When a Sole Proprietor Should Pick the General Tax System

In previous posts I covered when a sole proprietor should pick the monotributo system. It is a system I highly recommend for people just starting out with a small business in Argentina. However, there are some cases when monotributo is either not allowed or recommended for sole proprietors.

Exceeding the Monotributo Limits
If you exceed or expect to exceed the monthly monotributo limits, you can't enroll in this system. The limits are currently $72,000 pesos annually for service activities and $144,000 pesos annually for other activities. On an annual basis, the business cannot consume more than 10,000 KW of electricity for service businesses and no more than 20,000 KW for other businesses. Additionally, the business cannot occupy more than 85 m2 for service businesses or more than 200 m2 for other businesses.

Large Capital Investments
If you're starting a business that is going to require a large capital investment with purchases of equipment and materials, it probably is not a good idea to start as a monotributista and then switch to the general system. The reason being is that if you start in the monotributo system, all the VAT that you pay to purchase the equipment and materials is going to be lost. Keep in mind also, that since monotributistas are not subject to income tax, you won't be able to take the depreciation on your capital equipment or be able to deduct your materials.

Businesses that require large upfront investments may not pay any VAT taxes for a year or two due to all the VAT credit they have from their initial investments. Additionally, income taxes could be minimal after depreciating the equipment, materiales, and other expenses.

Importing
Monotributistas cannot import, period. If you have a business that is going to import, you will have to be in the general system.

Expats without a DNI
Finally, if you don't have a DNI, you can't enroll in monotributo. You'll need to form a company and operate within the general system.

Practical Advice
I would like to finish this article just by saying that if you have a small business and provide some small product or service and want to operate legally in Argentina without much difficulty, monotributo is a good option. Anyone looking to run a serious business with growth prospects needs to look to the general system.

Frank, from Sugar & Spice, commented on a post I made the other day about the monotributo system and some disadvantages. To use a cookie analogy, if you're an expat looking to bake cookies in your house and sell them to a few restaurants or shops, monotributo is fine. If you're going to be opening big stores (like Frank has done in Palermo), investing in expensive commercial ovens, selling your products to Jumbo or other supermarkets, monotributo is not going to work.

When a Sole Proprietor Should Pick the General Tax System