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Starting from January 2025, Aruba has approved changes to the income tax and payroll tax rates that will significantly affect both employees and employers. The new regulations bring about a reduction in tax rates, meaning a majority of taxpayers will pay less tax in the coming year.
The reduction is especially impactful for employees receiving wages and for business owners operating one-man businesses, ensuring that they retain more of their earnings. The tax-free sum has been increased to Afl. 30,000, meaning individuals with annual income up to that amount will be exempt from paying both income tax and payroll tax.
Key Changes in Tax Rates for 2025:
- Tax-Free Sum: Individuals earning up to Afl. 30,000 per year will not be required to pay income tax or payroll tax.
- Lower Tax Rates: For income levels above the tax-free sum, the rates have been reduced, meaning businesses and employees will pay a lower percentage in taxes compared to previous years.
- Employee Benefits: For employees, these changes could result in a higher net salary, as less payroll tax will be deducted from their earnings.
Income Tax & Payroll Tax Table for 2025
The updated income tax and payroll tax tables for 2025 are as follows:
| Income Range (Afl.) | Taxable Amount (Afl.) | Tax Percentage |
|---|---|---|
| Up to Afl. 34,930 | Afl. 0.00 | 0% |
| Afl. 34,930 – Afl. 63,904 | Afl. 0.00 | 21% |
| Afl. 63,904 – Afl. 135,527 | Afl. 6,084.54 | 42% |
| Above Afl. 135,527 | Afl. 36,166.20 | 52% |
Explanation of the Changes:
- Tax-Free Sum: The tax-free sum of Afl. 30,000 means that individuals and business owners earning this amount or less will be completely exempt from income and payroll taxes. This applies to both private individuals and one-man businesses.
- Reduction in Tax Rates:
- Category 1 (Income up to Afl. 34,930): No tax is due, as the tax rate has been reduced from 10% to 0%.
- Category 2 (Income between Afl. 34,930 and Afl. 63,904): No changes in the tax rate (remains 21%).
- Category 3 (Income between Afl. 63,904 and Afl. 135,527): The tax amount has been reduced from Afl. 9,577.33 to Afl. 6,084.54.
- Category 4 (Income above Afl. 135,527): The tax amount has been reduced from Afl. 39,659.20 to Afl. 36,166.20.
How is the Tax Calculated?
To calculate the tax owed for the year, follow these steps:
- Deduct the Tax-Free Sum: If your income is above Afl. 30,000, subtract this amount from your total annual income.
- Apply the Tax Table: After deducting the tax-free sum, apply the relevant tax rate from the updated income and payroll tax table to the remaining amount.
For example, if you earn Afl. 50,000 in 2025:
- First, subtract the tax-free sum (Afl. 30,000), leaving Afl. 20,000.
- Then, apply the 21% tax rate on the Afl. 20,000. The tax due will be Afl. 4,200.
Tools for Employers and Employees
The Department of Taxes in Aruba provides an online calculator to help employers and employees automatically calculate the applicable income tax and payroll tax. You can access this calculator on the official website www.impuesto.aw, where you can download the Income Tax/Payroll Tax 2025 Calculator.
What Does This Mean for Employees?
These changes, particularly the tax-free sum, will benefit employees with lower wages as they will retain more of their earnings. For higher earners, the reduced rates will help minimize tax burdens and leave more money in hand.
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