ARUBA: Tax Plan 2023
December 1, 2022
The draft legislation for the Plan di Impuesto 2023 (Tax Plan 2023) has finally been submitted to Parliament in Aruba and has thus been made available to the public. In our previous Tax Instant Newsflashes, we have already introduced you to some of the proposed measures. In this Newsflash, we kindly provide you with a summary of the proposed changes, which will be followed shortly by a number of “spotlight newsflashes” focusing more in-depth on more complicated changes that will impact most businesses in Aruba, such as the market salary and the changes in real estate transfer tax.
The government of Aruba has introduced the Tax Plan 2023 stating that the current tax system is subject to changes in society and thus needs to be amended along with these aforementioned changes. Furthermore, the plan re-introduces some measures that were proposed in the Reforma Fiscal in 2020 that were postponed due to the COVID-19 pandemic.
BBO – Tax rates
The Tax Plan 2023 introduces an increase in BBO of 1% leading to an accumulated tax rate for BBO/BAVP/BAZV purposes of 7% as per January 1, 2023. Please note that the introduction of BBO/BAVP/BAZV upon import of goods (TIN – Introduction of BBO on import ) has not been incorporated in this draft legislation yet.
BBO/BAVP/BAZV – Small Business exemptions
Individual business owners whose business has a turnover of less than Afl 50,000 per year will be able to apply the small business exemption for BBO/BAVP/BAZV purposes, allowing them to be remunerated without imposing BBO/BAVP/BAZV and provide them with the possibility to file a tax return on an annual basis rather than monthly basis. The turnover threshold initially was Afl. 12,000 but has been increased to Afl 84,000 in 2021 and 2022.
BBO/BAVP/BAZV – Electronic Services, Telecommunication and Television and Radio
As a general rule, the place of services provided is the place where the entrepreneur who provides the services is established. In addition to the existing exemptions to this rule electronic services, telecommunication services, and television and radio broadcasting services are deemed to be provided at the place of residence of the customer.
The Explanatory Notes provide examples of electronic services and specifically exclude the provision of advice or delivery of goods by means of electronic platforms from the definition of electronic services.
BBO/BAVP/BAZV – Tax Agent
Due to the exception of the general rule for place of services, it may well be that a foreign entrepreneur is responsible for withholding and paying BBO/BAVP/BAZV on their transaction (unless the reverse charge mechanism can be applied). In the Tax Plan 2023, it is however also proposed to allow these entrepreneurs to appoint a tax agent in Aruba who will be responsible for filing and payment of the BBO/BAVP/BAZV for these foreign entities.
Wage Tax – Market Salary
Any employee holding a major shareholding as defined in article 11 of the National Ordinance Income Tax (more than 25% of the shares or profits sharing rights) in their employer needs to take a market salary into account. The market salary per year will be set on the highest of:
- 75% of the salary in a comparable role (not taking into account the shareholding);
- the salary received by the employee with the highest salary working for the employer not holding a major shareholding;
Please note that if the taxpayer can substantiate that in similar situations where no major shareholding applies, the market salary is actually a lower amount than the outcome of the above, the lower amount can be applied.
Employees working for multiple entities within a group will be able to aggregate their salaries from different entities for the amounts described above. Please note that different rules apply for start-up entities and that the market salary rules do not apply for entities that are exempt from profit tax, entities holding an exemption for foreign exchange fees due to lack of economic presence in the Aruba market, and directors and supervisory board members not residing in Aruba.
Income Tax – Excessive Loans
Any Director of a company who is also a major shareholder as defined in article 11 of the National Ordinance Income Tax (more than 25% of the shares or profits sharing rights) will be deemed to have received a dividend from their shareholding if the total amount of outstanding loans received from the company by the director and spouse exceed the amount of Afl. 500,000. The excess amount is deemed to be a dividend and taxable income against a tax rate of 25%.
Income Tax – Self-Administered Pension Plans
As discussed in a previous Tax Instant Newsflashes the possibility for self-administered pension plans will be abolished as per January 1, 2023. Pension plans can only be insured by Collective Business Pension Fund or insurance companies either in Aruba or in the Kingdom of the Netherlands (when specifically approved by the Minister of Finance).
In anticipation of these 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 saving of 10%. The buy-out will have to be paid out and the taxes should be withheld and paid before the end of the year 2022. After January 1, 2023, any pension buy-out will be taxed against the regular progressive tax rates.
Income Tax/Profit Tax – Investment Allowance
The tax deduction for investments purchased from resident businesses in Aruba will be increased from 6% to 10%.
Income Tax/Profit Tax – Depreciation on Real Estate
The depreciation of real estate or buildings, including the ground upon which it is built and all appurtenances, will be limited to a base value of the property. The base value is considered to be 50% of the value for Ground Tax purposes (thus as valued by the tax authorities).
Income tax/Profit Tax – Deduction of Repayment of Loans
For the tax years 2020, 2021, and 2022 the repayment of a loan may also be deducted (as part of the fiscal COVID-19 measures, now formalized) if a company operates in one of the six described “promising sectors”: tourism, knowledge economy, logistics, agriculture, circular economy (environmental) and creative industry.
The maximum amount deductible of the repayment of any loans is 50% of the profit or Afl. 30,000, whichever is lower.
Income Tax/Profit Tax – Study Allowance
For the tax years, 2020 up to and including 2022 any costs incurred by an employer for study and education of their staff will allow for an additional study allowance deduction of 200%.
Income Tax/Profit Tax – Marketing Allowance
For the tax years, 2020 up to and including 2022 any costs incurred by an employer for marketing and promotion purposes will allow for an additional marketing and promotion allowance deduction of 100%, with a maximum of Afl. 30,000.
Income Tax/Profit Tax – Carry forward losses
For the tax years, 2020 up to and including 2022 any carry forward losses incurred are allowed to be carried forward and compensated with profits of the next seven years (instead of five years).
Income/ Wage Tax – Tax–Free Amount and Tax Rate
As per January 1, 2023, the tax-free amount will be increased from Afl. 28,861 to Afl 30,000. Below is the progressive income/ wage tax rate table for the year 2023.
|The tax on the table income calculated according to the table below must be rounded down to whole (Aruban) florins.
|In case of a table income that exceeds the amount referred in column I, but does not exceed the amount referred in column II
||The tax for the amount stated in column III, plus the amount calculated by taking the percentage stated in column IV of the part of the table income that exceeds the amount stated in column I
Profit Tax – Interest Deductions
The current limitation of deduction of interest is extended to include further limitations:
- The limitation of deduction of interest 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 5% (currently 33.33%).
- The affiliation through individuals includes also interests held by the spouse, children, and anyone related in the first or second degree;
- The exemption of the limitation for interest paid to entities listed on a stock exchange will be abolished;
- The possibility to deduct interest payments to the amount of 75% if payments are made to a company that is subject to at least 15% profit tax will be abolished.
Profit Tax – IPC regime
The Imputation Payment Company (IPC) regime, allowing for lower profit tax rates (10% up to 15%) and 0% dividend withholding taxes will be abolished as per January 1, 2023, with a grandfathering rule applying until the last day of the financial year starting before January 1, 2026, for existing IPC structures.
Profit Tax – Tax Rate
The Profit tax rate will be decreased from 25% to 22%.
Real Estate Transfer Tax – Economic value and shareholdings
The definition of taxable transfer in the Real Estate Transfer Tax will be extended to include the transfer of the economic value of real estate and shareholdings in real estate companies.
An entity will be deemed to be a real estate company if the assets at the time of transfer of the shares include real estate and if the main purpose of the holding of the real estate is connected solely to the acquisition, transfer, or exploitation of real estate. This means that real estate exploitation or development needs to be the core of the business of the entity. If the real estate is held in the course of the business, for example, retail space property for the purpose of exploitation of a shop, the shareholdings are not considered to be real estate companies. We will provide further guidance on this complicated matter in a separate Tax Instant Newsflash shortly.
The tax rate of the Tourist Tax will be increased from 9.5% to 12.5%.
Furthermore, to increase compliance with the tourist tax obligations, the national ordinance tourist tax will allow foreign owners of properties subject to tourist tax to appoint a tax agent who will be able to represent them, file their tax returns, and make payments on their behalf.
Please note the same will apply to the special levy on timeshares, apartments, and lodgings.
The Ground Tax will undergo some technical changes to avoid discussions that occurred in 2019 when the Government of Aruba decided to change the tax rate (from a flat rate including a tax-free amount to a progressive rate) mid-term of the 5-year period (2017- 2021).
Furthermore, certain exemptions from Ground Tax are due to low occupancy rates or when the property is partially destroyed.
In case you wish to receive further information or discuss your tax position, kindly contact one of our tax advisors.
+(297) 588 6060
+(297) 588 6060
+(297) 588 6060
+(297) 588 6060
+(297) 588 6060