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Aruba: Offshore Legal and Tax Regimes

Introduction

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.

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 1 January, 2007).

However, as from January 1, 2006, Aruba has 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% 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.

Prior to the NFR, in order to qualify for offshore status, an Aruban entity had to be wholly owned by non-residents, and its income had to arise outside the jurisdiction; non-financial offshore operations usually take the Aruban Exempt Corporation form. However, various business sectors have specially favourable taxation regimes which reflect their international nature. These special regimes are described in this section.

 

 

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