12 min read
Independent Contractor Classification 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.
Factors
Employee
Independent Contractor
Employment Laws
Employment contracts are regulated by Argentine labor legislation based on the Federal Law on Contract of Employment (Ley de Contrato de Trabajo, LCT), as well as unique terms and conditions specified in employment contracts. Employment conditions may be subject to the Collective Bargaining Agreement (a written legal contract between an employer and a union representing the employees).
There are four types of employment contracts in Argentina:
- Permanent (Contrato de Trabajo Permanente)
- Short-term (Contrato de trabajo eventual)
- Fixed-term (Contrato de trabajo a plazo fijo)
- Temporary (Contrato de trabajo de temporada)
Fixed-term and temporary employment contracts must be signed in writing, while permanent employment contracts are exempt from this need.
It is recommended, but not legally enforced, to draw up the contracts in Spanish.
No labor relationship is required between an entity and an employee for the latter to be classified as an independent contractor. If an individual renders services to a third party, these services are still regulated by Argentinian labor law regardless of the content or presence of an agreement. Both employees and independent contractors can complain to a labor court (tribunal de trabajo).
Hiring Practice
An applicant must submit their CV to the employer Once a decision has been made, the employer must deliver a formal job offer in writing to the individual. The following information is then collected for hiring and tax purposes:
- Full name
- ID number
- Birth date
- Marital status
- Expected employment start date
- Tax identification number (applicable in the case of foreign employees)
Through professional employer organizations or directly.
Contractors can be hired directly or via a third party, such as a staffing agency. Contractors may be found via word-of-mouth, job boards, social networks, industry bodies, or other forums. Although hiring practices vary, the contractor may be asked to provide a CV, portfolio, and references, and possibly sign an NDA.
There is no limitation on the use of independent contractors. Independent contractors are not required by Argentine law to sign a formal written contract; an employer can make an informal offer by phone or email.
If there are any aspects of the work that need more clarification, a formal offer may be needed.
Tax Filing Documents
According to Section 52 of the Employment Contract Law, the employer is required to maintain a Special Labor Ledger that is registered and sealed by the Department of Labor in order to record information about the employer and employee as well as other tax-related details.
The National Tax Office (Administración Federal de Ingresos Publicos, AFIP) handles both tax and social security registration. To be registered with the tax authority, corporate employees must get their Tax Identification Number (CUIT).
Contractors file tax reports (formularios fiscales) on their own by June each year.
Payer's Tax Withholding & Reporting Requirements
There is no payroll tax in Argentina. Employees may receive remuneration in the form of a dividend. 10% of dividends given to non-residents are subject to withholding tax. The tax year begins on 1 January and finishes on 31 December of the same year.
In 2022, the income tax rate starts from 5% (for those whose annual income does not exceed ARS 97,202) and ends at 35% for those earning more than ARS 1,555,232 per annum.
An employee’s salary is subject to social security payments, which are equal to 44% of an employee’s gross salary (27% and 17% are paid by the employer and the employee, respectively).
No deductions apply to payments made to independent contractors.
Note that permanent residents in Argentina are taxable on their worldwide income, while non-permanent residents are only taxable on their Argentine-based income sources.
Remuneration paid to independent contractors is subject to taxes on commercial transactions (e.g., VAT (21-27%), withholdings of income tax, and gross income tax, all of which are remitted by contractors. Funds paid to independent contractors are not subject to social security contributions.
Remuneration
Employers are expected to pay their staff via automatic monthly payroll deposits into their bank accounts.
There is no obligation to pay the independent contractor on a monthly basis. Employers are responsible for providing consistent compensation in Argentine Pesos. There are no standard payment terms. Remuneration frequency is to be agreed upon by an employer and a contractor. Payments become due after the contractor issues an invoice.
Workers’ Rights
In Argentina, employees enjoy the following rights:
- Severance pay in case of unfair dismissal – the highest monthly payment the independent contractor received over the previous 12 months, multiplied by the number of years worked
- Paid maternity leave – 90 days
- Annual leave – 2 weeks
- Sick leave – up to three months per year, if the employee’s length of service is no more than 5 years, and for a period of up to six months if the relevant length of service is more than 5 years
- Overtime – paid at a rate of 50% of the normal pay, unless the employee works on Saturdays after 1 P.M., Sundays and holidays, in which case they receive +100% of the normal pay
- A right to receive compensation if the employment agreement is not properly or completely registered (including entry date, salary, and fringe benefits), i.e. in case of an inconsistency in the employment contract.
Independent contractors do not enjoy any of the benefits granted to employees unless internally agreed otherwise. There is also no protection from a sudden termination of the contract.
Benefits
All employees must have life and work risk insurance, which employers are required to pay for. Local laws govern health insurance and pensions, which are paid for by employer and employee contributions. Employees may be granted additional, internal benefits not otherwise governed by labor laws.
According to local legislation in Argentina, workers are entitled to a 13th-month paycheck (Aguinaldo), which is an additional month’s pay. Two semi-annual payments (installments) of this 13th-month wage are required; they are due by June 30 and December 18, respectively.
No benefits are granted to contractors. Third-party benefits granted by professional employer organizations may apply when an independent contractor is hired through such organizations (i.e. umbrella company) and is considered their employee.
When Paid
As per Sections 126 and 128 of the Argentina Employment Contract Law, full-time employees are paid on a monthly basis at the end of each month.
Typical contractor invoices are issued monthly on net 30-day terms. Each invoice usually includes the following details:
- Invoice number and date
- The client’s name and address
- The contractor’s bank details
- Agreed payment terms and due date
Independent contractors are required to provide payment receipts to their employers upon receiving the invoiced funds.
Employee
Employment Laws
Employment contracts are regulated by Argentine labor legislation based on the Federal Law on Contract of Employment (Ley de Contrato de Trabajo, LCT), as well as unique terms and conditions specified in employment contracts. Employment conditions may be subject to the Collective Bargaining Agreement (a written legal contract between an employer and a union representing the employees).
There are four types of employment contracts in Argentina:
- Permanent (Contrato de Trabajo Permanente)
- Short-term (Contrato de trabajo eventual)
- Fixed-term (Contrato de trabajo a plazo fijo)
- Temporary (Contrato de trabajo de temporada)
Fixed-term and temporary employment contracts must be signed in writing, while permanent employment contracts are exempt from this need.
It is recommended, but not legally enforced, to draw up the contracts in Spanish.
Hiring Practice
An applicant must submit their CV to the employer Once a decision has been made, the employer must deliver a formal job offer in writing to the individual. The following information is then collected for hiring and tax purposes:
- Full name
- ID number
- Birth date
- Marital status
- Expected employment start date
- Tax identification number (applicable in the case of foreign employees)
Tax Filing Documents
According to Section 52 of the Employment Contract Law, the employer is required to maintain a Special Labor Ledger that is registered and sealed by the Department of Labor in order to record information about the employer and employee as well as other tax-related details.
The National Tax Office (Administración Federal de Ingresos Publicos, AFIP) handles both tax and social security registration. To be registered with the tax authority, corporate employees must get their Tax Identification Number (CUIT).
Payer's Tax Withholding & Reporting Requirements
There is no payroll tax in Argentina. Employees may receive remuneration in the form of a dividend. 10% of dividends given to non-residents are subject to withholding tax. The tax year begins on 1 January and finishes on 31 December of the same year.
In 2022, the income tax rate starts from 5% (for those whose annual income does not exceed ARS 97,202) and ends at 35% for those earning more than ARS 1,555,232 per annum.
An employee’s salary is subject to social security payments, which are equal to 44% of an employee’s gross salary (27% and 17% are paid by the employer and the employee, respectively).
Remuneration
Employers are expected to pay their staff via automatic monthly payroll deposits into their bank accounts.
Workers’ Rights
In Argentina, employees enjoy the following rights:
- Severance pay in case of unfair dismissal – the highest monthly payment the independent contractor received over the previous 12 months, multiplied by the number of years worked
- Paid maternity leave – 90 days
- Annual leave – 2 weeks
- Sick leave – up to three months per year, if the employee’s length of service is no more than 5 years, and for a period of up to six months if the relevant length of service is more than 5 years
- Overtime – paid at a rate of 50% of the normal pay, unless the employee works on Saturdays after 1 P.M., Sundays and holidays, in which case they receive +100% of the normal pay
- A right to receive compensation if the employment agreement is not properly or completely registered (including entry date, salary, and fringe benefits), i.e. in case of an inconsistency in the employment contract.
Benefits
All employees must have life and work risk insurance, which employers are required to pay for. Local laws govern health insurance and pensions, which are paid for by employer and employee contributions. Employees may be granted additional, internal benefits not otherwise governed by labor laws.
According to local legislation in Argentina, workers are entitled to a 13th-month paycheck (Aguinaldo), which is an additional month’s pay. Two semi-annual payments (installments) of this 13th-month wage are required; they are due by June 30 and December 18, respectively.
When Paid
As per Sections 126 and 128 of the Argentina Employment Contract Law, full-time employees are paid on a monthly basis at the end of each month.
Independent Contractor
Employment Laws
No labor relationship is required between an entity and an employee for the latter to be classified as an independent contractor. If an individual renders services to a third party, these services are still regulated by Argentinian labor law regardless of the content or presence of an agreement. Both employees and independent contractors can complain to a labor court (tribunal de trabajo).
Hiring Practice
Through professional employer organizations or directly.
Contractors can be hired directly or via a third party, such as a staffing agency. Contractors may be found via word-of-mouth, job boards, social networks, industry bodies, or other forums. Although hiring practices vary, the contractor may be asked to provide a CV, portfolio, and references, and possibly sign an NDA.
There is no limitation on the use of independent contractors. Independent contractors are not required by Argentine law to sign a formal written contract; an employer can make an informal offer by phone or email.
If there are any aspects of the work that need more clarification, a formal offer may be needed.
Tax Filing Documents
Contractors file tax reports (formularios fiscales) on their own by June each year.
Payer's Tax Withholding & Reporting Requirements
No deductions apply to payments made to independent contractors.
Note that permanent residents in Argentina are taxable on their worldwide income, while non-permanent residents are only taxable on their Argentine-based income sources.
Remuneration paid to independent contractors is subject to taxes on commercial transactions (e.g., VAT (21-27%), withholdings of income tax, and gross income tax, all of which are remitted by contractors. Funds paid to independent contractors are not subject to social security contributions.
Remuneration
There is no obligation to pay the independent contractor on a monthly basis. Employers are responsible for providing consistent compensation in Argentine Pesos. There are no standard payment terms. Remuneration frequency is to be agreed upon by an employer and a contractor. Payments become due after the contractor issues an invoice.
Workers’ Rights
Independent contractors do not enjoy any of the benefits granted to employees unless internally agreed otherwise. There is also no protection from a sudden termination of the contract.
Benefits
No benefits are granted to contractors. Third-party benefits granted by professional employer organizations may apply when an independent contractor is hired through such organizations (i.e. umbrella company) and is considered their employee.
When Paid
Typical contractor invoices are issued monthly on net 30-day terms. Each invoice usually includes the following details:
- Invoice number and date
- The client’s name and address
- The contractor’s bank details
- Agreed payment terms and due date
Independent contractors are required to provide payment receipts to their employers upon receiving the invoiced funds.
Who Classifies as an Independent Contractor in Argentina?
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
Contracting Models
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)
Engagement Models
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.
Contractor Payments
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.
Tax and Social Security
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.
