Capital Gains Tax on the Sale of Shares

Background

As we informed, General Resolution 4094-E, published in the Official Gazette on July 18, 2017 created a payment mechanism applicable to purchasers (resident and non-residents alike) of stock in an Argentine corporation when the seller was a nonresident individual or entity . General Resolution 4095-E, published on July 20, 2017 suspended General Resolution 4094-E for 180 days. This suspension was due to expire on January 15, 2018.

Repeal of General Resolutions 4094-E and 4095-E

Before the suspension expired, General Resolution 4190-E, published in the Official Gazette on January 12, 2018 repealed General Resolutions 4094-E and 4095-E. In the explanation of the new resolution, the Argentine Tax Authority (“AFIP” after its acronym in Spanish) stated that: “Considering that recent reforms have modified the context in which the previous resolutions were issued, this Tax Administration deems necessary to repeal said resolutions and replace them in the future with new regulations”. Indeed, that latest tax reform, passed by Law 27,430, included modifications to capital gains tax on the sale of stock in an Argentine corporation. Whereas, previously, the purchaser was responsible for paying the tax when the seller was a non-resident, currently it is the seller, through their legal representative in the country, who is responsible for paying the tax, except when the purchaser is a resident individual or legal entity.

As anticipated by the AFIP, new regulations should be issued to establish a payment mechanism for the non-resident seller to apply. However, with regards to transactions executed before the tax reform was entered into law, that is, from September 23, 2013 to December 29, 2017, the AFIP should establish a payment mechanism applicable to non-resident purchasers.

Other regulations

General Resolution 4190-E also includes regulations regarding the withholding mechanism for interest and the capital gains tax on the sale of real estate by individuals. First, the withholding mechanism established by General Resolution 830 is no longer applicable to interest generated by the placement of deposits in financial institutions, public securities, private bonds, share of mutual funds, debt securities of financial trusts, and other securities.

Finally, General Resolution 4190-E establishes that the withholding mechanism created by General Resolution 2,139 is not applicable to the sale of real estate by individuals. As per the tax reform, from January 1, 2018 the sale of real estate purchased by individuals is subject to a capital gains tax rate of 15%. Previously, this transaction was subject to a tax of 1.5% on the sale price.