Additional Beneficial Tax Policy

Transcription

1 Additional Beneficial Tax Policy On June 28, 2013, the Minister of Finance, Communication, Utilities and Energy signed an Additional Beneficial Tax Policy (hereinafter: the Policy ). This Policy focuses on developing the area of San Nicolas, expanding the competitiveness of the tourism sector, attracting experience and knowledge, and other beneficial measures for commerce, pensioners and employees in general. W-Tax & Legal Services - -would like to inform you in this SmartNews letter in more detail about this Policy, but does note beforehand that only the highlights will be provided due to the extensiveness of the Policy. 1 Special Zone San Nicolas A special zone will be created in San Nicolas with the following tax incentives: a) Corporate income tax rate is reduced to: 2% for the following activities: i. Re-insurance; ii. Sustainable development, provided that at least 75% of the turnover is generated locally; iii. Green energy, provided that at least 75% of the turnover is generated locally; iv. Agriculture, provided that at least 75% of the turnover is generated locally. 10% for the following activities: i. Hotels; ii. Export, provided that at least 75% of the turnover is generated abroad. 15% for all other activities. b) No dividend withholding tax; c) Reduction of 50% of the ground tax due for a period of five (5) years, while the Minister of Infrastructure can also reduce the taxable base for investors; d) No BBO or, upon approval from the Central Bank of Aruba, foreign exchange commission, on the supply of goods or rendering of services to entrepreneurs abroad; e) Additional investment allowance of 10% on all investments (not only local investments) exceeding Afl. 50,000 a year; f) The expat regulation (see paragraph 11) also applies in the special zone. In order to qualify for the above-mentioned incentives, a license needs to be requested at the Aruba Financial Center (fee: Afl. 500).

2 The conditions to receive a license for the special zone are: i) The entrepreneur needs to be established in the designated area; ii) Except for re-insurance companies that meet the criteria of the Central Bank of Aruba, a minimum investment of at least: Afl. 150,000 for e.g. retail, services, light industries, small tourism related activities, food & beverage industry, and agriculture, except if the entrepreneur is already established in the special zone; Afl. 1,000,000 for tourism related activities (like hotels and/or golf courses) and heavy industries. The qualifying investments include investments in real estate, machinery, furniture, equipment and renovations. Excluded are investments in motor vehicles and personnel. iii) Maintenance of at least Afl. 30,000 a year over a period of five (5) years on the own building; iv) Except for re-insurance companies that meet the criteria of the Central Bank of Aruba, per Afl. 1,000,000 turnover at least 3 employees, unless the Minister of Economic Affairs has provided an exemption. For tourism related activities and heavy industries the minimum number of employees is 9 and increases with 3 employees every additional Afl. 1,000,000 in turnover. v) Annual contribution of Afl. 1,200 per year (for entrepreneurs with 9 employees or less) or Afl. 2,400 per year (for all others) to the San Nicolas Business Association for cleaning, security, maintenance and such of the special zone; vi) For hotels additional criteria apply: An earth check or similar certificate (of the lowest category); Annual investment of Afl. 90,000 for hotels with more than 100 rooms, divided into 1/3 rd for green energy, 1/3 rd for training of people and 1/3 rd for purchase of companies situated in San Nicolas; Annual investment of Afl. 45,000 for hotels with less than 100 rooms, divided into 1/3 rd for green energy, 1/3 rd for training of people and 1/3 rd for purchases of goods from companies situated in San Nicolas. The anti-abuse measures in case of providing incorrect information and/or misuse of the special zone, which will be applicable as soon as incorporated into the law (introducing these measures via this Policy is not possible), are: Monetary penalty of Afl. 1,000,000; Corporate income tax rate of 42% (150% of 28%); Ground tax rate of 0.08% (200% of 0.04%); In order to avoid profit shifts between the special zone and elsewhere in Aruba, specific allocation measures are applicable which are based on the amount of the investment (50%), the m2 (30%) and the number of employees (20%).

3 2 Free Zone Various changes have been made to the free zone regime, which can be summarized as follows: The term services now also includes: o International trade and trade supporting services; o Electronic services by means of ICT; o Consultancy, courses, training and certifications. Financial services remain excluded however. It is no longer required to operate from the currently designated free zones. The Free Zone Authority now also has the possibility to appoint a free zone area outside of the designated areas in case of services, since these companies do not require supervisory of customs. Any imports by these service companies outside of the designated free zones are however not exempt from import duties. Free zone companies are allowed to sell their products on the local market, provided the turnover generated with these local sales does not exceed 25% of the total turnover. Services are not allowed to be rendered from the free zone to local customers. It is important to note that the (i) profit generated with these sales is subject to the normal corporate income tax rate of 28% and (ii) this measure has retroactive effect until January 1, o In case of certain activities, the Minister of Finance, in conjunction with the Minister of Economic Affairs, is allowed to set the ratio foreign-local sales on 50%/50%. These activities are: Sustainable energy; Sustainable food supply; Medical tourism; Sustainable transportation; Airlines; Shipping; Maintenance, repairs and restaurations. o The Minister of Finance, in conjunction with the Minister of Economic Affairs, can allow a different ratio foreign-local sales in case of activities that assist with lowering utility costs, better medical supplies, waste management or lowering of food costs on Aruba. In these cases, the profit derived with the local sales will also be subject to the special free zone rate of 2%. Free zone companies will be exempt from dividend withholding tax. The expat regulation will be applicable in the free zone as well (see paragraph 11).

4 As of January 1, 2013, the free zone facility charge is set on 0.75%. In the course of 2013, the facility charge will be converted into a sliding scale charge as per the following table: Sales in Afl. Facility charge 0-100,000, % 100,000, ,000, % 150,000, ,000, % 200,000,001 or higher 0.01% 3 Reinvestment reserve for timeshare resorts Timeshare resorts are allowed to create a reinvestment reserve for future maintenance. Maintenance is defined as (major) maintenance to the building, but also extends to refurbishment of the rooms, replacement of consumer articles that break and such. Any excess profits (i.e. operation results) may be included in the reinvestment reserve as well. The reinvestment reserve needs to be used within 10 years, otherwise the provision will be released to the taxable income. The fifo-system will be applicable. It is not necessary to use the funds for which they were reserved, as long as they are used for maintenance. The reinvestment reserve will take effect as soon as the environmental levy and the levy on car rentals have been introduced. If a reinvestment reserve was formed already in prior years, the reserve will be allowed for those years and does not need to be released to the taxable income. 4 Changes to the IPC regime The IPC regime will be changed significantly and will become the following: The imputation payment procedure is abolished and replaced with a flat corporate income tax rate of 10%; The IPC will be exempt from the levy of dividend withholding tax;

5 The following additional activities will be allowed: - Activities that enhance the use of green energy or projects that can be deemed to relate to green energy; - Activities that aim for sustainable development, like amongst other sustainable energy, sustainable tourism and sustainable agriculture; - Activities to enhance the knowledge economy; - Scientific activities. The conditions to (i) have a specific audit, (ii) the articles of association need to meet certain criteria and (iii) that one of the directors of the board of the IPC has to be an individual that lives in Aruba and is subject to personal income tax in Aruba, are abolished. For hotels, the following additional changes are important: The RevPar criterium will be changed from an average of US$ 200 per room to the following categories: Category 1 Category 2 Category 3 Category 4 RevPar > US$ 185 > US$ 175 > US$ diamond status Tax rate (new) 10% 12% 15% 12% The hotel needs to have an earth-check or similar certificate based on the first (lowest) standard (starting the certification process now and having the certificate ultimately January 1, 2015); The hotel needs to make an annual investment to make it more sustainable, which minimum amount depends on the category and reads as follows: Category 1 Category 2 Category 3 Category 4 < 100 rooms Afl. 120,000 75,000 45,000 75,000 > 100 rooms Afl. 240, ,000 90, ,000 An investment in sustainability is defined as: i. 1/3 rd of the amount mentioned needs to be invested into green projects to reduce energy expenses within and outside the hotel operations; ii. 1/3 rd of the amount mentioned needs to be used for the training of employees traineeships available; iii. 1/3 rd of the amount mentioned needs to be used for the purchase of locally produced products.

6 5 Temporized deductibility of interest relating to purchase of local participation As of January 1, 2013, interest relating to the purchase of a local participation (i.e. one or more shares in an Aruba entity) is deductible, but only temporized. That implies that the interest of the first two years may only be deducted in three equal parts in the years 3, 4 and 5 (for year 1) and 4, 5 and 6 (for year 2). As of year 3, the interest is completely deductible. It is important to note that the normal regulations for the deduction of interest still apply, i.e. the interest and the loan needs to meet the at arm s length criteria, and one of the exceptions needs to be made credible before the interest is tax deductible. We refer to our highlights corporate income tax on our website, 6 Continuation temporary investment allowance The temporary investment allowance of 6% on all purchases of capital assets from local entrepreneurs exceeding Afl. 5,000 a year is continued through the years 2013 and We note that certain investments are not eligible for the investment allowance, e.g. investments in personal cars, ground, and assets that will mainly be put at the disposal of third parties. 7 Reduction of import duties on furniture & fittings for hotels, apartments and timeshare resorts Hotels, apartments and timeshare resorts that want to furbish or refurbish their rooms will receive a 12% import duty on all furniture and fittings, provided the total investment per room exceeds US$ 10,000. Special regulations apply in case the investment is spread into several parts. Furniture and fittings are defined as furniture, equipment, bathroom fixtures, matrasses, televisions and such, but also includes the furnishing of a restaurant and general areas. The reduction will take effect as soon as the environmental levy and the levy on car rentals have been introduced. 8 Additional reparation allowance For pensioners that have another source of income, but combined with the shortened AOV do not earn more than a full AOV, can claim the increased reparation allowance of Afl. 100 per month. This measure has retroactive effect to January 1, 2013.

7 9 Buying off of pensions We refer to our SmartNews of July 2013 II for a more detailed explanation. 10 Lowering of import duties on energy efficient products The import duties on the following goods will be lowered to 2%: Inverter airco s with an energy efficiency ration as of January 1, 2013 SEER 14,5 of EER (Btu/Whr)12 of ΩΩR (Watt/Watt)3,5 and as of January 1, 2014 EER (Btu/Whr)12 of ΩΩR (Watt/Watt)3,5 (as of January 1, 2014), provided that a certificate is present showing this ratio; o Consumers that purchased an airco between January 1, 2013 and the introduction of this Policy can request a refund at the supplier. Other airco s with a VRF or VSC system outside, provided that it can be shown that the internal unit can be attached to the outside VRF or VSC system; Refrigerators and freezers with an energy start label, energy guide label or EU label; Washers and dryers with an energy start label, energy guide label or EU label; Boilers and hot water installations that are solar power driven; CFL and LED lights with a Cos phi value 0.85, including the armaments. for LED lights; Industrial dishwashers with an energy start label, energy guide label or EU label; Solar powered carts. 11 Expat regulation With retroactive effect to January 1, 2013, an expat regulation is introduced. The expat regulation applies to all employees that: a) Have not lived in Aruba for the five years preceding the start of the employment on Aruba; b) Earn a gross wage of at least Afl. 150,000 a year; c) Have a specific expertise that is not or only limitedly available on the Aruba labor market (which will be determined by the tax inspector).

8 The expat regulation consists of the following benefits: i) Allowances in cash (like per diems) are tax exempt up to a maximum of Afl. 15,000 per calendar year; ii) Allowances for the special education of children of the expat are tax exempt for a maximum of Afl. 25,000 per year per child; iii) Allowances for housing are tax exempt for a maximum of Afl. 2,500 per month; iv) In case the expat works on a net basis as per his/ her labor agreement, the employer only needs to gross up the wage one time. The expat regulation applies for a period of four years, which can be extended with another two years upon request and provided that it can be made credible that the specific knowledge of that expat is still not available on the labor market of Aruba. The expat regulation needs to be requested by the employer within four months after the start of the employment of the expat and is conditional upon the expat training a local employee (to take over his/ her position after the period is over), except in case of shareholders/directors ( directeur-aandeelhouders ). The request needs to be accompanied by: Curriculum Vitae of the expat; Copy of all relevant diploma s, certificates and certifications; Copy of the residence and working permit; Copy of the labor agreement; Overview of the remuneration package of the expat, including all wage in kind. The tax inspector has two months to decide upon the request, which period can be extended with another two months. If within the stipulated (and extended) period no decision has been received, the request is deemed to be approved. The expat status will be received as of the first day of employment or, if the request was not filed by the employer within the four month period, as of the first day of the month the request was filed. In case the residence and working permit cannot be handed over as of the start of the employment, the expat status will still be applicable as of the first day of employment provided that the residence and working permit can be filed at the tax inspector within one (1) year after the first day of employment. In that case the expat status will then be extended with another three (3) years. WEB info@wtsaruba.com

9 In case the employment is continued elsewhere within the group, the expat status can be continued for the remaining period provided that the expat still meets the criteria and the new employer can prove that the expat status was applicable on the expat at the previous employer and who the previous employer was. Furthermore, the expat status can also be transferred (for the remaining period) to a new employer, provided the new employment started within three months after the end of the previous employment and the new employer can prove that the expat status was applicable on the expat at the previous employer and who the previous employer was. An expat is not allowed to claim employment expenses, child deduction or the elderly deduction. Since the expat regulation is introduced with retroactive effect to January 1, 2013, the following practical solution has been approved. The benefits of the expat regulation lead to a significantly lower tax burden of the employee as well as the employer. The payroll taxes due for the full year 2013 have to be recalculated for the month of June 2013 taking into account the expat regulation. The amount of taxes already paid for the months January through May 2013 can be deducted from the recalculated annualized payroll taxes due. The remainder can be paid within the months the expat is remaining in Finally In the above we have highlighted the Policy that was signed on June 28, Since the policy is quite extensive, we have only provided the highlights. We recommend that you consult with your tax advisor before taking any decisions based on this SmartNews. The team of W-Tax & Legal Services is at your service to answer any questions you may have or assistance you may require to make the optimal decision for your situation. You may reach us by visiting us at Caya Punta Brabo # 13, by telephone (297) , by fax (297) or by at the following addresses: Cari Wolter Partner wolter.cari@wtsaruba.com Frank Snijders Partner snijders.frank@wtsaruba.com Alitza Koolman Assistant Manager koolman.alitza@wtsaruba.com Charitza Statia Tax Advisor statia.charitza@wtsaruba.com Elton Semeleer Tax Compliance Officer semeleer.elton@wtsaruba.com