Taxation in Argentina
“In the practical business of life, it is not faith that saves, but distrust”
At a glance
|Corporate or Branch Income||30|
|Interest||15.05 / 35|
|Royalties (patents, trademarks and know-how)||28|
|Royalties (copyrights)||12.25% / 31.5%|
|Fees (technical)||21% / 31.5%|
|Fees (management)||24.5% / 31.5%|
The Net Operating Losses can be carried forward for 5 tax periods.
Taxes On Corporate Income and Gains
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, 2020). 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 other, economic groups highly indebted with third parties are excluded.
Distribution of dividends and branch profit remittances are subject to a withholding tax 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.
Equity investments in Argentine entities held by foreign investors and resident individuals are subject to this tax at a 0.25% 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 current account are subject to this tax at a 0.6% rate. The 33% of the tax levied on credits can be credited against Income Tax and/or Minimum Presumed Income Tax.
The following operations are considered to replace the use of debits and credits in current account, and therefore they are taxed at an increased rate of 1.2%:
- Management of the collection of checks, invoices and any other instrument
b. Drafts and transfers carried out via any means
c. 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 and/or Minimum Presumed 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.
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.
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).
|Value added tax (IVA) – standard rate||21|
|Value added tax (IVA) – other rates||5 / 10.5 / 27|
|Social security taxes on salaries and wages, paid by the employer||18 / 20.41|
|Local taxes on real estate, etc.||Various|
|Export duties on services.||12%2|
1 These rates will gradually converge in 19.5% for tax periods beginning as from January 1st, 2022. On the other hand, there is a tax allowance of ARS 7,003.68 per employee, which will gradually increase on an annual basis until 2022.
2 However, the export duty amount must not exceed ARS 4 per each USD of taxable services.
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 tax 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.
Argentine’s double taxation treaties, which establish maximum tax rates lower than those under general tax law, are the following:
|Country||Dividends %||Interest %||Royalties %|
(*) Without limit.
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 171,697.97, a personal exemption of ARS 85,848.99, and family allowances equal to ARS 80,033.97 for spouse and ARS 40,361.43 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.
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).
Royalties and income from renting real property are taxed as an ordinary income.
Financial gains are subject to tax, as well as capital gains derived from the sale of shares, values representative of shares and certificates for the deposit of shares and other corporate participations (including quotas of mutual investment funds and certificates of participations in financial trusts and any other right over trusts and similar contracts), digital coins, securities, bonds and othervalues.
Income tax rate is 15% for capital gains or profits derived from investments in foreign currency or with an adjustment clause –exchange differences or capital updates are excluded–, as well as income derived from the sale of shares and similar corporate participations. Applicable rate for capital gains or profits derived from investments in local currency without adjustment clause is 5%.
A deduction of ARS 85,848.99 is allowed for capital gains or profits derived from local investments, except for income from the sale of shares and similar corporate participations.
Income derived from the sale of shares with a quotation negotiated at the local exchange markets is exempt, as well as income derived from operations concerning the public offer of shares carried out according to the provisions set-forth by the National Securities Commission. The exemption is extended to the case of mutual investment funds whose assets are mainly formed by shares (at least at a 75%). 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”).
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 derived from the sale or transfer of shares, bonds and other securities are taxable at a 15% rate. 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 1st, 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.
Individuals domiciled 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 from 0.25% to 0.75%.
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 domiciled 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.
In general, contributions are paid in accordance with the following schedule: 20.4%³ in charge of employer and 17.5% in charge of employee.
Employer’s contributions are calculated by applying the above-mentioned rate (20.4%) on compensations paid to employees less a tax allowance of ARS 7,003.68 per employee, which will gradually increase on an annual basis until 2022. Employee’s contributions are calculated over up to a maximum taxable remuneration of ARS 117,682.47.
Employers pay additional amounts calculated on different bases for unemployment, life, disability and worker’s compensation insurance.
Self-employed individuals pay social security contributions not on actual earnings, but on amounts established by law, depending on the activity.
³Employer’s contributions are remitted to different Government funds or agencies as prescribed by law, to wit: pension fund, retiree health benefits, family allowance fund and unemployment fund.
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 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.
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.
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 Branch4 ), or in low or nil tax jurisdictions5, regardless of whether the parties are related or not.
The definition of “related party” is very large. It includes not only situations of direct or indirect participation in the capital, control or management, but also the exercise of a significant influence over another entity (e.g. exclusive distributor, single supplier, single customer, single 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; and (v) Transactional Net Margin.
4 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.
5 Low or nil tax jurisdictions are those countries or tax regimes that have a maximum corporate income tax rate -considering all levels of government- lower than 60% of the 25% Argentine corporate income tax rate.
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 either the total amount of such transactions exceeds ARS 1,000,000 in the tax year or the goods traded are commodities.
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.