Tax on wealth in Argentina and what is the solution to avoid it

In the early morning of November 18 of this year, the half-sanction in deputies of the so-called “Solidarity and Extraordinary Contribution to help mitigate the effects of the Pandemic” (“Wealth Tax”) was obtained in Argentina.

It establishes, in principle, a one-time collection by the state, in order to allocate these funds to combat the effects of the pandemic, to which, and like the rest of the world, Argentina has not escaped.

As a first appreciation we can say that contrary to what its name expresses, it is not a contribution, but, on the contrary, we are talking about a tax since there is no consideration from the State.

When does the Wealth Tax come into effect?

As determined by the bill that is currently being debated in the Argentine parliament, the tax would come into effect from the date of entry into force of the law.

For the purpose of verifying if the payment of said tax is due, the photo of the existing assets on that date that are in the head of the persons mentioned by the regulations itself is taken.

Who does the Wealth Tax fall on?

The bill establishes that the following will be included in the payment of said tax:

Human persons residing in Argentina;
Human persons of Argentine nationality who have transferred their residence to a country with low or no taxation;
Foreign residents who have assets located in Argentina and their value exceeds the stipulated amount.

Will all the subjects mentioned above be covered by the Wealth Tax?

No, people who own assets for an amount less than $ 200,000,000 Argentine pesos will not be covered by this tax. This amount in USD today is approximately USD 2.5MM, but if the Argentine exchange rate in relation to the dollar continues to devalue, this tax will cover more people than originally thought.

If this figure is exceeded, the person must pay or contribute for the total of the goods, there being no non-taxable minimum, or deductions allowed.

What assets are included for the payment of the Wealth Tax?

The law mentions that contributions to trusts (provided they are not irrevocable), trusts, private interest foundations and other similar structures will be included, as well as participation in companies directly or indirectly, existing on the date of entry into force of this law .

What are the determined aliquots?

The regulation establishes a certain scale regarding the application of the tax, by which as the value of the goods increases, said tax increases, also distinguishing between goods located in the country and those located abroad, being higher the lien for those assets located abroad. There is also a fixed taxable amount and another variable.

As a summary, we can establish that the tax would be applied as follows for goods that are in the country:

Applicable table for goods located in Argentina

Regarding the first band established in the table, it is necessary to make a brief clarification so that it can be interpreted correctly. The tax begins to apply from the patrimonies of $ 200,000,001 Argentine pesos, not applying a fixed charge in said first band as if it happens in the subsequent ones, therefore, those people whose assets exceed the figure of $ 200,000 must pay .000 a 2% rate on the total equity.

For goods located abroad, the rates would be applied as follows, provided that repatriation is not chosen under the terms established by the regulations:

Applicable table for goods located abroad

What is repatriation?

The norm establishes that repatriation will be understood as entering the country, within 60 days from the entry into force of the law of assets abroad that represent at least 30% of the total value of the assets located in the country. Exterior.

Said goods must remain in the country at least until December 31, 2021.

CONSIDERATIONS

Although it remains to be known how the law will finally be approved, everything suggests that it will not undergo major changes in the Senate, which is why we can make the following considerations in this regard.

It is very possible that before the approval of the norm there will be a conflict with the taxpayers, either in the administration or judicially, this because it could be about:

Unconstitutional and confiscatory, due to its high rates and the fact that it qualifies as a possible double taxation due to the existence of the personal property tax;
Unequal, since it distinguishes between those taxpayers who own their assets in the country and those who have them abroad:
The non-possibility of deductions and the non-existence of a non-taxable minimum.

These are some of the issues that taxpayers could allege when approving the Wealth Tax law.

Likewise, we can argue that it is possible that the photo of the aforementioned assets is taken at the time of filing the declaration of personal assets as of December 31, 2020, since a special declaration is requested on the date of entry into force of the law , it will probably be discussed as unconstitutional.

Finally, it is not unreasonable to mention that this tax may have come to stay, since in Argentina there are several occasions where it was said that a tax was applied only once, and that same tax is still paid today. As an example, we can mention the case of the income tax, personal property or the check tax.

WHY IS THE IRREVOCABLE TRUST THE ONLY OPTION TO AVOID PAYING THIS WEALTH TAX?

The constitution of an irrevocable Trust from abroad implies a real dispossession by the trustor or settlor of the contributed assets, therefore, once it has been incorporated and the assets contributed to it, they to form part of the taxpayer’s patrimony, not counting in the sum of the value of the assets for which the application of the Wealth Tax is determined.

The Insight Trust team has vast experience in the incorporation and administration of this type of Trust, we are Professional Trustees with a proven track record. For this and other matters you can contact us through the email info@insight-trust.com