establishment, e.g.
Corporate income tax
The Aruban corporate tax system is a so-called classical system, which means that the corporate profits are fully taxed, as are the distributions in the hands of the private shareholders. Distributions are not deductible from the tax base of the corporation. However, in the case of qualifying distributions to corporate shareholders, double taxation is eliminated through the participation exemption. In case of individual private shareholders with a substantial interest (25%), double taxation is mitigated through a lower flat rate of personal income tax on dividends.Corporate income tax is levied on entities, which are listed in article 1 of the Corporate Income Tax Ordinance. This includes companies, limited and general partnerships with a capital wholly or partly divided into shares, cooperative societies, mutual insurance companies, foundations to the extent that they conduct a business.Furthermore, the profits realized by a permanent establishment are subject to corporate income tax.*
Under the Aruban participation exemption dividends derived from shares in the capital of an Aruban subsidiary or capital gains realized upon the alienation of such shares are free from Aruban corporation tax in the hands of a corporate taxpayer in Aruba.For shareholdings in foreign subsidiaries the participation exemption only applies if the following additional conditions are met:
- The profits of the foreign subsidiary must be subject to an income tax of the State in which the profits have been generated;
- The shares in the subsidiary should not be held as a passive portfolio investment.
One of the fundamentals of Aruban tax law is, in principle, that each legal entity is separately subject to corporate income tax. However, one important exception is made to this general rule: if a resident corporate company incorporated under Aruban law holds at least 99% of the share capital of one or more other resident companies incorporated under Aruban law, these companies may apply to be treated as a fiscal unity i.e. to be treated as one taxpayer. This parent company of a fiscal unity is the taxable entity. A fiscal unity allows the settlement of losses of one company against profits of another company in a particular year and (a tax-free) transfer of assets and liabilities between companies within the fiscal unity. This makes the concept an interesting instrument for reorganizations.
Offset of losses
Losses which arose in a certain year can be offset against the profits generated in the following five years. After the five years period the remaining losses can not be offset and are deemed to be evaporated.The rate for the Corporate Income tax is 28%*
AVV: Aruban Exempted Company
The exempt company is a company with a special tax regime, meaning that qualifying activities will be exempted from corporate income tax. These activities are:
- Holding company: this includes holding of shares, equities or other rights of participation in other corporate entities. However, the profits of the company being held must be subject to a profit tax in its country of residence at a rate of at least 14%;
- Financing of other corporate entities. An AVV may not qualify as a credit institution;
- Portfolio investments, except for investments in real estate;
- Licensing of patents and other intellectual property rights.
In case the AVV also carries out non-qualifying activities the total profit will be subject to 28% profit tax.*
Aruba Transparent Company
An AVV or other company may opt to become a transparent company for tax purposes. This means that the shareholder or member of the transparent company will be subject of taxation for its profits received from the company. However, the shareholder or member will only pay profit tax if it has a taxable presence (permanent establishment or permanent representative) in Aruba and the profit can be allocated to Aruba. In other words, in case there is no taxable presence in Aruba no taxes will be levied.
Turnover tax (BBO)
The turnover tax in Aruba is based on a cumulative system. The turnover tax is levied on the turnover which is realized by suppliers of goods and services. The turnover is taxed at a rate of 1.5%. However, in case the turnover has been realized with the export of goods a lower rate of 1% is applicable.If a resident corporate company holds 100% of the share capital of one or more other resident companies these companies may apply to be treated as a fiscal unity for the BBO i.e. to be treated as one taxpayer. The parent company of a fiscal unity is the taxable entity.
Health levy (BAZV)
The health levy is, just like the turnover tax (BBO), based on a cumulative system. The health levy is also levied on the turnover which is realized by suppliers of goods and services. The health levy is taxed at a rate of 1%. If a resident corporate company holds 100% of the share capital of one or more other resident companies these companies may apply to be treated as a fiscal unity for the health levy i.e. to be treated as one taxpayer. The parent company of a fiscal unity is the taxable entity. The difference between turnover tax and the health levy is that the levy must be mentioned on the invoice.
In case dividends are distributed in principle 10% withholding tax is due. However, there are some exceptions to this rule:
- no withholding tax is due in case the participation exemption is applicable;
- five percent is due in case the receiving company is resident of the Netherlands Antilles and is subject to corporate income tax (in case of a special tax regime 10% withholding tax is due);
- five percent is due in case the shares of the distributing company are listed at a qualified stock exchange.