December 1, 2021
With the end of the year approaching fast, we would like to take this opportunity to offer you some general information about possibilities for tax savings which may be implemented before the end of the year as well as some advice to avoid any additional tax costs by preparing for the end of the tax year.
Profit tax
Tax provisions
As a general rule, deductible costs should be attributed to the year in which they are incurred. With large projects the payment of the costs may not align with the business activities in the fiscal year to which the costs apply.
Under certain conditions a tax provision can be created for future expenses that originate from prior years for taxation purposes.
If you expect any (large) expenses in future years (for example major maintenance expenses), it could be reviewed whether a provision can be created on the fiscal balance sheet. This will lead to a lower taxable profit.
Depreciation and Revaluation of Assets
Assets used within the company should be activated on the tax balance and depreciated over time in accordance with the applicable rules. The depreciation rate depends on the life span of the assets and the remaining value.
Under certain circumstances it is possible to revaluate assets or increase the depreciation, for instance in case of bad debt or decreased prices. Such revaluation or depreciation may be deductible for tax purposes.
Optimizing the depreciation rates and valuation of your assets may lead to a lower taxable profit
Investment Allowance
When a business invests more than NAf 5,000 in assets in 2021, 6% of the qualifying investments is (additionally) deductible from taxable profit.
If your qualifying investments in 2021 are below NAf 5,000, it could be considered to make additional qualifying investments before the year end to meet the threshold.
Carry forward losses
A tax loss may be carried forward for five subsequent years and deducted from taxable profits in those years. After five years the losses are no longer offset against profits.
If you still have existing carry forward losses, please review whether these can be carry forwarded to 2022. If not, it could be reviewed if (re)structuring options are available to prevent these tax losses from expiring.
Substance Requirements Special Purpose Vehicles
As of 1 January 2019, Aruba companies that opted to be treated as transparent, exempt companies and IPC companies are subject to substance requirements. The substance requirements depend on the activities performed and need to be met continuously.
As of 1 January 2022, the transition period for transparent companies that existed on 1 January 2019 no longer applies, the grandfathering period for existing exempt companies ended on July 1, 2021 and the grandfathering rule for IPC companies will end per January 1, 2023.
If your company has opted for a special tax regime, please review which substance requirements apply and if they are met to avoid losing the tax benefits.
Introduction Book 2 Civil Code – elimination of the AVV
As of 1 January 2021 it is no longer possible to incorporate an Aruba Vrijgestelde Vennootschap (“AVV”).
Any AVV that is not dissolved or converted before 1 January 2024 is dissolved by law. Please note that the AVV is a legal entity and differs from the special purpose vehicle exempt company for tax purposes.
If you still have an AVV, please have a plan in place to convert your company before 1 January 2024.
Participation exemption
Income in relation to participations in other companies (e.g. dividends and capital gains) are exempt, if the participation exemption is applicable.
The participation exemption applies for all participations in local entities. In case of foreign participations, the participation exemption applies when the participation (i) is not held as a passive investment and (ii) is subject to tax over its profit.
We advise to review annually before the end of the financial year whether the participation exemption applies.
Country-by-Country Reporting
Entities located in Aruba that are part of a multinational group with consolidated revenues of Afl. 100 million or more must prepare annual Country-by-Country Reporting documentation that consists of a Master file and one or more Local files.
In addition, a notification must be filed in advance of the financial year to the tax authorities and a Country-by-Country Report (CbCR) must be filed as well if the consolidated revenues of the multinational group exceed Afl. 1.5 billion.
Please review whether your Country-by-Country documentation is up to date and if the required documents and notifications have been filed to avoid penalties.
Transfer Pricing
Please note that if a company is part of a consolidated group they need to provide documentation showing that the intercompany transactions are dealt with on an “at arm’s length” basis.
Please ensure that all your Transfer Pricing documentation is up to date and shows all intercompany transactions to avoid additional assessments and penalties.
Gifts
Gifts, that not qualify as business expenses, are deductible to an amount of Naf 50,000 if made to church, charitable, sport, cultural, scientific and (registered) public benefit organizations.
If you made any deductible gifts, please keep the proof of payment to ensure deduction of the gift from the taxable profit.
Wage Tax
Cost Allowances
Under certain circumstances it is possible to provide tax free cost allowances to staff members. Examples of these cost allowances include:
– phone allowance
– travel allowance
– car and representation costs
Optimizing the cost allowances within the conditions set in the tax law, may lead to significant tax savings.
Benefits in Kind Valuation
When an employer provides benefits in kind, these benefits are considered to be taxable wages. However, under circumstances, the prescribed method to calculate the benefit of the use of certain company assets, such as a car or a house or even a company meal, can lead to tax savings for the employer and employee.
Optimizing the salary package with fringe benefits may lead to tax savings.
Expat Ruling and Administration
Additional tax free allowances and other benefits are available for employees who have not worked in Aruba for a period of at least 5 years and will earn at least Afl. 150,000 per year.
These benefits include:
– benefits in kind not exceeding Afl. 15,000 annually.
– tax free allowance for school fees
– tax free allowances for house rent
Also, the employer and employee can agree upon a net wage contract. The wage tax will then be calculated on the net wages and not be grossed up.
Applying for the expat ruling can allow for a more competitive offering to potential overseas candidates.
BBO
Fiscal Unity requests
Upon request, a subsidiary and parent company that are taxable entities for BBO purposes may be treated as a BBO fiscal unity. Such unity is treated as one single taxable entity and intercompany transactions are ignored for BBO purposes.
Opting for a fiscal BBO fiscal unity may lead to tax savings on intercompany transactions and reduce compliance costs.
Refunds on BBO from bad debts and discounts
Please note that the BBO may be refunded upon invoices that are not (fully) paid and which will not be paid in full, as well as with regard to discounts provided on invoices.
It is important to check before the end of the year if a refund has been requested for all discounted invoices and bad debts.
Income Tax
Deductible Costs Main Residence
The costs of any interest on loans for the main residence are deductible for income tax purposes up to an amount of NAf 40,000.
Cost Deduction for Student Finance
The interest, cost and repayment of student finance loans is deductible to an amount of Afl.10,000 annually for a period of 10 years.
Gifts
Gifts to church, charitable, sport, cultural, scientific and (registered) public benefit organizations are deductible to an amount of Afl. 50,000. If you incurred any deductible costs and/or deductible gifts, please make sure to keep invoices and proof of payment, since this documentation is required