Page 9 - DIMP

Diahuebs, 16 Januari 2020 AWEMainta 19

Letter to the Editor

Aruba Tax Update:

The Personal Income Tax reduced even

further as per January 1st 2020

By: Richie Kock Advocaten/Attorneys Aua & SxM

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 earn-

ers compared to those with a higher income. The PIT, initially consisting of 14 catego-

ries, 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.

Entrepreneurs are mostly advised to establish an LLC to avoid high PIT rates (the
Aruba PIT is among the world’s highest). The considerably reduced PIT changes this

assumption. The PIT is still relatively high. However, other aspects should be con-

sidered 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 as-
sessment for which a payment schedule may be agreed upon with the tax office.

From a legal standpoint, the main benefit of an LLC is the protection of personal as-

sets.

From a cost/tax standpoint, small starters without or with relatively few personal as-
sets and a modest income would be better off with an SP than an LLC. There are also

additional benefits, e.g. according to the guidelines of the Department of Economic
Affairs a business license is not required for an SP in case the owner is an Aruba born

Dutch passport holder.