Written By Amanda Ashmore – AIRINC Tax Intern (Northeastern University student)
Major tax reforms have been implemented with the enactment of an omnibus bill into law on July 08, 2024. The previous Argentina administration passed tax reforms in 2023 hoping to win the presidential elections last fall. Those reforms enacted in October 2023 contained sweeping changes to how employment income was taxed, including a ‘schedular’ tax system and the promise that no tax would be due on employment income below ARS 28 million. Effectively, only high-income taxpayers would pay the schedular tax. While the intent was designed to provide tax relief to lower income citizens, it also meant that very few individuals would pay tax on employment income.
Unfortunately for the prior administration, they still lost the presidential election which brought Javier Milei to power. President-elect Milei promised to make substantial changes to monetary and fiscal policy to address Argentina’s soft currency and hyperinflation problems. For more information of Argentina’s economic changes, see AIRINC’s post here: https://airshare.air-inc.com/argentinas-economic-changes
Mr. Milei’s administration has been negotiating changes to the tax law with Congress since assuming office. Passing President Milei’s Omnibus bill, titled Law 27743, resulted in the repealing the schedular tax established by the previous government administration and effectively returns to the previous tax system that was in place in early 2023 with adjustments for inflation. The top marginal tax rate is unchanged at 35% but the brackets are revised (see chart for the current national tax schedule below.)
The key changes impacting employees in this reform raise social security contribution maximums, restructure allowances, and re-establish the prior system for income tax on salaries. All changes are retroactively applicable to the beginning of the tax year 2024. The previous allowance system has been revised to now include a basic allowance of ARS 3,091,035, a personal allowance calculation that varies by family size based on a spouse and qualifying dependents, and a fixed earned income allowance of ARS 14,836,968. Maximum social security contributions are still tied to a multiple of the statutory minimum wage (SMVM) that is regularly adjusted for inflation. The current annualized maximum employee contribution is ARS 5,237,166 as of September 2024 with the combined employee contribution rate of 17% remaining unchanged. Employee contributions to social security are again deductible.
Other changes have been announced, including an amnesty program waiving penalties and interest for taxpayers wishing to get current with past tax debts, and enforcing a wealth tax on unreported personal assets. Argentine tax residents are subject to a wealth tax on worldwide assets.
While Argentina Omnibus Law 27743 was passed July 8, 2024, it is retroactively effective from January 1, 2024. There is a transitional rule for the period January to June, allowing for a comparison in tax liabilities between the old and new tax law. A special deduction for that period is allowed if the tax under the new system results in a higher tax than under the old tax system.
Beginning in 2025, tax brackets and deductions are to be adjusted for inflation twice a year in January and July. The social security maximum is to be adjusted monthly based on changes to the consumer price index.
The net effect of these changes is an increase in tax for lower incomes, generally a decrease in income tax for higher incomes that varies by family size, and an increase in social security contributions for higher incomes. The new law will broaden the scope of taxpayers subject to tax on employment income.
The current tax rate schedule effective for 2024
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