Argentina: Repeal Of 10% Withholding Tax On Dividends, Tax Amnesty

Last Updated: 15 August 2016
Article by KPMG  

Tax legislation in Argentina includes measures that would:

  • Repeal the 10% withholding tax on dividend distributions
  • Reduce the "wealth tax" imposed on foreign shareholders of Argentine companies
  • "Regularize" tax, social security, and customs liabilities and allow an installment plan for tax payments
  • Offer a "tax amnesty" program, providing relief from penalties and accrued interest for undeclared amounts or assets under a tax transparency initiative

These tax legislative measures would affect existing cross-border transactions and structures as well as ongoing tax planning by multinational entities with operations or investments in Argentina. The measures are intended to encourage economic growth, provide funds for the state pension system, and satisfy judgments against the government for unpaid pensions.

Withholding tax, minimum presumed income tax

Under the legislation, the additional 10% withholding tax applicable to dividends distributed by domestic entities, and received by individuals or "undivided estates" domiciled in Argentina or received by foreign shareholders would be repealed. The equalization tax rule (35% on untaxed profits) would continue and remain in effect.

The minimum presumed income tax—1% on assets held at the end of the tax period, complementary to income tax—would no longer be effective, as from 1January 2019.

"Wealth tax"

Under the legislation, the following minimum—non-taxable—amounts would apply for the following fiscal (tax) periods:

Fiscal (tax) period

AR$

2016

AR$ 800,000 (approximately U.S. $55,000)

2017

AR$ 950,000

2018

AR$ 1,050,000

The tax payable by individuals and undivided estates domiciled in Argentina or abroad would be calculated by applying the following rates:

Fiscal (tax) period

Rate

2016

0.75% over the
amount in excess of the minimum non-taxable amount

2017

0.50% over the
amount in excess of the minimum non-taxable amount

2018

0.25% over the
amount in excess of the minimum non-taxable amount

The tax rate for the purposes of the "wealth tax-substitute taxpayer" (which applies to foreign shareholders of Argentine companies) would be reduced to 0.25%from 0.50%. The wealth tax would no longer apply starting 1 January 2019.

Regularization of tax, social security and customs liabilities, the installment plan

Taxpayers that would be allowed to use the installment payment plan to regularize their tax, social security, and customs liabilities would include legal entities andindividuals responsible for the tax, social security, and customs liabilities.

The types of taxes covered under this proposal would include tax liabilities due as of 31 May 2016 (inclusive) and penalties related to such liabilities. Other amounts—withholdings and contributions to the health insurance plan, workers' compensation insurance, and installments to be paid as part of the regime for the regularization of tax liabilities—would be excluded from participation in the installment payment plan.

Among the benefits available for those adhering to the plan are the forgiveness of applicable tax, social security, and customs fines and penalties, as well as forgiveness of part of the compensatory and punitive interest on the outstanding principal covered by the plan (depending on the amount of principal for which the interest accrued).

Under the installment plan provisions, there would be special rules relating to payments made to resolve the tax liabilities. For instance, a "spot payment" wouldallow for a 15% reduction of the debt. Full payment through the installment plan would require a payment equal to 5% of the debt, and then the remaining balance to be paid in installments up to 60 monthly installments, at a financing rate of 1.5% per month. The application deadline under the installment plan regime would be31 March 2017.

Tax amnesty, tax transparency

A "tax amnesty" program would be available for resident taxpayers who hold funds that have not been declared in Argentina or abroad. To participate in the taxamnesty program, Argentine taxpayers would need to make a one-time payment, purchase government bonds, or agree to make long-term investments inArgentina.

With tax sharing agreements with other countries scheduled to be effective in 2017, the Argentine government's tax amnesty program allows taxpayers to disclosepreviously undeclared assets, either held in Argentina or abroad, without requiring repatriate of the assets to Argentina. To benefit from the tax amnesty provisions,taxpayers must report the information by 31 March 2017.

The tax amnesty provisions apply for individuals and legal entities domiciled or resident in Argentina. Individuals are to report only previously undeclared assets thatthey held and that existed prior to the date of enactment. Legal entities are to report assets held and existing in the last fiscal year which ended before 1 January2016.

Taxpayers seeking to invoke the tax amnesty relief may avoid taxes normally due on the undisclosed amounts (e.g., value added tax (VAT), income tax, andpersonal asset tax), criminal tax exposure, and other fines and penalties. Taxpayers availing themselves of the tax amnesty relief must pay a special tax, accordingto the following schedule:

Special taxrate

Asset value

0%

Assets notexceeding AR$ 305,000 in value

5%

Real estate and assets whose value does notexceed AR$ 800,000

10%

Goods valued inexcess of AR$ 800,000, if disclosed before 31 December 2016 (except for realestate)

15%

Goods valued inexcess of AR$ 800,000, if disclosed before 31 March 2017 (except for realestate)

Assets would be exempted from the special tax if the funds are used to subscribe to certain public securities, or if the funds are used to subscribe or purchasequotas in mutual funds with investments in infrastructure, as regulated by the National Securities Commission. Quotas may only be transferred five years aftersubscription.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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