An Aruba Private Foundation is a separate legal entity owning assets (properties) and liabilities. Foreigners create Aruba private foundations for asset protection and family estate planning purposes.
While being a legal entity, a foundation differs from other legal entities like corporations and companies in that foundations do not have members or shareholders. A foundation’s capital is not divided into shares or membership quotas. A foundation’s board is not subject to members or shareholders as a corporate or company board of directors.
Aruba’s Foundations Ordinance of 1988 governs the formation, legal activities, purposes, and termination of all foundations (charitable and non-charitable).
Background
Aruba is a former member of the Netherland Antilles a group of Dutch islands located off the coast of Venezuela in the Southern Caribbean Sea. Since 2010, when the Netherland Antilles association dissolved, Aruba joined the country of the Netherlands, St. Maarten and Curacao islands to form the Kingdom of the Netherlands.
It is part of the Dutch monarchy even though an independent island country.
English is spoken by the majority of its population as most tourists come from English speaking countries for many years. In fact, English is one of its three official languages.
Benefits
An Aruba Private Foundation obtains the following benefits:
• Complete Foreign Participants: The founder and all of the beneficiaries can be foreigners.
• Tax Exempt: Many investment activities receive total tax exemption. However, U.S. residents and other subject to global income taxation must disclose all income to their governments.
• Estate Planning: A perfect vehicle for a family’s long term estate planning.
• Asset Protection: Foundations are separate legal entities owning all of the assets protecting the founder and beneficiaries from future creditors.
• English: As one of its three official languages, English is widely spoken and all documents can be in English.
Aruba Private Foundation Name
Every foundation must select name completely different from the name of any other legal entity in Aruba.
The foundation’s name must end with the word “Foundation” to avoid confusion regarding what type of legal entity it is. English is one of Aruba’s three official languages. The Dutch word for a foundation is a “Stichting” which may also be used at the end of a foundation’s name.
Formation
A foundation is created by a written notarized legal document called a Deed of Incorporation which includes an Articles of Association (bylaws). The Deed of Incorporation must include the foundation’s name, its purpose, and the methods used to appoint board members and their dismissal.
Registration
The foundation is registered with the Aruba Chamber of Commerce which has since 1988 by law manages the Foundations Register. Every Aruba foundation must register with the Chamber’s Register.
The following information are required to be filed with the Foundations Register:
• Foundation’s name (statutory and abbreviated form;
• Foundation’s address;
• Foundation’s purpose;
• Original Deed of Incorporation; and
• Copy of the Articles of Association (bylaws).
The Foundation Register produces an extract containing the most important data regarding registered foundations including: foundation’s name, purposes, registration number, date established, and the owners or managers. This is a public record accessible to the entire public. However, the names of the beneficiaries and description of the assets and their locations are not included in the public records.
Articles of Association
The Articles of Association are similar to a corporation’s or company’s bylaws. They provide the purpose and rules of operating the foundation including how board members are appointed, compensated, and removed along with their powers and duties. The appointment and removal and rights of the beneficiaries are also included. In addition, the duration of the foundation’s lifespan and how it dissolves or terminates are included.
Assets
Foundations do not have a capital like a company or a corporation. Instead, a foundation’s founder transfers ownership of his or her assets (properties, funds, etc.) to the foundation. Initial assets are transferred to the foundation at the time of formation and later on more assets can be transferred to the foundation.
Assets can be located anywhere in the world. However, to encourage complete tax exemptions, assets located in Aruba are not transferred to the foundation.
Foundations can open bank accounts in Aruba under the foundation’s name where funds outside of Aruba can be transferred into those accounts.
Founder
The creator of a foundation is called the “founder” who can be a citizen of any other country and live anywhere outside of Aruba for tax purposes.
Beneficiaries
The persons benefiting from a foundation are called the “beneficiaries” who can be citizens in any other country than Aruba and reside outside of Aruba for tax purposes.
Management
A board of managing directors manages the foundation and its assets. The articles of association define the powers and duties of the board and its members.
Taxes
If a private foundation engages in an active business it will be subject to the corporate tax rate of 25% on its profits. However, if the sources of income come from the following activities the foundation will become totally tax exempt:
• Holding Company: A foundation can hold the shares of international companies and corporations.
(a) However, total tax exemption only occurs when those shares are with companies and corporations located in countries whose corporate tax rate is higher than Aruba’s 25%. This means that countries with a corporate tax rate of higher than 12.5% qualify for the tax exemption which consists of most countries.
(b) For those countries with corporate tax rates lower than 12.5%, an exception exists when the dividends received by the foundation amount to less than 5% of the total dividends received in the same tax year.
• Passive Income: All income obtained from passive investments like real estate or normal asset management portfolios.
• Financing Services: Providing private loans to third parties and not acting as a financing company qualifies. This includes providing leases, cash management, and hedge funding services.
• Shares Trade: Trading corporate shares is allowed.
• Intellectual Properties Licenses: Licensing industrial or intellectual property rights like a copyright, patent, or trademark and collecting lease income and royalties are permissible.
Note: U.S. taxpayers and all others paying taxes on their worldwide income must report all income to their tax agencies.
Public Records
Every document filed with the Foundations Register are open to the public.
Time for Formation
A foundation can be formed and registered within 2 business days
Conclusion
An Aruba Private Foundation enjoys the following benefits: total foreign participation, tax exemptions, estate planning, asset protection, and English is widely spoken.
