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30/05/24
Tax News In Latin America
Since 2022, ‘The 1841 Foundation’ - of which I am Chairman - reports its yearly Tax Hells Index. This measurement is meant to indicate the tax systems’ legal security levels available in all countries throughout the Americas and Europe. The data analysed originates in the International Monetary Fund and the World Bank, and there is no doubt about it: Latin America is the region with the greatest concentration of tax hells.
Indeed, this trend should bring satisfaction to no one. By just going through our rankings, the Latin American reality becomes obvious and that is something we should be concerned about. The issue should be considered by governments to a much greater degree that they seem to be willing to do.
There are nevertheless those who opt for ignoring the situation, or even disguise it or try to deny it. However, that is not possible, as reality always becomes evident.
The Map Of Latin America
In recent years, Colombia was the country in the region that adopted the most comprehensive or the largest tax reform, but it was unfortunately not in the right direction.
The Tax Reform Act of 2022 (Number 2277), which brought along multiple changes that were applied throughout 2023 and will be stated for the first time later in 2024, is already affecting those individuals and corporations who decide to, or used to decide to, invest in and support the country’s development.
The three key aspects of this reform were: the additional five per cent overcharge on income tax applied to oil and carbon companies, financial institutions and insurance and reinsurance companies, which is now 40 per cent; the approval of a permanent net worth tax; and the tax increase applicable to foreign corporations with a significant economic presence in the country.
Additionally, the levels of exempt profits were decreased, both for the case of dependent personnel and for the case of independent workers, who will at least have the option to either apply the 25 per cent of exempt profits or allocate costs and deductions, while the VAT was increased for specific activities that used to be exempt or benefitted from preferential rates (such as air travel tickets, hotels, and others).
Bolivia and Argentina have also increased their taxes in recent years, while Brazil took the same path by the end of 2023.
In the case of Bolivia, the country now ranks fourth in the region after approving the application of a tax on wealth, locally defined under the name “Tax on Large Fortunes”, which has been in place since 2021. The bill that gave way to this tax defined gradual percentages for paying aliquot fractions: 1.4 per cent for individuals whose net worth is between 4.3 and 5.7 million US dollars; 1.9 per cent for those with a net worth between 5.7 and 7.2 million US dollars, and 2.4 per cent for higher amounts of net worth.
In Argentina, a country with a record number of taxes and tax burdens, the government of President Alberto Fernández managed to establish, increase, and create a total of 18 taxes!
They range from VAT and Income Tax to the appalling withholdings, as well as the tax on large fortunes, and even an increase of 100 per cent in the aliquots of Personal Property.
Anyway, it’s almost more serious that countries whose governments are supposedly pro-market, and from which we could have expected significant decreases in taxes, have failed to do so, and this obviously means Ecuador and Uruguay.
President Lacalle Pou, who is now in the last period of his term of office in Uruguay and has - from our viewpoint - managed to implement a satisfactory performance as president (mostly when compared against the two preceding terms of office), could not keep his campaign promise to decrease taxes. In fact, just a few weeks ago he created an unnecessary tax for travellers arriving in Uruguay by sea, to obtain funds for the new migratory control system. The surcharge will be US$2.56 per traveller arriving or departing on a ferryboat from or to the city of Buenos Aires, or for travellers arriving on cruise liners. A low tax, but uncalled for.
In the case of Ecuador, the news is also bad. The country decided to open its registry of ultimate beneficiaries to the public in 2023, thus incurring a terrible error, and, of course, an undue interference with the right to privacy of individuals, which has already been declared unconstitutional in Europe.
All Eyes Are Not Set On Milei
Undoubtedly, today’s focus of attention is Argentina’s president Javier Milei, who repeatedly asserted during his campaign that he would rather have an arm severed before increasing taxes, and now -from the newly installed government - continues to promise an overall tax reform to lower tax pressures.
Unfortunately, and probably because “the best is the enemy of the good”, for the time being, the Argentine president has decided to prioritise lowering the country’s expenditure.
In fact, three days after taking power, the first increase in taxes took place with the so-called ‘Tax for an Inclusive and Supportive Argentina’ (in Spanish, Impuesto PAIS). This tax applies to specific transactions carried out in foreign currencies.
A few days later, there was also a tax increase for the purchase of “luxury” vehicles. The quote marks highlight the fact that this tax applies to automobile prices starting at $20,000.
It is evident that the current situation is far from encouraging, in Argentina as well as in the region. More pro-market governments - from which we could have expected positive signals - are not living up to many of their promises, nor are they protecting their countries’ taxpayers.
Those other governments from which we do not expect as much due to their ideology but on which we try at least not to lose hope, have not surprise us in a positive way at all.
In addition to the above issues, if we consider the increasing demonisation of wealth that reigns throughout this region of the world, as well as the huge political divisions that exist in most Latin American countries, the future does not necessarily appear crystal-clear for Latin America. At least, as far as taxes are concerned.
Martín A. Litwak
Lawyer specialised in wealth structuring and investment funds.
Martín has focused on providing advice to high net worth (HNW), ultra-high net worth (UHNW) and institutional families domiciled in Latin America.
His expertise in setting up and/or managing fiduciary structures designed to tackle issues related to the lack of rule of law, the lack of privacy and the fiscal voracity of the countries in which they reside and/or conduct their business activities, as well as his experience in resolving succession issues and/or to ensure that the family assets are well protected makes him one of the foremost lawyers in this field.
He has also assisted several Latin American based fund managers with the establishment and licensing of hundreds of investment funds, the majority of them in the British Virgin Islands and the Cayman Islands.
Finally, Martín has been very active in multi-jurisdictional mergers and acquisitions, international financial transactions of several types (i.e. private equity/venture capital deals, project financing, structured finance, IPOs, etc.), tax amnesties and the provision of advice in transactions involving crypto-assets and Blockchain (ICOs, STOs, etc.)
