Update: Extension of 10% Tax Rates on Dividends – Aruba

Update: Extension of 10% Tax Rates on Dividends – Aruba

December 21, 2021

In response to the special circumstances around the COVID-19 pandemic the government of Aruba has approved a lower dividend withholding tax rate of 10% as per January 1, 2019, effectuated in a lower personal income tax rate for dividend distributions of 10% as well. These lower tax rates have been extended to 2020 and are now extended to 2021 and 2022. Certain conditions apply to the application of these lower rates. In this Tax Instant News we will set out these conditions.

Conditions 10% Rate Dividend Withholding Tax

The lower dividend withholding tax rate and personal income tax rate on dividend distributions apply to dividends received from entities established in Aruba and foreign entities (whereby the dividend distribution tax does not apply of course).

The following conditions should be met:

  • 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, 2021;
  • The dividend distributions are made payable to the shareholders in the calendar years 2021 or 2022 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 (ie. if the dividend distribution is made payable in FY 2022, the full payment should be settled before the end of FY 2027);
  • If any amount payable remains after this period of 5 financial years, the tax authorities are allowed to impose an additional dividend withholding tax respectively personal income tax assessment for the difference between the lower rate and the normal rate over the remaining amount;
  • 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 lower tax rate is applicable for personal income tax purposes for the shareholder.

The lower tax rates are 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. Please ensure that you comply with all applicable conditions and administer the dividend distributions as well as the general reserve correctly to avoid additional tax assessments in the future.