January 8, 2020 Argentina makes sweeping changes to tax laws, followed by regulations implementing recently enacted tax reform The new tax reform postpones some tax rate increases and reductions. It also establishes a new tax on purchases of foreign currency, which would be effective for five years. The Decree, in turn, implements these changes. Companies doing business and different stakeholders investing in Argentina should evaluate the effect of these changes on their current Argentine operations. Argentina's tax reform law (Law 27,541 or the Law), enacted December 23, 2019, makes sweeping changes to Argentina's tax laws. The Law amends the income tax, personal assets tax, excise tax on certain goods, tax on debits and credits in local bank accounts, and social security rules. It also establishes a new tax on certain purchases of foreign currency, a new tax debt settlement plan for certain taxpayers, and new rates on exports of goods and services and the "statistical fee." Following the law's enactment, Argentina published Decree 99/2019 (the Decree) in the Official Gazette. The Decree contains final regulations implementing the tax reform enacted through the Law, which is now fully effective. This Alert discusses the main changes introduced by the Law and the Decree. Corporate income tax rate and dividend withholding tax The Law maintains the corporate income tax rate of 30% for one more year for tax years starting January 1, 2020, instead of reducing the rate to 25% as established under the previous law. The Law also maintains the dividend withholding tax rate of 7% for one more year for profits accrued during tax years starting January 1, 2020, instead of applying the 13% rate as previously established. When the reduced rates will apply (2021 or 2022) is unclear due to confusing text in the law; however, we expect the uncertainty to be clarified shortly. Inflation adjustment for income tax purposes Previously, the negative or positive inflation adjustment applicable to Argentine entities (for years 2018, 2019 and 2020) were allocated equally over three years. For tax years 2019 and 2020, the Law requires the inflation adjustment factor to be allocated equally over six years. For tax years beginning on or after 1 January 2021, taxpayers may deduct 100% of the negative or positive inflation adjustment in the year in which the adjustment is calculated. Taxation on interest and capital gains from certain Argentine investments The Law restores the income tax exemption Argentine individuals may claim for interest arising from term deposits in local currency in Argentine banks (except term deposits with adjustment clause), investments in negotiable obligations (in Spanish, Obligaciones Negociables), certain common investments funds, debt titles of financial trusts and similar contracts, bonds, and certain other investments. This provision applies to tax year 2019 and onwards. For capital gains arising from the sale of negotiable obligations, certain common investment funds, debt titles of financial trusts and similar contracts, bonds, and certain other investments, the Law restores the income tax exemption for Argentine individuals for tax year 2020 and onwards, to the extent those investments are publicly traded on stock exchanges under the supervision of the Argentine Securities and Exchange Commission (CNV); thus, capital gains from the sale of these items will remain subject to tax for tax year 2019. Personal assets tax For companies, the Law increases the tax on the net equity value of stock owned by Argentine individuals and foreign individuals or entities from 0.25% to 0.50%. For Argentine individuals, assets with a value of ARS 2 million (approx. US $31,800) or less remain exempt from tax. For assets above that threshold, the progressive tax rates increase as follows: (1) 0.50% (instead of the previous 0.25%) for assets over ARS 2 million to ARS 3 million (approx. US $47,600); (2) 0.75% (instead of the previous 0.50%) for the assets over ARS 3 million to ARS 6.5 million (approx. US $103,200); (3) 1% (instead of the previous 0.50%) for assets over ARS 6.5 million to ARS 18 million (approx. US $285,700); and (4) 1.25% (instead of the previous 0.75%) for assets over ARS 18 million (approx. US $285,700). For assets held outside Argentina by Argentine individuals, the Decree establishes differential tax rates as follows: (1) 0.7% (instead of the regular 0.5%) for assets over ARS 2 million to ARS 3 million (approx. US $47,600); (2) 1.2% (instead of the regular 0.75%) for assets over ARS 3 million to ARS 6.5 million (approx. US $103,200); (3) 1.8% (instead of the regular 1%) for assets over ARS 6.5 million to ARS 18 million (approx. US $285,700); and (4) 2.25% (instead of the regular 1.25%) for assets over ARS 18 million (approx. US $285,700). The differential rate will not apply to foreign financial assets that are repatriated to Argentina if (i) at least 5% of the total foreign assets is repatriated; (ii) the repatriation occurs by March 31 of each year; and (iii) the repatriated funds remain deposited in an Argentine bank account until December 31 of the year of repatriation. The Law also applies, to individuals, the "Argentine tax residence" criteria contemplated in the income tax law instead of the previous "domicile" criteria. The criteria is used to determine if an individual will be subject to personal assets tax on the assets held in and outside Argentina (Argentine residents) or only on the assets held in Argentina (nonresidents). For foreign individuals (nonresidents) with assets in Argentina, the Law increases the tax rate from 0.25% to 0.5% for the assets held in Argentina. Those individuals must designate a local substitute taxpayer to pay the tax. These new rules apply to tax year 2019 and onwards. Tax on debits and credits in local bank accounts for cash withdrawals For Argentine entities not considered as micro and small enterprises, the Law subjects cash withdrawals from local bank accounts performed since December 24, 2019 to a tax of 1.2% (instead of the 0.6% regular rate). Excise taxes on terrestrial vehicles, vessels and aircrafts The Law modifies the amounts exempt from the excise taxes on sales of terrestrial vehicles, leisure and sport vessels and aircraft. For sales of terrestrial vehicles (except motorcycles), the Law exempts ARS 1.3 million (US $20,600) from the excise tax. For motorcycle sales, the exempt amount is ARS 390,000 (US $6,200), while the exempt amount for leisure and sports vessels is ARS 1.7 million (US $27,000). The Law does not exempt an amount from the excise tax for sales of aircraft. The Law also modifies the tax rate from a flat 20% rate to a progressive rate as follows:
The Law, however, maintains the flat 20% rate for leisure and sport vessels and aircraft. The new rules will apply to sales performed from January 1, 2020. New tax on purchase of foreign currency The Law establishes a new tax (under the name of "tax for an inclusive and supportive Argentina") that will apply for five years to the following transactions performed from December 23, 2019:
The Decree extends application of the tax to purchases of goods or services from abroad with any other payment method; however, the final scope of this provision is still under discussion. Both Argentine individuals and entities are subject to the tax. The tax rate is 30% and applies to taxable purchases, except for the purchase of digital services, which will be subject to an 8% rate. Argentine financial institutions, credit card issuers, travel agencies and transport companies will act as collection agents of the tax, which will be withheld at the time of payment for the purchases. New tax debt settlement plan for micro and small enterprises The Law establishes a new regime for settling outstanding tax debts as of November 30, 2019, for micro and small enterprises, including federal taxes, social security taxes (certain exceptions apply), and import and export duties. The Law also allows tax liabilities subject to administrative or judicial claims to benefit from this regime. The deadline to apply for the settlement plan is April 30, 2020. The plan will provide the following benefits:
Export duties The Law allows the Executive Power to increase export duties up to 33% for exports of soybeans, 15% for exports of other products that were not subject to export duties as of September 2, 2018, and 5% for industrial products and services. The Decree extends the application of duties on exports of services until December 31, 2021. The rate is 5% without limit (previously a maximum limit applied of ARS 4 per each US dollar of the amount arising from the invoice). These new rules went into effect on January 1, 2020. "Statistical fee" on import of goods The Law increases the "statistical fee" rate from 2.5% to 3% for imports of goods from January 1, 2020 to December 31, 2020. The Decree establishes progressive maximum limits of "statistical fee," depending on the amount of the import (up to a maximum fee of US $150,000 for imports whose value exceeds US $1 million). For imports of certain capital assets and temporary imports, the Decree extends the 0% rate until December 31, 2020. Social security The Law establishes a 20.4% social security rate to be paid by private sector employers when their main activities are "commerce" or "services" and their total sales exceed certain limits established by the Entrepreneur and Small- and Medium-Enterprises Secretary. Other private sector employers will pay an 18% rate. The Law establishes a non-taxable base of ARS 7,004 (US $112), which will be subtracted monthly from each employee's tax base used for calculating employer contributions. In addition, employers with a payroll of up to 25 employees will benefit from an additional non-taxable base for social security taxes of ARS 10,000 (US $159) on the salaries paid. The Law restores employer contributions creditable against VAT according to certain percentages based on the taxpayer's location. These rules apply for the calendar month December 2019 tax period and onwards. ———————————————
| |||||||||||||||||||||||||
| |||||||||||||||||||||||||
