Changes to the Free Zone Legislation
On December 18th, 2019, the Parliament of Aruba approved changes to the Free Zone legislation in accordance with the OECD’s (Organization of Economic Co-operation and Development’s) standards of inclusive framework on base erosion and profit shifting (BEPS) and the Forum on Harmful Tax Practices (FHTP).
Under the previous Free Zone legislation, according to the OECD, there was insufficient legal basis to ensure economic substance of so-called geographically mobile activities and services could only be offered to foreign customers (some exceptions applied). According to the OECD the latter is considered ‘ring fencing’.
The changes to the Free Zone legislation have as consequences that only designated service activities in the Free Zone may be provided to the local as well as the foreign markets while the (fiscal) incentives remain in place (if applicable). Due to elimination of ring fencing and preventing loss of revenue for the profit tax, only certain service activities will be designated by law and allowed in the Free Zone.
The following services are excluded from the free zone:
- Financial services (unchanged situation),
- Services provided by accountants, tax advisors, lawyers, notaries and similar service providers,
- Intellectual and industrial property rights services or related services,
A transitional period through June 30, 2021 is granted for service companies engaged in these activities.
The following activities may take place from the Free Zone if the core income generating activities are related to:
- Headquarter activities,
- Pure Holding Company activities,
- Distribution and other service activities,
- Shipping activities,
- Other service-related activities (to be designated by national decree).
The core income generating activities (i.e. substance requirements) take place if the company has:
- Adequate tangible assets in Aruba,
- Adequate number of full-time qualified employees in Aruba, which is fitting for the company’s nature and seize of its activities.
- Adequate amount of annual operating costs, which are fitting for the nature and size of the company’s activities.
Feel free to contact us for any questions or additional information.