Introduction
In the first week of September, the Aruba Tax Office presented the Aruba business community with the proposed changes to the Aruba Tax regime as per January 1st, 2020. The changes are based on the IMF (International Monetary Fund) recommendations for a refurbished and updated Aruba tax regime.
The proposed changes are discussed below.
BBO (turnover tax)
The turn over tax (BBO) is due over sales turnovers at a basic rate of 1.5%. Moreover, two other special taxes are due on sales turnovers, i.e. 3% BAZV and 1.5% BAVP. The BAVP is a health tax whilst the BAVP is meant to create additional funding for certain ongoing infrastructural projects, among others the Watty Vos Blvd, the Green Corridor, and the Aruba hospital.
The total tax on sales turnovers amounts to 6%.
The proposed fiscal reform entails the introduction of a 6% BBO. The BAZV and BAVP would be abolished or incorporated in the BBO.
An important change entails the levy of the 6% BBO at import, in an attempt to broaden the tax base by also taxing online purchases. Taxation at import would furthermore result in a more fair and ‘level playing field’ between local and online retailers.
The retailer would pay 6% BBO over the customs value (douane waarde) of the imported goods, and would be able to request a deduction or settlement of the BBO paid over the imported merchandise by filing an invoice with the Tax Office.
The levy of BBO would remain the same for service providers.
It is noted that as per January 1st of this year, albeit with a transition period until October 1st, 2019, it is no longer allowed to show the BBO/BAZV/BAVP payable on the invoice or receipt. This is an ongoing debate.
Personal Income Tax and Wage Tax
The Aruba Personal Income Tax and Wage Tax, the latter being a withholding tax on the Personal Income Tax, would undergo the following changes:
The Personal Income Tax and Wage Tax rates would be lowered even further.
The tax base would be broadened by replacing tax deductions (aftrekposten) with a general tax credit (algemene heffingskorting). The mortgage interest would also become a tax credit.
The levy of the premiums AOV/AWW/AZV would remain applicable at the employer level, but would no longer be deductible at the employee level.
The creation of a dual system wherein income derived from labor and assets would be taxed separately. The aim is to bring the tax bases of the Income Tax and Wage Tax closer together to simplify the process.
Profit Tax
The Aruba Profit tax would undergo the following changes (among others):
The Profit Tax rate would be lowered and the tax base broadened by including foreign limited partners in the taxation.
The self administered pension (pensioen in eigen beheer) would be abolished for which a transition period would apply.
Additional limitations on the deduction of interest and other payments such as management fees would be introduced. The deduction of interest payments in connection with the acquisition of an Aruba subsidiary would be abolished completely, albeit with a transition period.
Limitations on real estate depreciation.
Outgoing payments of interest, management fees and royalties to a recipient abroad would become subject to a withholding tax (bronbelasting).
Sugar Tax
An excise duty on beverages containing sugar is currently being contemplated, including beverages which contain artificial sweeteners (diet beverages). Several scenarios with varying taxes per certain amounts of beverage are currently being evaluated. A scenario could be as follows:
A regular 33 cl soda can would be taxed an additional Awg 1,-, which would increase its retail price from Awg 2,- to Awg 3,- (an increase of Awg 50%).
A 2 liter soda container would be taxed an additional Awg 6.06, which would increase its retail price from Awg 7,- to Awg 13.06 (an increase of 87%).
A 5 gallon soda container (‘bag in a box’) would be taxed an additional Awg 294,-, which would increase its retail price from Awg 142,- to Awg 436,- (an increase of 206%).
Certain ‘healthy’ drinks containing sugar would not be subject to taxation, e.g. chocolate milk, soja milk, fruit and vegetable juices, drink yogurts and other supplementary beverages such as Ensure PediaSure, Pedialyte.
The proposed Sugar Tax is already receiving serious push back from the business community of Aruba.
The Town Hall Meeting held at the Aruba Chamber of Commerce
The Chamber of Commerce of Aruba held a town hall meeting on September 12th, 2019 to discuss the BBO, the Sugar Tax and the Withholding Tax:
BBO:
- The feedback from the attendees was focused (among others) on the administrative red tape that would be created by the levy of BBO at import.
- Also the manner in which the BBO payable at import would be settled in order to avoid double taxation was discussed.
- The Chamber has proposed to leave the BBO/BAZV/BAVP on the invoice or receipt and (under the condition) that the retailer would effectively calculate 6% over the retail price of the product (not 6.38% in order to compensate for the compound effect due to the cumulative system).
Withholding tax:
- According to the Chamber, the proposed withholding tax would not have retroactive effect.
Sugar Tax:
- The cost of doing business would increase so much that this may force certain companies on the island to close their doors.
- Furthermore, the Chamber pointed out that the Sugar Tax would also greatly affect the Aruba tourist industry, because tourists consume large quantities of soda beverages. Aruba would become even more expensive for our visitors.