The Aruba Exempt Company (AVV) is phased out
Pursuant to a legislative proposal dated 5 June 2019[1], ‘Book 2 of the Civil Code of Aruba regulating legal entities’ was introduced (“Book 2”). The legislation has subsequently been amended[2] and will enter into force on 1 January 2021[3]. Through the introduction of Book 2, amongst others, the legal form of the Aruba Tax Exempt Company (“AVV”) will effectively be abolished[4].
At the time Book 2 takes effect, existing and active AVVs, will be governed by the provisions applicable to the Aruba Limited Liability Company (“VBA”). Based on the transitional regulations, said AVVs must amend their articles of association to conform to Book 2 by converting into another (Aruba) legal form (for example, a public limited company (“NV”) or VBA) within three (3) years of the introduction of Book 2, i.e. no later than 31 December 2023. Until such time, they may continue to operate using the name “Aruba Exempt Company” or “AVV”.
If you are currently using an AVV, a viable option for the time when Book 2 takes effect is the VBA. A VBA is quite similar to an AVV and therefore a good alternative to take the place of the AVV. Both legal entities may be held by resident and/or non-resident shareholders and have no minimum capital. A VBA must have at least one resident managing director or representative (registered agent) but may have foreign directors as well. Also, both individuals and legal entities may be appointed as managing directors of a VBA
It is currently possible to voluntarily convert an AVV into a VBA in anticipation of the implementation of Book 2. The Ordinance Limited Liability Company[5] (“Ordinance”), allows an AVV to convert into a VBA through an amendment of its articles of association. In order to convert an AVV into a VBA, the general meeting of shareholders must resolve to convert the AVV into a VBA (i.e. to amend its articles of association). With respect to this resolution, it is important to note that the requirements stated in an AVV’s articles of association in order to amend said articles must be taken into account.
A conversion of an AVV into a VBA on the basis of the Ordinance is considered a conversion under universal title from one legal form into another for corporate law purposes. As a result, the (former) AVV will have legal continuity (i.e. will continue to exist and will not be deemed to have been dissolved prior to conversion).
Because of the aforementioned legal continuity, we believe that an AVV’s qualification for profit tax purposes (for example, an AVV with pass-through status) will apply to the new legal form as well as long as the requirements therefor are met. However, for the avoidance of any doubt, we recommend requesting the Tax Inspector of Aruba to confirm same.
For further information, please contact:
Anjli Finessi, tax adviser, finessi@bakertillycuracao.com
Jeroen Diekerhof, tax adviser, diekerhof@bakertillycuracao.com
Arthur van Aalst, tax attorney, vanaalst@bakertillycuracao.com
[1] AB 2019, no. 38. Landsverordening van 5 juni 2019 tot wijziging van het Burgerlijk Wetboek van Aruba (AB 1989 no. GT 100) houdende invoering van een Boek 2 inzake het rechtspersonenrecht (Landsverordening invoering Boek 2 inzake het rechtspersonenrecht).
[2] Most recently on 21 October 2020.
[3] AB 2020, no. 172.
[4] The AVV is regulated in the Aruba Commercial code which will be repealed when Book 2 takes effect.
[5] Article 63, paragraph 1 of the Ordinance Limited Liability Company, AB 2008, no. 62 (in Dutch: “Landsverordening vennootschap met beperkte aansprakelijkheid”).