Reforma Fiscal – Further Indication of the Plans

June 9, 2022

The government of Aruba has concluded the second round of their stakeholders meetings with regards to the proposed changes in the tax system of Aruba between 2023 and 2027. Various organizations representing the interests of the industries, entrepreneurs and residents of Aruba have been able to pose questions and were informed about the ongoing process of the Reforma Fiscal.

The main tax reforms are proposed to take place as of January 1, 2023. Unfortunately, no formal legislation or announcements of specific measures have taken place. As we understand various alternatives are currently being explored by the Government. The main focus is currently on the introduction of a VAT system and the possible corresponding changes in the customs duties.

VAT-system
The government has reiterated that Aruba will implement a VAT system, replacing the current BBO system as per January 1, 2023. However, the proposed tax rate of 18% is deemed to be too high and thus currently two different scenarios are being investigated:

1. Implementation of a VAT system with a single tax rate of 12.5%, including taxation of casinos;
2. Implementation of a VAT system with a low rate of 6% for food, drinks and basic commodities and a standard rate of 14% with an exemption for casinos.

In both scenarios the exemptions for certain services such as education, the medical sector, banks, the utility sector and hotels (partially) will still apply.

Customs Duties
The government also intends to implement a further simplification of the import duties as per January 1, 2023. Currently, the customs legislation has 12 different rates. The customs department is considering two alternative scenarios:

1. A transition to 7 different tax rates: 0%, 6%, 12%, 30%, 40%, 50% and 57%;
2. A transition to 5 different tax rates: 0%, 6%, 18%, 28% and 58%.

Some of the significant changes will include lowering the rates for energy saving materials, building materials and vehicles and increasing the rates for jewelry, perfume, furniture, auto parts etc. Most importantly, the low rate for the importation of furniture and fittings for hotels of 12% as opposed to 22% normal rate would be withdrawn.

Other measures
Most of the other proposed measures have not changed. The government is contemplating to keep the investment allowance in place and is discussing the introduction of the “market-value” salary for Director-Shareholders, most importantly the minimum taxable salary.

Please note that none of these proposed changes have been finalized yet and are subject to changes. HBN Law & Tax will keep you informed about any future changes or further developments.