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Argentina: Tax reform measures are enacted

Argentina: Tax reform measures are enacted

The Argentine government issued Decree 1112/2017 (29 December 2017) enacting and making effective comprehensive tax reform. The changes introduced by the tax reform are aimed at promoting investment and competitiveness, and moving Argentina towards a more equitable, efficient, and modern tax system.


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The tax reform measures include changes concerning the corporate income tax rates, dividend withholding tax, taxation of certain financial investments, indirect capital gains taxation, thin capitalization rules, the definition of a permanent establishment, transfer pricing, fiscal transparency rules, value added tax (VAT) on digital services, refund of VAT credit balances, revaluation of assets, and social security contributions, among others.

KPMG observation

Multinational entities conducting business activities or planning to invest in Argentina need to be aware of the impact of these changes, and may need to take immediate steps to address the tax changes. Due to the significance of the amendments, taxpayers need to evaluate potential effects on their current operations and on how their business in Argentina is structured.

Corporate income tax

The rate of the corporate income tax will be gradually reduced according to the following schedule:

  • 2018 and 2019—a rate of 30%
  • 2020 onwards—a rate of 25%

An additional withholding tax will be levied on distributed dividends or profits, bringing the total tax rate to 35%, as follows:

  • 7% dividend withholding tax rate for distributions on profits accrued for tax years between 1 January 2018 and 31 December 2019
  • 13% dividend withholding tax rate for distributions on profits accrued for tax years starting on or after 1 January 2020

The “equalization tax” (35% withholding on dividend distributions exceeding accumulated taxable earnings) is repealed. These amendments are intended to create an incentive for Argentine companies to reinvest their profits. 

Taxation of financial investments


Capital gains derived by Argentine individuals on the sale of Argentine sovereign bonds and negotiable obligations issued by Argentine entities, among others, will be taxable, as follows:

  • A 15% rate will apply to income derived from indexed or foreign currency-denominated securities and other financial income. Currency exchange gains from these securities will not be subject to the 15% tax.
  • A 5% rate of tax will apply to income derived from fixed-income securities denominated in Argentine pesos and that have no adjustment clauses. 

The tax exemption that applies to shares listed on the Argentine stock exchange will remain unchanged, provided certain requirements are met.



Income derived by foreign beneficiaries, provided they do not reside in Argentina and funds that do not originate from non-cooperative jurisdictions (discussed below), will be tax-exempt if: 

  • Such income is derived from the sale of shares that are publicly traded in stock exchanges or stock markets under the supervision of the Argentine Securities and Exchange Commission (CNV). 
  • Such income is interest income or capital gains from the sale of public securities, negotiable obligations, and certificates of deposit of shares issued abroad that represent shares issued by entities domiciled or located in Argentina (i.e., ADRs).  In the case of ADRs, the new rules confirm that the source of the income is determined by the place where the original issuer of the shares is located. 
  • Income from LEBACS (Argentine Central Bank notes) does not fall within this exemption.

These changes are effective for tax years starting on or after 1 January 2018. 

Indirect transfer of shares

A nonresident is deemed to obtain Argentine-source income from the sale of shares, units, interests, securities convertible into shares or any other right representing the capital or equity of the entity, fund, trust or equivalent entity, permanent establishment, appropriated equity or any other entity established, domiciled or located abroad, when the following conditions are met:

  • The market value of shares, interests, units, securities or rights held by such seller in the entity located abroad, upon the sale or during 12 months prior to the sale, accounts for at least 30% of the value of the Argentine assets directly or indirectly owned by the referred seller. Such assets include:
    • Shares, rights, units or other interests in ownership, control or earnings of a company, fund, trust or any other entity established in Argentina
    • Permanent establishments in Argentina that are owned by one person or entity not residing in the country
    • Other assets of any nature located in Argentina or any interests therein

For these purposes, the assets in the country are to be stated at the current market value.

  • Shares, interests, units, securities or rights sold which, at the moment of the sale or during 12 months prior to the sale, account for at least 10% of the foreign company’s equity that directly or indirectly owns the above mentioned assets. 

The tax will apply to participations in foreign entities acquired after the law’s effective date. 

Thin capitalization rules

The tax reform provides a new limitation for the deduction of interest arising from financial loans (regardless of the origin) and replaces a previously applied rule of debt-to-equity ratio exceeding 2:1. This limit will be the greater between the 30% of earnings before interest, depreciation, and amortization, or an amount to be fixed by the executive authority. 

In situations when the deductible interest amount is less than the deductibility threshold, such unused deductions can be carried forward for three tax years.

Likewise, if the interest amount exceeds the limit established, the difference can be carried forward for five tax years.

This limitation does not apply if the taxpayer can prove that, for the applicable tax year, the ratio between the interest and the net income of the Argentine taxpayer is lower than or equal to the same ratio applicable for its economic group in relation to debts with unrelated creditors.

These rules are effective for tax years beginning on or after 1 January 2018.

Permanent establishments

The tax reform includes a definition for what constitutes a permanent establishment—a definition that is in line with the definition included in most income tax treaties signed by Argentina. Argentine income tax law previously did not include a definition of permanent establishment.

Among other situations, the permanent establishment definition encompasses:

  • A building site, a construction, assembly or installation project or supervisory activities in connection therewith, but only when the site, project or activities are developed in Argentina and last more than six months.
  • The furnishing of services by a foreign resident, including consultancy services, directly or through employees or other personnel engaged by the enterprise for such purpose, but only if the activities continue in the country for a period or periods aggregating more than six months within any 12-month period.
  • Persons acting in the country on behalf of a foreign legal entity, who have and habitually exercise authority to conclude contracts or perform an influential role to conclude those contracts.

An entity will not be deemed to have a permanent establishment merely due to the business conducted in the country through brokers, commission agents or any other independent intermediary. However, if a person acts wholly or mainly on behalf of a foreign legal entity, the person will not be deemed to be an independent agent.

Certain activities that have a preparatory or auxiliary character are not included within the definition of permanent establishment.

Transfer pricing

New rules will affect all imports and exports involving an international intermediary, provided that such intermediary is a related party or that the foreign counterparty is related to the Argentine importer or exporter. The intermediary’s fee will be determined in accordance with the risks assumed, functions and assets involved. The price will have to be justified with the most appropriate method.

With respect to the export of goods with known prices, an agreement registration is mandatory when the transactions involve an Argentine exporter and an international intermediary who is either a related party or is located in a zero-tax, low-tax or non-cooperative jurisdiction (discussed below).

Fiscal transparency rules

Non-cooperative and low or zero taxation jurisdictions

The new rules define what must be understood as non-cooperative and low-tax or zero-tax jurisdictions.

Non-cooperative jurisdictions include any country or jurisdiction that has not entered into an agreement for the exchange of information on tax matters or a convention to avoid double taxation, providing for the broad exchange of information, with Argentina. In addition, countries that have entered into any such agreement or convention but do not effectively comply with the exchange of information clause also will be considered non-cooperative countries or jurisdictions. The Argentine executive branch is to prepare a list of non-cooperative jurisdictions based on the new criteria.

Low-tax or zero-tax jurisdictions include countries, domains, jurisdictions, territories or associated states or special tax regimes that have set a maximum tax on corporate income lower than 60% of the Argentine corporate tax rate. 

Fiscal transparency rules would apply to Argentine companies or individuals which hold shares or interest ownership in foreign companies located in these jurisdictions, under certain conditions.

Adjustment of tax base of assets purchased after 1 January 2018

Taxpayers will be allowed to adjust the tax base of assets purchased after January 1, 2018 (new investments), to take into account the effects of inflation. The applicable adjustment index will be the wholesale domestic price index (IPIM). 

Revaluation of assets for corporate income tax purposes – special regime

The tax reform introduces a new “revaluation of assets regime for tax purposes” (RARTP). The RARTP intends to address and partially correct distortions in the taxpayer’s tax financial statements (in particular, for corporate income tax purposes) caused by inflation. Under the RARTP, the taxpayer will have the option to adjust the tax base of the assets used in its income generating activities. The following assets will be eligible for the RARTP regime:

  • Immovable assets (real estate) not accounted for as inventories
  • Immovable assets (real estate) accounted for as inventories
  • Fixed assets (except automobiles)
  • Shares, quotas, and other participations in the capital of companies and corporations
  • Mines, quarries, forestry, and similar assets
  • Intangible assets
  • Other assets, except inventories and automobiles

The adjustment to the tax base of the assets may be depreciated during the remaining years of the life of the asset, which in no case may be less than five years. The adjustment to the tax base of immovable assets that are not accounted for as inventories and intangible assets may be depreciated during a term at 50% of their remaining life, which in no case may be less than 10 years. Certain limitations on depreciation apply when the assets are sold within the next two tax years.

The taxpayers that elect to be included in the RARTP regime will be subject to a special tax which will be levied on the amount of the adjustment to tax base of the assets, at the following rates:

  • Immovable assets not accounted for as inventories – 8%
  • Immovable assets accounted for as inventories – 15%
  • Shares, quotas, and other participations in the capital of companies and corporations – 5%
  • Other assets: 10%.

In addition to the adjustment prescribed in the RARTP, the tax base of the assets included by the regime will be adjusted to take into account the effects of inflation as of 1 January 2018.

Refunds of VAT credit balances

A shorter timeline will apply for refunds of VAT credit balances. VAT credit balances (input VAT) derived from the purchase or importation of fixed assets (except automobiles) which, after a period of six consecutive months, have not been absorbed by VAT debits (output VAT) will be refunded by the tax administration. 

Within a period of 60 months, the taxpayer must (1) apply such funds to pay VAT on domestic supplies, or (2) demonstrate that it would have had the right to reimbursement pursuant to the exporters’ regime. If the taxpayer fails to comply with these requirements, it will have to repay the amounts in question to the tax administration, plus interest. 

VAT on digital services, 21% rate

The tax base for digital services provided by foreign companies is broadened to include services such as access to or downloading of videos, music, games, or similar products that are used in Argentina. A VAT rate of 21% is imposed on such digital services. Credit card companies will effectively act as collection and paying agents.

Social security taxes

  • The first ARS 12,000 of gross salary will be exempt from social security contributions. This change will be phased in over a five-year period, and will be expected to reduce hiring costs and foster formal employment, particularly with respect to lower-salaried employees.
  • The employer’s social security contributions rate will be gradually unified at a rate of 19.5% (current applicable rates are 17% and 21%, depending on the employer’s activity and invoicing level).

Promotion and incentives for technological innovation

Argentine companies may obtain a “tax credit certificate” of up to the lower of 10% or ARS 5 million of certain eligible expenditures in research, development or technological innovation. Such certificates will be creditable against federal taxes. The executive branch will assign and fix the annual amount of fiscal credits that may be granted under this regime, which may not exceed ARS 2 billion per year.

Reduction of cascading taxes

Finally, a complement of these tax reform measures includes a “fiscal responsibility law” that includes several commitments made by the federal and provincial governments aimed at reducing the burden of certain “cascading taxes.” The term “cascading taxes” refers to taxes accumulated over the production process and supply chain, and generally give rise to market distortions.

The law includes a commitment by the provinces for gradually reducing the provincial “turnover tax” (tax on gross receipts) and the provincial stamp tax during the next five years.

The federal government also announced that it will gradually increase the percentage in which the tax on debits and credits on bank accounts is allowed to be computed as a credit against the income tax.


For more information, contact a tax professional with KPMG’s Latin America Markets Tax practice or with the KPMG member firm in Argentina:

Devon M. Bodoh | +1 (202) 533-5681 | 

Alfonso A-Pallete | +1 (305) 913-2789 |

Rodolfo Canese | +(5411) 4316-5753 | 

Violeta Lagos | +(5411) 4316-5740 | 

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