How will the new president, Javier Milei, deal with cryptocurrency? Argentina Crypto Tax & Preview

The Argentine Republic (Spanish: República Argentina), commonly known as Argentina (Spanish: Argentina), is located in the south of South America, relying on abundant natural resources, Argentina has long practiced an economic model of exporting primary products and substituting imported industrial products. At the end of 2023, its inflation rate reached 211.4%, surpassing Venezuela's 193%, making it the fastest depreciating currency in Latin America. Against this backdrop, investing in cryptocurrencies has become the way most Argentines fight inflation, but the Argentine government has generally taken a wait-and-see approach to cryptocurrencies, and its crypto tax reform still needs a long process.

1 Basic tax system in Argentina

[if !supportLists]1.1 [endif]Overview of the general tax system in Argentina

Argentina is a federal state composed of central, provincial and municipal governments, and has a political system with separation of powers. In terms of taxation, the Argentine Ministry of Economy has set up the Federal Public Revenue Administration (AFIP), which is in charge of domestic tax and import tax, and implements two sets of tax systems, federal and provincial, each with relatively independent tax legislative power, and under the premise that provincial tax legislation does not violate the principle of federal tax legislation, provincial and municipal governments have the right to formulate their own tax laws according to the needs of the objective situation. Argentina's tax revenue is dominated by turnover tax, with value-added tax, consumption tax and customs duties accounting for more than 70% of Argentina's total tax revenue, while income tax and property tax account for only about 20% of total tax revenue.

[if !supportLists]1.2 [endif]Personal income tax

Individuals with Argentine nationality and foreign individuals who have obtained permanent resident status in Argentina or have legally resided in Argentina for 12 months or more are resident individuals, and the rest are non-resident individuals. Resident individuals are taxed on their worldwide income, ranging from 9% to 35%; Non-resident individuals are only taxed on their income in Argentina. Different tax rates are applied according to the nature of income. When determining tax income, paid personal social security contributions, medical insurance, pensions and charitable donations are all deducted from income. Personal income tax is a progressive rate with a maximum of 33%.

[if !supportLists]1.3 [endif]Corporate Income Tax

Argentina's corporate income tax adopts the standard of place of incorporation, and enterprises with a registered domicile in Argentina are resident enterprises and are taxed on their worldwide income, while foreign non-resident enterprises without a registered domicile in Argentina are only taxed on income derived from Argentina. Legal persons, partnerships, and other types of entities (including sole proprietorships, non-profit civil organizations, foundations, trusts, co-investment funds, etc.) established under Argentine law are considered Argentine tax resident entities. Argentina corporate income tax is paid annually. Dividend distributions are no longer taxable. Income tax is a federal tax, not in the local government, and the tax rate is 33% for branches and permanent representative offices of foreign companies in Argentina. A limited liability partnership is required to declare its income and state the income of each partner as a basis for paying taxes.

[if !supportLists]1.4 [endif]VAT

The VAT in Argentina is similar to that in China, and is also an additional tax. According to the regulations, the sale of goods or services in Argentina, as well as the import of goods or services into Argentina, are subject to VAT, with a basic rate of 21%. There are also some industries that apply special tax rates.

The export of goods and services is subject to zero tax rate; VAT is halved on the sale of certain commodities (e.g. meat, fresh fruits and vegetables, etc.), economic activities (e.g. interest on loans provided by Argentine banks), transportation (except for international transport), publishing operations (sales of newspapers, magazines, brochures and periodicals), and health insurance; Commonly used consumer goods such as milk, bread and pharmaceuticals are exempt from tax; Public utility services, in particular gas, electricity, water and communication services, are subject to VAT at a rate of 27%.

[if !supportLists]1.5 [endif]Other taxes

The Argentine asset tax is 0.5% of the value of the asset paid annually. If the personal net assets exceed US$100,000 and the portion above US$100,000 is subject to 1% asset tax on December 31 of each year. Stocks, bonds, fixed deposits on domestic bank accounts are exempt from this tax.

The Argentine excise tax is a federal tax; Rates vary from one to the other on a range of special consumer goods (tobacco, alcohol, tires, fuel, jewelry, furs, soft drinks, televisions, tape recorders, automobiles, tapes, films, etc.) produced and imported by Argentina. Crude oil exploitation royalty: a certain amount of exploitation royalty and 12% provincial royalty per square kilometer (levied in proportion to the oil price).

2 Argentina's Crypto Asset Tax System

2.1 Current status of the use of cryptocurrencies in Argentina

Argentina has been on the rise in cryptocurrency use since around 2020, with many people starting to buy Bitcoin and stablecoins, and for many Argentines, cryptocurrencies are a way to protect their value. According to statistics, at the end of 2021, only 12% of Argentine smartphone users bought cryptocurrency, while by April 2022, that number had grown to 51%, in addition to a whopping 27% of Argentine consumers who claimed to be buying cryptocurrency on a regular basis. According to AMI, 71% of Argentines hold cryptocurrencies for investment, 67% to fight inflation, and 46% to gain financial freedom.

 The Argentine government has taken a wait-and-see approach to cryptocurrencies and does not prohibit the use of cryptocurrencies, but also regulates the industry by implementing regulations on taxation and the prevention of money laundering and the financing of terrorism. Although Argentina's Ministry of Financial Information (UIF) has denied the status of cryptocurrencies as legal tender, it does not prohibit the use of cryptocurrencies, which also reflects Argentina's relatively neutral wait-and-see attitude towards cryptocurrencies.

2.2 Argentina Crypto Tax System

2.2.1 Argentina's current national crypto tax

In the early days of cryptocurrency in Argentina, Argentina equated cryptocurrency transactions with cash transactions, and citizens made these transactions without any tax liability. However, Argentina amended its Income Tax Law in 2017 so that gains from crypto assets are classified as capital gains and are still subject to income tax.

In April 2022, the Argentine Senate approved a new bill that would allow the government to tax citizens on previously undeclared overseas assets, including currencies, stocks, and cryptocurrencies, among others. If the taxpayer voluntarily declares these assets within 6 months of the approval of the law, then the tax rate of 20% can be applied, after which the applicable tax rate will increase to 35% to 50%. Since then, the Argentine Ministry of Economy drafted a bill on January 11, 2023, to encourage Argentines to declare their cryptocurrencies at preferential tax rates. Specifically, citizens who voluntarily declare their crypto holdings within 90 days of the law taking effect will only be subject to a 2.5% tax on cryptocurrency capital gains. The country's standard capital gains tax rate will increase every 90 days until it reaches the standard capital gains tax rate of 15%. Unlike the previous bill, this one specifically establishes tax incentives for cryptocurrencies and extends the scope to all cryptocurrencies for Argentine citizens at home and abroad. It can be said that this bill shows that the Argentine government is paying more attention to cryptocurrencies and wants to have a more comprehensive picture of the cryptocurrency holdings of its citizens, which may be preparing for the subsequent reform of the cryptocurrency regulatory and tax system.

2.2.2 Current local encryption tax in Argentina

In 2021, the legislature of Córdoba, a central Argentine province, voted to pass a new bill that would impose a tax of 4% to 6.5% on gross income from crypto-related transactions involving crypto brokers and exchange platforms, with individual traders also obliged to pay the same amount. Individuals or companies that receive crypto assets in the province in exchange for goods or services will be required to pay a 0.25% tax to the provincial tax department. This bill makes Córdoba the first province in Argentina to impose a crypto tax. According to the details of this tax rule, it will be subject to the country's check tax rules, which means that all cryptocurrency-related transactions, whether purchased or sold through a cryptocurrency exchange in the country, will be subject to a 0.6% tax.

Buenos Aires, the capital of Argentina, began to tax cryptocurrency mining in January 2023, and may also tax staking in practice. A new proposal passed by the province amends local tax laws to make cryptocurrency mining a taxable activity and imposes a 4% tax on income calculated based on these operations.

3 Outlook on Argentina's cryptoasset tax regime

On the whole, the severe inflation has objectively promoted the promotion of cryptocurrencies in Argentina, and the Argentine government hopes to play a positive role in cryptocurrencies and ensure the legal compliance of the entire chain of cryptocurrency-related industries on the basis of reforming the existing crypto tax law and regulatory system. At the same time, although the imposition of local taxes on cryptocurrencies has not become a mainstream practice in the Argentine provinces, it is not impossible for the Argentine provinces to establish a local crypto tax system in the future, given the exemplary role of Buenos Aires, given the abundant tax that cryptocurrencies can provide for local taxes.

However, as Rodolfo Andrañez, co-founder and president of the Argentine NGO Bitcoin Argentina, puts it, more tax and enforcement measures may be "not a viable solution" because "cryptocurrencies may be part of the future, and this is something to embrace rather than alienate", and too much regulation and taxation early in the development of cryptocurrencies is not conducive to the localization of cryptocurrencies.

With the election of Argentina's new president, Javier Milei, Argentina's crypto tax system is expected to be further refined and improved, and may become more friendly and relaxed. Javier Milei, who has been described by some political commentators as Argentina's "political madman", is a strong advocate of liberal economic policy, advocating full trust in market forces and avoiding administrative interference by the government. When it comes to cryptocurrency, he sees Bitcoin as a key tool in the fight against the inefficiencies and corruption of the centralized financial system" and "a viable alternative to traditional economic structures." Therefore, the administration of Javier Milei will have a positive impact on the price of bitcoin and the related tax system, and may significantly promote the reform of the relevant regulatory and tax system. Of course, Argentina's economic and political landscape has been unstable for many years, and the specific reform of the crypto tax system remains to be seen.

Reference

[1] Adebayo, O. (2021, November 18). Crypto transactions: Argentina releases decree to tax crypto. Cryptopolitan. 

[2] Attlee D. (2023, December 28). Argentines will have the opportunity to "legalize" undeclared cryptocurrencies. Cointelegraph. 

[3] Argentina's proposed bill to encourage citizens to disclose crypto assets at preferential tax rates_Tencent News. 

[4] Cross-tax treasure. [Interpretation] Argentine Taxation. Weixin Official Accounts Platform. 

[5] Inventory of which countries around the world have been subject to crypto taxation?_currency. Mutual Alliance Data Center.