Income Tax for Capital Gains and foreign beneficiaries

On the 7th of April of 2018, Decree N° 279/2018 was published in the Official Gazette through which the Executive Power regulated the way Income Tax is introduced related to stocks sells made by foreign beneficiaries.

 

Gain of stocks operation made by foreign beneficiaries.

 

Law No 26,893 introduced amendments to the Income Tax Law. This law taxes the eventual profits generated by the sale of the shares with income tax (“IIGG”) in Argentina.

This tax works as a “capital gain tax” on the profit obtained from the product of share sales.

  • 5% on the sale price for the transfer of the participation or
  • 15% on the difference between the value of the transfer less the cost of the equity interest (capital contributions and / or original acquisition of the Argentine company); of the two situations which is more convenient.

In the absence of real market value for the purposes of the valuation of the transfer, the sales price could be determined as the proportional equity value of the financial statements (PPV or book value) or some other formula that we can defended before the Tax Authorities.

If the buyer is also a subject from abroad, the regulations establish that the buyer is responsible for the payment of the IIGG. generated in the transaction.

If the seller and the buyer are non-resident persons the responsible for the income tax is the buyer of the shares, quotas, social participations and other values. However, the Tax Authorities did not regulate the tax payment mechanism applicable to this case.

The tax reform introduced by Law No. 27,430 did not modify the tax treatment of the operation, but changed the person responsible for the tax. When the seller and the buyer are non-resident subjects, the seller must pay the tax through his legal representatives.

General Resolution 4227/2018 established the tax revenue mechanism for operations comprised between:

  • September 23 of 2013 and January 1st of 2018;
  • January 1st of 2018 and April 26, 2018 and
  • from April 26 of 2018.

As from April 2018, the regulations distinguish the tax income according to the residence of the seller and the buyer of the shares.

If the seller and the buyer are non-resident persons, the seller is liable for the tax

If the seller has a legal representative domiciled in the country, the tax must be paid by this person. When the payment of the shares is made between the 1st and the 15th of each month the tax must be introduced at the end of the month. But if the payment is made after the 16th the tax must be introduced during the 15th day of the next month.

When the seller has not a legal representative domiciled in the country, the tax can be paid by bay the seller with an international wire transfer until the 00.00 hours of the tenth business day as from the date of the commercial operation.

If the seller is non-resident and the buyer is a resident, the buyer must act as the withholding agent. In general, if the payment of the share price is made between the 1st and the 15th of each month, the tax must be paid at the end of the month. If the payment is made from day 16, the tax must be paid during the first 15 days of the following calendar month.

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