Aruba Tax Plan 2023 amendment of the affiliated entities definition
Aruba Tax Plan 2023 amendment of the affiliated entities definition
February 28, 2023
The Tax Plan 2023 has introduced various changes in the tax legislation as per January 1, 2023. Part of the Tax Plan 2023 included changes to the conditions for the interest deduction on loans from affiliated entities.
The current limitation on interest deduction is extended to include further limitations:
- The limitation on interest deduction is also extended to individuals and is no longer limited to interest payments made to entities;
- Parties are deemed to be affiliated (and thus the interest deduction can be limited) when one party holds an interest, directly or indirectly, in another of at least 4% (currently 33.33%).
- The affiliation through individuals also includes stakes held by the spouse, children, and anyone related in the first or second degree;
- Interest paid to affiliated entities shall be deductible only when the payments are made to an entity whose income is subject to profit tax against a nominal rate of 15%.
- The exemption of the limitation for interest paid to entities listed on a stock exchange is abolished;
The government has concluded that the definition of affiliated entity or individual has erroneously been set at an interest of 4%. This should have been 25% (1/4th part and not 1/25th part). Therefore, the government has published an announcement in the Official Journal of February 24, 2023to correct this percentage pending further legislative changes to avoid miscommunications when preparing the (preliminary) profit tax returns.
The announcement states that the definition of the affiliated entity and/or individual should be read as to only include entities and individuals that hold an interest, directly or indirectly in another of at least 25%.
