Shortly after taking the office, the new Argentine Government submitted for Congress approval a package of measures (most of them tax-related) whose main objective was to regularize public accounts, reduce inflation ratios, control the foreign exchange market and relieve social inequalities.
After some discussion at Congress, the law was finally passed on December 23, as Social Solidarity and Productive Reactivation Law (the “Law”). A week later, the Executive Branch issued Decree 99/2019 to provide some clarifications and regulations on the new measures.
Among the relevant changes introduced by the Law we can highlight the following ones:
Corporate Income Tax
The Law established a suspension to the Corporate Income tax rate reduction set forth by the 2018 tax reform (keeping suspended the application of the 25%rate until fiscal years starting as from January 1, 2021 included). As a result of that, the 30% rate would still apply to fiscal years starting on or after January 1, 2020. In this regard, the increase in the withholding tax rate for dividend payments (from 7% to 13%) was also suspended for the same term.
As regards the tax adjustment for inflation, the amount pertaining to the first and the second fiscal years beginning as from January 1, 2019 must be allocated as follows: 1/6 of the amount in said fiscal year and the remaining 5/6 in equal parts over the following 5 fiscal years. Under the prior rule, the inflationary adjustment had to be allocated 1/3 in the first fiscal year and the remaining 2/3 in the following two fiscal years.
Exemption on financial income
The Law repealed sections 95 and 96 of the Income Tax Law which established a schedular tax on certain financial income. Because of that, as from fiscal year 2020, interest on fixed term deposits, government securities, corporate bonds and open mutual funds from Argentina would no longer be subject to tax as well as the capital gains deriving from their trade in case of foreign beneficiaries (exception for parties residing in non-cooperative jurisdictions would apply) and Argentine individuals.
The Law also reinstated the exemption for interest on deposits in local financial institutions as from fiscal year 2019. The exemption does not cover income derived from deposits in foreign currency or carrying index adjustment clauses.
Effective from taxable year 2019, the wealth tax rates for resident taxpayers increases as follows:
- the tax rate applicable to resident taxpayers now ranges from 0.5% to 1.25% on local assets and from 0.7% to 2.25% on foreign assets
- the tax rate for nonresident taxpayers with assets in Argentina increased from 0.25% to 0.50%.
- the tax rate applicable to shares and ownership interests in Argentine entities -substitute taxpayer- is also increased from 0.25% to 50%.
Finally, the amendment included a migration from the “Domicile” criterion to the “Residence” criterion, as established under the Income Tax Law.
Tax for a Solidary and Inclusive Argentina (PAIS)
The Law introduced a temporary 30% tax (the so-called PAIS tax for its Spanish acronym), which would apply over a period of 5 fiscal years on the following transactions:
- the purchase of foreign currency for treasury or accumulation with no specific purpose;
- purchases made abroad, including cash withdrawals, using credit and debit cards or any other payment method;
- purchases made online invoiced in foreign currency;
- purchases of services rendered by non-residents in the country through credit or debit cards or any other payment methods;
- purchases of touristic services rendered abroad through travel agencies; and
- purchases of transportation tickets to destinations outside Argentina, except land transportation to neighbor countries.
Medical services, purchases of medicines, purchases of books, educational platforms, certain research projects and purchase of materials and equipment for firefighting and civil protection of the population are tax exempted.
The tax would be payable by the Argentine resident, whether individual or corporation, that carries out the above transactions. However, payment of obligations for a specific purpose would not be subject to the PAIS tax -meaning that most commercial transactions carried out by an Argentine entity would not be taxable.
It is to note that the acquisition of digital services, as defined in the VAT Law, would be subject to a reduced rate of 8%.
The new Law granted powers to the Argentine Executive Branch to set export duties within the framework of the Customs Code, but the applicable rate shall not exceed 33% of the taxable price or the official FOB price.
However, the maximum duty rate was set to 15% for those goods that were not subject to export duties (or were subject to a 0% rate) as of September 2, 2018.
According to the new measures, export duty rates for industrial goods (including agro-industrial products of regional economies) and services has been set not to exceed 5% of the taxable price.
The former cap to export duties (i.e. AR$4 or AR$3 per dollar exported) has been eliminated.
Export duty rates for hydrocarbons and mining may not exceed eight percent (8%) of the taxable price and under no circumstances may an export duty for hydrocarbons reduce the well head value for the calculation and payment of royalties to the producing provinces.
Additionally, by virtue of Decree 99/2010 the Government extended the application of export duties to export of services transactions to December 31, 2021 –export duty on services was originally set to expire on December 31, 2020- and at a 5% rate with no nominal cap as it used to have.
Finally, the Law amended the Customs Code to establish the Statistical Charge to 3% until December 31, 2020. Such charge shall apply to imports for consumption, subject to some exceptions. Regulations have established some caps to the Statistical Charge depending on the taxable basis of the imports.
The schedule to unify the tax rate of employers’ contributions to 19.5% was suspended by virtue of the Law. As a result of that, employer’s contributions would be determined in accordance to the following rates:
- 4% for private sector employers whose main activity is related to services or trade, provided that their total annual sales exceed certain thresholds;
- 18% for the rest of the private sector employers, falling within the scope of Laws Nos. 23551, 23660 and 23661 and those of the public sector falling within the provisions of Section 1 of Law 22016.
Further, the monthly deduction to determine the taxable basis for employers’ contributions was eliminated (i.e. AR$ 17,509.20 subject to annual indexation) and replaced by a fixed amount of AR$7,003.68.
Notwithstanding, certain specific activities would be entitled to a deduction of AR$17,509.20.
In addition, employers having a payroll of up to 25 employees will enjoy an additional AR$10,000 monthly deduction.
Other relevant measures
Along with the listed measures, the Law included the following features:
- A tax amnesty program and instalments plan for SMEs to regularize tax obligations due as of November 30th, 2019.
- The application of the Tax on Financial transactions at a rate of 1.2% on cash withdrawal transactions carried out by Argentine entities, other than SMEs.
- The introduction of an excise tax of 20% for the acquisition of vehicles whose value exceeds AR$ 1.3 million up to AR$ 2.4 million, and of 35% when the purchase value exceeds AR$ 2.4 million.
New promotional regime for knowledge-based activities
On May 22, 2019 the Argentine Congress passed a bill approving a new tax promotional regime for the so-called knowledge-based economy (the “Regime”). The Regime would replace the former Software Promotional Regime (established by Law 25,922, as amended), but also would broaden its scope to contemplate and promote other economic activities that are knowledge- based (like biotechnology, nanotechnology, geological and prospective services and exports of professional services, among others).
Companies that comply with the requirements to qualify for the Regime would obtain benefits such as a reduction of the corporate income tax rate (15% instead of 30%), fiscal stability, a reduction in the employer social security contributions and a tax bond that can be used to offset other tax obligations of the taxpayer and/or transferred to other taxpayers.
The Regime entered into force on January 1, 2020. However, some regulations are still pending to make the Regime operative.