Social Dialogue – changes in the laws

In the months of July and August the first Social
Dialogue on Aruba was held between representatives from the Government, the employers’ organizations and the labor
unions. The Social Dialogue resulted in the signing of a Protocol, which
Protocol is currently being ratified by all participants.

The agreements reached in the Protocol require
amendments in various laws. W-Tax & Legal Services would like to inform you
in this SmartNews letter in more detail about the changes that are expected to
take place per January 1, 2011.

1. Purchasing power compensation

General

The Aruba Government finds
that the purchasing power has decreased over the last couple of years. In order
to compensate the lower incomes for this loss in purchasing power, per January
1, 2011 a purchasing power compensation will be introduced for employees in the
private sector. The compensation is determined as per the following table:

Important aspects

  • The employee
    needs to fill in a declaration before being entitled to the compensation.
  • The amount of the
    compensation will be determined on a monthly basis. For example, if the
    employee earns Afl. 1,500 in January, (s)he will be entitled to a compensation of
    Afl. 75. If in February the employee earns Afl. 1,600, (s)he will be entitled
    to a compensation of Afl. 70. If in March the employee earns Afl. 2,600, (s)he
    is not entitled to any compensation.
  • The compensation will
    only be paid to Aruba resident employees.
  • The compensation is
    net of taxes.
  • If the employee
    works less then 20 hours, no right to any compensation exists. If the employee
    works between 20 and 40 hours, the monthly wage earned
    will be recalculated to a full month’s wage to determine the exact amount of
    the compensation.
  • The compensation
    can only be claimed at one employer (i.e. where the employee earns the highest
    income).

Administrative agent

The employer is the
administrative agent for the compensation. This implies that the employer will pay
out the compensation to the employee. The employer withholds the compensation
from the wage tax due, and if not sufficient, from the AOV/AWW premiums due,
and if still not sufficient, from the AZV premiums due.

The employer is obliged to
mention the paid out compensation on the monthly payroll tax returns, the wage
tax summary and the wage tax card of the employee.

The above also applies to the
individuals earning an AOV or AWW pension. In that case, the Social Security
Bank (SVb) will pay out the compensation.

Overpayment

If in a year too much compensation
has been received, the tax authorities will claim the amount overpaid at the
employee. In case of retirees, the SVb will handle that task.

Penalties

If the employee fills in a
false declaration, the penalties amount to Afl. 100 with a maximum of 100% of
the received compensation. If upon request of the tax authorities no
information is provided, the penalty amounts to a maximum of Afl. 1,000.

If the employer does not pay
out the compensation, the penalty amounts to Afl. 2,500 with a maximum of Afl.
25,000. In all other cases (like not mentioning the compensation on the monthly
payroll tax returns, wage tax cards or wage tax summaries) a penalty with a
maximum of Afl. 2,500 can be levied.

2. Reintroduction investment allowance

Per January 1, 2011 the
investment allowance will be 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;
    • Licenses;
    • Investments made
      by oil refineries or oil terminals.
  • The investment
    allowance cannot be applied by imputation payment companies and free zone
    companies.

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.

It is important to note that
anti-abuse stipulations will be introduced to avoid that e.g. a local NV is interposed
which imports the assets, and then “sells” it to the local entrepreneur. The
exact situations covered by these anti-abuse regulations are not yet known.

3. Amendment tax deductible gifts

Currently, gifts are only tax
deductible if they do not exceed Afl. 10,000 on an annual basis and if they are
made to registered institutions (a list is included in the explanation to the
corporate income tax return). All gifts made to institutions not registered are
not tax deductible.

As per January 1, 2011, the
maximum of tax deductible gifts is increased to Afl. 50,000. It is also the
intention to broaden the institutions that qualify for tax deductible gifts.
Details are not yet known however.

4. Excise tax and import duties

According to the government
it was never the intention that when the BBO was reduced to 1.5%, liquor and
tobacco would become cheaper. In order to reverse the effects of the lowering
of the BBO, the excise taxes will, as per January 1, 2011, be amended as
follows:

  • The excise tax on
    beer will be increased from Afl. 333 to Afl. 395 per hectoliter.
  • The excise tax on
    hard liquor will be increased from Afl. 1,500 to Afl. 1,775 per hectoliter.
  • The excise tax on
    wines will be increased from Afl. 455 to Afl. 535 per hectoliter.
  • The excise tax on
    all other wines will be increased from Afl. 350 to Afl. 410 per hectoliter.

Also, it is the intention to
amend the import duties as follows:

  • The import duties
    on stout beer will be lowered from Afl. 125 to Afl. 80.
  • The import duties
    on solar panels (and parts), wind turbines (and parts), and electrical cars (and
    parts) will be set on 2%.
  • The import duties
    on cars predominantly used for private purposes will be set on:

    • 30% for cars with
      a CIF value of less than Afl. 20,000;
    • 40% for cars with
      a CIF value between Afl. 20,001 and Afl. 30,000;
    • 50% for all cars
      with a CIF value exceeding Afl. 30,000.
  • The import duty
    on hybrid cars is set on 12%. Hybrid is being defined as having a compression
    ignition and a CO2 emission lower than 116 grams per kilometer, or if no
    compression ignition is present, with a CO2 emission lower than 140 grams per
    kilometer.

5. AOV

Because currently the payment
of AOV to retirees exceeds the premiums received, some short term measures are
necessary.

As per January 1, 2011, the
AOV premium income will be increased from Afl. 54,600 to Afl. 65,052. The basis
for the AOV will be set on the gross income (“onzuiver inkomen”), which is the
same as the AZV basis. The premiums will also be individualized, implying that
married persons who both work, will as of January 1, 2011 no longer be entitled
to a refund.

6. AZV

The AZV premium will be
increased with 2%, of which 1% is borne by the employer and 1% is borne by the
employee.

7. Mandatory pension private sector

Per January 1, 2012, all
employees in the private sector will be granted with a pension right based on a
defined contribution system (“beschikbare premie”). The premium is set on a
minimum of 6%, dividend by employer and employee, each 3%. A transitional
regulation for the introduction of the mandatory pension will be introduced in
which the premiums are determined as follows:

The employee is free to
choose his/her insurer for the pension, and the pension is transferable in case
the employee switches employers. The employee is however no longer allowed to
buy off his pension rights if (s)he only has a limited number of years.

8. Finally

In the above we have
highlighted the expected changes per January 1, 2011 that result from the
Protocol Social Dialogue. Since the text of the law is not yet available, the
above may be subject to changes. Please do not take action based on the above
without consulting your tax advisor.

The team of W-Tax & Legal Services can assist you
with any questions you may have with respect to the above. You may reach us by
visiting us at Caya Punta Brabo # 13, by telephone (297) 582 6336, by fax (297)
582 5256 or by e-mail at the following addresses:

Cari Wolter, Partner
Frank Snijders, Partner
Alitza Koolman, Assistant Manager
Charitza Statia, Tax Advisor
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