Imputation Payment Company

Highlights Imputation Payment Company

An imputation payment company (hereinafter: IPC) is a corporation (NV) or limited liability company (VBA) which focuses on specific, designated, activities. A transitional regulation is applicable for all IPC’s existing per June 28, 2013, which was the date of the regime change. The IPC is subject to a flat rate of 10% and an exemption from dividend withholding tax.  

1. IPC regime (grandfathered until 2025)

General

The grandfathered IPC regime intended to work as follows:

10% DWT 7.5% DWT 5% DWT 0% DWT
Profit IPC 100.00 100.00 100.00 100.00
Corporate income tax 28.00 28.00 28.00 28.00
Net profit to be distributed 72.00 72.00 72.00 72.00
Imputation payment 26/72 26.00 26.00 26.00 26.00
Dividend withholding tax base 98.00 98.00 98.00 98.00
Dividend withholding tax (9.80) (7.35) (4.90) 0.00
Net receipt shareholder IPC 88.20 90.65 93.10 98.00
Effective tax rate 11.80% 9.35% 6.90% 2.00%

Because a dividend must be distributed for the imputation payment to be claimed, often an intermediary Aruba holding is used. This has no immediate dividend withholding tax effects (due to the participation exemption; we refer to our “highlights dividend withholding tax”), but the imputation payment can be claimed.

Grandfathering period

Existing IPC’s may keep the regime existing per June 28, 2013 until the last financial year starting before January 1, 2026. It is however, under conditions, also allowed to convert at any time to the new IPC regime (we refer to our highlights “IPC regime new”).

Conditions

The IPC regime is open to NV’s or VBA’s which:

  • Perform only qualifying activities in Aruba.
  • Have at least one Aruba resident individual as managing director.
  • Meet the following statutory requirements:
    • A shareholders register exists in which the names of the shareholders are registered.
    • The financial statements will be drawn up in accordance with internationally accepted principles and a qualified (group of) independent certified public accountant(s) must perform an audit.
      An exception to the audit requirement exists when, for three consecutive years, the purchase value of the assets is less than AWG 1,000,000 (USD 561,798) and the net turnover is less than AWG 2,000,000
      (USD 1,123,596).
  • Board of managing directors:
    • Notifies the tax authorities before the financial year as of which the IPC status takes effect, that the shareholder(s) will claim the imputation payment when a dividend over that financial year will be distributed;
    • Asks an independent (group of) certified public accountant(s) to provide an opinion regarding compliance with respect to the qualifying activities of the IPC, an Aruba resident individual being a board member, that the shares are by name and that the shares are registered in a shareholders register. This opinion will have to be sent to the tax authorities.

Qualifying activities

The activities of the IPC are restricted to the following:

  • Hotels, implying (i) a hotel license must be present, (ii) the hotel must be operated for its own risk and account and (iii) a revenue per available room in the financial year should average AWG 354 (US$ 200).
  • Shipping enterprises.
  • Aviation enterprises.
  • Developing, acquiring, holding, maintaining and licensing of intellectual and industrial ownership rights, similar rights and usage rights.
  • Insuring special entrepreneurial risks (captive insurance).
  • Holding, if the entities in which the shares are held are subject to a tax rate of at least 12.5%.
  • Financing (not being a credit institution) of enterprises and entities.
  • Investments, provided no funds are put at the disposal of related entities or invested in real estate.
  • Generating sustainable energy.

Although the IPC may perform more than one qualifying activity, it is essential that all activities that the IPC performs qualify. Otherwise, the shareholder(s) may lose their claim on the imputation payment and the profit of the IPC is subject to the normal corporate income tax rate of 25%.

Tax consequences of becoming an IPC

If new activities are started in an IPC, no tax consequences exist. However, if a regular taxed entity become an IPC, on the moment prior to becoming an IPC (usually the last day of the financial year) all assets must be revaluated to their commercial book value.

This revaluation profit is taxable against the normal corporate income tax rate of 25%. The tax authorities
will keep a deferred claim on the difference between the fair market value (including goodwill) of the assets and the commercial book value, which claim can only be effectuated by the tax authorities in case the assets of the IPC are sold.

 

2. New IPC regime

As of June 28, 2013, the IPC regime has changed significantly and has become the following:

  • Flat corporate income tax rate of 10%;
  • The IPC will be exempt from the levy of dividend withholding tax;
  • The following qualifying activities will be allowed:
    • Hotels, implying (i) a hotel license must be present, (ii) the hotel must be operated for its own risk and account and (iii) a revenue per available room in the financial year should average AWG 354 (US$ 200);
    • Shipping enterprises;
    • Aviation enterprises;
    • Developing, acquiring, holding, maintaining and licensing of intellectual and industrial ownership rights, similar rights and usage rights;
    • Insuring special entrepreneurial risks (captive insurance);
    • Holding, if the entities in which the shares are held are subject to a tax rate of at least 12.5%;
    • Financing (not being a credit institution) of enterprises and entities;
    • Investments, provided no funds are put at the disposal of related entities or invested in real estate;
    • Generating sustainable energy;
    • Activities that enhance the use of “green” energy or projects that can be deemed to relate to “green” energy;
    • Activities that aim for sustainable development, like amongst other sustainable energy, sustainable tourism and sustainable agriculture;
    • Activities to enhance the knowledge economy;
    • Scientific activities.
  • There are no further conditions imposed on the new IPC regime.

 

For hotels, the following additional changes are important:

  • The RevPar criterium will be changed from an average of US$ 200 per room to the following categories:

 

Category I Category II Category III Category IV
RevPar > US$ 185 > US$ 175 > US$ 160 4 diamond
Tax rate 10% 12% 15% 12%
  • The hotel needs to have an earth-check or similar certificate based on the first (lowest) standard;
  • The hotel needs to make an annual investment to make it more sustainable, which minimum amount depends on the category and reads as follows:
Category I Category II Category III Category IV
In AWG 240,000 165,000 90,000 165,000

An investment in sustainability is defined as:

  1. 1/3rd of the amount mentioned needs to be invested into green projects to reduce energy expenses within and outside the hotel operations;
  2. 1/3rd of the amount mentioned needs to be used for the training of employees traineeships available;
  • 1/3rd of the amount mentioned needs to be used for the purchase of locally produced products.

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