Argentina Taxes
At the national level, two taxes exist in Argentina,
, that are applicable on income and net worth: the Income Tax
(applicable either to individuals or to corporations) and the
Tax on Personal Net Worth, only levied upon individuals.
Although the Provinces are empowered to enforce
the income tax, such power has been delegated to the National
Government. Consequently, there is no provincial income tax, and
therefore, no problems of internal double taxation exist. As
regards taxes on net worth, the provinces (through their Town
Hall authorities) levy land and property taxes but its amount
is negligible and it shall not be considered within this research.
2.1.1. Income tax:
Incomes (either distributed or reinvested) obtained
by individuals or corporations (such as one-man enterprises, branches
of foreign companies and those obtained by any type of corporation)
are subject to the income tax.
Incomes may originate in an Argentine source or a
foreign source depending on whether they derive from goods or
acts resulting in profits, manufactured or performed within the
country´s boundaries (Argentine source) or outside the country
(foreign source).
Residents and corporations organized under the laws
of the country are subject to income tax on incomes derived from
Argentine and foreign sources. Income taxes effectively paid abroad
shall be computed as payment on account.
Non-residents and corporations not organized under
the laws of the country are taxed exclusively for their incomes
deriving from Argentine source.
Tax Rate
Two different situations must be observed:
1)Residents or corporations incorporated under
the laws of the country:
a)Money paid to residents working under a labor
relationship or performing independent professional activities,
as well as money received from their sharing in the profits of
partnerships (SRL - Sociedad de Responsabilidad Limitada - Limited
Liability Partnership), a de facto corporation and one-man enterprises,
shall be taxed at a progressive rate ranging from 11% to 30%.
b)Incomes obtained by corporations (S.A.- corporations
- Sociedad en Comandita por Acciones - Partnerships limited by
shares) - without distinction as regards the composition of their
capital (domestic or foreign) - and branches or representatives
of foreign corporations incorporated under the laws of the country
shall be subject to a rate of 30%. Therefore, the same treatment
applies to Argentine and foreign capital.
In both cases, the taxable net income shall be that
resulting after deducting all costs and expenses necessary to
keep, obtain and preserve the levied incomes.
Losses arising from the development of business activities
may be shifted to the following fiscal year. Losses not shifted
shall be barred by the statute of limitations within five years.
A calendar year basis is used for individual taxpayers
whereas corporations pay taxes in accordance with their fiscal
years which may coincide with the calendar year or not.
2)Non-resident individuals or not incorporated
under the laws of the country. Foreign beneficiaries.
As we have already mentioned, non-resident individual
or those not incorporated under the Argentine laws are only taxed
for their incomes deriving from an Argentine source.
Due to the own nature of this type of taxpayers -non-residents,
not incorporated- the determination as well as the payment
of this tax is not within the powers of tax collector . In this
case, the law requires a substituting representative domiciled
in the country who will be liable for the payment of the tax.
Therefore, whenever any of the taxpayers mentioned in item 1)
above pays benefits to foreign organizations - except in
the case of dividends- they are obliged to withhold a part
of the amounts payable thereto and pay it to the national treasury.
Those parties paying benefits shall have to withhold
and pay:
a) 18% in the case of technology transfer.
b) 24% in the case of assignment of rights and royalties
for operating patents.
c) 27% in the cases of a) and b) mentioned above
that do not fulfill the requirements of the technology transfer
law.
d) 12% in the case of interest paid for loans of
any origin.
e) 21% of the amounts paid as salaries, fees and
payments made to persons who work temporarily in the country.
In all the above cases no deduction for expenses
is allowed.
Dividends
Whenever the taxpayers mentioned in item 1)b)
above distribute profits or pay dividends to their stockholders,
either individuals or corporations, resident or not, incorporated
in the country or abroad, said dividends are not taxed.
The reason for the above is that the payment of this
tax must be borne by the company and not by its partners or stockholders.
Therefore, whenever profits are distributed, without taking into
consideration the individual who receives it or his condition
of residence, even if these incomes are drawn or paid abroad,
no hindrance or levy is imposed upon them, since the companies
have already paid the corresponding income tax.
2.1.2. Tax on Personal Net Worth
This tax levies the net worth of residents, either
located in the country or abroad. In the case of individuals domiciled
abroad, they are taxed only for their net worth situated in the
country.
The following items are included within the scope
of this tax: real property acquired or built, building works,
automobiles, planes, yachts, deposits and credits in Argentine
or foreign currency, works of art, personal and household property,
government securities, stockholders, sharing in corporations and
country premises.
The tax rate is 0.5% levied upon the total computable
cost of the items mentioned above.
Tax on personal net worth is determined and paid
on any property that the taxpayers own up to December 31st, every
year.
2.2. Indirect Taxes:
Indirect or excise taxes are
characterized by their direct incorporation into the prices of
the goods or services. As a result, the tax burden is borne by
the ultimate consumer (this is why they are called indirect).
The taxpayer and the person on which the burden , in fact, lies,
do not coincide.
It is relevant to analyze, within the Mercosur, the
typology and structure of these taxes and whether there are tax
refunding mechanisms in the frontiers. This would avoid distorting
competitive conditions among the producers in the block, either
when trading among member countries or when transacting outside
the region (since these taxes alter the relative price structure
and the cost of goods).
Let us consider, for example, a commercial transaction
carried out by persons belonging to two member countries. The
cumulative tax burden imposed by the two countries upon the same
transaction would prejudice the competitive price of the producer
in its country of origin with respect to that of the producer
in the country of destination. Thus, an agreement had to be reached
among the member countries to impair discriminations. The alternatives
were: taxation in the export country (origin), or in the import
country (destination).
The jurisdictional principle adopted was the exclusive
taxation in the country of destination. As a result, goods
are taxed only in the import country.
However, this measure is not self-sufficient to work
out the above mentioned distorting effects. In the commercial
transaction under analysis, the person making the export shall
analyze the taxation structure in the country of residence (country
of origin) and whether this structure allows him to introduce
his products free from any tax burden (the same analysis is valid
for an extra-zone country). In this case, the following conditions
must be complied with:
a)The export country must be able to identify
and quantify, in a simple and precise way, the burden originated
by the excise and sales taxes which constitute the tax component
of the export products price.
b)The export country must foresee the mechanisms
for the refunding of these taxes.
We shall discuss, then, the structure of excise taxes
in Argentina under the above mentioned variables and the situation
of the Argentine producer when transacting with the rest of the
region or outside.
2.2.1. Value Added Tax (V.A.T.)
The V.A.T. constitutes the par excellence tax applicable
to consumption in Argentina.
This tax has a broad and generalized scope. It is
levied upon the following transactions:
-Sale and leasing of personal property.
-Almost all contracts for services and of services
-Retained imports.
Its main features are:
a)Multistage: It covers all stages of production
and commercialization
b)Non-cumulative: the tax burden that is being shifted
is perfectly identifiable in each stage since the tax amount
is discriminated separately from the price of the good or service
(in the invoice or equivalent voucher).
The above features allow each of the parties within
the production and commercialization chain to shift the tax burden,
with precision by means of successive compensation of debits and
credits, without distorting the price of the goods. Therefore,
when the last link of this chain, the ultimate consumer,
is reached , the tax levied upon him corresponds, exactly, to
the tax burden that has been shifted along the chain of production
and commercialization.
The application of excise taxes such as the V.A.T.
in processes of regional integration - with exclusive taxation
in the country of destination - is supported by taxation jurisprudence
all over the world and it has been adopted by most of the countries
belonging to the European Community.
In this way, the first above mentioned condition
mentioned has been met: the possibility to quantify with exactness
the tax burden incorporated in the product.
c)Exports and related services are not taxed.
d)V.A.T. paid by exporters in the domestic market,
for purchases, contracts of services and for services, retained
imports and any other taxable transactions - as long as they are
related to exportable products-, shall be refunded in cash within
15 days of their filing the application for reimbursement. Such
application may be effected once the bill of lading is performed.
The second condition is, therefore, fulfilled:
The refunding of tax burden levied on goods effectively exported.
e) V.A.T.´s fiscal term is the month. This
means that V.A.T. taxpayers shall determine and pay this tax on
a monthly basis.
F) Balances due to taxpayers (when the amount of
fiscal credits exceeds fiscal debits) are transferred to the following
month.
G) V.A.T. general rate is 21%.
H) V.A.T. financing for investments: A system for
the financing of the Value Added Tax has been recently established
in order to eliminate the financing cost of fiscal credit tied
up by this tax, which is frequent in new investment projects.
Under this system, V.A.T. financing may be applied
to the following transactions:
a) Purchase or retained import of capital goods.
b) Investments on facilities for the mining activity
The beneficiaries of this system are:
1°) Mining projects oriented to foreign markets.
2°) New mining projects.
3°) Mining Projects different from those
oriented to foreign markets.
For item 1) above, tax shall be refunded in advance.
The financing of this tax shall be zero cost
for the beneficiaries under this system. A decision by the authorities
is expected in order to set up the procedure for filing applications.
2.2.2. Taxes on Gross Revenue
Tax on Gross Revenue is levied by the provinces;
it is multistage (applicable to all the stages of production and
commercialization) and, unlike the V.A.T., cumulative. Therefore,
it creates a pyramidal effect that lies upon the global volume
of transactions involved.
This tax cannot be detached from the invoice price
when shifted. So, its incidence upon the total costs, and consequently,
the quantification of tax burden incorporated in a product -
as it was discussed in item 2.2.a) above - are not easy.
The tax rate varies from one province to another
and it ranges from 1% to 4.5%.
Although exports are exempted from the payment of
this tax, this measure is not self-sufficient to lessen its distorting
effects on the economy.
For this reason, as of the signature of the Federal
Covenant, (to be discussed further on), the provinces agreed to
repeal this tax gradually for all the activities. The date for
the complete repeal of this tax shall be June 30, 1996.
At present, most of the provinces have repealed this
tax for primary, manufacturing, and construction activities and,
to a lesser degree, for tourism. This repeal has lessened, to
a high degree, the undesirable effects mentioned previously.
2.2.3 Other taxes on consumption.
Liquid Fuels: This tax
on the transfer of liquid fuels, either of national or foreign
origin, is applied to only one stage of their traffic. Fuels consumed
by the parties responsible for paying this tax are levied. Fuels
exclusively used in the processes of production and-or manufacturing
of hydrocarbons and its by-products are exempted.
Fuels levied by this tax are: unleaded petrol up
to 92 RON, unleaded petrol over 92 RON, leaded petrol up to 92
RON, leaded petrol over 92 RON.
Tax on fuels is payable at a fixed amount per liter.
This amount ranges , according to the different types of fuels,
from 0.2509 Argentine pesos to 0.3865 Argentine pesos per liter.
Transfers of fuels for exportation, to fuel refiners
or traders, as well as fuel used for supplying overseas ships
and airplanes during international flights, are exempted.
Internal tax: This tax
levies certain specific types of consumption. It comprises two
groups of goods. The first group includes tobacco, alcoholic beverages,
tires, fuel and lubricants, wines and beers. The second group
is formed by toiletries, luxury articles, insurance, soft drinks,
syrups, extracts and concentrates, automobiles and engines.
The rates of this tax vary according to the different
products.
Stamp duty: This tax is
levied in the provinces and in the Federal Capital (City of Buenos
Aires). It is a documentary tax (it levies contracts, deeds, etc.).
The average rate is 1% and it is calculated on the amount involved
in the document . The parties to the document shall be equally
liable for the payment of the tax.
As a consequence of the Federal Covenant, the stamp
duty, like the Gross Revenue Tax, has been repealed for a great
number of taxable activities. We can mention, for instance, the
Federal Capital which repealed stamp duty for all taxable activities
described in the law, except for public deeds involving the purchase
and sale of real property (provided they are not considered low-cost
houses and other special cases).
2.3. Federal Covenant - Social Security
On August 12, 1993, the National Government and the
Provinces signed the Pacto Federal para el Empleo, la Producción
y el Crecimiento (Federal Covenant for Employment, Production
and Growth).
The main objective of this covenant was the establishment
of the bases for an endurable economic growth. Certain measures
were taken to achieve this purpose, specially the elimination
and reduction of some taxes which affected several economic sectors,
causing distorting effects on the development of their activities
and negatively influencing production costs.
These measures were set forth in such a way as to
permit the Provinces and the Nation to incorporate them gradually
until June 30, 1996, date on which regulations stated in the
covenant must be fully enforced.
The undertaking by the provinces is three-way oriented:
a)Modify their tax structures
b)Implement deregulatory policies
c)Develop policies for privatization and the granting
of service licenses.
As regards the first item, the provinces agreed to:
- Repeal Tax on Gross Revenue, as explained in
item 2.2.2. above.
- Repeal Stamp Duty for financial and insurance
transactions for the agricultural and livestock sector as well
as for the industrial, construction and mining activities, up
to the whole repeal of such tax.
- Repeal taxes which levy time deposits, saving
accounts and banking charges.
A great number of provinces have adopted these undertakings
immediately. In other cases, sectors and activities have been
gradually incorporated.
On the other hand, the National Government covenanted
to:
- Repeal Tax on Assets
- Cut down Contributions to Social Security
made by the employers on the payroll, to diminish labor costs.
Tax on Corporation Assets has been fully repealed.
In the case of Contributions to Social Security,
reductions were made in accordance with the geographic location
of the working force (see schedule hereinbelow).
2.3.1. Employer's Contributions to Social Security
Witholdings and contributions
must be made, respectively, by employees and employers as Social
Security (this concept comprises retirement, health schemes, etc.).
Witholdings and contributions are calculated on the gross salary
received by the employee and the employer is liable to withold
and pay the contributions made by the employee.
Social Security items and their respective rates,
(without taking into consideration the reductions set forth by
the Federal Covenant) are as follow: