Corporate Income Tax
General
Corporate income tax is levied
over the profit of an enterprise conducted in Aruba in the form of either an Aruba legal entity (via for example a corporation or a
limited liability company) or a permanent establishment/ permanent
representative of a foreign entity. The corporate income tax rate is 28%.
Permanent establishment definition
A permanent establishment is
deemed present in case of (i) a permanent representative or (ii) a foreign
enterprise which builds, installs, maintains, cleans or repairs capital assets
(whether movable or immovable) on Aruba for more than 30 days. Included in
these 30 days are e.g. the technical preparation and cleaning up of the site.
If the activities on Aruba are less than 30
days, the commentary to article 5, paragraph 3, OECD model convention will be
used to determine if a permanent establishment is present.
Transfer pricing requirements
In case a corporate person or
individual participates, directly or indirectly, in the management, supervision
or the capital of two or more corporate entities, the conditions which are
applicable to the supply of goods and the rendering of services between these
entities must be arm’s length, i.e. similar to the conditions that would have
been closed with third, unrelated, parties. Documentation to substantiate the
arm’s length transactions should include – according to the explanatory notes –
e.g. (i) the agreement, (ii) the transfer pricing method that was chosen, (iii)
why this method was chosen and (iv) how the consideration has been determined.
Fiscal unity (group tax relief)
Two or more Aruba entities, which
are doing business in Aruba, can opt to form a
fiscal unity if the parent company owns at least 99% of the shares in the
subsidiary at the beginning of the financial year. For corporate income tax
purposes the subsidiary is then disregarded and all assets and liabilities,
including the profits or losses, are allocated to the parent company.
Limitations in the deduction of payments
Even if the transaction is deemed
at arm’s length, based on the transfer pricing requirements, payments (including amongst others interest and all
other compensations for the use of material and/or immaterial goods or rendered
services, i.e. rent, royalty, management fee etc.) are not tax deductible
unless the Aruba paying entity can make it credible that:
- The receiving party is not (in)directly related to
the Aruba company; or - The receiving company pays an effective tax rate of
at least 15%; or - All the shares in the receiving company are held by
an entity that is directly or indirectly, for at least 50% of the shares
and voting rights, listed at a qualified Stock Exchange.
If the payment is arm’s length,
one of these exceptions is not applicable but the receiving party is subject to
taxes, 75% of the payment can be deducted.
Related entities
A relation with the taxpayer is
deemed to exist if:
- The taxpayer has an interest of
at least 1/3 in another entity; or - An individual or entity has an
interest of at least 1/3 in the taxpayer; or - A third party has an interest of
at least 1/3 in another entity, while this third party also has an interest of
at least 1/3 in the taxpayer.
Offset of losses
Losses generated in a year can be
offset with profits generated in the following five years. After the five year
period, the remaining losses evaporate.
An imputation payment company (we
refer to our “highlights imputation payment company”) however can offset its
losses without time restrictions.
Participation exemption
If an enterprise situated in
Aruba holds shares or similar rights in another Aruba
entity, the dividends received and capital gains realized with the sale of
these shares are exempt from corporate income tax. If an enterprise situated in
Aruba holds shares or similar rights in a
foreign entity, the participation exemption only applies if these shares in the
foreign entity are not held as an investment and the foreign entity is subject
to a tax over its profit.
All costs relating to
participation however are not tax deductible (and should be charged to the
participation). These costs include e.g. interest, administration costs,
management costs, legal advisory costs and such.
Investment allowance
Per January 1, 2011 the investment allowance has been
reintroduced. The following conditions apply:
- In
2011, an entrepreneur should invest at least Afl. 5,000 via local
entrepreneurs. Investments bought directly from abroad will not qualify
for the investment allowance. - The
investment allowance amounts to 6%. - Investment
allowance cannot be claimed on the purchase of for example: - Land;
- Houses
not used for an enterprise; - Goodwill;
- Personal
cars and boats; - Licenses;
- Assets
that will mainly be put at the disposal of third parties; - Investments
made by oil refineries or oil terminals. - The
investment allowance cannot be applied by imputation payment companies and
free zone companies, nor on intercompany transfers.
If the asset on which investment allowance was claimed
within 6 years (therefore in the period 2012-2017), a capital disposal charge
of 6% of the selling price (with a maximum of the purchase price) needs to be
added to the taxable income.
Final payment
In case of a liquidation, merger,
division, conversion into a foreign entity, or transfer of the statutory seat
abroad as per the State Ordinance Transfer of Statutory Seat Entities, the
assets will be revaluated to the fair market value, and the gain will be
subject to 28% corporate income tax.
Invoice requirements
All invoices will have to (i) be
numbered consecutively, (ii) be dated, (iii) mention the date on which the
goods are delivered or the service is performed, (iv) mention the name, address
and personal identification number for tax purposes (“tax PIN”) of the
administrative agent, (v) mention the name and address of the buyer of the
goods or recipient of the services, (vi) contain a description of the goods
sold and delivered and/or the services rendered, including quantities involved
and (vii) mention the consideration owed. The same requirements are applicable
to cash register receipts, with the exception of the listing of the name and
address of the buyer.
Others
Gifts are only tax deductible if
made to certain qualifying institutions, with a maximum of AWG 50,000 per book
year.
Penalties paid are not tax
deductible.
Can WTS assist you further?
Should you be interested in more
information or should you have plans to start a business on Aruba,
our team of professionals is there to assist you with any questions you may
have. You can reach us via the above mentioned contact information.