The Aruban corporate income tax law distinguishes three different categories of taxation for Aruba corporate entities:
Taxable ARUBA CORPORATE ENTITY: As a starting point, an ARUBA CORPORATE ENTITY is a normally taxed company; subject to 28% corporate income tax and upon distribution of profits to non-resident shareholders either 5% or 10% withholding tax applies.
Tax transparent ARUBA CORPORATE ENTITY: An ARUBA CORPORATE ENTITY can opt for a tax transparent status. This implies that the ARUBA CORPORATE ENTITY does not exist for corporate income tax, dividend withholding tax and individual income tax purposes (‘partnership treatment’). The asset, liabilities, income as well as all expenses are being allocated to the shareholders (article 3a, paragraph 2, of the General Tax Ordinance). A foreign individual shareholder of a tax transparent ARUBA CORPORATE ENTITY may become subject to Aruban individual income tax in case:
1. the activities of the ARUBA CORPORATE ENTITY would constitute a permanent establishment
2. the ARUBA CORPORATE ENTITY would receive income from real estate situated in Aruba, or
3. the ARUBA CORPORATE ENTITY would receive interest income on mortgage loans secured with real estate that is situated in Aruba (article 17 of the Individual Income Tax Ordinance).
Tax exempt ARUBA CORPORATE ENTITY: In case it performs certain qualifying activities, an ARUBA CORPORATE ENTITY can furthermore apply for a full corporate income tax exemption (article 2, letter c, of the Corporate Income Tax Ordinance). These activities include holding and financing – under certain strict conditions – and do not exclude each other. However, in the event an ARUBA CORPORATE ENTITY starts performing any activity that does not qualify, the exempt status is lost completely.
Holding activities qualify if either no dividends are received in a given year, or dividends are received from subsidiaries that are subject to a corporate income tax rate of at least half of the corporate income tax rate that is applicable in Aruba. As the corporate income tax rate in Aruba is currently 28%, the foreign corporate income tax rate needs to be at least 14%. An exemption to this requirement applies if dividends received from subsidiaries that are not subject to a 14% corporate income tax rate, are 5% or less of the total amount of dividends received. An ARUBA CORPORATE ENTITY that is performing financing activities qualifies for exempt status if it concerns financing to enterprises and (group) entities and the ARUBA CORPORATE ENTITY is not considered as a credit institution subject to the supervision of the Central Bank of Aruba.