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General
The wage tax is levied on the basis of the State Ordinance Wage Tax. It is a so-called direct tax which is levied from employees. In principle, wage tax is a kind of income tax levied through a withholding from the salary. It can either qualify as a prepaid tax which can be credited against the ultimate income tax, or as a final tax if no income tax is due. If the wage tax exceeds the income tax which is ultimately due, the difference will generally be refunded.
Taxpayer
The wage tax is levied from the employee. An employee is defined as any individual who:
* is employed by a wage tax withholding agent; or
* receives wages from a wage tax withholding agent in connection with a former employment of himself (pension) or another person (e.g. study allowance paid by the employer of the father).
Employment
The basis for the fiscal employment concept is the employment agreement as defined under civil law. This is an agreement whereby one party binds himself to the other party to perform duties during a certain period in return for a salary. Such an agreement needs not necessarily be written down in a contract but may also be made verbally. A basic element of the employment agreement is the existence of authority at the level of the employer. This authority must result from the employment agreement and implies that the employee who is performing his duties is obliged to follow the directions of the employer. This does not, however, necessarily imply that the employee may not, for instance, choose his own working hours. In that case an employment relationship may still exist.
The State Ordinance Wage Tax also provides for deemed employments, i.e. a labour relationship which would not qualify as an employment but which is deemed to be an employment for wage tax purposes. For example, the following may be considered to have a deemed employment:
* artists;
* members of the supervisory board;
* trainees;
* sportsmen;
* construction labour.
Withholding agent
The wage tax has to be withheld by the withholding agent. The withholding agent is:
* In case of a resident, the employer (either corporation or individual);
* In case of a non-resident, the permanent establishment in Aruba;
The tax authorities may appoint a non-resident as a withholding agent in case no permanent establishment would exist.
Tax base
The tax base is the wage. The definition of wage is broad and includes all remunerations (in cash or in kind) that are received in connection with an employment. Excluded from wage tax are, among others, the employers’ part of the social premiums and pension premiums (if certain conditions are met), as well as medical insurance premiums paid by the employer on behalf of the employee.
Fringe benefits
Some benefits (either in kind or cash) provided by the employer are tax exempt or taxable against a fixed amount/rate. These benefits include:
* Company car: 15% per year of the catalogue value of the car is considered to be wages in kind;
* Car allowance. The following amounts per month can be provided tax exempt in case the employee uses his private car more than 25% for the company: Afl. 250 / USD 140 (managing director), Afl. 200 / USD 112 (manager), Afl. 400 / USD 224 (representative/sales person), Afl. 300 / USD 168 (accountant/consultant) and Afl. 200 / USD 112 (other functions);
* Representation allowance. The following amounts per month can be provided tax exempt: Afl. 250 / USD 140 (managing director), Afl. 100 / USD 56 (manager), Afl. 100 / USD 56 (representative/sales person) and Afl. 100 / USD 56 (accountant/consultant);
* Meals. If meals are provided by the employer free of charge, the wage in kind amounts to Afl. 5 (USD 2.80) for a hot meal and Afl. 2.50 (USD 1.40) for every other meal;
* Housing. If the employer provides the employee with free housing, the wage in kind is set at 8% of the fair market value of the house, with a maximum of 15% of the annual gross income of the employee. The percentages are 10% and 20% respectively if the house would be furnished. The maximum percentages are not applicable if the employee is a so-called substantial interest shareholder;
* If an employer provides his employee with free products which the employer produces, the integral cost of the product is considered to be wage in kind;
* Anniversary allowance. If an employee has 10 (or 12.5), 25, 35 (or 40) years of service, the employer may provide ½ (in case of 10 or 12.5 year service) or 1 (all other cases) monthly gross salary tax exempt to the employee;
* Gift. The employer is allowed to provide the employee with a tax free gift with a value of a maximum of Afl. 200 (USD 112) once per year;
* Telephone allowance. The first Afl. 480 (USD 270) telephone allowance per year is considered as taxable wage. The next Afl. 1,200 is tax exempt (USD 674). Any reimbursement exceeding Afl. 1,680 (USD 944) is taxable;
* If expatriates are hired, the employer can reimburse the airline ticket expenses of the employee and his/her family tax exempt, as well as the costs related to shipping the household of the employee;
* For the first two months, the employer can provide the expatriate also with tax exempt hotel accommodation, lodging and car rental;
* Refurbishment allowance. The employer can provide the expatriate with a tax exempt refurbishment allowance of two times the monthly gross salary, with a maximum of Afl. 15,000 (USD 8,427);
* Annual free ticket. The employer can provide the expatriate annually with one free ticket to the country of origin. This ends as soon as the employee lives for 5 years on Aruba.
Identification obligation employee
The employee is obligated to provide his employer with the following information:
* Name;
* Address;
* Tax number;
* Copy passport.
The so-called anonymity rate of 58,95% is applicable if this condition has not been met.
Tax rate
The wage tax rate is equal to the individual income tax rate and is based on a progressive system. The tax free income amounts to Afl. 20,252. The maximum rate amounts to 58.95%. This rate is reached at an income of Afl. 317,208 (USD 178,206) per year.
Tax period
The tax period equals the calendar month.
Tax return
The withholding agent has to file the wage tax return with the Tax Authorities within 15 days after the end of the calendar month.
Payment of tax
The withholding agent has to pay the wage tax to the Tax Authorities within 15 days after the end of the calendar month.
Should have any question regarding the above or otherwise, please contact
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or +297 730 4471.< Back
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