Argentina: Amendments Introduced To The Argentine Tax Regime By Law No. 27,346

On December 27, 2016 the Official Gazette published Law No. 27,346 (the "Law") by means of which:

  1. Certain aspects of Income Tax Law (Law No. 20,628 as amended, the "ITL") are modified.
  2. The Special Regime for Small Taxpayers ("Monotributo") is modified.
  3. The Substitute Taxpayer institute for Value Added Tax ("VAT") for cases in which the activity taxed is done by a foreign subject. 
  4. A new gambling tax and an extraordinary tax on financial speculation – "USD Futures Market Trades" are levied.

Section 12 of the Law establishes that these dispositions will come into force as from the date of publication in the Official Gazette, with the following exceptions:

  • Amendments to ITL (Title I of the Law) will come into force as from fiscal period 2017, except for what is set out in paragraph 3 (amendment to the tax rate applicable to the exploitation of gambling) and paragraph 10 (substitution of ITL Section 18, seventh paragraph) which will come into force in the current fiscal period.
  • Amendments to the Monotributo regime (Title II of the Law) and to the VAT Law (Title III, Chapter IV), as well as the new tax levied on gambling (Title III – Chapters I and II) will come into force as from January 1, 2017.

1. Main amendments introduced to Income Tax Law

i. Establishing new tax sliding scales: ITL Section 90 first paragraph is modified; thus, new sliding scales for the application of Income Tax ("IT") tax rates to individuals and undivided successions.1 In addition, an annual mechanism to update the sliding scales is included.

ii. Amendment to the non-taxable minimum amounts and family dependents: ITL Section 23 which regulates non-taxable income and family dependents is replaced. Thus:

  • IT annual deductions for individuals are increased.2
  • Deduction set for children will be applied when they are less than 18 years of age unless they are incapable of work. Pursuant to the original version, children had to be less than 24 years of age.
  • Deductions arising from certain family members are eliminated.3
  • The Tax Authority ("AFIP") will provide for the way to calculate deductions so that the Annual Complementary Salary is divided by 12, and so that each twelfth part is added to each monthly salary in the year.
  • Personal deductions to be computed are increased by 22% for employees and retirees who, respectively, work and live in jurisdictions contemplated in section 1 of Law No. 23,272.4
  • Regarding income from pensions or any kind of benefits arising from workforce and for cooperative directors, non-taxable income deductions and Special Deduction will be replaced by a specific deduction equivalent to 6 times the sum of the minimum amounts    set forth in Law No. 24,241 Section 125, as long as that amount is higher than the amount of the before mentioned sums.5
  • Every amount contemplated in ITL Section 23 will be annually updated in conformity with the coefficient therein.

In relation with deductions set in ITL Section 23, Section 4° of the Law No. 26,731 that allowed the Executive Branch to increase said deductions to avoid the tax from neutralizing the benefits derived from economic and salary policies, is abrogated.

iii. Tax exemption for extra hours' additional value: the Law exempts from IT the difference between extra hours and ordinary hours perceived by employees for their services rendered on national holidays or weekends.

iv. Rent deduction: a 40% deduction of the sums paid by taxpayers, or by the deceased in case of an undivided probate, for rents destined to their home, as long as certain conditions are met.

v. Differential tax rate for gambling: income deriving from gambling exploitations in casinos and bets done through electronic gambling machines and/or automatized bets and/or through digital platforms, will pay IT at a 41.5% tax rate, whether they are obtained by individuals or companies.

vi. Tax on judiciary salaries: it is established that income arising from elective offices of the Executive and Legislative Branches are to be considered income derived from workforce. Regarding the Judicial Branch, income perceived by members appointed as from 2017 is to be considered as derived from workforce.

2. Amendments to the Special Regime for Small Taxpayers ("Monotributo")

By means of the Law, the annex to the Law No. 24,977 regulating the Monotributo regime is also modified. In particular, parameters of annual invoicing arise to a maximum of AR$ 700,000 or AR$ 1,050,000, in case of movable assets selling, and of accrued rent.In addition, new sums for the integrated monthly tax for every category are fixed.

Thus, all categories are updated, category "A" is reinstated and category "I" is eliminated for the general regime, persisting only for cases arising from the selling of movable assets, pursuant to the following chart:

Category

Annual invoicing

Area affected

Electric energy consumed (annual)

Amount of accrued rent

Tax payable in case of leases and/or provisions of services

Tax payable in case of movable assets selling

A

Up to AR$ 84,000

Up to 30 m2

Up to 3,330 KW

Up to AR$ 31,500

AR$ 68

AR$ 68

B

Up to AR$ 126,000

Up to 45 m2

Up to 5,000 KW

Up to AR$ 31,500

AR$ 131

AR$ 131

C

Up to AR$ 168,000

Up to 60 m2

Up to 6,700 KW

Up to AR$ 63,000

AR$ 224

AR$ 207

D

Up to AR$ 252,000

Up to 85 m2

Up to 10,000 KW

Up to AR$ 63,000

AR$ 368

AR$ 340

E

Up to AR$ 336,000

Up to 110 m2

Up to 13,000 KW

Up to AR$ 78,500

AR$ 700

AR$ 543

F

Up to AR$ 420,000

Up to 150 m2

Up to 16,500 KW

Up to AR$ 78,750

AR$ 963

AR$ 709

G

Up to AR$ 504,000

Up to 200 m2

Up to 20,000 KW

Up to AR$ 94,500

AR$ 1,225

AR$ 884

H

Up to AR$ 700,000

Up to 200 m2

Up to 20,000 KW

Up to AR$ 126,000

AR$ 2,800

AR$ 2,170

Exclusive categories for movable assets selling

Annual invoicing

Minimum number of employees

 

I

Up to AR$ 822,500

1

AR$ 3,500

J

Up to AR$ 945,000

2

AR$ 4,113

K

Up to AR$ 1,050,000

3

AR$ 4,725

The Law also modifies the Monotributo regime as follows:

  1. New sums are set to determine the parameters to apply the Monotributo (Section 31 and 32 of the annex to Law No. 24,977);
  2. New values for pensions destined to the Argentine Integrated System of Pensions' minimum is elevated to AR$ 300.
  3. The amount referred to cooperatives' associates contemplated in second and fourth paragraph of Section 47 of Law No. 24,977 is set in AR$ 72.000;
  4. Amounts contemplated in sub-sections a) and b) of the first paragraph of section 53 of Decree 1/2010, referred to "Productive or Services Projects" acknowledge by the Social Development Ministry are updated to AR$192,000 and AR$288,000 respectively;
  5. An automatic update for the maximum invoiced amounts, accrued rents and the integrated tax amounts is to be done annually every September;

Finally, the Law admits the re-adhesion6 of those small taxpayers lawfully excluded from the Monotributo regime due to previous parameters, as long as the re-adhesion is done in the first 12 months after the coming into force of the Law.

3. Amendments to the Value Added Tax Law

The Law also modifies the Value Added Tax Law (Law No. 20,631 as amended) and creates the figure of Substitute Taxpayer for the payment of the tax corresponding to foreign residents who render services in Argentina taxed by VAT.

Thus, sub-section h) is incorporated to section 4 of Value Added Tax Law indicated that whoever "are tenants, providers, representatives or intermediaries of foreign residents who render services taxed in Argentina, as Substitute taxpayers" are subject to VAT.

Also, a numberless new section following Section 4 which defines who will be considered Substitute Taxpayers and which enumerates some of them (e.g. National, Provincial and Municipal States, cooperatives, charities, civil associations, sports associations etc.) is introduced.

Substitute taxpayers will assess and pay for VAT corresponding to the act, even in the cases in which it is impossible to withhold that tax from the foreign resident. Also, the tax paid will be considered as tax credit if in favor of the Substitute taxpayer.

4. New taxes levied

In addition to the above mentioned modifications, the Law levies three new taxes, two of them on gambling and a third one as an extraordinary tax which will be levied as a one-time only on the profits obtained from the USD Futures Market during the 2016 tax period.

i. Taxes on gambling –bets– through electronic machines or on-line platforms

The new taxes will have the following characteristics:

 

SPECIFIC TAX ON GAMBLING

INDIRECT TAX ON ONLINE BETS

 

Which is the scope of the Tax?

Bets done within Argentina through electronic gambling machines and/or automatic bets, enabled to operate by the Authority.

Bets done within Argentina through any kind of digital platform –using internet- irrespective of the server's location.

Who has the obligation to pay for the tax?

Individuals and companies exploiting the machines enabled by the Authority.

The taxpayer is the person placing the bet. However, the subject who acts as an intermediary in the payment of the value of each bet is designated as collection agent of the tax.

How much will be paid?

0.75% of the value of each bet

2% of the value of each bet

When is the tax due?

At the moment in which the bet is placed

At the moment in which the payment is done or at the due date for the payment of the credit card and/or buying set (whichever comes prior in time)

When must the tax be paid?

Every fifteen days on the basis of the tax returns.

Every fifteen days on the basis of the tax returns.

In both cases, the Executive Branch is enabled to increase the taxes up to 50%, or to reduce them or even to suspend them temporarily.

Section 10 of the Law also introduces Section 301 bis to the Criminal Code, by means of which whoever exploits, administrates, operates or in any ways organizes, by him or herself or a third party, any kind or system of gambling without the proper authorization will be subject to an imprisonment penalty from 3 to 6 years.

ii. Extraordinary Tax on "USD Futures Market Trades"

The Law levies this tax on financial speculation trades (commonly denominated as "USD Futures Market Trades") to be applied one-time only on the profits obtained by any person[7] in the current fiscal period at the time of the coming into force of the Law and because of these kind of trades, as long as the aim of the operation is mere speculation.

Thus, gross income8 derived from "positive price differences" arising from the buying or selling of USD Futures Market Trades will be taxed at a 15% tax rate.

That tax will be included and paid in the tax return corresponding to the current IT period. The Law expressly establishes that the tax cannot be deducted from IT neither computed as payment in advance for that tax. Tax exemptions –objective or subjective– contemplated in ITL will not be admitted.

iii. In every case, these taxes will be regulated by the Tax Procedure Law (Law No. 11,683 as amended), and to be applied, assessed or perceived by AFIP.

Footnotes

1 Applicable tax rates will go from 5% to 35%. The highest tax rate will be applicable to taxable net income exceeding AR$320.000

2 For: A) non-taxable income, to the sum of AR$ 51,967; B) Family dependents –as long as those individuals are Argentine residents, are under the care of the taxpayer and do not have an annual net income above AR$51,967– to AR$ 48,447 for spouse and AR$ 24,432 for each child under 18 or incapable for work; and C) Special Deduction to AR$ 51,967 in the cases provided by section 23 sub-section c). The special deduction amount is elevated by 3.8 times for income contemplated in section 79 sub-section: a) public offices therein, b) dependent workforce; c) pension payments, benefits arising from individuals workforce and cooperatives directors. In those cases, the special deduction will arise to AR$ 249,441.60.- (AR$ 51,967 + AR$ 51,967 x 3.8)

3 Direct descendants (grandchildren and great grandchildren) who are underage or incapable to work; ascendants; underage or incapable for work siblings; mother or father in law; son or daughters in law under 24 or incapable for work. 

4 La Pampa, Río Negro, Chubut, Neuquén, Santa Cruz, Tierra del Fuego, Antártida e Islas del Atlántico Sur as well as Patagones in the Province of Buenos Aires

5 Applicable only for those individuals who have no income other than those pensions and as long as they do not fall under Personal Assets Tax scope –unless they are subject to that tax because they own a residential property

6 Without having to wait for the term provided in Section 19 of the annex to the Law No. 24,977

7 Companies, individuals or undivided successions. The Law expressly says that profits obtained by individuals or undivided successions in 2016 will be taxed.

8 That is, without deducting expenses.

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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