Labor Assistance Fund: Tax Aspects of its Regulation

Title II of the Labor Modernization Law 27802 created the Labor Assistance Fund (FAL) to contribute to the fulfillment of severance obligations established in the applicable labor laws. Decree 408/2026 regulates this regime and establishes its operation, the permitted investment vehicles, and its tax treatment, on which we will focus in this note.
 

The use of the FAL results in different tax implications for the various parties involved in the termination of an employment relationship under such regime.
 

1. Tax treatment for the employer

Article 67 of the Law—enacted earlier this year—already provided for exemptions in Income Tax (IT) and Value Added Tax (VAT), particularly regarding returns, interest, and/or any other income the employer obtains from investments made through the FAL. The Decree expands this exemption to include profits received that are treated as dividends.

The Decree clarifies that employers’ contributions to the FAL are deductible for IT purposes. However, there is no additional deduction for amounts paid as severance through the FAL. Conversely, the amounts employers pay directly for termination of the employment (without using the FAL) may be deducted for IT purposes as an expense, as is ordinarily the case.

If the FAL account is terminated due to the employer’s cessation, dissolution, liquidation, or bankruptcy (among others), the remaining balance must be transferred to a bank account the employer holds in Argentina. Any gains derived from the returns generated would be subject to IT.

The Decree also provides for a reduction equivalent to the contribution made to the FAL regarding employer social security contributions. This contribution is deducted from the applicable rate for the corresponding period and does not generate a credit balance eligible for refund or offset.

2. Tax treatment for the employee

Amounts employees receive from the FAL upon termination of employment will, for IT purposes, be subject to the same treatment established under current regulations for the severance payments they replace. Initially, such amounts will not be subject to IT or, where applicable, may be exempt or partially taxable in specific cases provided for under the applicable rules governing severance payments or compensation paid to directors and executives.
 

3. FAL vehicules

The FAL will be implemented through
 

1. those financial trusts the Argentine Securities Commission (CNV) authorizes, or
2. open-ended mutual funds, subject to CNV supervision.

Investments must be made in instruments issued and traded in Argentina.
 

4. Tax treatment of the FAL vehicle

 

Contributions received by the FAL are exempt from IT and VAT, regardless of the type of vehicle used.

With respect to FAL returns, their treatment for IT purposes will depend on the vehicle involved:

1. Returns obtained by mutual funds, if they qualify as transparent entities, will not be subject to IT as of the FAL. Accordingly, any income will be attributed to the employer and, as noted above, will be exempt from IT.
2. Returns obtained from financial trusts would, initially, be subject to IT, unless they qualify as transparent entities under article 205 of the Productive Financing Law, in which case the income would be attributed to the employer and would be exempt from tax.
    

For VAT purposes, FAL returns are not subject to the tax.

Notwithstanding the above, fees charged by entities authorized to manage the FAL will be subject to both IT and VAT. Such fees may not exceed 1% per year of the total assets under management, although employers may later compute them as input VAT.
 

5. Exemption from the Tax on Bank Debits and Credits

Article 25 of the Decree establishes an exemption from the Tax on Bank Debits and Credits applicable to accounts used exclusively by FAL vehicles, as well as to credits and debits related to subscriptions and redemptions of units in mutual funds and similar transactions involving trust securities issued by the correspondent financial trusts.
 

6. Absence of contribution to the FAL

The Decree establishes that failure to pay mandatory contributions to the FAL will trigger the enforcement mechanisms provided for under social security laws.  The Argentine Tax Authority (ARCA) will oversee their enforcement, to ensure effective payment of such mandatory contributions.
 

7. Entry into force

Finally, the entry into force of the FAL regime—originally scheduled under Title II of the Law as of June 1, 2026—has been postponed by the Decree to November 1, 2026.