Retentions on Payments from Argentine Companies

Reader's Question

How do you bill your clients for services without them retaining 33%. Just billed my client in Argentina(large S.A.) for consulting services in the US and they withheld. I am a US sole proprietor with invoices from the States so I dont know why they have to retaing for services performed outside of Argentina. I do have my own Argentinian S.A. which can emit a Factura "A" but once the money hits that account how do I get it to my personal account in the U.S. From what I here even if they pay my Argentinian S.A. they would still have to withold?

Suggestions
What the company is doing is retaining Argentina income taxes for the services you performed and paying that to AFIP. You should request a certificate from the company showing the money was paid to AFIP with your details. If you file an Argentine tax return, you’ll probably be able to use the payment to offset your income taxes. If you don’t file taxes in Argentina, the money is basically lost to you.

Consider charging 33% more to your Argentine clients or specify in your consulting contract that all retentions or taxes are the client’s responsibility. As a consultant, you should be entitled to the full amount you bill and it should be the responsibility of your clients to ensure that they deal with the local regulations of their country. Once you make the tax consequences your client’s problem, you’ll see that they’ll quickly find a way to pay you without any retention.

On the other hand, if you have an Argentine S.A., you could just bill from your S.A. You’ll need to include IVA, which is 21%. If you are the owner of the S.A., the company can pay you dividends (which are taxed at 35%). After paying the dividends in Argentina, you can transfer the money from your local bank account to your foreign (US) bank account. The foreign account will need to be in the same name as the local bank account or the bank probably will refuse to transfer the money. This is generally going to be more expensive and difficult than simply billing the client from the US.

If you can't pass the cost on to your customer and you expect to be doing significant business with this customer in the future, you may look into getting a bank account and a virtual office in a country that has an income tax treaty with Argentina. The U.S. does not have a double tax treaty with Argentina and therefore payments to U.S. persons or companies have withholdings taken at the highest rate. It is possible that if you had a bank account in a treaty country and billed from a virtual office address, you may have a lower retention rate.

Overview

Remember that any wiring of money in or out of Argentina is going to be complicated with many different forms to file and requirements to comply with. Argentina has active currency controls in place, so you can't expect to get money out without complications, taxes, or other controls. Argentina practices retentions for many different types of foreign payments -- dividends, interest payments, royalties, services, etc.

Foreign Tax Credit

You should consult with your U.S. accountant, but you may be able to claim the money withheld in Argentina as a foreign tax credit on your U.S. return, since it was withheld in concept of income taxes. This is why it is vital for you to obtain proof the money was actually deposited by the foreign company as income taxes (in your name) instead of a payment in their name. They should be able to supply you with a retention certificate showing the payment.

Foreign tax credits are interesting because they allow you to offset the payment dollar for dollar on your U.S. tax return, but only when the payment was made for income taxes.

Retentions on Payments from Argentine Companies