Practical Guide on the Treatment of the Withholding tax in Argentina

Every foreign investor who wants to start his activities in a country or is already carrying out there, any activity or business, has among his priorities some tax planning as one of the axes to assess costs. Therefore, the so called “withholding tax” or retention at source is a worrying issue.

We suggest below a simple and practical guide on the relevant aspects of withholding in the Income tax applied on the beneficiaries from abroad:

What is the Withholding tax?

It is such retention in origin or payment on account, on every earning of an Argentinean source to be perceived by a beneficiary from abroad.

What criterion or standard applies in the Argentine Republic?

In Argentina, income tax law sets forth the criterion of world rent, that is why the residents of the country pay taxes on the whole of their profits or earnings obtained in the country or abroad, and non-residents pay taxes solely on the earnings from an Argentinean source.  The earning source shall be conclusive to determine the taxability or not of the rent obtained by the subject from abroad, since the Argentine Republic shall only have tax jurisdiction on the rents from a local source.

Which are the rents of an Argentinean source?

Profits from an Argentinean source are those derived from:

1. property located, placed or used economically within the country;
2. the carrying out of acts or activities within such territory; or 
3. facts that occur within its territory.

Such withholding shall be implemented by the deemed Withholding Agent, who shall be the payer of the rent or the ones who act as intermediaries, administrators or mandataries (these last ones if the payer subject has omitted to do so).

Persons who have to act as withholding agents, among others, shall be those who pay beneficiaries abroad sums of money for international transportation, payment of containers, insurance, fees and other remunerations, payment of services, etc.

The withholding agents, except those that act as intermediaries, administrators or mandatories, shall have to practice the pertaining withholding at the moment in which the payment of the rent has been configured or before the moment in which the draft or the remittance of funds are ordered to a physical person or to a legal entity which acts as an intermediary, administrator or mandatary.

What shall be the tax base?

The determination of the amount to be withheld may be carried out on the basis of an alleged basis or property for a certain determination according to the type of rent involved. The application of the alleged base, shall determine the effective, applicable aliquot.

1. In the case of contracts that duly abide by the requirements of the Act of Technology Transfer at the moment the payments are effected, 60% of the amounts paid for benefits derived from services of technical, engineering or consulting assistance, which were not obtained in the country on the basis of the judgment of the competent authority in matters of technology transfer, always with the duly registration of the same and with the condition that they had been effectively rendered.
2. 80 % of the amounts paid for benefits derived from the assignment of rights or licenses for the exploitation of invention patents and other objects not contemplated in item 1 above.
3. 35% of the amounts paid when the exploitation of copyrights takes place in the country, only when the pertaining work has been duly registered.
4. 43% in the case of interests or retributions paid for credits, loans or placement of funds of any origin or nature, obtained abroad.
5. 70% of the sums paid for salaries, fees and other retributions to persons that momentarily act in the country, as intellectuals, technicians, professionals, artists not included in sub-section b), sportsmen and other personal activities, when, to fulfil their functions, they do not stay in the country for a period extending for more than SIX (6) months in the fiscal year.
6. 40% of the sums paid for the rental of personal property for contractors resident abroad.
7. 60% of the sums paid for rents or leases of real property located in the country.
8. 50% of the sums paid for the transfer for value of property located, placed or used economically in the country, belonging to firms or companies incorporated, settled or located abroad.
9. 90% of the sums paid for profits unforeseen in the previous sub-sections.

For the purpose to determine in Argentinean currency the amount subjected to some withholding, when this is expressed in a foreign currency, the rate of exchange of the effective negotiation in cash of the foreign exchange destined for the payment of the profit to the beneficiary from abroad shall be considered. In case such negotiation did not exist, the seller-type exchange rate of the “Banco de la Nación Argentina”, in force at the end of the business day of the exchange rate immediately previous to the day on which the payment is effected, shall be considered.

How is this implemented in practice?

The withholding agents must generate the “Withholding Certificate”, for each withholding effected, and it shall be submitted after the reception of the retention income, at the office in charge of the control of tax obligations, to be intervened by the Body together with the payment receipt. The original copy of the “Withholding Certificates” intervened by the treasure, shall have to be delivered to the beneficiary abroad or to the agent, representative or mandatary of the same in the country and shall operate as the evidence of the retention practiced for the purpose that may pertain, before the foreign treasuries, to the beneficiary of the rent, its duplicate shall be handed to those who act in their capacity as intermediaries, administrators or mandataries of the payer in the remission of funds (for example, the bank), with the purpose that no tax withholding on profits be practiced on the amount to be drawn or transferred, and lastly the triplicated certificate must be preserved together with the proof of payment by the responsible ones as evidence of income and imputation.

What type of agreements have been celebrated in Argentina to avoid double taxation?

Argentina has signed multiple international agreements to avoid double taxation and today the following agreements are in force: those signed with Germany, Australia, Austria, Belgium, Bolivia, Brazil, Canada, Chile, Denmark, Spain, Finland, France, Italy, Mexico, Norway, The Netherlands, United Kingdom, Russia, Sweden y Switzerland.

What are the advantages of applying the Agreements to avoid Double Taxation?

The purpose of these agreements is to avoid or mitigate double taxation and their purpose lies mainly in dividing the exercise of the overlapping or concurrent tax jurisdictions with the purpose to limit the exercise of the same by one and/or other State.

In general, the residents of a State are taxed on the totality of the rents they perceive, both those originated in the State of residence or in third States, world rents.  In turn, these third States shall submit to taxation the rents originated in their territory. Therefore, taxpayers are submitted to tax imposition in their country of residence for the rents of a foreign source and these same rents are also submitted to the imposition of taxes in the countries where they were generated. Double taxation may also take place when a person is considered a resident of two States and therefore he is taxed for these on the totality of his rents or income irrespective of the source. It may also happen that two States simultaneously attribute themselves the source of a rent and both exercise their right to tax the rent.

The agreements to avoid double taxation set forth maximum aliquots applicable depending on the type of rent (for example the payment of services, royalties, business profits), and also, within their framework, what has been paid in one State may be used as a “tax credit” in another contracting State, with the purpose to apply such credit to the taxes that the tax payer must cancel in his country of residence.

How is the agreement to Avoid Double Taxation applied in practice?

The beneficiaries from abroad for whose rents of the Argentinean source have been given a special treatment according to the agreements of double taxation subscribed in other countries, shall be allowed to opt for their application to their case, for which they shall have to submit a sworn statement according to the draft note set forth in General Resolution 3497/92, since the burden of the proof on its application shall not be on them.

This resolution determines the obligatoriness to submit, before the local payer agent, a sworn statement or residence certificate for tax purposes. This residence certificate must be certified by the tax authority of the jurisdiction according to the residence of the beneficiary form abroad and is oriented to prove two framework situations:

a.  that the beneficiary is a resident for tax purposes of the co-contracting jurisdiction.

b.  that he does not have permanent premises within the Argentinean national territory.

In case the rent to be paid were typified in the international agreement and it is present in a treatment that becomes beneficious, comparing the one given in Act 20,628, it shall be convenient to follow the procedures set forth in the regulatory standard of the reference (General Resolution of the General Tax Board - “Dirección General Impositiva” – DGI 3497/1992).

It is important to acknowledge that the regulatory standard places on the payment beneficiary, the obligation to fulfill what has been set forth by it so that the payment agent, may acknowledge the differential treatment set forth by the Agreement to Avoid Double Taxation. On his part, the payer agent must verify that the beneficiary of the payment, credits, under the terms and conditions set forth by the General Resolution of the reference, the requirements pointed out in it. If this is not the case, the regulations of the above mentioned international agreement, should not apply.

For further information, contact:

Andres Willa, Senior Partner

Estudio Willa, Buenos Aires, Argentina

e: awilla@estudiowilla.com  

t: +54 911 4783 4892

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