In the US, when you are going to start doing business as a consultant or sole proprietor, you don’t need to do anything special, you just get started. At the most you’ll get a business license from your municipality and register for sales taxes. But the IRS doesn’t require anything from you. At the end of the year you just attach an extra schedule to your 1040 and you’re off and running.
In Argentina, as you’ll see with many things, the system is different. Anyone in Argentina who is engaged in a trade or business needs to register with AFIP (the Argentina tax agency) and the province where the business is based.
Sole Proprietorship Are For Residents Only
It is important to note at this point that if you are not a legal resident in Argentina (i.e. you don't have a DNI), you may not do business as a sole proprietorship, since you have no authorization to work within Argentina’s territory. You will need to form a corporation in order to do business.
Unlimited Liability
Just like in the United States and elsewhere, if you are operating your business as a sole proprietor, you have unlimited liability and no personal protection against creditors. You will need to determine whether the limited liability offered by a corporation is worth the added expense and hassle (and believe me it is much more expensive and a lot more hassle) of maintaining a company.
As a practical matter, an expatriate who has recently arrived to Argentina and maintains their assets abroad is pretty much judgement proof. Lawsuits in Argentina take forever, there is no debtors prison, and the worst that happens to debtors here is that they have their reputation ruined with their suppliers and they are put into the Veraz (the local credit bureau).
On the other hand, if you have properties in your name, significant assets, or you expect to be running a large company with many employees, you should be looking at forming a company.
Federal Registration: Two Different Regimes
If you decide to go forward as a sole proprietor, there are two basic options to choose from when it comes to your taxes. You can either choose to enroll in VAT, or if you are a small business with limited revenues, you can choose to enroll in a parallel regime called “monotributo” (or single tax). It’s actually a misnomer because you’ll pay more than one tax as an entrepreneur, but the tax is certainly simpler and easier to calculate.
I highly recommend the monotributo regime for entrepreneurs who are just starting out and have limited sales. I especially recommend it for entrepreneurs from the United States who do not have experience with VAT. Not only will it allow you to get your feet wet and see whether your business idea works, you’ll be subject to less administrative headaches as you try to get your business off the ground.
If you don’t qualify for monotributo, you will need to register for income taxes, self employment taxes, and VAT.
Provincial Registration
Until now, we’ve been talking about federal taxes. However, provincial taxes also apply for most non-manufacturing activities. If your business is located in the City of Buenos Aires, you’ll need to register with Rentas. If you’re in one of Argentina’s provinces, you will need to register with the province’s tax authority.
Printing Invoices
This article is not meant to discuss taxes, but all the previous steps are required to obtain the different inscription papers which will allow you to finally go to an official print shop and have your invoices printed up. Once you have your invoices (“facturas” as they are known in Spanish) you can finally begin to sell legally. Selling without a factura or official ticket emitted from a Controlador Fiscal (a special receipt printer) is illegal.
There are more steps to be followed if you are going to sell to the general public rather than businesses (such as the need to emit tickets via the Controlador Fiscal) and that is beyond the scope of this particular article. However, every entrepreneur should be aware that running a business as a sole proprietorship is a viable possibility in Argentina and I recommend it for new businesses.
As always, please feel free to contact me should you require assistance with your particular situation or need more information. I’m happy to assist when possible.
The monotributo is fine for very small businesses or to generate some side income, but from my own experience you rapidly exceed the sales limit and are forced to register for IVA, pay for an accountant, autonomos, etc., which is then only slightly cheaper than operating as a corporation.
ReplyDeleteHowever transforming a business that started as a sole proprietorship into a corporation costs quite a lot of time and money, which easily takes away any initial tax advantage you may have gained by starting as monotributista.
If the growth projection of your business plan estimates that you will reach the monotributo limits within one or two years, you are better off forming a SRL or SA right from the start. And if the estimated growth is smaller you might want to reconsider starting the business in the first place...