On 1 November 2018, Executive Order No. 976/2018 (the "Executive Order") was published in the Official Gazette, regulating certain amendments made to the Income Tax Act by means of Law No. 27,430 ("Tax Reform Act").
The Executive Order will enter into force on November 2, 2018.
I. Income Tax on transfer of real estate
As a result of the Tax Reform Act, the sale of real estate acquired as from January 1 2018 is subject to Income Tax at a 15% rate.
The Executive Order has many rules that are of interest for purposes of assessing this tax:
- It establishes that the transfer of rights on real estate includes real rights, assignments of preliminary contracts and other similar commitments.
- The acquisition will be deemed to exist when there is a public deed, a preliminary contract, the possession of the real estate or any of these situations is verified with respect to the donor or the deceased in the case of goods or rights on real estate received as a result of inheritance or donation.
- The Tax on the Transfer of Real Estate ("ITI") will be applicable in the case of works in construction as of January 1, 2018, or when a preliminary contract was signed and 75% of the price was paid as of December 31, 2017, at a 1.5% rate. Income Tax will not be applicable in these cases.
- Profits created by the transfer of rights over real estate located in Argentina will be considered as Argentine source income.
- In the case of foreign residents, only expenses incurred in Argentina will be deductible for purposes of assessing the tax.
II. Income Tax on termination of employment relationships
Under the terms of the Tax Reform Act, Income Tax will only be applicable to any payment triggered as a result of an employment termination, even when such termination was agreed between the parties (mutual agreement, voluntary retirement, etc.), on any amount that exceed the minimum severance amount established by employment regulations.
In principle, the withholding would only reach those with executive and director positions. However, the scope of this provision was subject to a future regulation to be made by the Executive Branch.
The Executive Order regulated this issue, and defined directors and executives as those that jointly meet the following conditions:
- Having been a member, within 12 months before the termination, of boards, executive committee or appointed to management positions that involve decision making activities or the execution of policies and directives adopted by shareholders, partners or any of the above mentioned entities.
- The gross monthly compensation used to calculate the severance payments established by employment regulations is at least 15 times the minimum wage (Salario Mínimo Vital y Móvil) as of the date of the termination. Considering that the current minimum wage is AR$10,700, the limit to be within the scope of the tax would be a gross salary above AR$160,500.
Although the Executive Order clarifies the scope of the Tax Reform Act regarding withholdings on payments made as a result of the termination of an employment relationship, this does not release employers from making a thorough analysis of each particular case, to determine the employees included within these provisions.