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February 11, 2019 Aruba enacts 2019 Tax Reform Executive summaryThe Government of Aruba (the Government) recently announced a framework to reform the Aruba tax system in four phases beginning in January 2019. The Government aims, through this reform, to modernize and simplify the Aruba tax system as well as to generate additional revenue to reduce government debt. This Alert summarizes the bill that was approved by Parliament on 20 December 2018 as phase I of the tax reform (the bill). It also outlines the tax reform proposals of phases II, III and IV, which have been announced by the Government. Detailed discussionPhase IBBO/BAZV/BAVPGeneralCurrently, the turnover tax laws (BBO/BAZV/BAVP) do not prohibit entrepreneurs from choosing their pricing method and applicable BBO/BAZV/BAVP rates. Because of the nature of the taxes, entrepreneurs can freely decide: (i) whether to shift the BBO/BAZV/BAVP burden to the consumer; and (ii) at what rate. Only the BAZV amount to be remitted to the tax authorities must be mentioned on the invoice or receipt. After the increase of the BBO/BAZV/BAVP rate to 6% as of 1 July 2018, due to the so-called temporary crisis levy, concerns arose regarding the way entrepreneurs reflect their prices to consumers. With the adopted change as of January 2019, the Government intends to regulate how entrepreneurs determine their prices ”offered on the shelf.” AmendmentsAs of 1 January 2019 entrepreneurs are prohibited:
Penalty Violation by an entrepreneur of the above-mentioned provisions may result in a penalty of maximum AWG10,000. Administrative adjustments Entrepreneurs who currently shift the BBO/BAZV/BAVP burden to their consumers will have to decide if, starting January 2019, they will absorb this tax burden or if they will increase all their prices to include this burden. Under both scenario’s entrepreneurs will need to change their administration (point of sale) systems with the following adjustments:
Transitional rules Parliament instructed the Government to implement a transitional period of six months for entrepreneurs to comply with the above-mentioned prohibitions. It appears that the Government will implement the transitional period through beneficial policy. Future Alerts will report on this as more information is forthcoming. Ground TaxGeneralCurrently, the ground tax has one tariff (0.4%) irrespective the residency of the owner of the real estate and the type of real estate. Furthermore, a general exemption of AWG60,000 applies for each owner of real estate(s). With the following amendments, the Government aims to increase compliance and to introduce a levy based on the ability to pay principle. AmendmentsAs of 1 January 2019, the following amendments were introduced: Abolishment of the exemption The general exemption of AWG60,000 of the property value – when determining the taxable amount for the owner – will be abolished. Change in tariffs The following tariffs will apply as of 2019:
Filing requirement for the taxpayer As of 1 January 2019, the following filing requirements were introduced:
Filing invitation by the tax authorities As of 1 January 2019, the tax inspector can invite a (legal/natural) person, who presumably is an owner or – in brief - obtains a real right of enjoyment of real property, to file a return. The person must file the return within two months after the invitation date. Penalty Non-compliance with the abovementioned filing requirements may result in a maximum penalty of 100% of the amount of ground tax that was not levied or insufficiently levied. Electronic filing In the near future, the tax authorities may introduce electronic filing for the abovementioned filing requirements. Wage/Income TaxGeneralCurrently, the wage/income tax has 14 different tax brackets, which is differentiated in two different tariff groups (I and II), and a general tax-free income of AWG20,455. With the below amendments the Government aims to simplify the wage/income tax, reduce the tax burden for persons earning lower income and compensate business owners receiving dividend from their entities. AmendmentsAs of 1 January 2019, the following changes were made to the income tax:
The new (progressive) income tax tariffs will be:
Reduction of the fixed tariff on dividends Another phase I amendment which the Government announced is the reduction of the income tax tariff from 25% to 10% on dividends received by individuals from their companies. Note that, the bill which was approved on 20 December 2018, does not include the legal provision for this reduction, however the reduction was discussed in Parliament as an upcoming amendment to compensate entrepreneurs for the increase in the Ground tax tariff as of 1 January, 2019 (see above). At this moment it is unclear if the Government will implement this reduction through beneficial policy. Future Alerts will report on this as information becomes available. Phase II, III and IVGeneralFollowing the phase I tax reform amendments as summarized above, the Government intends to also work on a phase II, III and IV tax reform. They are highlighted below. Tax reform proposals
Endnotes 1. Table income: taxable income/AWG 27,751. 2. Table income: taxable income/AWG 27,751. For additional information with respect to this Alert, please contact the following: EY Aruba, Oranjestad
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