Tax Returns for U.S. Expats in Aruba

Aruba is a gorgeous island located only 15 miles off the Venezuelan coast. It is a very popular place among foreigners because of its beauty and the hospitality of its people.

If you are planning to become a U.S. expat in Aruba, or have been one for a while, it’s important to know the tax laws of the country and the potential impact on your U.S. tax return. Expat taxes can get complicated. Fortunately, we have outlined the key points below.

Photo by: Serge Melki

Taxation in Aruba

Let’s start by understanding who is required to pay taxes in Aruba. Residents have to report taxes on worldwide income. However, non-residents are taxed only on Aruba-source income.

The tax rate in Aruba is progressive:

• Employment income – Progressive from 7% to 59%
• Interest income – Generally the same as for employment income
• Dividend income – Generally the same as for employment income
• Capital gains – Generally none

Aruba and the U.S. do not have a social security tax agreement in-place. Therefore, certain U.S. expats will be required to pay into both social security programs.

How Living in Aruba Impacts US Taxes

As a U.S. citizen or permanent resident (Greencard), you are required to file U.S. taxes even if you live in Aruba. Plus, if you have assets in foreign financial accounts (e.g., foreign banks), there are informational reports you may be required to file. For example, U.S. Expats Living in Aruba with $10,000 or more in foreign banks must file the FBAR (now known as FinCen 114).

Fortunately, the U.S. government provides various forms of tax relief that can lower or eliminate U.S. tax obligations

• The Foreign Earned Income Exclusion – It allows you to exclude a certain amount of income earned outside the U.S.
• The Foreign Housing Exclusion/Deduction – This one relates to additional income that can be excluded for household-related expenses tied to living abroad.
• The Foreign Tax Credit – It allows you to offset foreign taxes paid against U.S. tax obligations.

In most cases, the foreign earned income exclusion is preferable to the foreign tax credit if you live in a country with a lower tax rate than the U.S. (assuming your income is not above the applicable threshold). However, it’s a good idea to speak with an expat tax specialist to discuss the best application of these tax reliefs.

FATCA and Aruba

The U.S. government is increasingly interested in knowing about the foreign assets held by its citizens and residents. As a result, it has been busy signing deals with other countries whereby foreign financial institutions (FFIs) will be required to:

• Identify accounts of U.S. persons;
• Report certain information to the IRS regarding those accounts;
• Withhold a 30% tax on certain payments to non-participating FFIs and account holders unwilling to provide the required information

As of the publication of this article, roughly 80 countries have either signed intergovernmental agreements with the United States or are in discussions. Aruba and the U.S. do not yet have a FATCA agreement in-place. However, you should be aware of the implications given that the IRS intends to expand FATCA’s reach in the upcoming years.

If you have any questions regarding your U.S. expat taxes, contact us today. We are here to help.