On January 1, 2003, Aruba established new legislation which ushered a ‘New Fiscal Regime’ geared towards complying with transparency and information exchange rules and guidelines introduced by the OECD.
The new fiscal regime abolished the incorporation of the Naamloze Venootschap. All offshore business entities that had been formed prior to the new regime were phased out during 2007-2008, while by 2005 Vrijestelde Vennootschap or Aruba Exempt Company (AEC) was restructured in accordance with OECD standards including the filing of audited financial statements and transparency.
In January 2006, the AEC was granted three possibilities. One, to continue conducting business as a regular taxpaying corporation, two, to maintain its status as an exempt entity if is operated as a financing or holding company whose foreign subsidies are liable to a minimum 17.5% tax on profits and 95% on dividends; but, investment and real estate business undertaken by the AEC would be tax exempt, and three, to function as a pass-through entity whose shareholders are liable to tax on income earned from the company’s accrued income which is paid directly to the shareholders.
Aruba Exempt Companies are required to file yearly financial statements and provide the details of their shareholders to the Aruban local tax authorities. Information on the business companies that can be incorporated in Aruba is provided below.
Key Features of Aruba Exempt Corporation (AEC)
- Aruba Exempt Companies are regulated under the Commercial Code of Aruba
- Over a period of time most offshore companies in Aruba became structured like the AEC.
- As an offshore company, the Aruba Exempt Company lost its tax exempt status and had to comply to the new tax regime of 2003 in many ways in accordance with the OECD’s policies.
- Despite the foregoing, the Aruba Exempt Company is an effective tool for tax planning and can maintain its tax free status if it engages in ‘qualified’ business activities.
- Qualifying exempt business activities for an exempt company are financing such as lending and cash management, intellectual property licensing for trade name, image, patent and copy rights, holding and portfolio investment activities.
- Only one subscriber needed to incorporate an AEC
- There must be at least one managing director to run the affairs of the AEC
- Third parties must at all times hold a minimum of one share with full voting rights
- A legal representative must be appointed in Aruba to act as agent. Only a company with a trust license may act a legal representative of an AEC
- Special licenses are required for carrying out certain types of businesses
- Liable to taxes based on the type of AEC chosen by the investor
- Exempt from tax for portfolio investment business, intellectual property licensing, financing and holding
- The shareholders of an exempt company are responsible for bearing the company’s tax burden if it is incorporated as a pass-through company (as explained in introductory paragraph)
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