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Income Tax in Argentina




Individual - Taxes on personal income:

Individuals resident in Argentina are taxable on worldwide income and may obtain a foreign tax credit for taxes paid on income from foreign sources.

Non-residents and foreign beneficiaries are only taxable on their Argentine-source income.

Residents and non-residents are taxed at progressive income tax rates ranging from 5% to 35%, however special tax rates are of application in case of gains derived from securities (including dividends), interest and real property.

Personal income tax (PIT) rates

The following PIT rates are currently applicable:

Taxable Income (ARS)
Tax on Excess (%)
Over
Not Over
0
20,000
5
20,001
40,000
9
40,001
60,000
12
60,001
80,000
15
80,001
120,000
19
120,001
160,000
23
160,001
240,000
27
240,001
320,000
31
320,001
And over
35

Gross income tax:

Gross income tax is a provincial tax applicable to self-employed individuals on gross earnings. The average tax rate is 4% in the Federal Capital (the city of Buenos Aires), and similar rates are applicable in the different provinces. Professionals who do not perform their activity in the form of a company are exempt from the gross income tax in the city of Buenos Aires. The tax is paid by filing monthly tax returns.

Foreign beneficiary tax:

Foreign beneficiaries working temporarily in Argentina for no more than six months during the year, who earn income through either the visual or performing arts or other profession, are subject to income tax on these earnings at the rate of 24.5% (35% on assumed profit of 70% of gross income) to be withheld by the local payer. Other tax rates could apply depending on the type of income to be paid.

Income determination:

Employment income:

All remuneration paid in cash or in kind, including allowances, reimbursements, or paid expenses (e.g. housing and cost-of-living allowances, school fees, tax reimbursements), is taxable without regard to length of residence or source of income.

Business expenses paid directly or reimbursed on an actual basis by the employer are not considered taxable income. However, lump-sum payments would be subject to taxation. The use of a company car for business purposes is not considered taxable income. However, the deductibility of the related costs and expenses by the employer is subject to limitations.

Equity compensation:

Equity compensation must be reported and taxed through the individual payroll.

Income from stock options is determined as the difference between the fair market value of the stock when the option is exercised, and the price actually paid by the individual. Taxation is triggered at the moment of the option exercise.

There are no further rules in force regarding the taxation of other equity compensation plans or taxation in cross-border scenarios.

Business income:

Earnings from carrying out a commercial activity, professional work, rental, etc. in Argentina are subject to tax. Self-employment income is taxable at the same progressive income tax rates as income of employees ranging from 5% to 35%.

Capital gains:

As from 2018, capital gains derived from the transfer of shares and other participations in collective investment funds are are liable to PIT at a 15% tax rate. A tax exemption is applicable for these securities to the extent they have been issued in an IPO or they have been traded in stock markets under the jurisdiction of the Argentine Security Exchange Commission.

Capital gains derived from the transfer of government or corporate bonds and other securities are subject to a 5% capital gains tax to the extent issued in Argentine Pesos without indexation mechanisms or 15% if issued in foreign currency or in Argentine pesos with indexation mechanisms. Capital gains derived from digital currencies are subject to a 15% capital gains tax.

The transfer of Argentine shares, bonds and quotas by non-residents is exempted from capital gain taxes in Argentina to the extent they reside or the funds derive from cooperative jurisdictions for Argentine tax purposes. To the extent the exemption is not applicable, non-residents are subject to the above 5% or 15% capital gain taxes calculated by applying the corresponding tax rate on a presumed gross margin of 90% (effective tax rate: 4.5% or 13.5%) or on the actual gain.

Transfer of real property by Argentine individuals is subject as from 2018 to a 15% capital gains tax calculated on the actual gain. The transfer of real property will only be subject to tax if said assets have been acquired after January 1, 2018.

Dividend income:

Dividends paid by foreign companies are treated as foreign source income. They are taxable if distributed to residents at general PIT rates, but are not taxable if the beneficiary is a non-resident.

In case of dividends distributed by an Argentine company corresponding to fiscal years 2017 and earlier, distributing entities are required to make a flat and final income tax withholding of 35% from dividend payments or profit distributions to resident or non-resident payees, to the extent that the amount of such dividends or profit distributions exceeds the taxable income of the distributing company, determined by applying the general tax rules (i.e. without considering any exemptions, abatements, and other adjustments arising from special promotional laws) included in their retained earnings at the end of the fiscal year immediately preceding the date of payment or distribution.

Dividend distributed in connection with fiscal years 2018 and 2019, are subject to a 7% withholding tax, whereas dividends in relation to fiscal years 2020 and following ones will be subject to a 13% withholding tax.

Interest income:

Interest income from Argentine or foreign sources are subject to PIT. However, the interest on savings bank accounts in Argentine banks is exempt from income tax.

Rental income:

Residents must report their worldwide rental income. Non-residents are taxable only on rental income from assets, including real estate, located in Argentina. Actual expenses incurred to maintain the property are deductible.

Rental income must be included in the annual PIT return and will be taxed at the general PIT rates. However, it should be considered that income tax withholding may be applicable on rental payments, depending on the tax status of the paying entity, which will be creditable in the annual tax return.

Exempt income:

The most relevant exempt income items include the following:

·        Interest from saving accounts in Argentina.
·        Author's royalties up to an annual amount of ARS 10,000.
·     Dividends distributed by Argentine companies in connection with fiscal years 2017 and previous ones provided they are paid from profits that have been subject to corporate income tax.
·   Compensation received in the performance of their duties by diplomatic agents, consular, and other official representatives of foreign countries in Argentina.
·        Severance payments paid as seniority in accordance to the Labor Contract Law, subject to limitations.
·     Shares and other participation in entities’ capital gains, provided the respective transactions are publicly traded in stock markets under the jurisdiction of the Argentine Security Exchange Commission (Comisión Nacional de Valores) or the security has been issued in an IPO.

Resident Rules:

Taxation of individuals depends upon the determination of residency status; Individuals may be classified as residents, non-residents or foreign beneficiaries.

Residents include the following:

·        Argentine nationals living in Argentina.
·     Argentine nationals working abroad during the first 13 months of living abroad (tax residence status is lost from the first day of the 14th month), or when they have obtained a permanent residence for migration purposes in a foreign country; whichever occurs first.
·        Foreign nationals assigned to work in Argentina for more than five years.
·      Foreign individuals residing in Argentina (for reasons other than work) for more than 12 months, as of the 13th month of presence in Argentina.

Non-residents include:

·        Foreign nationals assigned to work in Argentina for less than five years.

Foreign beneficiaries include the following:

·        Individuals working temporarily in Argentina for less than six months in a calendar year.
·        Argentine nationals working abroad once they have lost the tax residence status (i.e. as of the first day of the 14th month, or when they have obtained a permanent residence for migration purposes in a foreign country, whichever occurs first).
·        Foreign nationals residing abroad.




Tax administration:

Taxable period:

Tax for individuals in Argentina is assessable on a calendar-year basis.

Payment of tax:

Income tax is withheld from salaries. Employers are required to withhold these taxes on a monthly and actual basis at the appropriate personal rates applied to the net taxable remuneration of each employee.

Self-employed workers must pay the balance due on their taxes subsequent to the filing of the respective tax return at the authorised banks. Payments can also be made electronically from the web pages of Argentine banks.

The due date for payment of individual income taxes determined in a tax return is the day following the tax return filing due date which depends on the individual tax identification, Clave Unica de Identificación Tributaria (CUIT).

Tax returns:

The earnings of each spouse (e.g. from employment and business activities) are assessable separately and individually.

With respect to registered taxpayers, the general due date for filing a return is June of each year.

Individual PIT returns are not required to be filed for payment purposes by employees who have no sources of income other than payroll compensation, since the tax must be duly withheld at source by the employer.

However, employees with annual gross compensation higher than ARS 1,000,000 must file a PIT return for information purposes by 30 June of each year. In addition, the company should prepare by the end of April of the following year, an annual wage tax return reporting the annual compensation, deductions, and withholdings performed for each fiscal year (which is not required to be filed with the tax authorities), but a copy should be provided to the employee upon special request.

In addition, employees with annual gross compensation over ARS 1,000,000 are also required to report their personal assets as of 31 December of the year (locally and abroad) in a separate information PIT return, which is also due on 30 June of each year.

Resident and non-resident employees who receive taxable income other than employment income are required to file an annual Argentine PIT return for payment purposes in June of the following year.

Self-employed workers (including members of boards of directors) must register with the tax authorities and file an annual PIT return in June of every year. In addition, they are required to make advance payments on account of their income tax liability of the current year based on their income tax liability of the prior fiscal year.

Foreign beneficiaries have no filing obligations, since they are subject to income tax withholding at source by the local paying entity on a final and definite basis.

Tax returns are filed electronically. It is required that the taxpayer applies personally for a special fiscal code (clave fiscal) to be able to access the tax authorities' website.




Corporate - Taxes on corporate income:

Profits tax:

According to the recent tax reform the rate of profits tax on net taxable business profits has been reduced to 30% (formerly 35%) for fiscal years beginning on or after January 1st, 2018. Such rate would be further reduced to 25% for fiscal years beginning on or after January 1st, 2020.. Legal entities resident in Argentina are subject to tax on Argentine and foreign-source income. Resident legal entities are able to claim any similar taxes actually paid abroad on foreign-source income as a tax credit. The tax rate applies on net income determined on a worldwide basis.

The aforementioned tax reform also introduced a withholding tax on dividend distributions and branch profit remittances at rates of 7% (while the applicable corporate income tax rate is at 30%) and 13% going forward.

The tax reform has also abolished the so-called equalization tax for profits generated in taxable years starting on or after January 1st, 2018. The equalization tax was a withholding tax that levied at a 35% rate on dividend distributions in excess of tax earnings. The equalization tax, however, remains applicable on dividend and branch profit distributions made out of earnings accumulated prior to January 1, 2018 and which were in excess of tax earnings as of the year-end prior to the relevant distribution.

Argentine-source income (e.g. royalties, interests) received by foreign entities is subject to WHT in full and final settlement at source.

Tax on minimum notional income:

In addition to the profits tax, there is a tax on minimum notional income. The rate is 1% on the value of fixed and current assets. The presumed tax, imposed annually, is applied only in excess of the profits tax of the same fiscal year. In addition, payment of this presumed tax, not offset by the profits tax, will be treated as payment on account of profits tax chargeable during a maximum period of ten years.

Banking and insurance entities are only subject to this tax on 20% of the corresponding taxable assets.

This tax will be repealed as of 2019.

Income determination:

Inventory valuation:

Inventory valuation is based on the latest purchase. Thus, the last in first out (LIFO) method may not be elected for tax purposes. Conformity between book and tax reporting is not required.

Capital gains/losses:

Capital gains and losses attract normal profits tax treatment, except that losses from the sale of shares and other equity interests may be offset only against the same type of income.

Capital gains on equity:

Gains derived from the transfer of shares, bonds, and other securities are subject to tax at the regular 30% rate (to be reduced to 25% as from fiscal year beginning on or after 2020).

Non-residents are subject to capital gains tax on the disposal of Argentine equities at a 13.5% effective tax rate on gross proceeds or, alternatively, a 15% income tax on the actual capital gain if the seller’s tax cost basis can be duly documented for Argentine tax purposes. Disposal of equities listed in the local stock exchange and ADRs/GDRs are tax exempt provided certain conditions are met.

Capital gains on debts:

Capital gains derived by foreign beneficiaries from the sale of corporate bonds placed by public offer (obligaciones negociables), notes issued by financial trusts (títulos de deuda), or government securities (except from LEBACs) should be exempt from income tax provided certain conditions are met.

Dividend income:

Dividends, including stock dividends, are not included in the tax base by the recipient if distributed by an Argentine company. However, tax is levied if the dividends are distributed by a foreign company.

Royalty income:

Royalty income should be included as part of the taxpayer’s taxable income and will be subject to the standard profits tax rate.

Foreign exchange gains/losses:

The general rule is that foreign exchange results (gain or losses) have to be recognised on an accrual basis. However, in some cases, the cash basis is applicable.

Foreign exchange losses can only be offset against foreign-source taxable income.

Foreign income:

Foreign income received or held undistributed abroad (in case of investments in non-stock companies) by resident corporations is subject to tax. Note that an Argentine taxpayer is immediately taxed on the passive income generated by a CFC that is directly or indirectly held by the Argentine taxpayer to the extent that more than 50% of that CFC’s income is passive and is effectively subject to a tax that is lower than 75% of the applicable Argentine income tax rate. Tax losses from a foreign source can only be offset against income from a foreign source.

Corporate residence:

Corporate residence is determined on the basis of centres of activity, which may be the location of a company’s economic activity or management activity.

Permanent establishment (PE):

Centres of activity in Argentina of non-Argentine corporations are treated as PEs.

As part of the 2017 tax reform a permanent establishment definition has been introduced into the Income Tax Law. Such a definition is aligned to the one included in the OECD's Model Tax Convention for the Avoidance of Double Taxation.

Tax administration:

Taxable period:

Tax is assessed on a fiscal-year, self-assessment basis, which may or may not match the calendar year.

Tax returns:

The due date for filing the profits and the minimum notional income tax return is during the second week of the fifth month after the fiscal year-end. Tax returns are filed electronically.

Payment of tax:

Instalment payments on account of both profits tax and minimum notional income tax must be made in the course of the tax year. The instalment payments must be made on a monthly basis, beginning in the first month after the due date of filing of the tax returns.

Penalties:

Penalties derived from tax infractions may be applied by tax authorities, as follows:

·        Failing to file the tax return: Fines range between ARS 200 and ARS 400.
·        Tax omission: Fine of 100% of unpaid taxes.
·        Tax avoidance: Fines range between two and six times the avoided tax.
·        Certain tax infractions may be penalised by closing the business premises for two to six days. In addition, fines ranging between ARS 3,000 and ARS 100,000 may be imposed.
·        Simple evasion: Entities or individuals evading payment of social security contributions or withholdings, or both, payable to the tax authorities under the social security regime, through deceitful declarations, malicious concealment, or any fraudulent or deceitful procedure, either through action or omission, in excess of ARS 200,000 per fiscal period, shall be punished with two to six years’ imprisonment. Such amount will be ARS 1,500,000 in the case of taxes, it being applied by tax and by fiscal year.
·        If the infringement qualifies as aggravated evasion: Imprisonment could be extended from three years and six months to nine years in certain situations.

Interest on late payments:

Late payment of taxes is subject to a monthly 3% interest rate. Interest will start accruing on the day after the filing due date.



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Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.




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This blog is Created by CA Anil Kumar Jain.