Compliantly Engage Contractors in Argentina

Businesses hiring in Argentina should understand the legal distinction between independent contractors and employees. Fines or penalties may be issued to businesses that are hiring independent contractors under the guise of employment. It’s crucial to work with a partner like Worksuite when engaging contractors abroad, in order to establish a compliant and legal hiring framework. 

There are three distinct legal statuses that govern the relationship between a hiring organization and its employees or independent contractors. A standard employment agreement indicates the traditional relationship between an employer and an employee. A contract of work indicates a one-time freelance engagement whereby an independent party agrees to provide a defined piece of work for a set amount of money. A contract for services is the agreement under which independent contractors operate with a principal (the organization paying the contractor). A contract for services is used for long-term engagements with independent contractors.

Argentinian labor laws are constantly subject to revision and policy changes. Worksuite can help employers automatically navigate rapid changes to ensure compliance.

In Argentina, merely describing an individual as an independent contractor (contratista) has no legal significance. Instead, various factors are taken into account to determine the true legal status of an individual providing services. It is important to work with a partner like Worksuite to ensure that you have an engagement framework that properly classifies freelancers able to work as independent contractors.

Self-employment as an independent contractor is a popular income model for many individuals. The latest pandemic restrictions have prompted more and more Argentinians to work as self-employed independent contractors. Moreover, hiring independent contractors from Argentina is currently a booming trend among organizations in the United States. The relatively cheap cost of outsourcing combined with an insignificant difference in time zones between Argentina and the USA are the two aspects that satisfy both companies and contractors.

According to Argentine labor legislation, no employment relationship must exist between an individual providing services and the company for the former to be classified as an independent contractor. The provision of services to a third party by an individual gives rise to the assumption of a labor connection under Argentine law, barring proof to the contrary. This presumption will still be true even if non-labor agreements are made (such as commercial contractor agreements or invoices).

Who is an independent contractor?

Whether or not an individual can be considered an independent contractor depends on the existence of employment relations between the two parties. A labor relationship develops when one person regularly and continuously performs personal services for another party, and the other party organizes the services and assumes the associated risks. Depending on the aspirations of both parties involved, an independent contractor agreement may be signed to document such a relationship.

Under Argentinian labor law, an independent contractor is NOT obliged to:

• Complete work for a set period of time each day, nor specified location
• Make arrangements with the employer to take time off from work
• Follow the employer’s disciplinary procedures

Argentinian labor legislation does not define different types of independent contractor agreements. Instead, any individual who carries out an economic activity independently and directly, without being subject to an employment contract is defined as a self-employed worker (denomina trabajador), even if they subcontract the related activities to other parties.

Below are the primary aspects, among others, that constitute labor relations in Argentina:

• An individual performing service(s) to another entity in a continuous manner
• An entity organizing the provision of services (via official orders, rules, and guidelines)

There are two primary engagement models for working with independent contractors in Argentina.

A. Direct engagement of the worker as self-employed or registered via their own limited company. Under this model, the hiring company engages directly with the independent contractor and draws up an agreement for the provision of services. The hiring company then pays the independent contractor directly.

B. Umbrella Company. Firms operating under Employer of Record services in Argentina are often split into two categories but both are essentially designed to vet and engage freelancers compliantly as either contract employees, or independent contractors on your behalf.

• Staffing Agency: Some contractors may work under an umbrella company. In this case, the contractor is responsible for finding and performing their work, but they are an employee of the umbrella company, which manages payroll and applies an administration fee on the contractor’s earnings.
• Hiring Partner: The hiring company can also work with a hiring partner who helps them vet potential contractors, set up contracts, ensure the contractor is properly classified, onboard and manage contractors, and make payments to them.

There is no obligation to pay an independent contractor on a monthly basis. Beyond the guidelines of delivering compensation in Argentine Pesos, there is a wide range of lawful methods to deliver payment to contractors in Argentina. The most popular methods are SWIFT bank transfers and PayPal. The contract should stipulate the preferred payment method agreed upon by both parties. 

If you work with a hiring partner like Worksuite, it becomes significantly easier to streamline contractor payment processes. A dependable partner can help you hire your contractors legally, and pay them quickly, accurately, in the local currency, and in a way that complies with Argentine regulations.

Independent contractors in Argentina are responsible for reporting and paying income tax, gross income tax, and VAT. Note that permanent residents in Argentina are taxable on their worldwide income, and may obtain a foreign tax credit for taxes paid on income from foreign sources. Non-permanent residents are only taxable on their Argentine-based income sources.

Income Tax

In Argentina, independent contractors can file their personal income tax returns online. The procedure takes about 10 minutes to complete, and it is free of charge. Contractors must have their personal fiscal key (clave fiscal)—the unique tax ID of an Argentine taxpaying resident. 

Gross Income Tax

A provincial tax on gross earnings that applies to self-employed people is the gross income tax. The Federal Capital (the City of Buenos Aires) has an average tax rate of 4%, and equivalent rates are also in effect in several provinces. In the City of Buenos Aires, sole traders are free from paying gross income tax. By submitting monthly tax returns, the tax is paid. Gross Income Tax is due at the end of June each year.

Value-Added Tax

With a few exceptions, the majority of services, imports of goods and services, and the sales value of items are all subject to VAT assessment. Although some specified items are subject to a 27% or 10.5% rate, the standard VAT rate is 21%. By submitting monthly tax returns, VAT is due between the 12th and 22nd day of the month following the end of a given period.

If a non-resident firm provides digital transactions to an Argentine consumer, as long as those transactions are effectively used in Argentina, those transactions are liable to 21% VAT.

All taxpayers who have registered for VAT are required to utilize electronic invoicing. An authorization from the tax authorities is required to apply for this regime. As a result, each issued electronic invoice will contain an Electronic Authorization Code (Código de Autorización Electrónico or CAE) that has been assigned by the tax authorities.

National Tax on Financial Transactions

Bank account movements (deposits and withdrawals) are subject to a national tax on financial transactions at the following rates: 

• 0.6% of deposits and withdrawals in bank accounts opened in local financial entities
• 1.2% of any transactions made in a bank without using a bank account

National taxpayers are entitled to a tax credit up to 33% of the tax paid from financial transactions.