There are many reasons to register an aircraft in Aruba. PwC Aruba Tax Partner Hans Ruiter takes a closer...
On The Fly
On the fly
Aircraft registration in Aruba
There are many reasons to register an aircraft in Aruba. To begin with, Aruba is a Category 1 country rated by the FAA and ICAO, thanks to the excellent reputation of the Aruban Department of Civil Aviation (DCA). More so, within its civil aviation registry there are registered national airlines and large to small business jets belonging to leasing companies, VIP operators and private owners.
Aruba has outsourced its registration to The Registry of Aruba (Registry), located in Miami, FL. The Registry was the first privately managed aircraft registry in the world. Apart from high safety standards, the Registry makes sure the registration process in Aruba eliminates bureaucracy and paperwork as much as possible. Thanks to its personalized boutique service, many VIP’s are on the Aruba aircraft registry.
Other advantages include:
- It is an OECD white listed jurisdiction
- Aruba is part of the Kingdom of the Netherlands, meaning the European continental law system applies
- The island is safe and politically stable
- The aircraft ownership structure does not have to be changed for registration purposes
- Aruba is member of the Cape Town convention, making it easy to register security interests
- Registration is free of taxes in Aruba
As a result of these many advantages, there are currently 150 aircraft registered in Aruba. As of 2014, the Registry is adding an average of two aircraft per week. The limit at this moment is 500. Of the 150 registered aircraft, approximately 70% are private.
Aircraft ownership structure
In February 2014, in order to meet industry demands, Aruba enacted new legislation to increase the flexibility of its aircraft registration program. Prior to these changes, only natural persons who were a resident of Aruba or Aruban legal entities that leased or owned the aircraft qualified for registration. Under the new regime, qualifying entities include, among others, entities incorporated according to the laws of, and established in:
- European Union Member States
- Members of the British Commonwealth
- The United States of America, and
- United Arab Emirates
For registration purposes, an Aruba Special Purpose (SPV) is no longer necessary. For example, if the aircraft was purchased through an Isle of Man company, it is not necessary to form an Aruban SPV for registration in Aruba. Whereas under the old regime only Aruban owners or lessees qualified for registration, the new regime contains a list of countries that qualify for registration.
Traditionally, an Aruba Exempt Company (AVV) was used for aircraft registration. However, the Aruba government introduced changes to the AVV in 2006. Although leasing or ownership may still occur tax free when certain conditions are met, the process differs than that used for a tax exempted AVV.
For registration purposes, typically an aircraft is leased to or owned by an entity established in Aruba. In the case of a lease, the aircraft is normally leased back to the lessor or leased on to another entity within the group. The lease or ownership by the Aruban entity (SPV) was established to qualify for registration in Aruba. However, following the change of law in February 2014, it is no longer necessary to have an Aruban entity lease or own the aircraft registered in Aruba. Also, a non-Aruban entity that qualifies under the new regime can register.
Aruban entity owner/lessee
If an Aruban entity is the owner or lessee of the aircraft, one has to consider the following taxes:
- Profit tax
- Turnover tax
- Foreign exchange tax and foreign exchange regulations
- Dividend withholding tax
- Stamp tax
No profit tax is due if a fiscal transparent status is elected and a taxable presence in Aruba is avoided. A taxable presence can be avoided by complying with the so-called safe harbor rules issued by the Aruba Tax Authorities. The most important conditions of the safe harbor rules are that the aircraft be operated abroad and the decision making authority in Aruba remain limited.
If the fiscal transparent status is elected (this must be done within one month of the entity’s incorporation) and the safe harbor conditions are met, no profit tax will be due in Aruba. The transparent status also applies to dividend withholding tax, meaning no dividend withholding tax is due if the Aruban entity has elected the fiscal transparent status and the shareholder is located abroad.
It is important to note that the fiscal transparent entity does not have to file a tax return in Aruba. However, the entity must file annual financial statements and the shareholders’ register within six months of the close of the fiscal year.
Another tax to consider is turnover tax, which is levied on a company’s gross turnover (for all practical purposes it can be considered a sales tax). Currently, turnover tax in Aruba is 1.5%. Likewise, foreign exchange tax is a tax levied on all payments made abroad by Aruban residents (the legal title of the payment is not relevant).
Both taxes can be avoided by requesting non-resident status for the Aruba-based entity. The non-resident status must be requested with the Central Bank of Aruba and will be granted if the Aruban entity only has shareholders abroad and does not participate in the economic traffic of Aruba. This is normally the case when an Aruban SPV is used for aircraft registration.
In practice, the non-resident status will be granted within one or two weeks.
Finally, stamp tax is due on all official documents that can be used in court. The rate is four Aruban florins (USD 2.23) per page. In practice, the stamp tax is only paid on documents prepared by a public notary.
Non-Aruban entity owner/lessee
As mentioned above, a change in the law made it possible for non-Aruban owners/lessees to register their aircraft in Aruba. For profit tax purposes, the registration of the aircraft in Aruba itself will not create a taxable presence if the conditions of the Aruban safe harbor policy are met. Furthermore, the foreign exchange tax and regulations, turnover tax and stamp tax will not be due if a non-Aruban entity registers its aircraft in Aruba.
Aruba is an excellent location for aircraft registration. It is a category 1 country rated by the US FAA and ICAO. It is safe and politically stable. The Aruban Department of Civil Aviation has an excellent reputation and, since 1995, has outsourced an important part of the registration process to a private company, The Registry of Aruba. This public/private partnership has proven itself over the years thanks to a high service level, competitive prices and a reliable and safe registration jurisdiction.
By Hans Ruiter - Tax partner PwC Aruba
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