Taxation in Argentina

“In the practical business of life, it is not faith that saves, but distrust”

Napoleón Bonaparte

 

Corporate Taxation

At a glance

Tax Rate % 
Corporate or Branch Income 30
Capital Gains 30
Withholding Tax:
Dividends 7
Interest 15.05 / 35
Royalties (patents, trademarks and know-how) 28
Royalties (copyrights) 12.25% / 31.5%
Royalties (other) 31.5%
Fees (technical) 21% / 31.5%
Fees (management) 24.5% / 31.5%
Branch Remittance 7

The Net Operating Losses can be carried forward for 5 tax periods.

Taxes On Corporate Income and Gains

Corporate

Income Tax

Resident corporations are taxed on worldwide income. Any profits, including capital gains, are taxable. Non-resident corporations are subject to tax on Argentine-source income only.

Corporate income tax rate is 30% for tax periods beginning as from January 1st, 2018 (the rate will be 25% for tax periods beginning as from January 1st, 2021). Exceptionally, income derived from gambling operations performed in casinos or through electronic machines or digital platforms is subject to income tax at 41.5% rate.

Capital gains are included in the taxable income of corporations.

Thin capitalization rules limit the deductibility of interest (including updates and exchange differences) arising from loans with related companies up to 30% of the taxable EBITDA (earnings before interest, taxes, depreciations and amortizations) or ARS 1,000,000, whichever is higher. Among others, economic groups highly indebted with third parties are excluded.

Distribution of dividends and branch profit remittances are subject to a withholding tax and to an additional tax, respectively, of 7% (when paid out of corporate profits subject to the 30% tax rate) or 13% (when paid of corporate profits taxed at the 25% tax rate).

Resident corporations may credit foreign income taxes against their Argentine tax liability, up to the amount of the increase in that liability resulting from including foreign source income in the taxable base.

The tax is applied to the accounting profit earned in the period, after adjustments indicated by tax law. Exemptions are usually insignificant. Expenses are deductible to the extent incurred in producing taxable income.

The inventories (stocks) are valued according to procedures established by tax law, which result in values determined between the cost and the market value at the end of the tax period. Fixed assets and other investments acquired as from January 1st, 2018 can be updated for inflation in order to determine depreciations and their computable cost in the event of sale or transfer.

Provisions for bad debts are allowed, but they must be computed according to methods prescribed by the law.

The assets are usually depreciated using the straight line method over the assets’ useful lives (a method based on effective use may also be acceptable). The law doesn’t specify rates for movable assets.

The application of the inflation adjustment mechanism is established for tax years in which a percentage of variation of the Retail Price Index (IPC) higher than 100% is verified during the 36 months prior to the closing of the relevant fiscal year.

Tax losses may be carried forward for 5 tax periods. Losses from foreign sources may offset only foreign source incomes. Loss carry-backs are not permitted.

The tax year for a corporation is its accounting year. Corporations are required to make 10 monthly advance payments, starting in the sixth month of the tax year.  The first advance payment must be equal to 25% and the remainder to 8.33% of the tax assessed for the last tax year as reduced by withholdings taxes paid in respect to the same tax year.

Corporations must file their tax returns and pay any balance due by a specified date in the fifth month after the end of their accounting year.

Personal

Assets Tax

Equity investments in Argentine entities held by foreign investors and resident individuals are subject to this tax at a 0.5% rate.

This tax on equity investments must be paid by the Argentine entity, which is entitled to seek reimbursement of the tax from the investors.

Tax on Debits and

 Credits in Current Account

Debits and credits in bank accounts are subject to this tax at a 0.6% rate. An increased rate of 1.2% applies to debits originated in cash withdrawals, except for bank accounts held by micro and small enterprises. The 33% of this tax can be credited against Income Tax.

The following operations are considered to replace the use of debits and credits in bank accounts, and therefore they are taxed at an increased rate of 1.2%:

  1. Management of the collection of checks, invoices and any other instrument
  2. Drafts and transfers carried out via any means
  3. Payments on behalf of and/or in the name of a third party

In this case, the 17% of the tax levied on these operations can be credited against Income Tax.

On the other hand, debits and credits originated in activities carried out by grain brokers, livestock brokers and other intermediaries, are taxed to a reduced rate of 0.075% without right to tax credit.

Turnover

Tax

The provinces and the City of Buenos Aires levy this tax on gross revenues derived from the usual practice of economic activities.

Rates vary depending on the type of activity, ranging generally from 1% to 8%. Exportations are generally exempt. Primary and industrial production activities -except for sales to final consumers- can be exempt, under certain conditions.

Stamp

Tax

The provinces and the City of Buenos Aires levy this tax on contracts for consideration, which are implemented in writing.  Rates vary depending on the type of contract and the jurisdiction in which the same is enforceable, ranging generally from 0.5% to 4%.

Social Security

Contributions

Employers must make contributions to support the Social Security System and the Healthcare System.

Rates of contributions to the Social Security System are as follows:

EMPLOYER’S CONTRIBUTION Rates

Private sector employers, when their main activities are “commerce” or “services” and their total revenues exceed the threshold for categorizing as medium enterprises

 

20.4%
Other employers  18.0%

A monthly non-taxable amount of ARS 7,003.68 is deductible from each employee’s taxable base. Employers with a payroll of up to 25 employees can deduct an additional monthly global non-taxable amount of ARS 10,000.

Employer’s contributions actually paid to the Social Security System are creditable against VAT (according to certain percentages based on the region of the country),

The employers’ contributions to the Healthcare System keep the same rate: 6%.

Employers pay additional amounts calculated on different bases for unemployment, life, disability and worker’s compensation insurance.

 

Local Real

Estate Tax

In the City of Buenos Aires, local real estate tax is actually composed of two taxes: (i) Real estate tax, and (ii) Lightning, sweeping and cleaning fee (“ABL”). Both are charged on an annual basis, and their calculation is based on real estate tax valuation (VFH[1]) and an index called USC.

USC allows to maintain equal and homogeneous technical valuations, without affecting the taxable base for other taxes or for exemptions for retirees and disabled people. It was established in 4 (it can be modified on an annual basis).

Taxable base for both real estate tax and ABL is VFH x USC. In the case of ABL, a 0.5% rate is applied on such taxable base. In the case of real estate tax, it is estimated according to the following table:

VFH x USC

FIXED AMOUNT

TAX RATE OVER LIMIT’S EXCESS

FROM

TO

ARS

ARS

ARS

%

0

200,000

0

0.40

200,000

400,000

800

0.45

400,000

600,000

1,700

0.50

600,000

800,000

2,700

0.55

800,000

1,000,000

3,800

0.60

1,000,000

1,200,000

5,000

0.65

1,200,000

and above

6,300

0.70

[1] VFH is calculated for each property considering the economic value of the land according its location, environment, and the commercial incidence of the district, and the real value of the building according to the category, destination, quality and characteristics. It has a cap of 20% of the market value of the property. The formula to calculate VFH of a property is the following:

VFH = Land incidence x FOT x Land surface + constructed surface x VRE x Depreciation Coefficient.

Incidence is the cost of every sqm of land, according to its maximum constructing capability.

FOT: maximum constructing capability, in sqm.

VRE: the number after considering the real construction cost for each destiny, category and quality, according to certain parameters fixed by law.

Municipal

Rates

Each municipality applies rates on services rendered to persons domiciled therein. In general, the rates are calculated in accordance with certain variables (e.g. activity developed, surface occupied and turnover amount).

Other Significant

Taxes

TAX

RATE %

Value added tax (IVA) – standard rate

21

Value added tax (IVA) – other rates

5 / 10.5 / 27

Export duties on services.

5

Tax on purchases of foreign currency (without a specific purpose) and certain purchases of goods and services from abroad

30

Other local taxes on real estate, etc.

Various

The importer of goods and services in Argentina is liable for payment of VAT on the value of the goods and services imported, which constitutes in-put VAT for the importer.

There is a permanent regime for the reimbursement of VAT credits originated in the purchase, construction, manufacturing or import of fixed assets, which after six consecutive tax periods (months) as from their acquisition are still part of the balance in favor of the taxpayer.

Treaty Withholding

Tax Rates

Argentine’s double taxation treaties, which establish maximum tax rates lower than those under general tax law, are the following: 

COUNTRY

DIVIDENDS %

INTEREST %

ROYALTIES %

Australia

10/15

0/12

10/15

Belgium

10/15

0/12

3/5/10/15

Bolivia

(*)

(*)

(*)

Brazil

10/15

0/15

10/15

Canada

10/15

0/12.5

3/5/10/15

Chile

10/15

4/12

3/10/12

Denmark

10/15

0/12

3/5/10/15

Finland

10/15

0/15

3/5/10/15

France

15

20

18

Germany

15

0/10/15

15

Italy

15

0/20

10/18

Mexico

10/15

0/12

10/15

Netherlands

10/15

0/12

3/5/10/15

Norway

10/15

0/12

3/5/10/15

Russia

10/15

0/15

15

Spain

10/15

0/12

3/5/10/15

Sweden

10/15

0/12.5

3/5/10/15

Switzerland

10/15

0/12

3/5/10/15

United Arab Emirates

10/15

0/12

10

United Kingdom

10/15

0/12

3/5/10/15

(*) Without limit.

Income

Tax – Employment

Residents are subject to tax on worldwide income. Non-residents are taxed only on Argentine source income.

Individuals of foreign nationality, who have obtained a permanent residence in Argentina or have resided temporarily for 12 months, are considered resident. However, individuals residing in Argentina on work assignments for a period not longer than 5 years are taxed only on their Argentine source income.

Taxable income from employment includes all salaries, regardless of taxpayer’s nationality or the place where the compensation is paid or the contract is entered into. Taxable compensation also includes most employer paid items except employee education expenses and the provision of working clothes and equipment.

The progressive tax rates applied to Argentine taxable residents range from 5% to 35% (depending on the taxable income).  Non-residents are taxed at a flat rate of 35%.

When computing tax to be withheld from an employee’s salary, employers are authorized to deduct certain allowable expenses (e.g.: social security contributions, medical insurance payments for employees and their families, medical expenses, cost of home rent, expenses incurred by travelling salesmen based on estimates established by the tax authorities, burial expenses and life insurance premiums).

Other standard deductions are permitted in fixed amounts established by law. Their estimated amounts include a personal deduction of ARS 594,533.62, a personal exemption of ARS 123,861.17, and family allowances equal to ARS 115,471.38 for spouse and ARS 58,232.65 for each child. To qualify, the dependants must reside in Argentina for more than 6 months in the year and must not have income in excess of the amount of the personal exemption.

Income

Tax – Self-Employment / Business Income

Residents are subject to tax on their worldwide self-employment and business income. Non-residents are subject to tax on self-employment and business income only from Argentine source.

Self-employment or business income is taxable regardless of the recipient’s nationality, the place of payment, or where the contract was concluded.

The progressive tax rates range from 5% to 35%.

Expenses incurred in producing income are deductible. Certain expenses not primarily incurred for business purposes are deductible as well (e.g.: social security contributions, medical insurance payments for employees and their families, medical expenses, expenses incurred by travelling salesmen based on estimates established by the tax authorities, burial expenses and life insurance premiums).

Other standard deductions are permitted in fixed amounts established by law. Their estimated amounts include a personal deduction of ARS 247,722.34, a personal exemption of ARS 123,861.17, and family allowances equal to ARS 115,471.38 for spouse and ARS 58,232.65 for each child. To qualify, the dependants must reside in Argentina for more than 6 months in the year and must not have income in excess of the amount of the personal exemption.

Director’s fees are taxed as self-employment income. If they are paid by Argentine companies they are considered Argentine source income regardless of where services are performed.

Investment

Income

Interest arising from saving accounts, term deposits in local currency and other deposits in Argentine banks is exempt (except for deposits with adjustment clause). Interest derived from local investments in public bonds, corporate bonds, quotas of mutual investment funds, and debt titles and certificates of participation in financial trusts are exempt.

Interest (non-exempt) is subject to progressive tax rates ranging from 5% to 35%.

Dividends from Argentine corporations and branch remittances are taxable at a rate of 7% (when paid out of corporate profits subject to the 30% tax rate) or 13% (when paid of corporate profits taxed at the 25% tax rate).

Relief

For Losses

Business losses of self-employed individuals may be carried forward for 5 years. Foreign source business losses may offset only foreign source income.

Capital

Gains

Capital gains derived from the sale of local investments in public bonds, corporate bonds, quotas of mutual investment funds, and debt titles and certificates of participation in financial trusts are exempt.

Capital gains derived from the sale of shares with a quotation negotiated at the local exchange markets are exempt, as well as capital gains derived from operations concerning the public offer of shares carried out according to the provisions set-forth by the National Securities Commission. These exemptions are applicable to individuals resident in Argentina. They also apply to foreign beneficiaries residing in “cooperative jurisdictions” or whose invested amounts come from such jurisdictions (except for bank notes known as “Lebacs”).

Income tax rate is 15% for capital gains (non-exempt) derived from investments in foreign currency or with an adjustment clause –exchange differences or capital updates are excluded–, as well as shares and similar corporate participations. Applicable rate for capital gains derived from investments in local currency without adjustment clause is 5%.

The sale of real estate owned by individuals (except the dwelling house) is subject to tax and the applicable rate and taxable base depend on the purchase date of the property. If it was purchased before January 1, 2018, real estate transfer tax is levied on the sale price at 1.5% rate; if it was purchased as from that date, income tax applies at a 15% rate on the difference between sale price and updated cost, plus certain expenses.

Personal

Assets Tax

Individuals resident in Argentina are subject to the personal assets tax on their worldwide assets to the extent that their aggregate taxable value exceeds ARS 2,000,000. The progressive tax rates range: (i) from 0.5% to 1.25% for assets located in Argentina; and (ii) from 0.7% to 2.25% for assets located abroad (these differential rates will not apply if at least 5% of the aggregate value of assets located abroad is repatriated, under certain conditions).

Rural immovable properties are exempt. Dwelling house used by the taxpayer is not levied when its taxable value is lower than ARS 18,000,000. Liabilities other than mortgages on the taxpayer’s home are not deductible.

Individuals resident abroad and expatriates residing in Argentina on work assignments for a period not longer than 5 years are taxed only on their assets located in Argentina.

Notwithstanding the above mentioned, equity investments in Argentine entities held by foreign investors and resident individuals are taxable at a 0.25% unique rate.  In this case, the tax must be paid by the Argentine entity, which is entitled to seek reimbursement of the paid tax from the investors.

Social

Security Taxes

Employees must make contributions to support the Social Security System and the Healthcare System, at a 17% rate.

Employee’s contributions are calculated over up to a maximum taxable remuneration of ARS 159,028.80.

Self-employed individuals pay social security contributions not on actual earnings, but on amounts established by law, depending on the activity.

Administration

Employers have to submit to the tax authorities the information about their employees (they also withhold taxes when paying salaries).

Self-employed taxpayers must register with the tax authorities. Tax returns are filed annually in June, declaring earnings for the previous calendar year.

Individuals with non-wage income, such as self-employment income, must make advance payments in June, August, October and December of the relevant tax year and February of the following year.  Each of the advance payments is equal to 20% of the tax assessed for the last tax year as reduced by withholding taxes corresponding to the same year.

There is a withholding system for payments to resident individuals.  Amounts withheld are treated as advance payments.

Non-residents

Taxation

Non-residents residing in Argentina more than 6 months in a calendar year must file income tax returns and claim the actual deductible expenses incurred and exemptions available to residents.

Non-residents residing temporarily in Argentina (for 6 months or less) are subject to withholding taxes after a deduction of 30% of their compensation to reflect expenses incurred in earning income.  The remaining 70% is taxed at a flat rate of 35%, with no other deductions or exemptions, giving an effective withholding tax rate of 24.5%. Withholding tax is a final tax. Non-residents subject to withholding tax are not required to file tax returns.

Dividends from Argentine corporations paid to non-residents are taxable at a rate of 7% (when paid out of corporate profits subject to the 30% tax rate) or 13% (when paid of corporate profits taxed at the 25% tax rate).

Social security taxes are collected as outlined previously; however, both employer and employee may be exempt from contributions to the Argentine pension fund provided certain conditions are met.

Double

Tax Relief

A tax credit is allowed for income taxes paid abroad, up to the increase in Argentine tax resulting from the inclusion of the foreign source income in the Argentine tax base.

Transactions With

Related Parties

For all transactions with foreign related parties, local companies must show whether prices have been agreed upon according to market values between independent parties, otherwise make the corresponding price adjustment for corporate income tax purposes.

This procedure also applies to transactions carried out with parties organized or located in non-cooperative jurisdictions (as listed by the Executive Branch[1]) or in low or nil tax jurisdictions[2], regardless of whether the parties are related or not.

The definition of “related party” is very wide. It includes not only situations of direct or indirect participation in the capital, control or management, but also may include the exercise of a significant influence over another entity (e.g. exclusive distributor, main supplier, main customer, main client, and company having the exclusive use of technology or assistance).

In general, the following methods are allowed: (i) Comparable Uncontrolled Price; (ii) Resale Price; (iii) Cost Plus; (iv) Profit Split; (v) Transactional Net Margin; and (vi) other methods for certain specific transactions. 

[1] A non-cooperative jurisdiction is considered as one that has not signed with Argentina an international agreement for the exchange of information on tax matters or an agreement to avoid international double taxation with an extensive clause for the exchange of information, or having signed any agreement with such extents, do not effectively comply with the information exchange.

[2] Low or nil tax jurisdictions are those jurisdictions or special tax regimes that have a maximum corporate income tax rate -considering all levels of government- lower than 15%.

Documentation

Requirements

Taxpayers subject to transfer pricing rules must file a Local File (transfer pricing report) and information returns to report intercompany transactions -on an annual basis- when they exceed ARS 3,000,000 (total amount of transactions) or ARS 300,000 (individual amount per transaction). 

They must also file information returns to report importations and exportations with non-related parties, when the total amount of both transactions exceeds ARS 10,000,000 in the tax year. 

Furthermore, an annual Country-by-Country Report on revenues, gross profits, paid and accrued income tax and other indicators of economic activity, must be filed by multinational enterprise (‘MNE’) groups whose total consolidated revenue is equal to or higher than EUR 750 million in the previous tax period. Local companies belonging to a MNE group must register in a special registry and submit -on an annual basis- certain information on the ultimate parent entity of the MNE.

Tax Department
January 2020