ARUBA: COUNTRY AND FOREIGN INVESTMENT REGIME

Aruba Population, Language and Culture

The population of Aruba stands at approximately 103,000 people (2009 est). The official language is Dutch although a native dialect known as Papiamento is also spoken. Most Arubans are also fluent in Spanish and English. 82% of the population are Roman Catholic. Ethnically, the population is 80% mixed black, the balance being Carib Amerindian, white and East Asian.

The island was discovered by the Spanish in 1499; the peaceful native inhabitants, a tribe of Arawak Indians, were mostly transported to Hispaniola. In 1642 Aruba fell to the Dutch. The English took Aruba briefly in 1805 but Dutch rule was restored in 1816.

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Aruba Government

Aruba has been a Dutch possession since 1642. Together with the Dutch Antilles from which Aruba separated in 1986 it is legally part of metropolitan Holland and as such is a European Union territory for which the Netherlands has responsibility.

In 1990 Aruba of its own volition surrendered in perpetuity its treaty right to become independent of Holland by the year 1996. The Island is politically and economically stable and there is no movement agitating for independence. The Queen of the Netherlands is the head of state and she is represented locally by a Governor General appointed for a 6 year term.

Whilst Holland retains responsibility for all matters relating to defense, judicial appointments, applications for citizenship and foreign affairs, Aruba retains full autonomy in all internal matters. A constitution has been in place since 1986 and the Island has its own democratically elected legislature of 21 members (the Staten) which sits in the capital Oranjestad. The executive consists of the Governor and a 7-member Council of Ministers chosen and headed by the Prime Minister.

The Prime Minister and deputy prime minister are elected by the Staten for four-year terms; an election for the 21-seat Staten was last held on 23 September 2005 (next to be held in September 2009). Parties hold seats as follows: MEP 11; AVP 8; MPA 1; RED 1. The head of government is Prime Minister Nelson O. Oduber.

All laws are in Dutch and the highest court is the Dutch Supreme Court in Le Hague. However English common law has also influenced Aruban law. Aruba has its own university.

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Aruba Relationship with the EU

As an overseas territory of the Kingdom of the Netherlands, Aruba is an associate of the EU. Its citizens carry EU passports, and have free rights of entry, residence, work etc in the EU.

In so far as Aruba applies the common import tariff of the EU single market, it can freely export products into the EU which it has sourced externally, without additional processing. Products originating in Aruba, or which have undergone 'substantial economic transformation' there, have EU origin.

However Aruba does not form part of the EU fiscal area, and, somewhat analogously to the British Dependent Territories, does not apply Dutch or EU taxes, other than the EU's Savings Tax Directive, which applied from 1st July 2005.

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Aruba Economy and Currency

The pillars of the Aruban economy are tourism, oil refining, manufactured exports and offshore financial services. Tourism is the island's principal industry, employer and foreign exchange earner. Constant warm weather and some of the most beautiful beaches in the world attract 1.5m visitors a year, 75% being American. Hotel capacity has expanded fivefold since 1985.

Due to its proximity to oil-rich Venezuela the island has a petroleum refining industry. The Esso oil refinery (which in 1979 was one of the biggest in the world and employed some 16% of the Aruban work force) was re-opened in 1993 and has since become both a major source of local employment and a major earner of foreign exchange.

Manufactured exports have increased rapidly as a result of the opening of the Free Zone (see below) and the island's privileged access to the EU and other markets.

Aruba has a series of fiscal incentives in place to attract offshore banks, insurance companies and business in general (see Offshore Legal and Tax Regimes). The island's Financial Services Commissioner, a post created in 1995, ensures a high level of regulatory supervision.

After Aruba split with the Dutch Antilles in 1986 it both ceased to be a party to and ceased to rely on double taxation treaties as the main impetus of the development of its financial services industry. Statistics are evidence of its success: unemployment is about 1% (with many job vacancies unfilled).

In 2000 Aruba was considered to have one of the highest standards of living in the West Indies. GDP per head was US$21,800 at PPP by 2004. The economy grew at an average of over 4% per annum for most of the 1990s, 9/11 resulted in a major setback for tourism, with a shrinkage of 1.5% in GDP in 2002. However, growth returned in 2003. Real GDP growth was 2.5% in 2005. The local currency is the Aruba florin which since 1986 has been tied to the US dollar at a fixed rate of 1.79 Aruba florins to the dollar.

In June, 2005, the International Monetary Fund issued a generally favourable report on Aruba: "After a two-year long recession, GDP growth reached 1.4 percent in 2003, helped by strong private investment, and accelerated to an estimated 3½ percent in 2004. Growth is projected to level off at about 3¼ percent in 2005, as hotel capacity constraints slow tourism growth. Planned investments in the oil refinery and the hotels are expected to keep growth at about 2½ percent in the medium term."

"Strong domestic demand, fueled by double-digit private credit growth and fiscal expansion, and a sharp increase in the oil price in 2002, had reignited inflation, which peaked at about 4.3 percent in mid-2003. To stem inflationary pressures, credit ceilings were reintroduced in 2003 and subsequently tightened in 2004. Average inflation fell to 2½ percent in 2004. The real effective exchange rate of the Aruban florin, which has been pegged to the US dollar since 1986, has remained largely unchanged since 1998."

However, the IMF noted deterioration in Aruba's fiscal sitation, and in October, 2005, the Governor of the Aruban Central Bank, Rob Henriquez, called for a new law to prevent ministers from exceeding the budget. "The government is spending way too much money. They have to stop doing that, otherwise the Central Bank can no longer be responsible for the position of the florin," he said.

In 2008, Standard and Poor's Ratings Services assigned its 'A-' long-term and 'A-2' short-term foreign and local currency sovereign credit ratings to Aruba. Standard and Poor's also said that the outlook on Aruba was stable.

"The ratings on Aruba reflect its prosperous economy, high level of social development, resilient tourism sector, and record of stable democracy and the rule of law," explained Standard & Poor's credit analyst, Joydeep Mukherji, continuing:

"Offsetting these positive factors are Aruba's narrow economic base, debt burden, and limited monetary and external flexibility."

According to S&P, Aruba's per capita GDP exceeded USD25,000 in 2007 compared with about USD17,000 in 1997.

S&P forecast that GDP growth could reach 2% in 2008 but decline in 2009 if the US economy suffers from a prolonged slump. In actual fact, the Central Bank of Aruba reported in 2009 that GDP shrank by 2.5% in 2008, compared to a modest increase of 0.4% in 2007, largely as a consequence of the deteriorating US economy, which impacted tourism, lowered hotel occupancy rates and, in tandem with tighter credit conditions, led to a drop in Foreign Direct Investment.

Projections were for net general government debt and general government debt to reach 31% of GDP and 123% of revenues, respectively, in 2008, which are higher than the 26% and 109% median levels for rated peers.

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Aruba Entry and Residence

Tourist entry visas are not required by Canadian, USA or EU nationals who can stay for up to 180 days upon production of a passport, a return or onward ticket and (if requested) proof of sufficient funds to support their stay. Effective January 23, 2007, the US Government requires passports for all air and sea travel to or from Canada, Mexico, Central and South America, the Caribbean, Bermuda and The Bahamas.

Citizens of all other countries are permitted to stay no longer than 30 days, altough it must be noted that arrivals from certain countries will require a visa to enter Aruba. These include arrivals from most African countries and a number of East European, CIS and Asian nations. They must produce a passport and a valid visa at point of entry together with a return or onward ticket and (if requested) proof of sufficient funds to support their stay and a valid reservation for a hotel/apartment.

Nationals of countries who require a visa and want to stay longer than 30 days must be able to provide to the immigration officer one of the following: proof of ownership of a house in Aruba, proof of ownership of a time-share apartment or proof of ownership of a pleasure yacht moored in Aruba with a length of at least 14 meters from the water line.

If an extension is granted, applicants cannot remain longer than 180 days. Those without property ion Aruba who want to stay longer than the period stipulated on their visa must complete a seperate application form. Visitors who are nationals of countries that require a visa for Aruba, must submit a visa application in person at an Embassy or a Consulate (diplomatic missions) of the Kingdom of the Netherlands.

All visitors wishing to work in Aruba must have a written permit from the Directorate of Alien Integration, Policy and Admission (DIMAS). Visitors are not allowed to be in paid employment by an Aruban employer while visiting Aruba as a tourist. Applications must be filed by the potential employer who will bear the costs. The principal documents to be attached to the application include an official certificate from the police authorities in the country of origin certifying that the applicant has no serious criminal convictions, a medical certificate certifying that the applicant carries no contagious disease and has no mental illness, copies of job advertisements placed in local newspapers to which no suitable local applicants replied, certificates verifying the employee's qualifications and the contract of employment which must be in accordance with Aruba labor laws.

An application for a residence permit will normally be submitted at the same time as an application for a work permit and includes many of the same requirements. However where the applicant wants a residence permit without a work permit the chief requirement will be to prove that he will not become a burden to the state and that he has sufficient funds to support his stay. In order to satisfy this criteria the applicant will be required to provide satisfactory bank references.

There are no restrictions on the purchase of real estate by foreigners in Aruba.

In December, 2005, Aruba tightened up aspects of its residence permit regulations as part of changes to its immigration policy, particularly as regards Dutch citizens.

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Aruba Business Environment

Aruba offers an extremely stable and efficient business environment with modern infrastructure and excellent telecommunications. Special fiscal incentives are offered to both companies engaged in offshore activities and to companies engaged in export of non traditional manufactured products and which are licensed to operate in the Free Zone (see below).

Being a civil law jurisdiction Aruba does not recognize the concept of a trust. There are no specific bank secrecy laws in place and numbered accounts are not permitted . An offshore company requires a certificate of good standing from the Minister of Justice prior to its incorporation and such a certificate will only be offered upon the production of adequate professional references on all the beneficial owners of an incoming entity. Corporate bank accounts cannot be opened without the production of the certificate of good standing.

A number of agreements are in place under which the authorities exchange information with foreign states. Aruba aims to attract quality clients and sustainable economic activity driven by an attractive regime of fiscal incentives. An extensive financial and professional infrastructure is in place and English is widely spoken in business life. Aruba is a relatively cheap jurisdiction in which to operate.

A business license and registration with the chamber of commerce are prerequisites for the carrying out of most types of business activity in Aruba. The issue of a license is not automatic.

All natural and legal persons carrying on business in Aruba are obliged to provide information to the tax office.

Manufacturing exporters in Aruba can benefit from a number of preferential tariff regimes in destination markets. Apart from tariff-free entry into the EU for Aruba-origin goods, Aruba is a designated territory under the US Caribbean Basin Economic Recovery Act 1983. The centerpiece of this program is duty free entry into the USA of a wide range of products grown or manufactured in and directly imported from a beneficiary territory provided that at least 35% of the article's customs value is attributable to the beneficiary territory.

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Aruba Free Trade Zones

The Free Zone was created to boost exports and increase foreign exchange earnings. Originally, only companies involved in "commercial" or "industrial" activities (which includes the servicing, repairing and maintenance of goods with a foreign destination) could be licensed to operate within the Free Zone.

Under a new law, the State Ordinance Free Zones 2000, service-oriented companies (excluding financial services) are also able to operate from the free zone. Mechanical engineers, software developers, business consultants and many other service businesses can benefit from the incentives offered by the Aruban free zone. Drop shipments (also a type of service activity), whereby the goods do not physically have to pass through the free zone of Aruba, are also considered an export activity and the attractive 2% profit tax is applicable.

Free Zone companies receive substantial fiscal incentives (see Offshore Legal and Tax Regimes) including exemption from import duties and low rates of taxation. They also benefit from a simplified administrative regime.

In 1995 exports from the Free Zone amounted to 754 million Aruba Florins (an increase of 50% in 3 years) which is a significant level of economic activity given that the population of the Island was only 87,000 people at that time.

In late 2003 it became clear that the Free Zone would be expanded, with the addition of Barcadera to the original site at Oranjestad. The location of Barcadera near the airport and the existing harbor of Barcadera has made it the ideal place in Aruba for manufacturing, off shore and distribution business services.

It has also been announced that Barcadera will be developed as Aruba's main port. A third site at Bushiri has also been added to the Free Zone complex. The Bushiri site covers an area of 9.2 hectares and is just one mile from Oranjestad. The Aruba Free Zone has carried out an intensive marketing campaign geared at attracting more South American firms to invest in the new free zone of Aruba.

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Aruba Import of Foreign Capital

There are no foreign exchange controls as such in Aruba, however foreign exchange transactions are reported to the Central Bank.

Payments made by residents of Aruba to non-residents in foreign currency (other than Netherlands Antilles guilders) are subject to a tax at 1.3%.

Exports of goods and services do not require a license, but export proceeds must be generally converted into local currency within eight working days or credited to an account with a local bank or with a foreign bank, which is notified to the Central Bank.

A license is required for the following transactions:

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Aruba Foreign Investment Regime

The Aruba Foreign Investment Agency ("AFIA") helps investors who are considering locating in Aruba by providing know how regarding the business possibilities in the Island and by introducing the foreign investor to Governmental and private organizations that have information that can contribute to the investor's success. Aruba has a series of fiscal incentives and corporate legislation in place specifically for the purpose of attracting economic activity by non residents.

To encourage investments in specific industries the government has introduced a number of tax incentives on a selective basis.

A non traditional manufacturing industry, with an initial investment of at least Af 100,000 is eligible for the following incentives:

The incentives are granted for a maximum period of ten fiscal years.

There are similar incentives for the development of fallow land and for hotel construction, in each case subject to a minimum investment of Af 1m.

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