US Tax Advice for US Expatriate Living and Working in Aruba

Tax Guide for US Expats Living and Working in Aruba

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Who Is Liable For Income Taxes in Aruba

An Aruba resident’s worldwide income is subject to income tax in Aruba. Specific categories of a nonresident’s income generated in Aruba are subject to income tax in Aruba. In principle, Aruba can grant unilateral or bilateral tax relief.

Income subject to tax

Employment income. Taxable employment income consists of income derived from (current or past) employment, including directors’ fees, less a fixed deduction and less pension and social security contributions paid or withheld, if applicable.

A nonresident individual is subject to income tax on income derived from (current or past) employment actually carried on in Aruba. In addition, a nonresident who is employed by an Aruban public entity is subject to tax on income, even if the employment is not carried on in Aruba.

Self-employment and business income.  Annual profit derived from a business must be calculated in accordance with sound business practice that must be applied consistently.

A nonresident individual generating income out of an enterprise carried on in Aruba personally or through a permanent representative is subject to Aruban income tax.  The fair market value of items received in kind for professional and entrepreneurial activities performed is also included in income.

Directors’ fees.  Income received by a nonresident managing director or nonresident member of a supervisory board of a company resident in Aruba for current or past services is subject to Aruban income tax.

Investment income.  Dividends, interest, royalties and rental income, less deductions, are generally taxed as ordinary income. Interest received from savings accounts at acknowledged local and foreign banks is exempt from Aruba income tax.  A 10% dividend withholding tax is imposed on dividends distributed by companies resident for tax purposes in Aruba to individuals.

Capital gains.  No separate capital gains tax is levied. Capital gains are generally tax-free, but the following capital gains derived by residents or nonresidents may be subject to income tax at normal or special tax rates.

Deductions

Deductible expenses.  A deduction of 3% of employment income is allowed for expenses related to an employment relationship, up to a maximum of Afl. 1,500 per year.

A resident taxpayer is entitled to more deductions than a nonresident taxpayer.  Resident individuals may deduct the following:

• Interest and costs paid with respect to mortgage loans for home ownership
• Interest paid on all types of personal loans, up to a maximum of Afl. 5,000 per year
• Life insurance premiums that entitle individuals to annuity payments, up to a maximum of Afl. 5,000 per year
• Extraordinary expenses (for example, medical expenses, expenses for the support of relatives and education expenses) and qualifying gifts in excess of a certain threshold amount Personal deductions and allowances. Tax-free allowances may be claimed, based on personal circumstances.

Business deductions.  Business expenses are fully deductible.  In addition, self-employed persons may claim an entrepreneur’s deduction of Afl. 2,400.

Rates.  Residents and nonresidents are subject to income tax at the same progressive rates, which range from 7% to 58.95%.

Relief for losses.  Taxpayers may carry losses forward for five years.

B. Inheritance and gift taxes

Inheritance and gift taxes are levied on all property bequeathed or donated by an individual who is a resident (or a deemed resident) of Aruba at the time of death or at the time the gift is made.

Tax is levied on the heir or the recipient of the gift, regardless of his or her place of residence.

Inheritance and gift taxes are levied on the value of a taxable estate or donation after deductions at rates ranging from 2% to 24%. The rates vary depending on the amount inherited or received and on the relationship of the recipient to the deceased or the donor.

C. Social security

Coverage.  All resident individuals are subject to social security contributions.

Contributions.  The contributions cover the General Old Age Pension Act and the General Widows and Orphans Act. Both the employer and the employee pay contributions on the employee’s salary, up to a maximum annual salary of Afl. 65,052. The employer makes contributions at a rate of 9.5%, and the employee makes contributions at a rate of 4%. Nonresident individuals are also subject to these social security contributions.

General medical insurance (AZV) provides coverage for hospitals, physician consults (for example, visits to the family doctor) and treatments. Premiums are paid on employees’ salaries at a rate of 8.9% by the employer and at a rate of 2.6% by the employee, up to a maximum annual salary of Afl. 85,000.

The General Disablement Insurance Act (OV) and the General Sickness Insurance Act (ZV) offer coverage for employees. The OV premiums are paid on employees’ salaries by the employer at rates ranging from 0.25% to 2.5%. The ZV premiums are paid by the employer at a rate of 2.65% of the annual salary of the employees, but only for employees earning a salary up to and including Afl. 4,550 per month. The employer is not insured for sickness risks if the employee is earning more than Afl. 4,550 per month.

Totalization agreements.  In principle, nonresidents earning income from employment in Aruba are subject to social security contributions. As a result, they may be subject to social security taxes both in their home country and in Aruba. Individuals temporarily employed in Aruba may obtain relief from double taxation under social security agreements.

To learn more about the history, culture, economy and other information about Aruba

We have been preparing US income tax returns for US Citizens and permanent residents living in Aruba for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.

We have scores of clients located in Aruba and know how to integrate your US taxes into the local income taxes you pay.  Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.

As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end.  (You cannot file using the Aruba tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.

There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership.   If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form.  These penalties are due regardless of whether you owe income taxes or not.

There are certain times you may wish to make elections with respect to your Aruba Corporation or Investment Company which will give you US tax benefits.  There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.

If you are self-employed while working in Aruba, you will have to pay US self-employment taxes (social security).   If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Aruba.

We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident.  You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.

Let us help you with your US tax returns, US tax planning and other US tax and legal concerns.  Download our expat tax questionnaire or request a request a consultation by phone, skype or email