Aruba Tax Update: the personal income tax reduced further as per January 1st, 2020

Aruba, January 28, 2020 – The Aruba Tax Regime is currently being reformed. Changes have been proposed to the turnover tax (BBO), personal income tax / wage tax, profit tax, ground tax among others. Some changes have already been implemented starting January 1st 2019, e.g. the simplification and reduction of the personal income tax (PIT).

The Aruba PIT is a progressive tax that imposes a lower tax rate on low-income earners compared to those with a higher income. The PIT, initially consisting of 14 categories, now only consists of 5 tariff brackets of 0%, 14%, 25%, 42% and 52% respectively, as per January 1st 2019.

The PIT has been further reduced as per January 1st 2020 by increasing the tax-free allowance from Awg 27,751 to Awg 28,861, which means that a person with a monthly income of Awg 2,400 or less is not subject to PIT.

The reduced PIT is welcome news for owners of a sole proprietorship (SP). The income of an SP is subject to PIT. For PIT purposes, an SP may deduct business costs from its income in the same way a limited liability company (LLC) deducts business costs from its revenue for the profit tax (current rate: 25%).

Entrepreneurs are mostly advised to establish an LLC to avoid high PIT rates (the Aruba PIT is among world’s highest). The considerably reduced PIT changes this assumption. The PIT is still relatively high. However, other aspects should be considered when opting for an LLC, among others the substantial costs of establishment compared to practically nil cost to start an SP.

An LLC also entails increased red tape consisting of the compulsory monthly filing and payment of profit tax returns subject to penalties, which also requires sufficient cash flow every end of the month. The PIT tax return should only be filed once a year on September 1st latest and, payment is delayed until after receipt of a final tax assessment for which a payment schedule may be agreed upon with the tax office.

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