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29 July 2004
Private Client & Offshore Services Aruba
Background
Proposals on Aruba Exempt Company
Proposals on Introduction of a New Legal Entity
Check-the-Box Option
The Office of the High Commissioner of Aruba recently gave a presentation to
the members of the Aruba Financial Centre Association and the Aruba Association
of Tax Consultants on proposed amendments to legislation concerning the Aruba
exempt company (AEC) and the proposed introduction of a new Aruba legal entity.
Background
The AEC is a particular form of limited liability company
which is often used in international structures. It is exempt from Aruban profit
tax and dividend distributions are not subject to the newly introduced Aruba
dividend withholding tax. Certain international developments - for example discussions
about harmful tax competition in forums such as the Organization for Economic
Cooperation and Development (OECD) - have led the Aruba government to re-evaluate
its AEC legislation. During the presentation, the high commissioner indicated
that the government is considering offering an alternative legal entity to replace
the AEC.
Proposals on Aruba Exempt Company
During the presentation the following proposals were made in relation to the AEC:
It is also understood that existing AECs will be allowed to request to be considered transparent from an Aruban tax point of view.
Proposals on Introduction of a New Legal Entity
The creation of a new, fiscally transparent legal entity known as the ABV is
being considered. This entity would combine characteristics of both the Netherlands
limited liability company and the Delaware limited liability company. The ABV
is intended to replace the AEC in existing structures, as well as to offer a
new tax-planning vehicle for both local and foreign investors.
The ABV is intended to provide investors with a flexible legal entity that will be recognized internationally for both company law and fiscal purposes, while combating misuse by stipulating certain financial and administrative requirements. The ABV would be organized as a hybrid entity: it has been stated that the aim is to create an entity with the status of legal person that would, in principle, be fiscally transparent. However, the ABV can be set up in such a way that it is not fiscally transparent. If it is set up as a transparent entity, the profits of the ABV will be tax exempt in Aruba, unless and to the extent they are generated through a trade or business conducted in Aruba through a permanent establishment or permanent representative. If the ABV is set up as a non-transparent entity, the regular corporate taxation principles of Aruba will apply. Taxation in Aruba will be determined based on generally accepted OECD and other international taxation principles.
Check-the-Box Option
It is expected that it may take a while before the ABV legislation is formally
introduced, and that this will not take place before the legislative amendments
concerning the AEC. In this respect it has been suggested that before the new
ABV legislation takes effect, the opportunity should be introduced for all entities
subject to Aruba profit tax to request to be considered transparent (better
known as the so-called 'check-the-box' option). The resulting Aruban taxation
would then be similar to the tax treatment of a transparent ABV as described
above (ie, the entity would in principle not be subject to profit tax in Aruba).
It is the intention that this opportunity to check the box would also apply
to existing AECs in the period before the tax-exemption regime is effectively
abolished (ie, before January 1 2006). For example, the check-the-box option
could be made as per December 31 2005 in order to avoid any potential adverse
tax consequences resulting from the change in the fiscal regime.
For further information on this topic please contact Anjli Finessi at Loyens
& Loeff's Aruba office by telephone (+297 5824 837) or by fax (+297 5835 214)
or by email (anjli.finessi@loyensloeff.com).
Alternatively, contact Angel Gomez Osorio at Loyens & Loeff's Curaçao office
by telephone (+599 9 434 11 00) or by fax (+599 9 465 15 18) or by email (angel.gomez.osorio@loyensloeff.com).
Endnotes
(1) It is intended that existing AECs will maintain their current legal status after December 31 2005, irrespective of the fiscal regime applicable to each AEC after this date, unless the AEC elects to convert into another Aruban legal entity as described herein.
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