Aruba: Offshore Legal and Tax Regimes
Tax Treatment of Offshore Operations
Along with the NFR, an imputation regime has been introduced which is open to entities that are engaged in listed activities e.g. hotel exploitation, holding, finance, insurance, leasing, licensing, music/film industry and aviation, whether carried out onshore or offshore. To obtain neutrality between onshore and offshore shareholders of these so-called Imputation Payment Companies (IPC), Aruba has opted for actually paying out the imputation credit directly to the shareholders.
From January 1, 2007, IPC's are subject to the standard income tax rate of 28% (reduced from 35%). Each qualifying dividend payment will entitle the shareholder of an IPC to an imputation payment of 26/72 of the dividend. Both the actual dividend payment and the imputation will be subject to a dividend tax of 10% (5% for quoted companies), which may result in a combined tax burden of 9.8% (or 4.9% if the 5% dividend tax applies).
Domestic Low-tax Regimes:
To encourage investments in specific industries the Government offers tax incentives on a selective basis. These fiscal incentives are for the purpose of the broadening of the economic base.
packing materials, raw materials, semi-manufactured products and components to be used in the production process may be imported free of customs duty.
Companies Located in the Free Zones:
The Free Zone was created to boost exports and increase foreign exchange earnings.
Characteristics of the Free Zone are as follows:
- The major attraction of operating in the Free Zone is the regime of special fiscal incentives which are granted for a maximum period of 10 years to companies operating within the zone and which include a corporate income tax rate of 2% on profits generated from all export sales and a waiver of import duties on all goods imported into Aruba for use in a manufacturing process which will result in a finished product for export
- The regime of special fiscal incentives is heavily biased towards exports with the consequence that although a company operating within the Free Zone can sell a maximum of 25% of its goods in Aruba, goods sold locally attract normal corporate income tax rates as well as import duty;
- There are a number of international agreements in place which increase the attractiveness of the Free Zone as a location in which to site a manufacturing operation. Under the Generalised System of Preferences primary, semi-manufactured and manufactured goods originating in Aruba gain either full free entry or entry at reduced import rates to the USA, EU, Australia, Canada, Japan, New Zealand and Norway;
- Since Holland is a member of the EU and Aruba is a part of Holland goods originating in Aruba which have been substantially transformed from imported materials and components can be exported free of any import duties and quotas to the single market. The European Union offers greater possibilities than those available under the Generalised System of Preferences;
- Aruba has been designated a beneficiary territory of the Caribbean Basin Economic Recovery Act 1983 the centerpiece of which program is duty free entry into the USA of a wide range of products grown, manufactured and directly imported from a beneficiary territory provided that at least 35% of the article's customs value is attributable to the beneficiary territory. Where the components originate in the USA the 35% criteria is even easier to satisfy and has led to a situation where goods which were once excluded (e.g. footwear, handbags and luggage) are now included..