On June 27, 2024, the process of approval of the Palliative and Relevant Tax Measures Law (hereinafter, the “Law“) finally culminated in the Chamber of Deputies, with the reiteration of the titles specifically dedicated to Personal Assets Tax and Income Tax. Said titles had been subject to controversy in the Senate, where they were eliminated from the bill, for which reason it had to be sent back to the House of origin to receive treatment again, ratifying its elimination or reiterating its approval as originally proposed.
The following is a summary of the main aspects of the Law recently approved by the Chamber of Deputies in connection with: (i) the reinstatement of the Income Tax regime; and (ii) the amendments to the Personal Assets Tax.
- Income Tax
The main changes to the Income Tax with respect to the current regime, called “Cedular Tax”, are related to the application of the tax to salary concepts. Among the reforms are modifications to the tables of taxable amounts, a regime for updating the tables for inflation, and new deductions.
The Law reestablishes the previous scheme and therefore eliminates the minimum taxable amount of 15 Minimum Vital and Mobile Wage and establishes that the new minimum non-taxable amounts for dependent employees, including those salaried employees with gross salaries, will be $ 1,800,000, in the case of single workers, and $ 2,360,000, in the case of married workers with two children under 18 years of age.
These amounts will be updated in September 2024, considering the inflation rates reported by National Institute of Statistics and Census (hereinafter “INDEC”, for its Spanish acronym) for the previous three months. This presents a difference with the current regime, which, instead of being tied to inflation, links the increases to the Minimum Vital and Mobile Wage published by the Government.
Finally, it should be noted that the amounts will be adjusted semiannually starting in 2025, to reflect the annual variation of the Consumer Price Index (“CPI”), provided by INDEC. This adjustment will be made in the months of January and July of each year.
The Law provides that the amendments introduced will not be retroactive to the beginning of this year, even though they cover the same fiscal period. Thus, the new scales will apply only from the effective date.
i) Exemptions and Deductions
On the one hand, the Law introduces new deductions not foreseen in the current regime, such as expenses for spouse and children, rents and more. The maximum amounts deductible from taxable income by individuals may not exceed the aforementioned amounts:
- Non-Taxable Income: $ 3.091.035
- Spouse spending: $ 2.911.135
- Children spending: $ 1.468.096
However, it also implies the elimination of several tax exemptions, such as mobility expenses, in addition to eliminating the differentiations previously made by the tax regarding the value of overtime, work on weekends and holidays, as well as productivity bonuses.
- Personal Assets Tax
The Law includes substantial changes to the Personal Assets Tax Law, modifying the applicable rates for the tax periods from 2023 to 2027, and establishing a special income regime to advance the tax for future years.
i) Modification of the applicable Personal Assets Tax rates
A gradual modification of the scale of progressive reductions in the tax rates for the fiscal years from 2023 to 2027 is established, progressively reducing the maximum tax rate from 1.50% in 2023 to a unified rate of 0.25% for 2027.
Additionally, those taxpayers who have complied with all their tax obligations with respect to Personal Assets Tax for the tax periods 2020 to 2022, inclusive, will have a reduction of 0.50% of the respective rate of such tax for the tax periods 2023, 2024, 2025.
In order to qualify as a compliant taxpayer, the taxpayer (i) must not have regularized assets under the rules of Title II of this law and (ii) must have filed and cancelled before December 31, 2023, if required to do so, the Personal Assets Tax returns for the tax periods 2020, 2021 and 2022.
ii) Special Regime for Payment of Personal Assets Tax
The Law introduces a new Special Regime for Payment of Personal Assets Tax (hereinafter, “REIBP” for its Spanish acronym) of voluntary and individual adhesion for individuals and undivided estates that were tax residents in the country as of December 31, 2023. The regime also covers foreign residents who, as of December 31, 2023, are not considered tax residents for personal income tax purposes, but had been tax residents in the country before that date.
The taxpayers may adhere to the regime until July 31, 2024, inclusive. The National Executive Power may extend such date up to September 30, 2024, inclusive. Those who choose to adhere to the asset regularization regime may exercise the option to adhere to the special income tax regime until the time of filing the sworn statement of the asset regularization regime (November 30, 2024, January 31 or April 30, 2025, as the case may be).
iii) Taxable base
- In the case of individuals and undivided estates residing in Argentina, the tax will consider the assets existing in the taxpayer’s net worth as of December 31, 2023 inclusive, with all the rules in force at that time for their valuation, considering exemptions, deductions and non-taxable minimums. The resulting amount will be multiplied by five and will constitute the taxable base of the tax to be paid under the regime.
- In the case of taxpayers who have externalized assets under the asset regularization regime, the taxable base will be determined by taking the total amount of the assets regularized in the 3 stages, valued according to the Regularization Regime, for which the value is determined in dollars and then converted into pesos according to the official exchange rate corresponding to the date of filing of the respective affidavits of the regularization regime. The resulting amount will be multiplied by four.
iv) Applicable Rates and Payment Mechanism
In the event that the taxpayers choose to adhere to the REIBP, the Personal Assets Tax will be paid by applying a tax rate of:
- 0.45% on the taxable base determined in the case of individuals and undivided estates residing in the country.
- 0.50% on the taxable base determined in the case of taxpayers who have regularized assets under the asset regularization regime.
The payment of the tax would consist of an initial payment of 75% of the total tax determined in accordance with the provisions of the regime following the date, method and other requirements established in the regulation The regulation will establish the mechanism for the presentation of the corresponding affidavit. If no amount is paid for the initial payment of the regime within the established legal term, this will deprive the taxpayer in full of the benefits of this regime.
If after the presentation of the affidavit of the Regime, it is noticed that the initial payment was less than 75% of the total payment, the taxpayer may choose between:
- To remain within the regime, paying the outstanding balance of income, increased by 100%.
- To renounce to the benefits of the regime, in which case the taxpayer may apply the amount already paid as tax credit compensable against any other tax whose collection is in charge of the Tax Authority (AFIP).
v) Benefits
Taxpayers who adhere to the regime and comply with its conditions will enjoy the following benefits:
- Exclusion from Personal Assets Tax and any other personal property tax for the tax periods 2023 to 2027, reaching all aspects of Personal Assets Tax (i.e., advance payments, payments on account, filing of affidavits, etc.).
- They will enjoy tax stability until the year 2038 with respect to the Personal Assets Tax and any other national tax that may be created and whose purpose is to tax all or any assets of the taxpayer, expressly prohibiting an increase in the tax burden due to property taxes beyond certain limits established in the Project.
- The tax stability is determined according to the rules of the Personal Assets Tax in force at the time of adhering to the regime, with a rate of 0.45% until 2027 (of 0.50% for those taxpayers for the assets they regularize) and thereafter of 0.25% until 2038.
