The BBO tax on the border: Fair & Equitable ?

The BBO tax on the border: Fair & Equitable 


In an earlier column, I argued in favor of a border tax similar to a VAT as part of the Tax Reform 2023. Later, it was announced that a similar tax would take effect on June 1, 2023. Based on the latest information available,  I will provide some insights. I will share some insights based on information provided by the tax authorities.

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The BBO at the border

The BBO, as we know it to date, will be expanded to include an indirect tax on goods imported into the island.   The proposed change is based on a law presented at parliament in February 2020 before COVID hit and changed our lives forever. There will be some changes to the new law.

New word “trade goods”

The definition of BBO will be expanded to cover the BBO at the border. The tax at the border will apply to all goods. There will be some exceptions, including certain materials intended for manufacturing and production. There will also be an offset mechanism that will act like the traditional VAT offset except that the offset will not work through to the end-consumer of the goods. The director of the Tax Department, Luanne Gomez-Pieters, has called it a VAT-hybrid system. In case you are wondering, no, she is not related. The term “trade goods” is already used in our Dutch legal system. It refers to goods imported for direct sale in their unaltered form. Think, for example, frozen meats, chicken, and other foods imported by wholesalers for further sale and distribution to retailers that will eventually make their way to the end consumer.

Similarly, think of wine and spirits and non-alcoholic beverages. The same would apply to merchants who, for example, buy inventory of AC units or furniture sold to end consumers. The Japanese imported Right Hand Drive vehicles will also be subject to BBO.


For all these items, the importer will pay 7% at the time of import in addition to the applicable import duties (BBO import). When the importer sells these goods, he will levy a BBO to the buyer (BBO out).  When the importer gets ready to file his monthly BBO tax filing, the amount of BBO import will be reflected in the importer’s Bo Impuesto account, and he will then add the total of the BBO that he collected and settle this against the BBO In. This is similar to what would be the case in a VAT system.

This offset mechanism is contrary to the traditional BBO system, which is cumulative and drives prices up each time it goes down the line.

Fair & equitable

This new system will not lead to an increase in prices, but it will create a level playing field for those importers that otherwise would not comply with their obligation to contribute their fair share of BBO. This, in turn, will help increase BBO tax compliance.  Those who traditionally would skip out of their obligation now have a commercial incentive to comply because they will have no choice but to pay the BBO at the import ( BBO in). They would lose the right to set off if they don’t pay their BBO their sales (BBO out). An example of this would be the dude that imports a handful of iPhones or sneakers and sells these on Facebook and skips out on paying BBO on the sales.

Online sales

Online sales will also be taxed at the border at 7%. While this will make your online purchases 7% more expensive, it will also create a level playing field between online retailers like Amazon and our local brick-and-mortar retailers. As a community, we benefit by having a vibrant retail infrastructure.

Tax compliance

Tax compliance is critical to any business operation and the country’s treasury. This country relies heavily on its tax system to fund public services, education, health, and infrastructure. Tax compliance also helps to create a level playing field for businesses operating in the same industry, preventing unfair competition and promoting a healthy business environment. Another benefit of tax compliance is that it helps companies avoid penalties and legal consequences arising from non-compliance. The penalties for non-compliance can be severe, including fines and interest charges. By complying with tax laws, businesses can avoid these risks and focus on growing their operations without the added burden of legal issues.

Process or prepare

The law contains another category that allows for a BBO offset. It applies when a good is imported and is either  processed or prepared for sale in one’s own business. Let me illustrate. A carpenter that directly imports wood to make furniture will pay BBO at import (BBO in), but once he has made the furniture and sold it to a customer, he will be able to offset the BBO (BBO out).  Creative entrepreneurs can use this offset to produce and manufacture at competitive rates and cater, among others, to the hospitality industry and the tourists that visit. This is an excellent example of a tax measure that stimulates business.


Hotels will also have the BBO offset right; however, this offset is limited only to their non-room revenue, such as their income from food & beverage, entities, and other services they provide. This is a benefit for the hotels since many prefer to direct import rather than purchasing from local wholesalers and contributing to the economy. They do this because they can save the BBO they would have to pay otherwise when they buy from a wholesaler. The higher the BBO, the higher the incentive to self-import.

Restaurants that import food and beverage items will also be entitled to the offset. Think of meats, seafood, wine, and spirits imported by them to be served in their restaurants. While these are not traditional trade goods, the offset is made possible because they process or prepare the goods before serving them. This is based on an expansive interpretation and has been adopted to avoid discussions.

While this system will create additional revenue for the treasury when hotels direct import, the treasury will lose out (again) by allowing the hotel to offset the BBO instead of having the hotels pay the BBO. This proposal will also again create an unlevel level playing field between the purchasing department of the hotels that directly import vis-a-vis the traditional wholesalers. To maximize revenue for the treasury, the GoA should remove the “process or prepare”-language in the proposed legislation and limit the off-set right to trade goods. At least until a full-blown VAT (BTW) legislation is introduced, allowing a B2B  deduction for wholesalers. Local manufacturers can still get the BBO by importing raw materials based on the “Industrial Enterprise”-exemption. In retrospect, it appears that the example the carpenter used to “sell” the “process or prepare” amendment was merely a clever disguise to benefit the ultimately the hotels. Hotels that to date have all kinds of fiscal perks that pay, in some cases, a fraction of the profit tax rate than other businesses pay. (1)

Condo development & vacation rentals

Condo developers, including foreign developers and vacation rental operators, must now pay BBO at the border when importing building materials, furniture, fixtures, and equipment (FF&E).  Yes, this will add a cost of 7% to their imports, but they are unique enough to be exempt from taxes. I saw a luxury condo developer stating that this would lead to higher local construction costs. How ironic coming from a man whose only interest is to sell million-dollar condos to other foreigners and who has contributed to Aruba’s Housing Crisis. He also had the gall to criticize the tax because it was promoted by “a few local businesses”’. He is wrong; this was an initiative from the government dating back to February 2020. That comment is not much of a show of respect for our business community and the community that has welcomed him to the island.

He should remember that our tourism pioneers developed tourism to help the locals, not foreigners. His “solution” to create an offset for the BBO in that he will now have to pay on his direct imports against the real estate transfer taxes paid or to be paid can hardly be considered serious, selfish at best, but one can’t blame a guy for trying, I guess.


Soon, the Fiscal Reform 2023-2 will be presented before parliament. BBO will bring in much-needed revenue to the Treasury. The BBO will be expanded to include more people as of 1 June 2023. The offset mechanism will not affect the prices in our supermarkets. Online sales and other businesses that avoided the BBO tax will be encouraged to pay their fair share. The Reform will level the playing field between firms in the same sector, prevent unfair competition and cannibalization, and promote a healthy business climate.


(1) Edited 04/30/2023

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