New Rules For Transferring Money Into The Country

For independent businesspeople bringing their own funds into the country, there are new Central Bank rules that should simplify the process for smaller transfers. When bringing funds into the country, legal Argentine residents (with a DNI) will be able to bring in up to $40,000 USD per month without presenting any documentation (just the standard bank forms). There are other requirements for people who are not legal residents.

If the transfer is over $40,000 USD per month, a certified bank statement will need to be presented showing the funds were in your account abroad at least 10 days.

In both cases, the account owner must be the same on the local account and the account abroad or the transfer will be rejected.

New Rules For Transferring Money Into The Country

Independent Contractors vs. Employees

We have a question that comes today about hiring employees vs. independent contractors.

Reader's Question
Can a US company that does not have a legal presence in Argentina hire an independent contractor (argentinian national or other national) to do work in Argentina on behalf of a global contract. Client’s client wants some temporary work performed in Argentina. Can client craft an IC contract or insist that the Argentinian national become a sole proprietor and not end up as a defacto employee. This could be occasional work, eg auditing.

I am aware some countries are very strict about IC arrangements and therefore deem IC’s employees and then end up resulting in permanent establishments for tax purposes. I am aware Argentina is fairly pro labor.

How to Set-up an Independent Contractor Arrangement in Argentina
The proper way to setup this arrangement would be to ask the worker to register either as a monotributista or in the regimen general (depending on how much he will be charging). After that, he'll need to register as an exporter with the customs office (since he will be performing services for export). This second step wouldn't be necessary if the company had a presence in Argentina.

Each time he needs to receive a payment, he will issue you an invoice with an "E" (for export) at the top. These invoices are numbered starting at 00000001. You can then wire transfer the funds to his account and he can collect the funds by presenting his copy of the "E" invoice to his bank.

Independent Contractors vs. Employees
Even though you may ask him to sign an independent contractor contract, in Argentina, labor rights cannot be renounced willingly by an employee. The labor courts can very well rule that your arrangement is a simulated independent contractor arrangement and that it was being used to cover up the employee/employer relationship. This is something that happens frequently in Argentina due to the fact that it is extremely costly to maintain employees on the payroll (due to social security charges).

How does the court determine if the employee is actually an independent contractor? The same way they do in the United States. They look to see whether you were the only employer of this person (i.e. checking the invoices). If you are receiving sequentially numbered invoices from the worker, you know that you are the only employer and you're putting yourself at risk. If you are paying monthly invoices that always have the same amount, it looks like a wage instead of pay for a specific work product. They also look to see where the work was performed, who provided the materials to complete the work, whether the worker was directed in his work, or whether he worked independently and was paid for a finished product.

Incentives For The Worker to Be Classified as an Employee
It will almost always be in the worker's interest to be classified as an employee rather than an independent contractor since the company will be responsible for providing a health plan and paying the social security charges.

There's also another important point. An employee in Argentina is entitled to mandatory severance pay when he is fired or laid off. An independent contractor is not entitled to anything when the contract ends.

If your company had a presence in the country and assets in Argentina, the worker could very well sue at the end of the contract and try and get the courts to declare that he was an employee. He would be demanding the company then make all the back payments for his social security plus pay him the required severance pay.

Practical Advice
Practically, I don't see this happening due to the fact that no employment lawyer here is going to take on a lawsuit against a foreign company with no presence or assets in the country. I just don't see it happening. My recommendations to the company would be to ensure that the invoices it receives are not sequential, that it structures the pay to be on a per job basis instead of a monthly basis (and for different amounts), and that the worker sign a contract with jurisdiction for all disputes being your jurisdiction rather than Argentina. If there ever was a dispute by the employee in Argentina you may be able to get the courts here to throw out a claim due to the jurisdiction clause.

Independent Contractors vs. Employees

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

Before You Put Money In, Know How To Get It Out

Argentina, like most South American countries, is subject to exchange controls. It is a small economy and the government wants to exercise control over who can bring money in, who can take it out, and in what amounts. As a foreign investor, this directly effects your investment because you will need to transfer the money in to make your investment and, at some point, you will most likely want to bring home the profits you have generated abroad along with the capital invested.

Getting the Money In
The Central Bank of Argentina has imposed a deposit scheme whereby 30% of the amount of most incoming transfers must be put on deposit, interest free, with the Central Bank for the period of one year. Obviously this is something that most investors will want to avoid.

One important exception to this rule is Foreign Direct Investment, which will allow foreign companies to invest in their subsidiaries or local companies without needing to deposit the required 30% with the Central Bank. The beneficiary of the transfer must document the transaction and prove to their local bank, which acts as a withholding agent for the Central Bank, that the funds will be used for a capital contribution. The local company has 250 days to make the capital contribution or it must make the 30% deposit with the Central Bank.

Investors who are involved in this kind of operation should be meeting, in person, with the "Comercio Exterior" department of the local bank that is handling the operation to ensure that all paperwork is completed properly and all requirements are being followed. The local bank is responsible for supervising the operation and they will have information as to what documents will be needed to complete the transaction properly.

Getting the Money Out
Foreign investors are guaranteed equal treatment under the law and, in principle, are treated no differently than local investors. In fact, foreign investors are provided with the right to repatriate the capital and profits from their investments abroad at any time and without prior approval from the Central Bank.

In practice, current Central Bank regulations limit this right by imposing a cap on foreign currency purchases by non-residents (i.e. the dollars you will need in order to wire the money out). Exceptions to these limits exist, however, and should not effect most small or medium-sized businesses that invest in Argentine companies and wish to transfer capital or profits abroad.

The limitations currently in place are designed to frustrate investment funds that invest in liquid securities on the publicly traded market. These so-called "speculators" have been scapegoated by Argentina's authorities as being responsible for the country's woes and current regulations are in place to discourage this type of investment.

If your foreign company is investing in an Argentine subsidiary or another local company (i.e. foreign direct investment), so long as the company's financial statements are audited by external auditors, there should be no problem in transferring profits out of Argentina, as current regulations do not limit transfers of profits abroad.

Transfers of capital are not capped, but if you are going to transfer more than $2 million in capital abroad, the mandatory 30% deposit scheme comes into effect and the deposit will need to be made.

Again, make sure to familiarize yourself with your bank's Comercio Exterior department before engaging in any of these operations.

Before You Put Money In, Know How To Get It Out