A new Argentine tax reform introduces significant changes to the income tax law regarding the taxation of dividends and capital gains in Argentina has come into force.
The foremost modifications announced by the reform include:
Capital gains
Before the reform, foreign parties (non-Argentine residents) were exempt from income tax on gains from the sale of shares, bonds and other securities. This tax reform eliminates this exemption, applying 15% income tax to net gains derived from such transactions.
For foreign beneficiaries, the net gain is assumed to be 90% of the gross sales price. This implies an effective tax rate of 13.5% of the gross sales price (15% x 90% assumed net income). Alternatively, the law gives the possibility of calculating the net income by deducting from the gross sales price the actual costs allowed under Argentine regulations (it is still to be clarified how this is to work in practice).
It is worth emphasizing that the amendment clearly states that, if the sale of shares is executed between non-residents, the payment of the above mentioned tax will be responsibility of the buyer.
Dividends
Argentine corporate taxpayers will be subject to a 35% income tax on net taxable income.
Before reform, dividends paid up to the amount of accumulated taxable income were not subject to any dividend withholding tax. Any dividend payment exceeding the accumulated taxable income calculated in accordance with the income tax rules (with some possible adjustments) were subject to a 35% withholding tax (better known as equalization tax).
This Argentine tax reform brings into existence a 10% dividend tax that would operate as a “sole and definitive tax” (we assume that the distributing company will be made responsible for the actual withholding).
The tax on dividends applies to distributions made by Argentine entities to both Argentine individuals as well as to foreign shareholders. This tax is applied in addition to the (potential) application of the 35% equalization tax, as described above.
As you note from the above there are still some areas that need clarification. We will continue to monitor this and post additional blog entries if any changes.