View Full Version : Argentina Tax Structure and Issues
A new thread to cover this area.
I am thinking of getting permanent residency in one of the countries of South / Central America. In order to choose, I am doing some due diligence on taxes, residency requirements, property issues, etc.
It appears to me that the taxes in Argentina are prohibitive. There is a book by an Argentina law firm in english here: http://www.tomascalle.com.ar/english/ that contains information on a whole lot of Argentina law, including taxes. There is information here: www.deloittetaxguides.com. Searching "Argentina taxes retirement resident" yields a lot of good stuff. I am still researching.
It looks like they tax WORLDWIDE income and assets, including property, bank accounts, stocks and bonds, cars, etc. And the tax rates for income tax are much higher than the US rates. Without the law and the forms, I am not absolutely sure that income includes pensions and other unearned income. The law book seems to say it does, other sources don't specify. This is scary. Even if it is not the case now, with all the mechanisms in place they could change the law at any time. There is no tax treaty between the US and Argentina, so the best one can get is a deduction in one country for the tax paid in the other.
I have also seen references indicating that if one owns a home that is not occupied continuously, the rental income is assumed to be the rental value of the property. Also, for non-residents, the rental earnings are a fixed percentage of gross rental, without deductions. Both items very bad news, if I read it right.
Why have I not seen much posted about this? It may be that some people are simply not reporting overseas income and assets. That isn't a very good idea if one has to declare pension and / or income for a rentista visa. It is also not good if at a future time one wants to bring in money (that was never declared) to pay cash for real estate. It is also an alligator just waiting to bite you in the ass. Argentina seems to be putting more attention on compliance and control for taxes. Witness the new thrusts on collection of property capital gains taxes. Uruguay has just introduced an income tax, more evidence that these countries are tightening up.
Does anyone know anything that might mitigate this? Is there something I haven't seen yet? If it is the way it looks to me, Argentina is out immediately.
Lex, if memory serves, you're a US citizen, yes? Even if you obtain permanent residency in another country, under US tax law you'll still be required to pay US income taxes on your worldwide income, subject to some exclusions, etc.
The US is almost alone amongst the advanced industrial democracies in this regard. Citizens of Canada, for example, who move to the Bahamas don't still owe the Canadian tax man anything on their Bahamian income.
Sir John Templeton, US born-and-bred billionaire, actually renounced his US citizenship to avoid US taxation on his fortune. So no matter which country you take permanent residence up in, you're still going to owe the IRS. And unless you have Templeton's billions, you're better off keeping that citizenship and your money Stateside. By way of an example, look at yesterday's Wall Street Journal, which in a Page One article described the plight of Venezuelean people, many of them of "middle class" means, who are looking to move their money to the USA to protect it from their government.
Thomaso276
08-28-07, 21:14
Lexton: great info, thanks for the links.
I might be wrong, but I think now you only have to pay for ten years (up from three years a little while ago!) But then things might have changed again under George W!
Costanza12
08-28-07, 22:50
I assure you that US citizens always owe a tax return regardless of where they live.
I am thinking of getting permanent residency in one of the countries of South / Central America. In order to choose, I am doing some due diligence on taxes, residency requirements, property issues, etc.
It appears to me that the taxes in Argentina are prohibitive. There is a book by an Argentina law firm in english here: http://www.tomascalle.com.ar/english/ that contains information on a whole lot of Argentina law, including taxes. There is information here: www.deloittetaxguides.com. Searching "Argentina taxes retirement resident" yields a lot of good stuff. I am still researching.
It looks like they tax WORLDWIDE income and assets, including property, bank accounts, stocks and bonds, cars, etc. And the tax rates for income tax are much higher than the US rates. Without the law and the forms, I am not absolutely sure that income includes pensions and other unearned income. The law book seems to say it does, other sources don't specify. This is scary. Even if it is not the case now, with all the mechanisms in place they could change the law at any time. There is no tax treaty between the US and Argentina, so the best one can get is a deduction in one country for the tax paid in the other.
I have also seen references indicating that if one owns a home that is not occupied continuously, the rental income is assumed to be the rental value of the property. Also, for non-residents, the rental earnings are a fixed percentage of gross rental, without deductions. Both items very bad news, if I read it right.
Why have I not seen much posted about this? It may be that some people are simply not reporting overseas income and assets. That isn't a very good idea if one has to declare pension and / or income for a rentista visa. It is also not good if at a future time one wants to bring in money (that was never declared) to pay cash for real estate. It is also an alligator just waiting to bite you in the ass. Argentina seems to be putting more attention on compliance and control for taxes. Witness the new thrusts on collection of property capital gains taxes. Uruguay has just introduced an income tax, more evidence that these countries are tightening up.
Does anyone know anything that might mitigate this? Is there something I haven't seen yet? If it is the way it looks to me, Argentina is out immediately.Yes, that's the way it is. Playing by the book is expensive in Latin America in general.
What people do to circunvent the AFIP? They receive cash "under the table" everytime they can (doctors invoicing HMO's, for instance, or those who should pay IVA cannot avoid these rules) they keep their money abroad, they buy their stuff on informal markets (La Salada is an example of that) they ask for undervalued invoices, etc.
Argentina (and many Latin American countries) has had a very weak tax collection power. Evasion usually revolves around 40-50% , so the local IRS (AFIP) tries to compensate evasion by charging those who cannot escape their control. That explains, for instance, that taxes are prohibitive for those who pay. It also explains why IVA is so high (harder to evade than income taxes)
It wouldn't hurt to talk to an accountant.
Hope this helps,
Andres
Lexton,
Maybe you should pay property tax and nothing else. Other than your apartment, you should never have any assets or income in Argentina. So, though worldwide income is taxed on a permanent resident, how would they ever know about your holdings abroad?
Once you acquire a permanent visa, it's permanent. You don't have to annually prove your pension / student / worker status (and show pension / salary statements) like you do when renewing a temp visa.
BundaLover
08-29-07, 05:25
Are you for real? Do you think that the upper class Argies move money to US and then declare their income? Do you think they have a high tax compliance rate for HIDDEN money? What is the point of studying 'laws' when you are so naive as to believe that the laws are in effect? Dude you simply have no understanding of latin america. A fool and his money.
Lexton,
Most countries I know tax the world wide income of their residents, in many cases giving credit for taxes paid in a foreign country on income earned in that country. The U. S. Regulation of taxing their citizens no matter where they live is quite unique, and bad luck for you guys.
Also, double taxation agreements exist between a lot of country pairs, for example between Argentina and my country.
Some issues of the Argentine income tax regime make it far more bearable:
- It is true, that as a non resident, all your Argentine income is taxed on it's gross value, with no expense deduction. This, however, is compensated by a "withholding factor", saying that only a certain percentage of that income is taxed - for rental income, this is 60% , so your effective tax rate is 35% * 60% = 21% on the gross. And, in Argentina there is only federal tax, no state, province, etc. Income tax.
- As a resident, you pay on your net income, and with a progressive scheme, however with a "western" income you are at 35% rather soon.
- If you have an apartment, it is true that the AFIP assumes an income according to it's rental value. You can, however, prove that it has been empty or used by yourself for some periods of time.
- Get an accountant. There are enough accounting firms in BA with english (and German) speaking staff.
- The question of fiscal residency is usually determined on the amount of time you actually in a country, or on "in which country is the center of your life". If you spend more than half the year (183) days in a particular country, this place is very likely to treat you as a fiscal resident.
Hope this helps a bit,
El Alemán
Thanks for your input below. But looking at the responses I have received on this so far, it appears that there is an awful lot of confusion and partial understanding in this area. Maybe to help clarify my own thinking, lets take it from the top.
I. Citizenship.
First, I am looking only for a permanent residency permit, not a change of citizenship. They are totally different things. Changing citizenship is hard, and is definitely burning one's bridges, as there is no way to go back. A citizen of any of the industrialized countries would need a very good reason to become a citizen of an extremely small or developing country, because they will have a harder time going elsewhere from there.
Unfortunately citizens of the US have a special priviledge: "The United States is the only country that taxes its citizens on worldwide income regardless of residency or length of time outside the United States." So I am not going to be able to avoid US taxes. All of us US citizens have a duty to help make the corporate imperialists rich and hold their taxes down.
But this tax on citizens is more of an issue for people who plan to earn money outside the US through working or renting property, etc. It has the effect of making it difficult for the common person to start a business abroad. Which is fine with the US imperialists. They don't want the competition for the multi-national corporations that will be given a government subsidy with our taxes to invest in business abroad, and various tax holidays as well.
For foreign earned income, there is the $82,000 exclusion capability that helps a wage earner. Other stuff may be possible on unearned income if one works hard enough at it?
II. Non-resident Issues.
For a person who is a non-resident of a country, but earns money in the country, those earnings are normally taxed. That person will probably also be taxed on those earnings by their country of residence in various ways. It appears to me that a US citizen who becomes resident of another country (say Argentina) and then earns business income in a third country (say a rental apartment in Uruguay) will have that Uruguay money taxed 3 times (unless you are very rich). Don't you just love it?
For most of us, the thing we are most likely to want to do is buy property for a vacation home, and maybe rent it out or not. It is possible to do that in Argentina. Here we find that the issues of the Personal Property Tax and the assumed rental income seem very bad in Argentina, but they may be avoidable somehow? Rental is taxed as a fixed percentage of gross. It is always a bad idea to give up a percentage of gross. There may be other nasty issues?
I assume there may be deductions on US tax for tax paid to Argentina for rental income if one is careful. Does anyone know how difficult it is practically to set up? Also, this income is the most difficult to track for the US, probably for the foreseeable future. But let us not foget the wonders brought to us by computers. NOONE predicted even 5 years ago that the government would be able to index and search all of the e-mail in the US in 2008, including me. And I should have been able to see it coming.
III. Permanent Residence Issues.
When a person becomes a resident of another country, they become subject to that country's tax laws. Most countries have individual taxes related to business income, rental income, wages, etc. earned within the country of residence. Some are more all inclusive than others. If one plans to earn money in another country, then they must pay the required taxes on those earnings. So just look at the direct taxes and decide if it they are too high or not. Argentina income taxes are much higher than the US.
For a person with pension and retirement assets, or income producing properties, or even vacation or residence property in their country of citizenship, who then becomes resident in another country, there is another very important issue. Most countries tax residents on WORLDWIDE income. That means that a person who becomes resident of such a country will have to pay tax on their income and possibly assets (personal property tax) in their country of citizenship. Obviously, for a retired person living on their pension and / or assets, this can be prohibitive. For one thing, much tax has already been paid on wealth accumulated, including a social security pension (paid for with after tax dollars in the US). Actually, the payment of indirect taxes such as sales tax, property tax, fuel tax, excise tax, school tax can also be considered as taxes on the accumulation of say, a pension or IRA, because of their support of the necessary infrastructure. They can be thought of as being paid instead of an income tax. Secondly, the country of residence has no infrastructure investment in the earnings in the country of citizenship, it is totally unrelated to them. Thirdly, the country of residence is going to benefit from the expenditure and / or the investment of those imported earnings in the country of residence, including through direct taxes (I pay a VAT tax on transactions with those earnings in Argentina) and through increased economic activity and foreign trade. Fourthly, the tax on those earnings and assets may be in excess of anything that would be required in the country of citizenship. Obviously, I am totally against the idea of taxing worldwide income of residents. It is totally unfair. The fair thing is for the source country to tax the income, period. The countries of residence and citizenship are just stealing.
The primary issue on the tax on worldwide income is: What types of income are taxed in other countries? Most expatriate retirees have pension, interest, dividend, and capital gains income in their citizensip country. They also may have capital such as financial assets (including IRAs) and property. The law firm site indicates that Argentina taxes all these forms of income. But other sites don't specify. I would have to believe the law firm without good reason. Also, if they don't tax pension, etc. Now, they could at any time.
Argentina also has an annual tax on foreign property (personal property tax) that appears to include financial assets. I am sure that Argentina would not make exceptions for IRAs in those taxes. If these taxes are true about Argentina, it is absolutely prohibitive.
Avoiding these taxes is not going to be easy. To acquire a rentista visa, one must declare a pension and / or a source of income outside of Argentina, essentially for life. It is a terrible idea to declare the income and then not report it. They can come for you at any time, easily, with their own information. Further, if one wants to buy property or transfer money into the country for any formal purpose, such as start a business, one must state the source of the funds. The tie back to personal property taxes is just waiting to happen. Not reporting US assets is also problematic. As a US citizen, you are much more visible than an ordinary Argentinian, especially to the US authorities. They could make an agreement to report on you to the Argentine tax authorities with the appearance of the first US friendly dictator.
I would also bet that the invasion of privacy in US banking of the last few years has made the US a lot less popular for hiding funds, and it will continue to decline. I have seen various references that say that US citizens are no longer able to purchase many investment funds or open bank accounts in many banks in say, Uruguay because of it.
Some countries do NOT tax worldwide income. They are mostly considered tax and retirement havens, obviously. At this time, some popular ones are Costa Rica, and Panama, and Uruguay. There are others. Look at http://www.internationalliving.com/ or do a search for tons of information.
That sums up the highlights, and I hope sets up the framework for information. I still would like to see any authoritative info that mitigates the above.
Argentina also has an annual tax on foreign property (personal property tax) that appears to include financial assets. I am sure that Argentina would not make exceptions for IRAs in those taxes. If these taxes are true about Argentina, it is absolutely prohibitive.These taxes may be true, but for sure they are unenforceable. Lots of Argentineans save their money abroad, and so far I didn't hear of any case of investigation for tax evasion abroad.
As a US citizen, you are much more visible than an ordinary Argentinian, especially to the US authorities. They could make an agreement to report on you to the Argentine tax authorities with the appearance of the first US friendly dictator.
I would also bet that the invasion of privacy in US banking of the last few years has made the US a lot less popular for hiding funds, and it will continue to decline. I have seen various references that say that US citizens are no longer able to purchase many investment funds or open bank accounts in many banks in say, Uruguay because of it.If the US authorities started informing the Argentine ones about taxable income of Argentine residents, the whole financial sector in Miami would suffer, since most Latin Americans hiding money there would move it to Cayman or elsewhere.
Andres
I am still looking into these issues, but Argentina is fading fast. There is a potential land mine for non-resident property owners. The issue involves residency for tax purposes. I have seen various references to this issue, so it is not absolutely clear what the situation is. Here is a quote from one tax guide, that IS clear:
"If you are present in the country for more than six months (180 days) in a calendar year, you are considered an Argentine resident for tax purposes. Otherwise, you are regarded as non-resident."
This would not be very unusual. I have seen references to several countries (including Canada) having a similar law. But a lot of Argentine guides aren't very specific about it, which is why I am not absolutely sure. You HAVE to check it out in detail.
This can be HUGE. If you are living in Argentina by making visa runs, this says you could be potentially making yourself a resident for tax purposes. This is normally not likely to be an issue, because of problems with international judgements and collections. However, if you are a property owner in this situation, there is one point where they have your balls firmly in hand: When you go to sell. They could, just as they have started with the property taxes, etc; do a tax audit: "Let's just make sure you have been a good boy regarding income tax and residency issues, before we let you sell this". They have all the necessary information in their own systems to determine the residency issue.
I have seen some silly questions about property expropriation and dictators in Argentina. They don't need to expropriate. If you have significant income and assets outside of Argentina, you may abandon the property to avoid the taxes if you fall into something like this.
If you want to be a non-resident property owner, you must make absolutely sure you do not fall into this type of trap. And whatever the law is currently, make sure you keep up with it. It could change at any time, because the issue is surely there. I would try to be sure I was clean at least 3 years before selling the property. And I assume that just as with the IRS in the US, once you are found to be fraudulently non-compliant, they can probably do pretty much whatever they want.
Another thing to keep in mind in all this stuff. As I commented in the Chit-Chat section, this World Trade Organization crap is not favorable to these countries. It is also very NEW: The laws on patents started with January 2005, I think. So I don't think there is a general realization in these countries of just how unfair this WTO crap is. As there gets to be more and more of an understanding, I expect a backlash of some sort. These countries could get a lot nastier with citizens of the industrialized countries. This could include more tiered pricing (like domestic airlines) special taxes, enforcement of laws like this, and so on. That is one way to recuperate some losses on monopoly products. So I expect changes over say, 5 years.
I think everyone is being far too lackadaisical about Argentine taxes, especially when they are involved in transactions that will cover years of changes in the situation.
Thomaso276
09-06-07, 21:31
I pointed out some time ago that the first couple of years here properties were pretty easy to buy. Within the past 1.5 years the gov't has imposed alot of restrictions that will come into play at sell time. If the invstment.
Climate on properties changed and people wanted to sell to get their money out the go'v would be taking big chunks.
In regards to residency I believe you have to go through the immigration process, but that doesn't mean the gov't won't be imposing their own tax rules. You can argue while your sale is being held up without the gov't approval.
As well, things change pretty quickly and consrtantly here. Is there another Menen style gov't around the corner? Will Cristine follow all of Nestor's directions?
Norman Stormin
12-05-07, 16:11
TAX THE BASTARDS!
http://news.bbc.co.uk/1/hi/world/americas/7125580.stm
Can anyone please recommend an accountant to help me navigate argentine property tax laws / obligations? Many thanks
How can a country that tax on world wide assets and income be an interesting country to move to for tax reasons?
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