ARUBA: Extension special rate Dividend Withholding Tax and one-(more)-time tax rate reduction for pension buy-out
November 9, 2022
During the COVID-19 pandemic, the government of Aruba introduced a lower Dividend Withholding Tax rate for 2020, which had been extended to 2021 and 2022. Furthermore, the government announced to abolish the self-administered pension plans and introduced a one-time special tax rate for pension buy-outs. On November 7, 2022, the Minister of Finance and Culture announced a further extension of the lower dividend withholding tax rate of 10% and a one-(more)-time rate reduction of the wage tax on pension buy-outs, leading to a lower personal income tax rate for dividend distributions of 10%, respectively a lower personal income tax rate for pension buy-out of 15% as well.
Further extension of 10% Tax Rates on Dividends
Under certain conditions, the 10% tax rate applies on dividends received in 2022 and 2023 from entities established in Aruba and foreign entities (when applicable). The conditions are:
· The entity, whether established in Aruba or abroad, should have a share capital;
· The dividend distributions are made payable from general reserve accrued over the financial years ending before December 31, 2022;
· The dividend distributions are made payable to the shareholders in the calendar years 2022 or 2023 and should be paid out in full no later than within 5 financial years after the financial year in which the dividend distribution has been made payable (i.e. if the dividend distribution is made payable in FY 2023, the full payment should be settled before the end of FY 2028) to avoid an additional assessment correcting the special rate after the five-year period;
· Foreign entities, which do not have to file a dividend withholding tax return, need to notify the tax authorities in Aruba of the dividend distributions in writing to assure the corresponding lower income tax rate is applicable for personal income tax purposes of the shareholder.
The lower tax rate is applied upon request in the dividend withholding tax form or, if no dividend withholding tax return is required, upon written request of the entity to the tax authorities.
Onetime rate reduction on pension buy-out of 15%
According to the press conferences of the Minister of Finance, the State Ordinance Tax Plan 2023, will abolish the possibility for self-administered pension plans for Directors-Shareholders, most likely as per January 1, 2023. In anticipation of these possible changes, pension buy-outs will be taxed upon request at a special rate of 15% instead of the regular fixed rate in the personal income tax for pension buy-outs of 25%, therefore leading to a tax savings of 10%.
This special rate applies to all self-administered pension plans, whether the pension plan is in the contribution phase or whether it has started paying installments, and also includes pension plans administered by a professional insurance company (unless a State Ordinance or a contractual clause prohibits such buy-out).
The special tax rate is received upon request of the employee, employer or insurance company and the following conditions need to be met:
· The pension buy-out needs to be paid out in the period from November 7, 2022, till December 31, 2022;
· The pension buy-out must be included in the wage tax and social premiums return of the employer or the pension insurance company in the month of the buy-out and the wage tax and social premiums due must be withheld and remitted within 15 days after the end of the month;
· The calculation of the pension assets at the time of the pension buy-out must be based on the tax- acceptable principles with some technical exclusions;
· Special rules apply for pension plans of specific management pension funds;
· The years included in the buy-out need to be excluded from future pension capital calculations;
· Upon filing the request the balance sheet value of the pension provision as at 1 January 2022 and
31 December 2022 and the actuarial calculation of the buy-out value must be submitted.
HBN Law & Tax is happy to assist you with the requests for these special rates or any other questions you may have, ensuring all applicable conditions are met.
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