Substantive changes to Argentine tax regulations

The Law on Palliative and Relevant Fiscal Measures No. 27,743 (the “ Law ”) introduces substantive changes to Argentine tax regulations.

 In this article we discuss the changes and developments in the Personal Property Tax (IBP) and the Income Tax (IG). In addition, we mention the developments in the Monotributo regime and the repeal of the Real Estate Transfer Tax.

The Law aims to improve tax collection to balance public accounts, reduce the fiscal deficit and alleviate the budgetary crisis facing the provinces. It also seeks to mitigate the national economic crisis and gradually reduce the tax burden on taxpayers to encourage the growth of the formal sector.

• Increase in the non-taxable minimum: The minimum value of assets subject to tax was raised from $27,377,408.28 to $100,000,000. Likewise, the valuation for properties used as homes not to be taxed was increased from $136,887,041.42 to $350,000,000.
• Elimination of differential rates: Differential rates for assets located abroad were eliminated.
• Reduction of rates: For the period 2023, the maximum rate applicable to taxed assets was reduced from 1.75% to 1.50%, establishing a rate range between 0.50% and 1.50%. From 2024 to 2026, the rates will continue to gradually decrease, culminating in 2027 with a single rate of 0.25%.
• Benefits for compliant taxpayers: Taxpayers who have complied with the IBP during the years 2020 to 2022 will receive a 0.50% reduction in the applicable rate for the fiscal periods 2023 to 2025.

On the other hand, the Law creates a special regime of advanced and unified tax payment (“REIBP”), which offers the benefit of fiscal stability until 2038, according to the following terms and conditions:

• Adherence requirements: Having been an Argentine tax resident until December 31, 2023. Those who have lost their residency before that date will also be able to access the benefits, but will regain resident status upon joining the REIBP.
• Deadline for accession: Until July 31, 2024, although the Executive Branch may extend this deadline until September 30, 2024.
• Fiscal periods covered: Fiscal periods 2023 to 2027 may be paid jointly.
• Initial payment: A minimum of 75% of the total tax must be paid as an initial payment for the REIBP. If this requirement is not met, the user may choose between paying the outstanding balance with a 100% increase or waiving the benefits of the REIBP.

• Joint membership with the Asset Regularization Regime: Taxpayers who have opted for the Asset Regularization Regime (Laundering) ( see note ) may join the REIBP until the due date of the sworn declaration of that regime. In this case, they may jointly pay the tax periods 2024 to 2027.
• Valuation of assets: The valuation methods for assets valued as of December 31, 2023 were established and it was established that the result must be multiplied by 5 to be taken as the tax base for the unified payment of the periods 2023 to 2027, and by 4 to be taken as the tax base in the case of the periods 2024 to 2027.
• Applicable rate : The rate on the taxable base will be 0.45%. For assets regularized under the Asset Regularization Regime, the rate will be raised to 0.50%.
• Exemption from obligations: Those who adhere to the REIBP will be exempt from the obligations inherent to the tax until 2027, except for those who act as substitute taxpayers for a foreign subject.
• Fiscal stability: REIBP members will enjoy fiscal stability until 2038 with respect to the Personal Property Tax and any new national tax levied on their assets. From January 1, 2028, to December 31, 2038, a rate of 0.25% will be applied to all national taxes on their assets.
• Additional tax on donations: REIBP members who accept a donation before December 31, 2027 from a relative within the fourth degree of consanguinity, spouse, ex-spouse or cohabitant who has not adhered to this regime, will pay an additional tax. This will not apply to shares or interests in Argentine companies or interests in trusts covered by the substitution regime.

In order to recover the tax revenues lost between August and December 2023 due to Decrees 414/2023 and 433/2023, the Law introduces the following modifications:

• Period January to September 2023 : The applicable rate scale was established for the period January to September 2023.
• Last quarter of 2023: Decree 473/2023 was ratified for the months of October to December 2023.
• Repeal of the Cedular Tax on High Incomes : The Cedular Tax on High Incomes (the “Cedular Tax”), implemented since January 1 of this year by Law 27,725 and by which workers with a monthly income equal to or greater than 15 Minimum Living Wages and Mobile Salaries were covered, was repealed.
• Restoration of the Fourth Category General Regime: The Fourth Category General Regime was restored, renamed the Personal Income Tax.
• Non-taxable minimum: The non-taxable minimum is set at $1,800,000 gross per month for single individuals and $2,300,000 for married individuals with two children.
• Increase in non-taxable income and family burdens: The amount of non-taxable income has been raised from $1,089,368.57 to $3,091,035. In addition, the deductions for family burdens for spouse or cohabitant and child have been increased, respectively, from $1,015,579.74 to $2,911,135 and from $512,160.65 to $1,468,096.
• Tax Scale Adjustment: Tax scale amounts have been updated.

• Elimination of exemptions: Exemptions applicable to the difference between the value of overtime and regular hours received for services rendered on holidays, non-working days and weekends, to the productivity bonus and to the annual supplementary salary are eliminated. Likewise, the possibility of deducting certain concepts such as travel expenses, travel expenses and other similar compensations paid by the employer is eliminated.
• Employer payments subject to tax: It is established that all payments related to employment, paid by the employer or a third party, will be subject to tax. This includes travel expenses, meals, transportation expenses and any other benefit received by the employee, with the exception of the provision of work clothes and training or specialization courses.
• Oil activity: From January 2024, the benefits contemplated in article 1 of Law 26,176 will apply exclusively to well personnel, excluding the management, executive and managerial personnel of oil companies.
• Special deduction for 2024: A special deduction is established for 2024, equivalent to the increase in tax liability derived from these modifications and applicable to the period between January 1, 2024 and the last day of the month in which the Law comes into force.
• Update of amounts: An exceptional update is expected in September 2024, based on the variation of the CPI between June and August of this year. From 2025, the amounts referred to will be adjusted semi-annually based on the annual variation of the CPI, in the months of January and July.

Additionally, we inform you that the following changes have been implemented:

• The Real Estate Transfer Tax was eliminated.
• The limits for the categories of the single tax have been updated as of January 1, 2024.

We believe that the changes to the IBP are appropriate to alleviate the tax burden on taxpayers, as many will stop paying this tax due to the increase in the non-taxable minimum or will pay significantly lower amounts. This measure is undoubtedly in line with the objectives proposed during the president’s campaign. Although talking about fiscal stability until 2038 is too bold in Argentina, the REIBP will be significant for those who owned exempt assets at the end of the 2023 fiscal year and/or plan to increase their assets in the coming years. It is important to highlight that these measures were implemented so that the National Government can meet the objectives of the Whitening, which seeks to obtain as soon as possible the amounts necessary to balance tax collection.

The reinstatement of the Fourth Category General Regime generates mixed opinions. Although many workers will once again be subject to the Income Tax, it is undeniable that this tax exists in all developed countries. The reinstatement of the tax is the result of months of negotiations with the provinces, which seek to alleviate the budgetary crisis caused by the decrease in the shareable mass. We positively value the ratification of the tax reductions made by decrees in the last months of 2023 and the elimination of the distinctions between workers established since January 1 by the repealed Cedular Tax.

Furthermore, we believe that the Personal Income Tax will not have a major impact on salaries, since it starts its progressive scale with a rate of 5% and contemplates for 2024 a special deduction equivalent to the increase in the tax obligation derived from this restitution. The challenge lies in ensuring that the non-taxable minimum is not eroded by the effect of inflation, distorting the nature of the tax and taxing income that is necessary for the maintenance of families.

The changes in the Monotributo system are undoubtedly a favorable and necessary measure for small taxpayers, since the system had become totally distorted due to inflation. The increase in the limits allows those who were excluded to re-enter the system and prevents many others from being excluded or turning to the informal economy.

It remains to be seen whether these changes to tax regulations will meet the Government’s objectives and restore taxpayers’ trust.

Annie Esther Reyes