URGENT - Warning on capital gains taxes when foreigners sell their properties

[Hunt99]

SL,

How much do you think the typical Yanqui investor in BsAs real estate makes on a triple net basis?

[StrayLight]

You people who buy "investment" real estate in Argentina ought to get what you're buying, and you ought to get it good and hard. Rent, if you have a lick of sense in your (big) heads.

Shut your eyes and listen closely. You can almost hear...

You people who buy "willing" women in Argentina ought to get syphillis, AIDS, herpes, and whatever else is coming to you, and you ought to get it good and hard. Get married and stay monogamous, if you have a lick of sense in your (big) heads.

LOL!

SL

[El Aleman]

It is true, that the central bank withholds 30% of every (legal) money transfer going into the country, with a few exemptions. One of them is buying property. To get this exemption, the amount transferred has to be exactly the amount stated in the escritura, and it has to come from a foreign account owned by the buyer. The withholded 30% are released after a year. Whatever the reason for this might be, it is a real ***** if you have started a business and need money to get it up running through the first years.

The income tax rate for non residents is generally a flat 35%, no progression. Residents have a progressive tariff starting I think around 10% and going up to the same 35%, plus a variety of deductibles. As a foreigner, you have no deductibles - the law however assumes that only a certain percentage of your gross income is taxable net (and the rest deductible expenses) and this percentage in the case of real estate leases is 60%. 35% * 0.6 = 21% - the figure mentioned in another post, your effective tax rate. And, according to most double taxation agreements, including the one between my country and Argentina, income created from real estate lease is only taxable in the country where the property lies. 21% is less than half of what I pay back home.

So, why not just pay that tax and be happy? And have no problems when selling your property at a later time?

Just 2 centavos.

El Alemán

[Hunt99]

You people who buy "investment" real estate in Argentina ought to get what you're buying, and you ought to get it good and hard. Rent, if you have a lick of sense in your (big) heads.

[Member #1036]

After asking a bunch of you guys and some others that even live there, finally somebody can verify this tax. I had a doubt when told about this but at least this clarifies some things and hopefully my deal continues forward without some of the problems mentioned here.

Good report.

[Thomaso276]

Cascomus: if your accountant wants some business maybe he will permit his contact information to be posted here, as it may open up some new clients for him. I would be interested in hiring him as long as he does not have a gringo price vs. The local price for his services.

Thanks. Tom

[Chascomus]

Woops I forgot. Thomaso. Good info. And dam good poetry!

[Chascomus]

All of you have LOTS OF GOOD information. Maybe together we can publish a book! Tomorrow I'll ask my account for the exact formula that is used to calculate "Impuesto a los bienes". It is, I think, just like what is written here in this thread.

Also, when tranfering funds INTO Argentina using the correct, "according to the rules method", YOU WILL loose more $$ by their requirement of converting it to pesos. And then back to dollars. AND they told me that the 6 month waiting period on 30% of the transfer applies to investments OTHER than the purchase of properties. After5 you have good information.

Then, as for declaring rental income, I'll get that tomorrow. But I remember a tax something like 21% of any monthly amount, minus a small exemption you are allowed. This is an area I have been talking with my accountant. He says "one" can just make a rental contract with a friend, for a less amount. BUT, SO MANY Argentines have 2 properties. And don't rent either one. So, my question is. After how many properties does one have to declare rental income?

As for the amounts of fine and penatlies. I'm getting closer! I know 2 that are selling. Soon, I'll have their numbers. ALso, my bother in laws, (argentines) just bought a property of which one of the sellers was a Uruguayan. The purchase TOOK 6 months while they inspected "the hell" out of the property. Applying fines and penalties TO the Uruguayan. (at lest we can assume it's not an "anti-American" thing.

But, it's true what was mentioned in this thread. What will this booming market do if ALL OF A SUDDEN there are NO foreigners coming here to buy? I think they're going to miss us, deeply!

[StrayLight]

"Impuesto a los Bienes":

They then look to see if you have paid your annual tax, called, "Impuesto a los bienes". This is a sort of a luxury tax and is usually around 0.75% of the "declared value". MANY Americans confuse this tax with the "ABL" tax paid 4 times a year, (usually received by mail) They are two different things! The yearly tax, "Impuesto a los bienes" usually requires a a document to be filed, by your tax accountant. If you never paid this tax, you can "catch up" at the time of the sale, but you will still need an accountant to prepare and present the docs for you.

Here's a question for you.

An Argentine accountant told me last year that the "impuesto a los bienes" is computed as follows.

The total value of your property is divided into 80% for the building or apartment, and 20% for the land on which it sits.

The first year, you pay the 0.75% on the total amount that you paid.

Every year thereafter, the value of the building or apartment is decremented by 2% , and that after 50 years (if you keep it that long) you are only paying the tax on the land.

Can you authoritatively confirm or discount that?

Thanks,

SL

[After5]

Rental income. I agree wholehardily. The gov't believes (with good reason) that many of these foreign (and local) purchases are being used for investments and short term rentals. I doubt many landlords are declaring this income to AFIP.

If one does go the legal route and declare rental income of say US$ 5,000 to 10,000 a year (and no other income from outside Argentina) what rate of tax will result? Even if the tax bracket is 30% or 35% , are there exemptions or deductions to reduce the amount payable?

As for bringing in money through the central bank, the policy rationale as explained to me by a casa de cambio is to avoid "hot money" inflows and outflows, as in the events of 2001. So 30% withholding is applied on short-term investments held less than a year -- for example, bonds sold 6 months after purchase by a foreign investor. For good reason, the authorities don't want hedge funds distorting Argentina's small capital markets by piling in together, and then bailing out en masse at the first sign of trouble.

After a year, foreign capital is supposed to be free to leave without penalty. Of course, that may not mean a thing to an AFIP inspector.

Funny, an Argentine lawyer told me there were ways to avoid bringing in money through the central bank. True, but perhaps inadvisable. As far as I know, the only disadvantage of bringing in funds legally through the central bank is that the casa de cambio exchanges your US dollars into pesos, then back into US dollars for the cash real estate transaction. Thanks to bid-ask spreads, the back-to-back exchanges can cost you 1% to 2% of the total amount. If you don't ask in advance, the casa de cambio will take as much as they think they can get away with. They will also ask you to sign a form declaring the "clean" origin of the funds, and to provide a copy of the statement for the overseas account from which the funds were drawn.

[Thomaso276]

Chas: good post and info. My original post was regarding the capital gains tax point, which you cleared up. Most of the issues you discussed have been the topic of many newstories lately. AFIP is going after locals as well, regarding declared values which according to some stories is less than 50 percent of the true sale price. It must have been some system here for years with folks paying 60g USD and the title saying 30G. Did they not think it would eventually boomergang?

When I purchased, I signed a form at the closing saying the money came from my savings (which it did) Depending on the sale price you could simply claim to have brought in under 10g USD everytime you came into the country (6 trips is 60 thousand) as well, you can withdraw dollars from ATM's. Finally, I do not believe it is illegal for a friend to bring in dollars (under the 10g) and they can return with a check to the USA. I guess this explanation would only apply to those who come here alot and have been around for a couple of years.

I hear different things regarding the Impuesto a los Biene. Can't seem to find an accountant who can give good advice on this. If you have one you can PM me and I will give him my business.

Rental income. I agree wholehardily. The gov't believes (with good reason) that many of these foreign (and local) purchases are being used for investments and short term rentals. I doubt many landlords are declaring this income to AFIP. Actually, I think most of the short term rentals are owned by Argies. They will never sell them so the foreigners will suffer to make up the shortfall.

The point on declared value is well taken, but in my case (and a friend who also bought) our numbers are accurate. Misstating the sale price by 40-80 percent seems to be inviting trouble. Like the guy who presents a bill of sale for a 20g corvette as 2g to avoid a few bucks at the tag office. Doomed to fail.

There is a stamp tax exemption for a first time, full time residence bought in Capital Federal (according to my sources) however, the tax may be applied in the Province of Buenos Aires (Vincente Lopez, San Isidro, etc) I had been advised that any other apartments or home one might buy would be subject to the stamp tax with the city limits.

I just read another web page which lists many factors for buying here. Their page has been updated since I last read it to reflect that your points are accurate. AFIP has many rules for foreigners (and locals) selling, some of which I do not think the owners can meet. Bottom line is you can sell but the gov't wants a chunk of your profits.

Looks like the gov't will not allow a recession in the housing market by preventing alot of sales! When this info gets out and more foreigners find it very difficult to sell without giving up alot of their investment gain, new sales will decline - it doesn't take long for a few horror stories to get international exposure, especially when dealing with Argentine economics. Amazing how a month ago the Prez was in NYC telling everyone it is a great place to invest while back home the wheels were turning:

Give us your money so we can grow.

You won't get it back until we say so.

Buying and selling is your inherent right.

Just understand we'll keep it tight.

Puerto Madero, Recoleta, Palermo.

$3000 a square meter is perfectly correcto.

Chas, thanks for the info. Can you tell us how much some of the fines are? Are we talking 5g USD fines for not going through the central bank and using an exchange house?

[Chascomus]

Let me clarify what I said. There are no capital gains tax in Argentina, but thats not the problem. What I am saying is there are all kinds of other fines and penalties that they are applying, ESPECIALLY for foreigners! And they all add up!

[Chascomus]

Hello Everyone,

Sorry to burst everyone's bubble, but it is ALL TRU. Sad to believe, and some of you will refuse to accept it, but the AFIP is cracking down on EVERYONE, not just foreigners. Here is a "rough" detail of what they do and HOW: (remember that not EVERY local AFIP inspector will apply ALL the same fines and penalties, but the following is a "rough" outline of what they usually do)

When the "foreigner" goes to sell, the Escribano is LEGALLY obligated to submit a special "PERMIT" that the foreigner must fulfill. The "sale" is actually PUT ON HOLD why the local inspector does a THOROUGH audit on the history of the property.

I've seen properties take UP TO 6 months to sell, JUST BECAUSE of this inspection.

Here's what the AFIP inspector looks at:

The ORIGIN of the Funds:

He starts with the ORIGIN of the funds for your purchase. Did you bring the money LEGALLY into the country, passing it through the requirements of the Banco Central? MANY Americans come here, and go to exchange house, get their money and buy the properties WITHOUT ever declaring the origin of the funds or proving how the money was made. I am NOT SURE what the exact penalty is here, but I do know they are asking this question and giving fines!

"Impuesto a los Bienes":

They then look to see if you have paid your annual tax, called, "Impuesto a los bienes". This is a sort of a luxury tax and is usually around 0.75% of the "declared value". MANY Americans confuse this tax with the "ABL" tax paid 4 times a year, (usually received by mail) They are two different things! The yearly tax, "Impuesto a los bienes" usually requires a a document to be filed, by your tax accountant. If you never paid this tax, you can "catch up" at the time of the sale, but you will still need an accountant to prepare and present the docs for you.

Rental Income:

It's not over yet! The AFIP then looks at your passport and asks you, "Did you stay in the property, or rent it out?" If your passport shows you were out of the country, then you will BE REQUIRED TO CLAIM RENTAL INCOME. Even IF you didn't rent it. They will "presume" you did and add some "figures" to your fines and penalties. THIS is an area I CANNOT give exact numbers because I have not met an accountant here that knows the actual answer! (And I've talked with several! They are all taking about it, but the general consensus is that EACH individual AFIP Inspector comes up with his own numbers!

Declared Values on Titles:

The saga continues: The AFIP then checks the original DECLARED value, (what you declared in your title when you first bought it) and compares it with the actual values of properties in that neighborhood. And here, once again, I cannot give you exact numbers of fines or penalties. BUT, I know they are sometimes "adjusting" those figures, causing you to have an increase in both the "Impuesto a los Bienes" AND the "Impuesto a los Sellos", (a "stamp" tax required when bought or sold)

O. K. You can breath now. There are more details, but I am having a hard time getting all the information because it is not consistent between one AFIP office and another. The accountants have access to the information but there is SO much of it that not all can handle it.

Now, if you are actually STILL reading up to this point, wow, congrats! I am the original author of this notice I published on Craigs List. I followed a link to this website to see what everyone was talking about. I didn't know many of you were discarding it as trash and untrue, so I thought I'd ASK A QUESTION TO ALL OF YOU; If you think it is "bull----", then PLEASE TELL ME, if I am wrong, then what information do you have?"

[Ricardo]

Moore's explanation sounds logical. If the authorities are trying to assure that apartment owners who are foreigners and rent their properties, pay the appropriate taxes on the rental income, they are in the right. Whether the system lets them do it effectively is another matter given the nature of government management here.

The notice seems to misinterpret how selling a place actually works, assuming it was not used as a rental unit or cannot easily be proven that rental income was ever earned.

Thanks.

[Thomaso276]

Concur: I did a search on AFIP and could not find any recent bulletins. No news from the papers. As well these may be moves regarding people who own these apartments for rental purposes and they are avoiding taxes on their "winnings" (ganacias) Gov't knows that many of these foreign owned apts are for short term rentals and foreigners are not declaring them.

I will be talking to my escribano soon. When I gain permanent residence status this may be a moot point.