Aruba Approves 2023 Tax Plan Including Corporate and Individual Income Tax Rate Reductions, a Turnover Tax Rate Increase, and Other Reform Measures — Orbitax Tax News & Alerts (2024)

On 21 December 22, Aruba's parliament approved legislation for the 2023 tax plan. The main measures include the following:

• The corporate income tax rate is reduced from 25% to 22% under the Profit Tax Ordinance, with the rate under the Aruba Petroleum Ordinance (28%) changed to instead refer to the tax rate under the Profit Tax Ordinance (i.e., 22%);
• A transitional rule is provided in relation to the corporate income tax rate reduction for financial years that began before 1 January 2023 and end on or after 1 January 2023, which includes that the applicable rate for such a financial year is determined on a proportional basis according to the formula (X/B x 25) + (Y/B x 22), where:
  • X is the number of days in the financial year falling before 1 January 2023;
  • Y is the number of days in the financial year falling after 31 December 2022; and
  • B is the total number of days in the financial year;
• The first two individual income tax bracket rates are reduced by 2% and the bracket thresholds are adjusted, resulting in the following brackets/rates:
  • up to AWG 34,930 - 10%
  • over AWG 34,930 to 63,904 - 21%
  • over AWG 63,904 to 135,527 - 42%
  • over AWG 135,527 - 52%
• The individual tax-free amount is increased from AWG 28,861 to AWG 30,000;
• The turnover tax (BBO) rate is increased from 1.5% to 2.5%, which when combined with the health tax (BAZV) and additional funding tax for public private partnership projects (BAVP), results in a total turnover tax rate of 7%;
• The investment allowance is increased from 6% to 10%;
• The tourist levy rate is increased from 9.5% to 12.5%;
• The depreciation of real estate is limited to a residual value of 50% of the value determined for property tax purposes;
• The Imputation Payment Company (IPC) regime is abolished, with a grandfathering rule provided until the last day of the financial year starting before 1 January 2026;
• The scope of real estate transfer tax is expanded to include the sale of shares in real estate companies and the transfer of economic ownership of real estate.
• The maximum turnover threshold of the small business scheme (KOR) for natural persons is reduced from AWG 84,000 to AWG 50,000 from the 2023 fiscal year (the scheme provides an exemption BBO, BAVP, and BAZV);
• Current interest deduction limitation rules are amended as follows:
  • the deduction limitation is extended to interest payments to individuals and is no longer limited to interest payments to entities;
  • parties are deemed to be related, and as such the deduction limitation rules may apply, when one party holds an interest, directly or indirectly, in another of at least 1/25th (4%), reduced from 1/3rd (33.33%);
  • the exemption from the deduction limitation for interest paid to entities subject to a 15% tax rate is amended such that the condition is a 15% nominal rate instead of a 15% effective rate;
  • the exemption from the deduction limitation for interest paid to entities listed on a stock exchange is abolished; and
  • the possibility to deduct interest payments up to the amount of 75% if paid to a company that is subject to any tax is abolished;
• The place of supply rules are amended to provide that electronic services and telecommunication services are supplied where the customer resides or is established, instead of the place of the supplier, meaning that foreign suppliers are responsible for turnover taxes unless the reverse charge mechanism applies; and
• New rules are introduced for the appointment of a tax representative in Aruba by foreign suppliers without a permanent establishment in Aruba, in order to meet their tax obligations.

The measures generally apply from 1 January 2023.