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Aruba: Offshore Business Sectors

Introduction

Aruba originated as an offshore financial centre in the Second World War, when along with and as part of the Netherlands Antilles it provided a good destination for emigration for Dutch companies during the German occupation of the Netherlands. Since the war the Netherlands Antilles government, and since the split, the Aruban Government, have followed a consistent policy of encouragement towards offshore companies, particularly in the manufacturing and trading sector and in banking. For details of the legal basis of key sectors see Law of Offshore, and for details of taxation of offshore entities see Offshore Legal and Tax Regime.

As from 1st July, 2003, Aruba introduced the New Fiscal Regime (NFR) which abolished its offshore regime as such, and introduced a dividend withholding tax and an imputation payment system, although many companies will qualify for 'IPC' (Imputation Payment Company) status, which resulted in an effective 11.8% taxation rate.

Companies formed prior to the introduction of the NFR were 'grandfathered' into the NFR. Existing privileges continued until the end of 2007, making an effective tax rate of 2.4% to 3% for foreign-owned companies.

The NFR contains a specific exemption for the Aruba Exempt Corporation (AEC), although the exemption is disapplied in the event that the AEC generates profits from illegal activities, as defined under Aruba criminal law. In such case all of the AEC's profits earned from the day of incorporation will be liable to profit tax at the rate of 28% (reduced from 35% as of 1st January, 2007).

However, on January 1, 2006, Aruba introduced a revised tax regime for these companies, which offers three possibilities to AEC companies:

  • The AEC can continue its activities as a fully taxed corporation, subject to tax at the normal rate.
  • An AEC can remain exempt if it acts as a holding or financing company (but not as a bank) with foreign subsidiaries subject to a profit tax of at least 14% (17.5% prior to January 1, 2007) on at least 95% of dividends. Investment activities can also remain exempt, excluding real estate. Licensing of intellectual property is also permitted.
  • An AEC can elect to be a pass-through entity. The income of a “pass-through AEC” would accrue directly to the AEC’s shareholder(s) and would be subject to tax at the shareholder level. When electing for transparency status an AEC has to disclose the identity of its shareholder(s) to the local tax authorities, and has to file its financial statements with the tax authorities in Aruba within six months of the financial year-end.

The NFR is intended to modernize Aruba's fiscal legislation in line with generally accepted standards set by the Organization for Economic Cooperation and Development (OECD), and to allow it to conclude Double Tax Treaties with OECD countries. The government also wants to encourage increased investment and plans reductions in the effective personal and corporate income tax rates.

 

 

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