Income Tax: regulation of the tax pertaining to the sums obtained by employees in directive/executive position in private/public companies consequence of the labor relationship termination.
Labor and Tax Law Departments Report: “Income Tax – regulation of the tax pertaining to the sums obtained by employees performing a directive or executive position in private or public companies, paid as a consequence of the termination of the labor relationship”.
Dear Sir or Madam:
Through Decree No. 976/2018 (“Decree”), the Executive Branch regulated the last amendments introduced by Law No. 27,430 to Income Tax Law with regards to sums received by employees performing a directive or executive position in private or public companies paid as a consequence of their termination, that exceed the minimum severance amounts set forth by the labor regulation.
Pursuant to the regulations enacted, the sums paid as a consequence of their termination shall be subject to Income Tax if the following requirements are concurrently met:
a) The employees must have held or effectively acted, continuously or discontinuously, in the 12 months prior to the date of termination, offices in directories, councils, boards, execute or directive commissions, similar corporate organs, or managerial positions that involve decision-making or the execution of policies and directives adopted by the shareholders, partners or the mentioned corporate organs; and
b) The applicable gross salary used for the calculation of the severance payment set forth by labor legislation exceeds at least 15 times the Minimum Wage in force at the time of the termination.
Currently this sum would amount to $160,500.
The public entities that are mentioned in the Decree are those mentioned in Section 8, subsection b), of Law No. 24,156 (i.e., state enterprises, state corporations, state majority-owned corporations, mixed-ownership corporations and other business organizations where the National State holds a majority stake in the capital or corporate control) or similar legislation issued by provinces, city halls or the City of Buenos Aires.
The Decree will enter into force on November 2, 2018.
To this date, Income Tax’s withholding mechanism set forth by General Resolution AFIP No. 4003/2017, pertaining to fourth category income of employees, has not been amended.
The Decree does not define the concept “minimum severance amounts set forth by the labor regulation”, which would not be levied with the tax.
Should you require any further information on this matter, please do not hesitate to contact us.
Alvaro J. Galli
Santiago L. Montezanti