Argentina

6 Chapter Tax Law

    • Overview of Tax Law.

       

      Taxes are regulated by the Income Tax Law, VAT Law, Tax Procedures Law and the tax authority is the AFIP (Administración Federal de Ingresos Públicos). Argentina has 19 tax treaties, and has signed with the OECD.


      1.1. Law related tax

      1.1.1.     Direct tax.

      Income tax: Residents are taxed on their worldwide income and non-residents are taxed on the income originated in Argentina. This tax is paid from the net income of a total fiscal year in which it accrues.

      Presumed Minimum Income Tax: levied on all the assets from an Argentinian company and other entities like trusts, the tax rate is 1% and this applies if the total value of assets is more than $200,000 Argentinian pesos at the end of the financial year.

      Personal Assets Tax: This tax applies when the value of total assets owned exceed $305,000 in Argentinian currency. All individuals living in Argentina are subject to a tax upon their worldwide income and individuals not living in the country are liable for this tax only on their Argentinian assets.

      Other taxes: Other taxes such as on immovable property levied by the provinces.


      1.1.2.     Indirect tax.

      Indirect taxes in Argentina are the following:

      -Value Added Tax.

      -Capital Tax.

      -Real Estate Tax.

      -Transfer Tax.

      -Stamp Duty.

      -Customs and Excise Duties.

      -Environmental Taxes.

      -Other Taxes.


    • Corporate Income Tax.

       

      2.1.1.    Who is subject to Corporate Income Tax?

      Taxable individuals are stock corporations, limited liability companies, limited partnerships, permanent establishments, or any company or individual related with any business activity or an enterprise, that results in a partnership or individuals applying to the corporate rules for a taxable base.


      2.1.2.    Non-taxable Income.

      Some examples are:

      -Dividends from an Argentinian source from registered shares, premium derived by stock corporations, (limited liability companies, or other types) from contributions to their capital.

      -Remuneration of diplomats. consular agents and other official representatives of foreign countries in the country.

      -Earnings of entities exempt from taxes.

      -Earnings of religious institutions.

      -Earnings of associations, foundations and civil entities of social assistance public health, charity, beneficence, education, scientific, etc.

      -The compensation for seniority in cases of dismissals.

      2.1.3.    Non-deductible expenses.

      Some examples are:

      -Expenses related to exempt income and expenses related to personal expenses of the shareholders and their families.

      -Interest on the capital (from the company, member or partner)

      -Losses under illegal operations.

      -Salaries with a withdrawal of income.

      -Taxes on income.

      -Taxes on unimproved land.


      2.2. Deductible Expenses.

      A) Interest on debts and expenses originated by construction, renewal or cancellation of the same.

      B) Payments for insurance in case of death (in mixed insurance only the premium that covers the risk of death will be deductible).

      C) Donations to national, provincial, and municipal treasuries (there are some restrictions indicated in the law)

      D) Funeral expenses.

      E) Contributions or discounts for retirement funds, withdrawals, pensions or subsidies that are destined to national, provincial or municipal funds.

      F) Amortization of the revaluation balance (indicated in Law 17,335)


      2.2.1.     Organization expenses.

      After the incorporation and at the start of the company expenses may be deducted when incurred or amortized over not more than five years.


      2.2.2.     Bad debt loss.

      The deduction of accounting bad debts is not allowed for tax purposes, only when there is sufficient proof  expenses can be deducted for example with bankruptcy, prescription, etc.

      2.2.3.     Travel expenses

      Deductible business expenses are those expenses which are necessary to obtain income or to maintain or preserve the source of income, this is the case with travel expenses. If the expenses are done to obtain income then this expense is deductible.


      2.3. Real estate

      2.3.1.     Tangible real estate

      [Depreciation cost]

      Depreciation is usually computed on a straight line basis over the estimated useful life of assets, ranges may be from 2% to 33%, this method is by dividing the cost of the assets subject to depreciation by the number of years of their estimated useful life. An accelerated depreciation system is available for investment in capital assets and infrastructure project under special regime.


      Some examples of depreciation percentages are the following:

      -Vehicles 20%

      -Office furniture 10%

      -Machinery and equipment 10%

      -Building and immovable assets 2%


      2.3.2.     Intangible real estate

      [Depreciation cost]

      Intangible assets without a definite life, like goodwill or brands, etc., are measured at the original cost and may not be amortized for income tax purposes.


      2.4. Calculation

      All income and gains is subject to corporate income tax at a rate of 35%.


      2.5. Filling of Return/Payment and Refund

      Tax is assessed on a fiscal year and is self-assessed. All companies must file their tax return within five months of the end of their fiscal year. Consolidated returns are not allowed and each company has to file a separate return. Payments are done every month ten times in respect to income tax, this has to start in the sixth month of the fiscal year, the first payment will be of 25%, the remaining of 8.33%.There is an interest on late payments 3% every month and fines from 100% to 200%, evasion is subject to a higher penalty.


    • Personal Income Tax.

       

      3.1. Resident/non-resident definition.


      Residents

      Non residents

      Nationals

      Foreigners staying in Argentina for work for less than 5 years.

      Nationals working abroad

      Foreign diplomats

      Foreign nationals with a permanent visa

      Foreign members of international organizations
       

      Foreigners that stay in the country with temporary visas for studies or research.

      3.2.Taxable Income.

      Income is considered by Law to be the following:

      -Permanent Income and gains

      -Capital gains from alienation of movable property that is subject to depreciation, or from alienation of shares and other interest in the company's capital, bonds and other securities.

      -Any other income from alienation of trademarks, patents and other right to earn royalties or income flow.


      Income is divided in four categories.


      First Category Income

      From immovable property (rental or any other form ownership)

      Second Category Income

      From capital assets (from securities, bonds, treasury bills, debentures, guarantees, financing, loans, lease of movable property, royalties and periodic subsidies, life pensions and gains, etc.)

      Third Category Income

      Derived by companies (proprietorship in Argentina, transfer of certain immovable property, activities of commission agents, auctioneers not included in the fourth category, trusts.)

      Fourth Category Income

      From employment and personal work (earnings from public positions, employment, retirement, professional, earnings, etc.)


      3.3.Non-taxable Income.

      This are some examples:

      -Gifts and inheritance.

      -Gains from the sale, exchange and disposal of shares, bonds or other securities.

      -Income subject to tax for games and sporting events.

      -Certain interest, royalties and other income from copyright by the author (up to an annual amount of 10,000 argentine pesos)

      -Interest accrued on savings accounts and fixed time deposits.


      3.4.Non-deductible Income.

      The personal and support expenses of the taxpayer and his family, (exemptions indicated in in articles 22 and 23 of the Tax Law).


      3.5. Calculation.

      Residents are taxed on their worldwide income and non-residents on their argentine source income.


      Personal Income Tax

      (Argentine pesos)

      Rate

      %

      0 - 20,000

      5%

      20,000 - 40,000

      $ 1,000 (+ 9% on excess)

      40,000 - 60,000

      $ 2,800 (+ 12% on excess)

      60,000 - 80,000

      $ 5,200 (+ 15% on excess)

      80,000 - 120,000

      $ 8,200 (+ 19% on excess)

      120,000 - 160,000

      $ 15,800 (+ 23% on excess)

      160,000 - 240,000

      $ 25,000 (+ 27% on excess)

      240,000 - 320,000

      $ 46,600 (+ 31% on excess)

      320,000 and above

      $ 71,400 (+ 35% on excess)

      3.6. Filling of Return/Payment and Refund.

      Individuals have to file an annual tax return, (except if their income is withheld by the employer) and place five prepayments of tax at a bimonthly interval, starting on July of the tax year, the final payments are made at the time of the tax return submission around June of the following year.  There are some penalties, interest for late payments, 3% for every month late. Fines range from 100% to 200% and evasion has higher penalties.


    • Value Added Tax.

       

      VAT is levied on the net price of the taxable transaction and the standard rate is 21% but there may be some reduced rates for different item like certain food with a 10.%, and medical services with a rate of 2.5%.


      4.1. Who is subject to VAT?

      Individuals and legal entities making taxable supplies of goods or services.


      4.2. Goods and services not subject  to VAT.

      The following are some VAT exemptions:

      -Sales of certain items  (books, natural water, common bread, milk, medicine, postage stamps, etc.)

      -Supply of certain services such as the ones rendered by the government or by public institutions, school or university education, cultural services supplied by religious institutions, hospital and medical care and related activities, transportation services for sick or injured persons, tickets for theatre, cinema, musical shows, and sport events; the production and distribution of motion picture films; local transport of passengers up to 100 km; and international transportation.

      -Rental of real estate for housing purposes.


      4.3. Filling of Return/Payment and Refund.

      Vat returns are submitted every month on the 18th and 22nd day of the month the following month.


    • Other tax.

       

      -Real Estate Tax: Real Estate tax is levied every year by provincial authorities, the name of the tax is immovable property tax and is normally levied on the cadastral value of each piece of immovable property. Rates may change from jurisdictions but there are limitations, like for example on rural property the maximum is 1.2%, on sub-rural or suburban 1.35% and urban properties 1.5%. Some provinces levy surtaxes.


      -Transfer Tax: Is levied on the transfer of title to Argentinian situs immovable property (this transactions has not to be subject to income tax) It is calculated on the transfer price with a rate of 1.5%. If it’s a transaction made by a non-resident then withholding taxes will apply.


      -Stamp Duty: Levied on executions of public and private instruments some examples are contracts, deeds, invoices from a debtor, promissory notes and negotiable instruments. The normal rate is 1% but there are exemptions in real estate sales with rates from 2.5% to 4%. Each province has its own stamp tax law but some of them abrogated the tax. Shares are subject to stamp duty tax as well, with a normal rate of 1%.


      -Sales Tax and Municipal Assessments: Levied on the provinces at a general rate of 3% to 5% of gross revenue.


      -Financial Transaction Tax:

      Levied on debit and credit accounts with different rates:

      -0.6 % on deposits and withdrawals for account opened in local financial entities.

      -1.2% on any transaction made in a bank without having a bank account.


      -Net Worth Tax: This tax is known as the minimum deemed income tax and is levied at a rate of 1% on business assets at the end of the tax period by the taxpayer. It is different for some taxpayers, some may be simply a tax on a percentage on assets from a minimum income and for other the income tax is not used as a credit it’s a tax on assets. An annual wealth tax of 0.25% is levied on any equity interest, The company is responsible for paying the tax but has the right to be reimbursed by shareholders.


    • Custom Tax

       

      6.1. Overview of Custom Tax.

      Argentine Customs, is affiliated with the Ministry of Economy and Public Finance. For entering merchandise into Argentina, individuals must fill out a form declaring quantities and composition of their goods and send it to the Ministry of Industry , as well,  ten days before clearing Customs. All documents presented to Argentine authorities must be in Spanish (or to have a translation from a certified translator).


      6.2. Export tax.

      Goods are valued on the Free on Board clause, the approach is based on the theoretical value not on the positive basis. Export refund is available for certain goods, some goods are subject to an export duty with rates between 5% to 45% depending of the merchandise´s code. Most agricultural and industrial products are not levied.


      6.3. Import tax.

      VAT is levied at all stages of import, production and trading. Import duties are levied at different rates according to the harmonized Commodity Description and Coding System HS, some examples are:

      -New capital assets usually at 0%.

      -Raw materials, parts and pieces generally from 0% to 30%.

      -Consumable good from 0% to 35%.


    • Tax related PE.

       

      7.1. Overview of tax related PE.

      Corporate residence is determined on the basis of centers of activity, for non-residents this is considered to be a permanent establishment. Some activities are not included within the definition of permanent establishment. Non-residents without a permanent establishment in Argentina pay tax only on the Argentine-source income, levied usually as a withholding tax (depending on the type of income)


    • Withholding Tax.

       

      8.1. Overview of withholding tax.


      Dividends: Dividends paid to residents or non-residents are levied with the following rates:

      1- 7% on dividend distribution from income for the first two years (starting in 2018) the following years will have a rate of 13%.

      2- withholding taxes will apply at a 35% rate if dividends exceed the payer company´s accumulated taxable income (this will apply starting 2018 and after some adjustments).


      Interest: The rate for non-residents is 35% unless the borrower is a financial institution, or is located under the cooperative jurisdiction, if the interest relates to bonds in other countries with no investment agreement with Argentina, or if the transaction involves depreciable movable property , in all this cases mentioned before the rate will be around 15.05%.


      Royalties: Royalty payments to nonresidents for copyright have a tax rate of 35% on the gross payment. Technical service fees. The tax rate for technical assistance, engineering or consulting services paid to non-residents is 21% of the gross payment, in case services are not obtained in the country, otherwise the rate is 24%. For services that don't comply with technology laws the rate is 31.5%. Film and television have an effective rate of 17. 5%.


    • Transfer Pricing tax.

       

      9.1. Overview of Transfer Pricing Tax.

      Transfer pricing rules in Argentina are according OECD guidelines and requires that the transactions are under arm's length terms. There are five methods for transactions:

      -The comparable uncontrolled price method

      -Cost-plus method.

      -Resale price method.

      -Profit split method.

      -Transactional profit margin method.

      The transfer price rules apply to transactions with foreign related parties and with unrelated parties that are resident in non cooperative jurisdictions, and foreign entities with an economic relationship in Argentina. Documentation is needed to carry out the transfer of prices, an annual study that has to be submitted electronically within eight months, and some reporting forms that have to be filled periodically.