Reduced Rate for Lump Sum Payments from the Surrender of Pensions Announced
Tax Newsflash Aruba
Directors being major shareholders have the option to accrue a self-administered pension in their own companies. This self-administered pension is not insured by an (external) insurer. This possibility does not exist for other employees. Correct application of the relevant tax regulations for self-administered pensions makes practical implementation and enforcement extremely complicated.
To address this, the government will soon introduce legislation that rules out the possibility of (further) accrual of a self-administered pension. At the same time, it will become possible to surrender all or part of the accrued pension in the first half of the year 2020 at a reduced income tax rate of ten percent (10%). In the second half of 2020, surrender of accrued pension will still be possible at the current rate of twenty five percent (25%). As from 2021, lump sum payments based on the surrender of pension will be taxed at the progressive rate, which means that the tax burden will be considerably higher.
In anticipation of the codification of the aforementioned legislation, the Minister of Finance, Economic Affairs and Culture approves that payments based on the surrender of pensions are taxed at a rate of 10% insofar as these pension lump sum payments are received between January 1, 2020 and June 30, 2020. This applies to both the surrender of accrued self-administered pensions or already commenced pensions, regardless of whether these are placed under an executive pension entity or a professional insurer, unless a national ordinance or a contractual provision prohibits such surrender.
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