August 2, 2023 Aruba Fiscal Plan 2023 — Part II Tax changes
Executive summary On 5 July 2023, the Parliament of Aruba approved tax legislation, titled "Fiscal Plan 2023 — Part II," which extends the changes implemented via the State Ordinance Fiscal Plan 2023. The main change in the Fiscal Plan 2023 — Part II introduces a tax on the import of goods, the so-called "BBO1 on import" or "BBO at the border," which will take effect as of 1 August 2023. Other changes will have a retroactive effect to 1 January 2023. This Tax Alert provides an update on the following topics:
Tax on import of goods A tax on import of goods will be levied as of 1 August 2023. The rate of this "BBO on import" will be 7%, which is the same as the total rate of the BBO/BAVP/BAZV.2 Currently, the import of goods in Aruba is not subject to an indirect tax (e.g., BBO/BAVP/BAZV) other than import duties, while local supply of goods is subject to BBO/BAVP/BAZV at a rate of 7%. Because of this, self-import of goods may be more attractive to businesses and the public than purchasing goods locally. With the introduction of a tax on import of goods, the Government aims to level the playing field, increase its tax revenues and improve compliance with the BBO/BAVP/ BAZV legislation. Businesses may deduct the tax on import of so-called "trade goods" from the BBO/BAVP/BAZV on their sales. In certain cases, this may result in a refund of BBO/BAVP/BAZV. Import of goods Import of goods will become a new taxable event. The import of goods is defined as releasing the goods for free circulation (in Dutch: "in het vrije verkeer brengen") in Aruba. Goods are generally considered released for free circulation if a customs declaration is filed, all customs requirements are fulfilled (i.e., if a C-number is generated) and the goods are no longer under the supervision of the customs authority. The party in whose name the goods are imported should be responsible for filing the import declaration and paying the tax on import. The tax on import of goods will be due in addition to import duties and should be paid simultaneously with the import duties. Bonded warehouse Although not specifically regulated in the draft legislation, the explanatory notes indicate that goods that are stored in a bonded warehouse (in Dutch "douane entrepot") will not be subject to the tax on import upon storage. The tax on import will be due (like the import and excise duties) after the goods are transferred from a bonded warehouse (i.e., brought into free circulation). Taxable amount The taxable amount for the tax on import of goods is the customs value. The customs value is the value of the imported goods as of the moment they cross the border, which includes all expenses made to import the goods, such as cost, insurance and freight (CIF value). Refund mechanism A refund mechanism will be introduced for the tax on the import of so-called "trade goods" by entrepreneurs. This means that businesses that paid the tax on the import of goods intended for resale are entitled to reclaim this tax. The business can offset the tax on import only if it fulfills the invoicing/cash register system requirements. The total tax on the import of goods paid to the customs authority in a reporting period (month) will be pre-filled in the BBO/BAVP/BAZV return in the Bo Impuesto (Boi) portal of the taxpayer. The amount of tax paid on import of trade goods (only) should be reclaimed by offsetting the amount in the BBO/BAVP/BAZV return of the reporting period in which the import of these goods took place. The trade goods do not have to be resold when the tax on import of those goods is reclaimed. If the amount of tax on import is higher than the amount of the BBO/BAVP/BAZV due in a reporting period, the difference (i.e., a refund) will be paid back to the business. Refer to the following example. Example Company X imports the following goods in August 2023:
The total tax on import amounts to AWG 1,750. Company X has a revenue for BBO/BAVP/BAZV in August 2023 of AWG 12,000. Company X should report in its August 2023 return:
The Tax Authorities will issue a refund decree to formalize the refund. According to the Parliamentary documents, the Tax Authorities will automatically pay out the refund within eight weeks after filing a BBO/BAVP/BAZV return. However, if the business has other outstanding taxes or social premiums due, the refund will be settled with these first. Businesses that apply the small business regulation ("kleine ondernemingsregeling" or "KOR") are not entitled to reclaim any tax on import. The tax paid on import of goods by individuals (e.g., on internet orders) and businesses that self-import assets (e.g., furniture and computers for own use) cannot reclaim the tax paid on import of these goods. Trade goods Trade goods are defined as goods meant for resale. Resale is defined as the reselling of imported goods without further processing, e.g., wholesalers and retailers. The Parliamentary documents dictate that the term should be interpreted narrowly, thus not including goods that are processed or assembled in one's own business to a new trade good. Based on the Explanatory notes, goods imported by hotels and restaurants are excluded from the term "trade goods." However, the Tax Authorities indicated in their FAQs, that the Minister will evaluate the possibility of reclaiming the tax paid on goods imported by the Food and Beverage sector. Furthermore, contrary to the Parliamentary documents, a publication of the Tax Authorities seems to indicate that the term "trade goods" would be broadened to apply to any good that is imported with the intention of being resold (i.e., also goods that are processed and assembled to a new good meant for sale). In that case, the tax paid on import of these goods can also be reclaimed. The Tax Authorities offer the following examples:
Transitional rules No transitional rules will apply for the tax on import or the refund mechanism. In other words, all goods that are released into free circulation as of 1 August 2023 will be subject to the new tax on imported goods. Importers who file a custom declaration before 1 August 2023 and have paid the import duties (and excise duties) due before this date, can remove/move containers after 1 August 2023 and no import tax will be due. Exemptions and waivers Imported goods that are exempt from import duties will also be exempt from the tax on import of goods (e.g., machinery and raw materials for local producers). The same applies to import of goods for which the import duties are waived (e.g., goods that serve a scientific purpose). Formal requirements The formal requirements for the levy, refund, additional assessments and penal provisions of the import duties are also applicable to the tax on import of goods. For instance, a person is entitled to recover any overpaid tax on import of goods (same as import duties) within one year of payment. Import duty amendments Due to the introduction of the tax on import and to simplify, modernize and streamline the system of import duty tariffs, the Government intends to amend the custom duty tariffs. The proposed reduction in tariffs will go into effect as of 1 August 2023 via a beneficial policy that will be published soon. The proposed tariff increases will go into effect after the concerning draft legislation is approved by the Parliament of Aruba. The tariff changes will be as follows:
As an example, the followings goods will have a reduction in import duty:
As an example, the followings goods will have an increase in import duty:
Other changes — investment allowance As of 1 January 2023, the investment allowance (of 10%) was, in principle, only applicable to qualifying investments in locally purchased goods. Based on the Fiscal Plan 2023 — Part II, the investment allowance may now also be claimed with retroactive effect to 1 January 2023 on qualifying investments in goods to be imported for local use in the business. Next steps EY will continue to monitor developments related to the above measures and provide further updates and insights as developments occur. Please reach out to our tax advisors for further assistance or to discuss any questions you may have. ——————————————— For additional information with respect to this Alert, please contact the following: Ernst & Young Tax Advisors Dutch Caribbean
Published by NTD's Tax Technical Knowledge Services group; Carolyn Wright, legal editor ——————————————— 1 BBO is the abbreviation for "Belasting op Bedrijfsomzetten" or Business Turnover Tax. 2 BBO/BAVP/BAZV refers to Aruba's turnover tax. | |||||||||||||||||||||||||||||||||||||||||||
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