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Aruba: Domestic Corporate Taxation

Regulatory Environment

The NFR introduced a dividend withholding tax rate of 10%. However, the applicable rate is 5% if:

  • at least half of the issued shares representing at least half of the voting rights of the distributing company are listed on a stock exchange recognized by the minister of finance and economic affairs, or
  • all the shares of the distributing company are held, directly or indirectly, by a qualifying company whose own shares are listed on a recognized stock exchange.

The applicable withholding tax rate is 0% if the shareholder of the distributing company qualifies to apply the participation exemption to income from the distributing company. As an IPC (see above) cannot apply the participation exemption, the 0% tax rate will not apply to dividends distributed by a company resident in Aruba to an IPC; such dividends will consequently be subject to dividend withholding tax at the rate of 10% (unless the 5% rate is applicable).

The 0% rate is also applicable to dividend distributions if it can be sufficiently shown that the distribution pertains to income generated by a company with a valid tax-holiday dispensation, provided that the dividend is distributed to:

  • a legal entity;
  • an individual within two years of the end of the company's financial year, insofar as the shareholder would not have been liable to personal income tax on the dividend proceeds based on the tax-holiday legislation; or
  • an individual not subject to personal income taxation.

If dividends are distributed to a shareholder who qualifies as a grandfathered offshore company, the 0% withholding tax rate will not be applicable (if the distributing company is itself a grandfathered offshore company, the dividend distribution is exempt from dividend withholding tax).

Withholding tax is withheld by the distributing entity at the time the dividend becomes payable, on behalf of the receiving shareholder. If the distributing entity wishes to pay the withholding tax for its own account, the amount of tax due is grossed up by 100/90 if the applicable rate is 10% or 100/95 if the applicable rate is 5%.

 

 

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