• Imputation Payment Company

Imputation Payment Company

An imputation payment company (hereinafter: IPC) is a corporation (NV) or limited liability company (VBA) which focuses on specific, designated, activities. A transitional regulation is applicable for all IPC's existing per June 28, 2013, which was the date of the regime change. The IPC is subject to a flat rate of 10% and an exemption from dividend withholding tax.

  • IPC regime (grandfathered until 2025)
    • The grandfathered IPC regime intended to work as follows:
        10% DWT 7.5% DWT 5% DWT 0% DWT
      Profit IPC 100.00 100.00 100.00 100.00
      Corporate income tax - 28.00 - 28.00 - 28.00 - 28.00
      Net profit to be distributed 72.00 72.00 72.00 72.00
      Imputation payment 26/72 26.00 26.00 26.00 26.00
      Dividend withholding tax base 98.00 98.00 98.00 98.00
      Dividend withholding tax - 9.80 - 7.35 - 4.90 - 0.00
      Net receipt shareholder IPC 88.20 90.65 93.10 98.00
      Effective tax rate 11.80% 9.35% 6.90% 2.00%
  • Because a dividend must be distributed for the imputation payment to be claimed, often an intermediary Aruba holding is used. This has no immediate dividend withholding tax effects (due to the participation exemption; we refer to our “highlights dividend withholding tax”), but the imputation payment can be claimed.
  • Existing IPC’s may keep the regime existing per June 28, 2013 until the last financial year starting before January 1, 2026. It is however, under conditions, also allowed to convert at any time to the new IPC regime.
  • The IPC regime is open to NV’s or VBA’s which:
    • Perform only qualifying activities in Aruba.
    • Have at least one Aruba resident individual as managing director.
    • Meet certain statutory requirements relating to the shareholders register and financial statements.
    • Board of managing directors has notified the tax authorities before the financial year as of which the IPC status takes effect, that the shareholder(s) will claim the imputation payment when a dividend over that financial year will be distributed and will ask an independent (group of) certified public accountant(s) to provide an opinion regarding compliance with respect to the qualifying activities of the IPC, an Aruba resident individual being a board member, that the shares are by name and that the shares are registered in a shareholders register. This opinion will have to be sent to the tax authorities.
  • The activities of the IPC are restricted to the following:
    • Hotels, implying (i) a hotel license must be present, (ii) the hotel must be operated for its own risk and account and (iii) a revenue per available room in the financial year should average AWG 354 (US$ 200).
    • Shipping enterprises.
    • Aviation enterprises.
    • Developing, acquiring, holding, maintaining and licensing of intellectual and industrial ownership rights, similar rights and usage rights.
    • Insuring special entrepreneurial risks (captive insurance).
    • Holding, if the entities in which the shares are held are subject to a tax rate of at least 12.5%.
    • Financing (not being a credit institution) of enterprises and entities.
    • Investments, provided no funds are put at the disposal of related entities or invested in real estate.
    • Generating sustainable energy.
  • Although the IPC may perform more than one qualifying activity, it is essential that all activities that the IPC performs qualify. Otherwise, the shareholder(s) may lose their claim on the imputation payment and the profit of the IPC is subject to the normal corporate income tax rate of 25%.
  • New IPC regime (incorporated into the law per January 1, 2016):
    • Flat corporate income tax rate of 10%;
    • The IPC will be exempt from the levy of dividend withholding tax;
    • The following qualifying activities will be allowed:
      • Shipping enterprises;
      • Aviation enterprises;
      • Developing, acquiring, holding, maintaining and licensing of intellectual and industrial ownership rights, similar rights and usage rights;
      • Holding, if the entities in which the shares are held are subject to a tax rate of at least 12.5%;
      • Financing (not being a credit institution) of enterprises and entities;
      • Investments, provided no funds are put at the disposal of related entities or invested in real estate;
      • Generating sustainable energy;
      • Enterprise focused on agriculture, horticulture, fisheries, beekeeping, livestock or fish farming;
      • Enterprise focused on scientific or cultural activities to stimulate the knowledge-based economy;
      • Enterprise focused on medical tourism, with an annual maximum of resident patients of 5%;
      • Enterprise focused on rehabilitation for alcohol, drug and other addictions, with up to 5% of the number of patients being Aruba residents;
      • Enterprise focused on selling sustainable means of transport with no or low CO2 emissions;
      • Start-up company focused on developing of new technologies and software for digitization of business processes, 3D printing, Internet or Things, Big Data, robot and nanotechnology and drones and similar innovative start-up companies.
      • For hotels, the RevPar criterium is changed to the following table:
          Category I Category II Category III Category IV
        RevPar > US$ 185 > US$ 175 > US$ 160 4 diamond
        Tax rate 10% 12% 15% 12%

        Furthermore, the hotel needs to adhere to:

        • Having an earth-check or similar certificate based on the first (lowest) standard;
        • An annual investment to make it more sustainable, which minimum amount depends on the category and reads as follows:
          Category I Category II Category III Category IV
        In AWG 240,000 165,000 90,000 165,000

        An investment in sustainability is defined as:

        • 1/3rd of the amount mentioned needs to be invested into green projects to reduce energy expenses within and outside the hotel operations;
        • 1/3rd of the amount mentioned needs to be used for the training of employees traineeships available;
        • 1/3rd of the amount mentioned needs to be used for the purchase of locally produced products.