Corporate tax in Aruba

At a glance

Corporate Income Tax Rate (%) 25 (a)
Capital Gains Tax Rate (%) 25 (a)
Branch Tax Rate (%) 25 (a)
Withholding Tax (%)
Dividends
 

 

0/5/10 (b)

Interest 0
Royalties from Patents, Know-how, etc. 0
Foreign-Exchange Commission 1.3 (c)
Branch Remittance Tax 0
Net Operating Losses (Years)
Carryback 0
Carryforward 5
    a) At the time of writing, the corporate income tax rate was 28%. Under a non­controversial proposed law that was pending in parliament, the corporate income tax rate will be reduced from 28% to 25%, effective from 1 January 2016.
    b) The 0% rate applies to dividends paid to resident holding companies. The 5% rate applies to dividends paid to nonresident publicly traded companies and to dividends paid on qualifying shareholdings under applicable tax treaties. The 10% rate applies in all other circumstances.
    c) A foreign-exchange commission is imposed on all payments by residents to nonresidents. The commission is withheld by banks on behalf of the Central Bank of Aruba.

Taxes on corporate income and gains

Corporate income tax. Corporate income tax is levied on resident and nonresident entities. A domestic entity is an entity that is established in Aruba or incorporated under Aruban law.

Tax is levied on total profits earned from all sources during the company’s accounting period. “Profit” means the total of net gains, under any name or in any form. Branches of foreign entities are taxed on Aruban-source income, such as profits earned through a permanent establishment.

Permanent establishment. A permanent establishment is deemed to exist in Aruba in the case of the following:

  • A permanent representative in Aruba.
  • A foreign enterprise that builds, installs, maintains, cleans or repairs capital assets on Aruba for more than 30 days. These 30 days include, among others, days spent on the technical prepa­ration and cleaning up of the site.

Rates of corporate income tax. At the time of writing, the cor­porate income tax rate was 28%. Under a non-controversial pro­posed law that was pending in parliament, the corporate income tax rate will be reduced from 28% to 25%, effective from 1 Janu­ary 2016.

Companies operating in the free zone are subject to corporate income tax at a rate of 2% on profits derived from their activities and to a free zone facility charge of up to 0.75% on their annual gross turnover. The free zone is a defined territory in which no import duties are levied if the goods are not imported for use in the domestic market. In addition, free-zone companies are not subject to turnover tax and are exempt from the foreign-exchange commission.

Special tax regimes for certain companies. Special tax regimes available for certain companies in Aruba are described below.

Imputation Payment Companies. Imputation Payment Companies (IPCs) are subject to the regular corporate tax rate (see Rates of corporate income tax). Under the IPC regime, part of the corpo­rate income tax paid by a company is remitted to its shareholders in the form of an imputation payment. The IPC regime is available to all companies conducting qualifying activities such as hotel, financing, licensing or investment activities. It is intended that the IPC regime be abolished in 2016. However, existing IPCs can continue making use of this regime until 2026.

Special Purpose Companies. Special Purpose Companies (SPCs) are introduced in 2016. In general, qualifying SPCs are subject to a corporate income tax rate of 10%. However, for companies performing qualifying hotel operations, the applicable corporate tax rate can be 10%, 12% or 15%. In addition, SPCs are exempt from dividend withholding tax. SPCs may engage only in the fol­lowing qualifying activities (in some cases, they must meet cer­tain additional requirements):

  • Hotel operations
  • Aviation operations
  • Shipping operations
  • Generation of sustainable energy
  • Activities that enhance the knowledge economy
  • Scientific activities
  • Developing, acquiring, holding, maintaining and licensing in­tellectual and industrial rights, similar rights and usage rights
  • Insuring special entrepreneurial risks (activities of captive in­surance companies)
  • Financing that is different from the financing offered by credit institutions
  • Making portfolio investments (other than in real estate)
  • Holding of shares and participation rights

Aruba Exempt Companies. An Aruba Exempt Company is exempt from corporate income tax and withholding tax on dividends paid if, among other requirements, it performs one of the following activities:

  • Financing (if the company does not qualify as a credit institu­tion)
  • Investing other than in real estate
  • Holding of shares and participation rights
  • Licensing of intellectual and industrial rights, similar rights and usage rights

Fiscal transparency. Aruban limited liability companies can opt for fiscal transparency for Aruban corporate income tax and divi­dend withholding tax purposes within one month after incorpora­tion. If fiscal transparency is granted, the limited liability company is treated as a partnership for Aruba income tax, corporate income tax and dividend withholding tax purposes; that is, only the part­ners can be taxed in Aruba on Aruban-source income.

It is also possible to obtain an advance ruling from the local tax authorities on the treatment of the local presence.

Branch profits tax. Branches of foreign companies are taxed at the same rate as resident companies. No additional withholding taxes are imposed on remittances of profits.

Capital gains. Capital gains are taxed as ordinary income. How­ever, certain capital gains are exempt from corporate income tax under the participation exemption (see Participation exemption).

Administration. In principle, the corporate income tax return for the preceding accounting period must be filed and the corre­sponding corporate income tax due must be simultaneously paid within five months after the end of such accounting period.

Dividends. A 10% withholding tax is imposed on dividends dis­tributed to nonresidents. The rate is reduced to 5% for dividends distributed to publicly traded companies. A 0% rate applies to dividends distributed to resident companies that qualify for the benefits of the participation exemption.

The Tax Regulation for the Kingdom of the Netherlands provides for special dividend withholding tax rates (see Section E).

Participation exemption. Aruban resident companies are exempt from corporate income tax on dividends and capital gains deriv­ed from shares with respect to qualifying participations. A quali­fying foreign participation must satisfy both of the following conditions:

  • The shares must not be held as inventory or as a portfolio investment.
  • The participation must be subject to a tax on profits.

Foreign tax relief. Foreign tax relief is available through the Tax Regulation for the Kingdom of the Netherlands. Foreign tax relief is also available under the state decree for the avoidance of dou­ble taxation.

Determination of trading income

General. Commercial profits must be calculated in accordance with “sound business practice” and generally accepted account­ing standards.

Inventories. Inventories are generally valued using the historical-cost, first-in, first-out (FIFO) or weighted average methods.

Depreciation. Depreciation may be calculated by the straight-line, declining-balance or flexible methods.

Miscellaneous matters

Foreign-exchange controls. The Central Bank of Aruba regulates the foreign-exchange market and carries out the necessary trans­actions as executor of exchange policy. Remittances abroad require an exchange license issued by the Central Bank of Aruba.

Debt-to-equity rules. Aruba does not impose a debt-to-equity ratio.

Controlled foreign companies. Aruba does not have specific con­trolled foreign company legislation. However, numerous measures limit tax deductions related to intercompany transactions that are not at arm’s length and intercompany transactions with low-taxed entities.

Transfer pricing. If a company or individual participates, directly or indirectly, in the management, supervision or the capital of two or more corporate entities, the conditions that apply to the supply of goods and the rendering of services between these related enti­ties must be at arm’s length. These conditions are similar to the conditions that would have applied in transactions with unrelated parties. Information to substantiate arm’s-length transactions must include, among other items, the following:

  • The agreement between the entities
  • Transfer-pricing method that was chosen and why it was chosen
  • How the consideration was determined

Tax treaties

Provisions for double tax relief are included in the Tax Regulation for the Kingdom of the Netherlands. These provisions avoid dou­ble taxation between the countries of the Kingdom of the Nether­lands (Aruba, Curaçao, the Netherlands [including Bonaire, Sint Eustatius and Saba; these islands are known as the BES-Islands] and Sint Maarten) regarding taxes on income, capital and other items.

Under the Tax Regulation for the Kingdom of the Netherlands, the general withholding tax rate of 10% on dividend distributions from an entity resident in Aruba may be reduced to the following rates:

  • 5% if the recipient of the dividends is a company that has capital divided in shares and that has a share interest in the nominal paid-up capital of the Aruba entity of at least 25%
  • 5% if such recipient of the dividends is also subject to tax on profit at a rate of at least 5.5%

Effective from 10 October 2010, the Netherlands Antilles (which consisted of five island territories in the Caribbean Sea) was dis­solved as a country. As a result, the island territories of Curaçao and St. Maarten became autonomous countries within the Dutch Kingdom. The island territories of Bonaire, St. Eustatius and Saba (BES-Islands) have become a part of the Netherlands as extraor­dinary overseas municipalities.

The Tax Regulation for the Kingdom of the Netherlands remains in place until bilateral tax treaties have been concluded between the countries in the Dutch Kingdom.

Aruba has entered into tax information exchange agreements with Antigua and Barbuda, Argentina, Australia, the Bahamas, Ber­muda, the British Virgin Islands, Canada, the Cayman Islands, Denmark, the Faroe Islands, Finland, France, Greenland, Grenada, Iceland, Mexico, Norway, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Spain, Sweden, the United Kingdom and the United States.

Aruba is recognized by the Organisation for Economic Co­operation and Development as a jurisdiction that has substantially implemented the internationally agreed tax standard and, as such, is white listed.