As
from 1st July, 2003, Aruba introduced
the New Fiscal Regime (NFR) which
abolished its offshore regime as
such, and introduced a dividend
withholding tax and an imputation
payment system.
Companies
formed prior to the introduction
of the NFR were 'grandfathered'
into the NFR, with existing privileges
continued until the end of 2007,
meaning an effective tax rate of
2.4% to 3% for foreign-owned companies.
The
NFR contains a specific exemption
for the Aruba Exempt Corporation
(AEC), although the exemption is
disapplied in the event that the
AEC generates profits from illegal
activities, as defined under Aruba
criminal law. In such case all of
the AEC's profits earned from the
day of incorporation will be liable
to profit tax at the rate of 35%
(reduced to 28% as of 1st January,
2007).
However, as from January 1, 2006,
Aruba has introduced a revised tax
regime for these companies, which
offers three possibilities to AEC
companies:
- The
AEC can continue its activities
as a fully taxed corporation,
subject to tax at the normal
rate.
- An
AEC can remain exempt if it
acts as a holding or financing
company (but not as a bank)
with foreign subsidiaries subject
to a profit tax of at least
17.5 percent on at least 95%
of dividends. Investment activities
can also remain exempt, excluding
real estate. Licensing of intellectual
property is also permitted.
- An
AEC can elect to be a pass-through
entity. The income of a “pass-through
AEC” would accrue directly
to the AEC’s shareholder(s)
and would be subject to tax
at the shareholder level. When
electing for transparency status
an AEC has to disclose the identity
of its shareholder(s) to the
local tax authorities, and has
to file its financial statements
with the tax authorities in
Aruba within six months of the
financial year-end.
The
NFR is intended to modernize Aruba's
fiscal legislation in line with
generally accepted standards set
by the Organization for Economic
Cooperation and Development (OECD),
and to allow it to conclude Double
Tax Treaties with OECD countries.
The government also wants to encourage
increased investment and plans reductions
in the effective personal and corporate
income tax rates.
Prior
to the NFR, in order to qualify
for offshore status, an Aruban entity
had to be wholly owned by non-residents,
and its income had to arise outside
the jurisdiction; non-financial
offshore operations usually take
the Aruban Exempt Corporation form.
However, various business sectors
have specially favourable taxation
regimes which reflect their international
nature. These special regimes are
described in this section.
Aruba Legal Regime for Offshore
Companies
Until recently, most
offshore operations in Aruba took
the form of an Aruban Exempt Corporation
(Aruba Vrijgestelde Vennootschap),
which until 2006 was exempt from
the New Fiscal Regime.
Offshore
financial institutions are obliged
to use the NV form (Naamloze Vennootschap).
See Types
of Company for the basic legal
constitution of these two forms.
The
formation process for an Aruban
Exempt Corporation (AEC) was more
straightforward than for an NV,
and confidentiality was better.
AECs did not have to prepare or
file accounts, unless they opted
to be 'pass-through' entities..
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Aruba Tax Treatment of Offshore
Companies
Along
with the NFR, an imputation regime
has been introduced which is open
to entities that are engaged in listed
activities e.g. hotel exploitation,
holding, finance, insurance, leasing,
licensing, music/film industry and
aviation, whether carried out onshore
or offshore. To obtain neutrality
between onshore and offshore shareholders
of these so-called Imputation Payment
Companies (IPC), Aruba has opted for
actually paying out the imputation
credit directly to the shareholders.
From
January 1, 2007, IPC's are subject
to the standard income tax rate of
28% (reduced from 35%). Each qualifying
dividend payment will entitle the
shareholder of an IPC to an imputation
payment of 33/65 of the dividend.
Both the actual dividend payment and
the imputation will be subject to
a dividend tax of 10% (5% for quoted
companies), which may result in a
combined tax burden of 11.8% (or 6.9%
if the 5% dividend tax applies).
It is not yet clear whether any of
the sectoral incentive tax rates described
below will continue in effect, other
than through 'grandfathering' until
2007. See Domestic
Corporate Taxes for further details
of the IPC rules and the general principles
of Aruban corporate taxation.
The
taxation of Aruban companies is governed
by the National Ordinance on Profit
Tax; special taxation regimes used
to apply to various different types
of activity or company, as follows,
providing all income was derived from
external operations (advance rulings
need to be obtained from the tax inspectorate):
- Investment
and Holding companies
Income is taxed at 2.4% on the
first Af 100,000 of net income
and 3% on the balance. Capital
gains are not taxed; but capital
losses are not deductible.
- Mutual
Funds These are exempt from
profits tax if they have either
minimum net assets of $50m, at
least fifty shareholders, and
four local employees, or if they
have minimum net assets of $300m
and two local employees; otherwise
the fund will be taxed on its
net assets, giving a minimum charge
to tax of $1,000 rising to a maximum
charge of $10,000.
- Trading
companies
The normal applicable rates of
tax are 24% on the first Af 100,000
of net income and 30% thereafter;
however it is usually possible
to obtain a ruling from the Inspector
of Taxes exempting 90% of income,
which has the effect of reducing
the rates to the usual offshore
levels of 2.4% and 3%.
- Banks
Investment and interest income
is taxed on the usual offshore
basis at 2.4% and 3%; commission
and fee income will suffer 24%
and 30% unless a tax ruling can
be obtained (normally possible).
- Intellectual
Property Holding companies
If a tax ruling can be obtained,
the effective tax rate for income
from royalties, licenses, patents,
copyrights, trademarks etc will
be from 2.4% to 3%.
- Insurance
companies
Foreign-owned captive and reinsurance
companies not in receipt of treaty-related
income benefit from a concession
that deems their income to be
Af 100,000, giving them a fixed
tax rate of Af 2,400 annually.
- Real
Estate Holding companies These
companies are not taxed on income
derived from real estate (or subsidiaries
wholly or predominantly engaged
in owning real estate) outside
Aruba.
-
Ocean Shipping and Aviation companies
Substantial tax concessions are
available depending on circumstances.
·
Domestic
Low-tax Regimes: Companies targeted
by a specific fiscal incentive regime
with a view to either broadening the
economic base of Aruba or stimulating
exports are either exempt from corporate
income tax or pay negligible rates
for a predetermined period. Included
in this category are companies involved
in:
-
The construction of hotels or
the development of fallow land:
These companies are exempt from
corporate income tax where the
initial investment is not less
than 1 million Aruba florins.
In the case of hotels the exemption
can be granted for a maximum period
of 10 years whereas in the case
of a developer of fallow land
the period is at the discretion
of the Government, and the following
additional benefits apply:
- exemption
from income tax on dividends
paid out to shareholders,
provided the dividends are
paid within two years after
the year in which the profit
has been made;
- exemption
from import duties on building
and construction supplies
for hotels, roads and infrastructure;
- exemption
from corporate tax on profits
derived from the sale of improved
land and premises;
- exemption
from real estate tax.
- Non
Traditional Manufacturing:
These companies are exempt from
corporate income tax for a period
of 10 years provided that the
initial investment is not less
than 100,000 Aruba florins, and
the following additional benefits
apply:
- exemption
from income tax on dividends
paid out to shareholders,
provided the dividends are
paid within two years after
the year the profit has been
made;
- exemption
from import duties on building
supplies for premises;
-
exemption from import duties
on packing materials, machinery
and equipment, raw materials,
semimanufactured products
and components, to be used
in the production process;
- exemption
from real estate tax.
- Companies
Located in the Free Zones:
The Free Zone was created to boost
exports and increase foreign exchange
earnings. Characteristics of the
Free Zone are as follows:
- The
major attraction of operating
in the Free Zone is the regime
of special fiscal incentives
which are granted for a maximum
period of 10 years to companies
operating within the zone
and which include a corporate
income tax rate of 2% on profits
generated from all export
sales and a waiver of import
duties on all goods imported
into Aruba for use in a manufacturing
process which will result
in a finished product for
export
- The
regime of special fiscal incentives
is heavily biased towards
exports with the consequence
that although a company operating
within the Free Zone can sell
a maximum of 25% of its goods
in Aruba, goods sold locally
attract normal corporate income
tax rates as well as import
duty;
-
There are a number of international
agreements in place which
increase the attractiveness
of the Free Zone as a location
in which to site a manufacturing
operation. Under the Generalised
System of Preferences primary,
semi-manufactured and manufactured
goods originating in Aruba
gain either full free entry
or entry at reduced import
rates to the USA, EU, Australia,
Canada, Japan, New Zealand
and Norway;
- Since
Holland is a member of the
EU and Aruba is a part of
Holland goods originating
in Aruba which have been substantially
transformed from imported
materials and components can
be exported free of any import
duties and quotas to the single
market. The European Union
offers greater possibilities
than those available under
the Generalised System of
Preferences;
-
Aruba has been designated
a beneficiary territory of
the Caribbean Basin Economic
Recovery Act 1983 the centerpiece
of which program is duty free
entry into the USA of a wide
range of products grown, manufactured
and directly imported from
a beneficiary territory provided
that at least 35% of the article's
customs value is attributable
to the beneficiary territory.
Where the components originate
in the USA the 35% criteria
is even easier to satisfy
and has led to a situation
where goods which were once
excluded (e.g. footwear, handbags
and luggage) are now included..
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Aruba Taxation of Foreign Employees
of Offshore Operations
This section refers to the taxation
of foreign employees of offshore operations,
see Domestic
Personal Taxes for the general
principles of individual taxation
in Aruba, which also apply to the
resident employees of offshore entities.
Residence
(and not nationality) is the criteria
for determining when and how much
personal income tax is to be levied.
Although there is no difference in
the rates of personal income tax payable
by residents and non-residents alike,
there is a substantial difference
in the categories of income which
are assessed to personal income tax
with non-residents receiving considerably
more favorable treatment. Thus although
residents pay personal income tax
on employment income received from
an Aruba entity irrespective of whether
the employment income relates to work
done in Aruba or abroad, non-residents
only pay personal income tax on that
portion of the employment income which
relates to work done in Aruba (unless
by way of exception the employer is
an Aruba public company).
Residents
are assessed on all dividends received
irrespective of their source whereas
non-residents are only assessed to
personal income tax on dividends received
from Aruba onshore companies.
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Aruba
Exchange Control
There
are no foreign exchange controls as
such in Aruba, however foreign exchange
transactions are reported to the Central
Bank, and there a number of regulations
concerning transfers of foreign exchange,
plus a tax of 1.3% on many transfers
(see Import
of Foreign Capital).
Offshore
NVs, Aruba Exempt Corporations, and
Free Zone companies are all exempt
from these regulations and the tax.
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Aruba
Offshore Activities
Under the NFR, the distinction between
'onshore' and 'offshore' activities
is largely abolished, although until
2006 there was a statutory exemption
for the Aruba Exempt Corporation,
which is not allowed to trade in Aruba
and must be wholly owned by non-residents.
The prohibition on trading in Aruba
does not mean that these entities
cannot have their center of operations
in the island or direct activities
from there but it does mean that they
can neither trade with locally based
companies (except with other offshore
entities) or individuals nor own real
estate in Aruba.
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Aruba Employment
and Residence
A
non-citizen who wishes to work in
Aruba must obtain a work permit from
the Directorate of Alien Integration,
Policy and Admission (DIMAS), which
will only be granted if no suitable
local applicant is available. Applications
must be filed by the potential employer
who will bear the costs. The principal
documents to be attached to the application
include an official certificate from
the police authorities in the country
of origin certifying that the applicant
has no serious criminal convictions,
a medical certificate certifying that
the applicant carries no contagious
disease and has no mental illness,
copies of job advertisements placed
in local newspapers to which no suitable
local applicants replied, certificates
verifying the employee's qualifications
and the contract of employment which
must be in accordance with Aruba labor
laws.
An application for a residence permit
will normally be submitted at the
same time as an application for a
work permit and includes many of the
same requirements. However where the
applicant wants a residence permit
without a work permit the chief requirement
will be to prove that he will not
become a burden to the state and that
he has sufficient funds to support
his stay. In order to satisfy this
criteria the applicant will be required
to provide satisfactory bank references.
Aruba
The Netherlands Tax Treaty
Provisions
under the NFR and a revised 'BRK'
(tax treaty with the Netherlands)
came into effect from July 1, 2003.
They include:
-
dividends from a Dutch corporation
to Aruba corporate shareholders,
who own at least 25% of the shares
in the Dutch corporation, will
be exempted from Dutch dividend
withholding tax, provided that
the dividend is subject to Aruban
tax at a rate of at least 8.3%.
-
the Dutch corporation will have
to withhold 8.3% dividend withholding
tax from the gross dividend. The
8.3% which has been withheld upon
the dividend distribution in the
Netherlands can be credited against
tax in Aruba.
- dividends
and capital gains derived from
shareholdings in a Netherlands
corporation will be exempted from
additional profit tax in Aruba
provided that the shareholding
amounts to at least 25% and that
8.3% Aruba tax is paid on the
gross amount of dividends received.
- dividends
paid by Dutch corporations to
Aruban corporations unable to
take advantage of the participation
exemption will be subject to 15%
Dutch dividend withholding tax.
Existing Aruban offshore corporations
may elect for the new dividend
treatment.
- the
activities of an exempted company
(AEC) will be restricted to investments
in debt instruments, securities
and deposits
- for
Aruban coporations incorporated
before June 30, 1999, subject
to profit tax and having a book
year which ends before 1st July
2002, the grandfathering rules
with respect to the offshore regime
will remain applicable until 2007
as long as the company continues
to have substantial business.
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