[ESTABLISHING A BUSINESS ENTITY IN ARGENTINA]
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methods from the OECD model, but in addition to the five OECD methods, Argentina has an additional rule, called the 'sixth method', which in general applies to the import and export of commodities made through an international related intermediary or an intermediary located in a non-co-operative jurisdiction or low-tax jurisdiction. Thin Capitalization Rules: In line with international standards (OECD guidelines), interest on financial debts (excluding, as a consequence, debts generated by acquisitions of goods, leases and services related to the company's business) owed to related parties (Argentine residents or not) will be deductible subject to certain quantitative limitations. The deductibility limitation on the interests does not apply to financial entities, certain financial trusts, or when a WTX (withholding tax) applies in relation to the interest paid, among others. CFC Rules: In broad terms, local residents in Argentina having participations on foreign entities that don´t pay taxes abroad in the case- by-caser jurisdiction (despite the fact that the relevant jurisdiction has a corporate tax regulated) or local residents that have direct or indirect participations of 50% or more on entities that obtain passive income in certain ratio, or local residents having control over trust or foundations located abroad have to monitor this particular set of rules on a case by case basis to determine if they have or they have not to recognize income from such entities or trusts on an accrual basis. Tax Havens and non-cooperative jurisdictions: The Income Tax Law includes different tax effects when a jurisdiction qualifies as tax haven or non-cooperative. Such effects should be analyzed on a case by case basis, but in general the qualification of a jurisdiction for those concepts are as follows: 1- countries, territories or tax regimes that establish a corporate income tax rate that is lower than
15% will be considered low or no tax jurisdictions 2- jurisdictions that do not have a tax Information Exchange Agreement or a Double Taxation Treaty with broad clauses of Information Exchange in force will be considered non-cooperative jurisdictions. The Income Tax Implementing Decree includes a list of “non - cooperative jurisdictions” that can be review on the official website: https://www.afip.gob.ar/jurisdiccionesCoopera ntes/no-cooperantes/periodos.asp LOCAL TAXES: Turnover tax: A 3 % average tax rate on gross income. Such rate may be increased to 5 % in accordance with the company’s annual gross income. Note that such tax rate may also vary depending on the activity developed. Exemptions may apply. Stamp tax: A 1 % tax rate over the value of written contracts. This tax may not apply if the instrumentation of the document is made by offer/acceptance letters. Municipal tax: city councils apply different taxes which usually amount to 0,5% or 1 % of the
gross income of the company. 4. Outline of Labor Regulations.
Argentina has a clear pro-employee labor legislation. The usual practice in Argentina regarding labor agreements is to use verbal agreements (as opposed to written agreements) for indeterminate duration, which main conditions (wages, initial date, etc.) are registered with the tax authorities and in the company’s registry. Lack of registration of the employees is considered labor fraud. Wages must be paid by way of a wire transfer to the employee’s bank account. Dismissals require paying a severance compensation, which amounts to one monthly
ILN Corporate Group – Establishing a Business Entity Series
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