Argentina enacted an integral tax reform through Law 27.430 (published on the Official Gazette on December 29th 2017), which became effective as from January 1st 2018.
The Law includes changes that would affect the taxation of both residents and non-residents. It introduces relevant changes to income tax (both at corporate and natural persons level), value added tax (VAT), tax procedural law, criminal tax Law, tax on the transfer of real estate, including also an optional special asset revaluation regime for income tax purposes.
It must be stressed that many aspects of the Law will be clarified by the regulatory decree which is expected to be issued by the Executive Branch early on March.
a) Corporate income tax and withholding tax on dividend distribution
The current 35% corporate income tax rate has been reduced to 30% (for 2018 and 2019), and then to 25% (from 2020 onwards). A withholding tax on dividends paid by an Argentine entity either to a resident individual or a non-resident would be imposed at a rate of 7% for 2018 and 2019, increasing to 13% as from 2020.
b) Special Regime: Revaluation of assets for corporate income tax purposes
The tax reform introduces a "revaluation of assets regime for tax purposes". This special regime intends to amend the distortions which Argentina´s last decade endemic inflation occasioned in the taxpayer's tax financial statements, mainly for corporate income tax.
c) Tax on Transfer of Real Estate
The 1.5% tax on the Transfer of Real Estate (“ITI” for its acronym in Spanish) has been abrogated. Instead, a 15% tax on the capital gain realized from the sale of real estate will apply (only applicable for second/further homes).
d) Tax on indirect transfer by non- residents of argentine located assets
The sale or transfer by nonresidents of shares or other participations in foreign entities when at least 30% of its value derives from assets located in Argentina, will taxable at a rate of 15% calculated on the actual net gain or a presumed net gain equal to 90% of the sale price of the proportional value that corresponds to the Argentine assets.
However, indirect transfers will not be taxable as long as it can be proved that the transfer took place within the same economic group, in accordance with requirements to be established by additional regulations.
Is must be stressed that the tax will only apply to participations in foreign entities acquired after the entry into force of the tax reform.
e) Taxation of financial investments
The sale of Argentine sovereign bonds and negotiable obligations issued by Argentine entities, among others, will be taxable, as follows:
– 15% will apply to income derived from indexed or foreign currencydenominated securities and other financial income.
– 5% will apply to income derived from fixed-income securities denominated in Argentine pesos and that have no adjustment clauses.
The sale of shares listed on the Argentine stock exchange remains exempted.
ii) Non Residents
The Law maintains the 15% capital gains tax rate (calculated on the actual net gain or a presumed net gain equal to 90% of the sale price) on the disposal of shares or securities by non-residents. However, the Law establishes an exemption for foreign beneficiaries on the sale of shares that are publicly traded in stock exchanges under the supervision of the Argentine Securities and Exchange Commission (CNV for its acronym in Spanish).
The Law establishes also an exemption for interest income and capital gains on the sale of public bonds, negotiable obligations and share certificates issued abroad which represent shares issued by Argentine companies (ADR for example).
These exemptions will apply as long as the foreign beneficiaries do not reside in and the funds do not arise from “non-cooperating” jurisdictions.
It must be noted that income from LEBACS (notes issued by the Argentine Central Bank) are not covered by the exemption and consequently subjected to a 5% tax.
f) Fiscal Transparency anti deferral Rules for resident taxpayers (CFC rules).
Fiscal transparency rules would apply to Argentine companies or individuals which hold shares or interest ownership in foreign companies located in Non Cooperative or LONT jurisdictions, modifying the moment of recognition of foreign source income by resident taxpayers. In this way, the income shall be recognized as earned by an Argentine resident as if the foreign entity does not exist to the extent certain conditions are met (control through ownership, lack of "substance", passive income representing more than 50% of gross income, etc.)
Besides, the Law includes unclear regulations for foreign trusts, private foundations and other international vehicles. It is expected that the regulatory decree clarifies many of these issues.
g) Miscellaneous Provisions
- Permanent Establishment definition for foreign parties developing activities in Argentina has been incorporated following OECD recommendations (BEPS Action 7);
- Thin capitalization rules have been revised under OECD recommendations (BEPS Action 4);
- VAT on digital services provided by foreign companies at a 21% rate (e.g. Netflix). Credit card companies will effectively act as collection and paying agents;
- Changes in Tax Procedural Law;
- Changes to Criminal Law (update on minimum thresholds for Tax Evasion).