05 August 2009

The General System vs Monotributo

Today I received a comment from a reader about the advantages / disadvantages of starting a sole proprietorship under the monotributo system (which I have recommended) vs the general tax system.

Reader's Comment
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.

However 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...

Reasons to Pick Monotributo
Let me start by saying that everything stated above by the reader is correct. However, I still recommend monotributo for sole propritors starting out, especially ones from the United States. I'll go over a few of the reasons for this, despite the extremely low limits for monthly sales that monotributo provides.
  • Most businesses fail within the first two years. If, for some reason, the business venture doesn't go as planned, it is easier and costs much less to unwind a monotributo registration with AFIP than get rid of a failed SRL or SA. I personally know of a case where it took a business associate of mine more than two years to successfully wind down a company she was involved with. In the mean time, she had to pay monthly self employment tax (autónomos) until the company could be disolved.
  • Monotributo limits, while currently low, are likly to be increased in the near future. It is widely known that many adherants to the monotributo system surpass the yearly income limit by not declaring all their income. The government has a project designed to increase those limits (last I heard they were giong to be more than doubled). This obviously makes monotributo a more realistic option and gives the entreprenur more growing room.
  • No need for a fiscal controller (controlador fiscal). Sole propritors who are selling to the public do not need to purchase and operate these machines.
  • No tax retentions by banks, credit card companies, or other payers. Companies enrolled in the general system have money retained by banks and credit card companies (if they have a merchant account) for VAT and income tax. Sole propritors enrolled in monotributo are payed in full.
  • No monthly reports to file with AFIP. Assuming there are no employees, a monotributista doesn't have to file anything monthly with AFIP. The only requirement is to save and make the invoices available for inspection when AFIP requires it.
  • Pay your tax by credit card. Yes, you can even put your taxes on autopilot by having AFIP charge your credit card each month. Pay 11 months on time and then'll give you 1 month free.
  • Manage it yourself, no accountant needed. Accountants will always advise against enrolling in monotributo, since it won't generate work for them that will justify a monthly fee. Monotributo is easy enough that you can enroll yourself and manage it yourself without third party help.
For an expat who has recently arrived here and has a million other things to worry about and learn, monotributo is a system that is simple to enroll in and forget about it. You pay your monthly payment and you have the security that you're complying with the tax laws here in Argentina.

My next post will explore issues relating to the general system and when a sole proprietor might want to start-up directly in the general system.


  1. One thing you have left out though, is that under monotributo you have to pay USA taxes on all your invoices no matter how much you make. If you happen to be employed by an entity you are not liable for US taxes until you make over 70k.

  2. I am aware of that. This post was taken just from the Argentina side of the tax equation. Despite that, I still recommend monotributo.

    Forming a foreign entity can be even worse because it subjects a US taxpayer to the Controlled Foreign Corporation rules, which are designed for multinational companies. In future posts, I will go over the CFC rules, form 5471, and how to set-up an Argentine company to be tax efficient for a US owner.

  3. In general, once it can be proved a person has done work for you in a continuous basis then the employer is at a disadvantage.Resolved to register Monotributo last week in the lowest category. I signed up also in the simplified gross income can also be done online for my particular case.