What you need to know about the changes in the Aruba tax code effective January 1st, 2023

Introduction

The Aruba tax regime is being modified and simplified in stages. As of January 1st, 2023, certain changes went into effect. The most relevant changes are discussed in this article.

BBO BAVP BAZV

The VAT is postponed

The VAT (Value Added Tax) will eventually replace BBO BAVP BAZV. The VAT was scheduled for introduction on January 1st, 2023, but has been postponed.

BBO is increased by 1%

The BBO is increased from 1.5% to 2.5% for a combined 7% BBO BAVP BAZV (previously 6%).

Telecommunication, radio & television broadcasting, electronic services are taxed with BBO BAVP BAZV

Telecommunication, radio & television broadcasting and electronic services, including services via internet become taxable services for the BBO BAVP BAZV.

These services are added to the list of services to which the ‘reverse charge’ applies which entails that the entrepreneur that receives the service is charged for the BBO BAVP BAZV instead of the entrepreneur that provides the service. This is the case if the provider is a non-resident entrepreneur without a branch in Aruba.

The exemption for small businesses is reduced to AWG 50,000

Small businesses-nonlegal entities are exempt from filing and paying BBO BAVP BAZV as long as their turnover in a calendar year does not exceed AWG 50,000 (KOR). The threshold was previously set to AWG 84,000.

If the threshold of AWG 50,000 is exceeded, BBO BAVP BAZV becomes due over the part of the turnover that exceeds AWG 50,000.

The fiscal representative is introduced

The non-resident without a branch in Aruba may appoint a fiscal representative in Aruba if he performs taxable transactions in Aruba for BBO BAVP BAZV purposes.

The fiscal representative complies with the filing and payment requirements of the BBO BAVP BAZV on behalf of the non-resident entrepreneur and, furthermore substitutes (in de plaats treden van) the non-resident entrepreneur which may entail liability of the fiscal representative for the payment of BBO BAVP BAZV and penalties.

The Minister of Finance may determine that the appointment of a fiscal representative in Aruba is mandatory in certain cases.

BBO BAVP BAZV on the import of goods (pending introduction!)

The introduction of a BBO BAVP BAZV on the import of goods is pending introduction in June of 2023.

In order to avoid tax accumulation, the entrepreneur will be able to deduct the BBO BAVP BAZV paid for the import of commercial goods intended for sale and trade.

Retailers (department stores, supermarkets, convenience stores) will be able to deduct the BBO BAVP BAZV paid at import. Entrepreneurs that are not in the business of selling the imported goods to consumers will not be able to deduct the BBO BAVP BAZV paid at import (hotels, restaurants).

Profit tax

The reformed IPC regime is abolished

The reformed IPC-regime (Imputation Payment Company), i.e., a 10% profit tax and 0% dividend tax for companies that perform certain special activities, is abolished.

A transition period applies for companies that fall under the regime. They may continue to apply the regime until the last financial year that starts before January 1st, 2026.

The deduction allowance is increased to 10%

The deduction allowance is increased from 6% to 10% and, only applies to local investments.

Depreciation of immovable property is restricted to the floor value

Depreciation of immovable property is restricted to 50% of the property value for ground tax purposes, the so-called floor value (bodemwaarde).

The restrictions on the deduction of interest and payments are enhanced

The restrictions on the deduction of interest and payments are enhanced as follows (amongst others):

  • the restriction also applies to interest and payments to individuals (previously only to entities)
  • the participation threshold in an entity (in order to qualify as an ‘affiliated entity’) is reduced from 33.33$ (1/3) to 4% (1/25)
  • the spouse and other family members may also qualify as ‘affiliated persons’

The restriction is not applicable if i) the interest and or payments are included in the recipient’s tax base, and ii) are subject to a tax with a nominal rate of at least 15%.

Income tax

The self-administered pension is abolished

The self-administered pension for the director/ substantial shareholder (directeur aanmerkelijk belanghouder) is abolished because of the fact that this facility was used purely for tax avoidance purposes without a real pension being accrued.

The accrued pension can be redeemed at a special rate of 15% until December 31st, 2023, provided conditions are met. As of January 1st, 2024, the progressive income tax rate applies.

Excessive loans to the director/ substantial shareholder are deemed dividend payment

Loans by the company to the director/ substantial shareholder or his spouse are deemed dividend payment insofar they exceed the amount of AWG 500,000 (nominal value) at the end of the calendar year and, taxed at a rate of 25% (starting calendar year 2025).

The director/ substantial shareholder and or the spouse are granted until December 31st, 2024, to pay off existing debts to the company, i.e., debts that date from prior to January 1st, 2023.

The amount of AWG 500,000 is increased by the amounts previously included in the taxation to avoid tax accumulation.

The deduction allowance is increased to 10%

Same as for the profit tax.

Depreciation on immovable property is restricted to the floor value

Same as for the profit tax.

AOV pensions are taxed separately

Married couples are taxed separately for AOV pensions in the income tax.

The income tax burden is reduced

The income tax burden is reduced by adjusting the brackets, lowering the rates and increasing the tax-free amount to AWG 30,000.

Tips are tax-free

Tips remain exempt from income tax.

Wage tax

A fictitious wage is introduced for the director/ substantial shareholder

The director/ shareholder of a company could avoid income/ wage tax and social security premiums by setting his wage at nil or at a low amount, e.g., the minimum wage.

In order to counter this practice, a fictitious wage is introduced for the director/ shareholder in the form of the so-called ‘customary wage’ (gebruikelijk loon).

For income/ wage tax purposes, the director/ shareholder that owns at least 25% of the shares in the company (including the shares of the spouse), must determine his wage to an amount that is equal to the wage for comparable employment in the open market. The customary wage is the highest of the following:

  • 75% of the wage for the most comparable employment
  • the wage of the highest earning employee of the company or an affiliated company
  • (at least) AWG 48,000

Startups are given a pass for the first 4 calendar years including the year of establishment. The wage of the director/ substantial shareholder may be set at the minimum wage which amount to AWG 1,893.40 for the year 2023.

If the director/ substantial shareholder can make a reasonable case (aannemelijk maken) for the fact that the customary wage is lower for comparable employment in cases where a substantial interest is not present, the customary wage may be set at that lower amount.

If the director performs work for several companies in which he has a substantial interest, the customary wage is applied once to all the companies combined.

The customary wage rule is not applicable to:

  • sole proprietorships
  • entities that are exempt from profit tax
  • non-resident directors and supervisory board members of an entity vested in Aruba
  • entities that do not participate in the economic traffic of Aruba and that have a non-resident status for Foreign Exchange Ordinance purposes

The wage tax burden is reduced

Same as for the income tax.

Transfer tax

The application of the transfer tax rates changes

Prior to January 1st, 2023, the transfer tax rates were applied differently in (a) certain case(s) based on the purpose of the immovable property (hereinafter: property) transferred. As of January 1st, 2023, the transfer tax rates are applied as follows in all cases without exception:

  • 3% over the initial AWG 250,000 of the property value
  • 6% over the property value above AWG 250,000

Inherited property is not subject to transfer tax

The acquisition of property through inheritance is no longer subject to transfer tax.

The acquisition of the economic ownership of a property is subject to transfer tax

The acquisition of the economic ownership of a property, including rights to the property, become subject to transfer tax. Financial leasing (huurkoop) is subject to transfer tax.

Anti-cumulation

The following anti-cumulation rule is introduced for successive transfers of the economic and legal owners of a property. In case the economic and legal ownership of a property are acquired successively by the same party, within a period of 12 months, the tax base for transfer tax is reduced by the amount on which transfer tax was already owed and paid in respect of the previous transfer.

It is noted that the Ministerial Ruling of April 29th, 2019 (AB2019No.32) entailed a similar anti-cumulation rule for the successive transfer of the same property by different parties within a period of 6 months. The Minsterial rule was revoked on December 22nd, 2022.

The acquisition of fictitious real estate is subject to transfer tax

The acquisition of shares in a real estate company becomes subject to transfer tax if the following cumulative conditions are met at the time of acquisition (the so-called ‘fictitious real’ estate):

  • at least 30% of the assets in the company consists of property located in Aruba
  • at the time of acquisition or at any time in the previous year, at least 70% of the property serves (or served) to acquire, sell or exploit said property

The value of the shares in the real estate company is at least equal to the value for ground tax purposes of the property in the company that is located in Aruba.

A reporting requirement is introduced for transfers without a notarial deed

The acquisition of the economic ownership of a property and of fictitious real estate do not require a notarial deed. A private deed suffices (onderhandse akte). If so, the transferor is required to report the transfer to the tax authority within 2 weeks.

Ground tax

The ground tax ordinance is updated

The text of the ground tax ordinance is updated to reflect the manner in which ground tax is levied in practice, i.e., ground tax assessments are prepared and sent out each year.

No dispensation for ground tax

It is no longer possible to request dispensation for ground tax in certain cases, e.g., for prolonged vacated property.

Tourist tax

Rate is increased to 12.5%

The tourist tax rate is increased from 9.5% to 12.5%.

Tourist tax levied from the intermediary/ agent

Tourist tax is payable by the party that operates the hotel or lodging. If accommodation and payment are arranged through an intermediary/ agent, (e.g., Airbnb), the tourist tax may be levied from the intermediary/ agent.

Appointment of a fiscal representative in Aruba

The intermediary may appoint a fiscal representative in Aruba to comply with the filing and payment of the tourist tax.

The above stipulations regarding the intermediary/ agent are also applicable to the environmental tax (bijzondere belasting verblijf).

Dividend tax

Abolishment of 5% dividend tax on distributions by/ to publicly traded companies

The reduced 5% dividend tax on distribution by/to publicly traded companies is abolished.

Tax holidays

As of January 1st, 2023, former tax holiday companies can no longer invoke the transitional tax holiday exemption, i.e., 0% dividend tax on profit distributions.

General pension ordinance

The director/ substantial shareholders and his spouse do not fall within the scope of the general pension ordinance.