How to Manage and Pay Contractors in Argentina

As one of the largest and most important economies in Latin America, Argentina continues to stand out amongst businesses as they choose to expand their global presence into the region. Argentina is a well-educated and tech-savvy country with 11 of the 34 major tech unicorns headquartered here. Much of the workforce in Argentina is trilingual and can fluently speak English, Spanish, and Portuguese. 

With a close proximity and time zone alignment with the United States, businesses hoping to test out this market may want to slowly begin the expansion process by hiring a few contractors. Let’s dive into how to manage and pay contractors in Argentina!

Key labor laws in Argentina 

Before you begin to hire in Argentina, note some of the most important labor laws that govern independent contractors: 

• Ley de Contrato de Trabajo (LCT): Gives the primary labor law in Argentina, regulating employment relationships, including hiring, termination, and working conditions. While the LCT primarily focuses on employees, many provisions apply to contractors. 

• Código Civil y Comercial: The Argentine Civil and Commercial Code regulates various aspects of contractual relationships, including the relationship between independent contractors and their clients. 

• ​​Ley de Impuesto a las Ganancias: This law governs the taxation of income in Argentina, including that of independent contractors. Understanding the nuances of this tax law is essential for compliance.

• Facturación y Registros Fiscales: Independent contractors in Argentina are mandated to maintain accurate financial records and issue official invoices for their services.

• Currency and exchange rates: It’s important to stay current on regulations related to currency and exchange rates, as these can significantly impact payments. 

• Misclassification: It's crucial to correctly classify workers to avoid penalties associated with misclassification. Ensure that your employment contracts clearly specify the status of independent contractors.

How do you pay a contractor in Argentina? 

At the beginning of 2023, the Argentine government issued Communique A 7,746 (Communique) which placed strict regulations on foreign exchange protocols. Now, all payments must be recorded with the Argentine Central Bank (BCRA). Payments to contractors in Argentina must be made in the Argentine peso (ARS). This regulation has also contributed to  inflation, making cross-border payments difficult by extending the prior approval date to make foreign payments in the Argentine marketplace to 60 days. Non-compliance with these changes can lead to significant penalties. 

Although Argentina has a difficult system to navigate when paying contractors, businesses still have a few options: 

• Make direct payments to contractors’ bank accounts (you will need to account for currency exchange rates and inflation).

• Set up a bank account to pay your contractors. However, you’ll also need to set up an entity within the country and register with the proper organizations (a process that can take months and is overall costly). 

• Use an online payment platform like Payoneer, PayPal, or WISE. These services typically charge a percentage fee – make sure to budget for the added fee.

• If you are a PEO or EOR customer at Justworks, use Justworks International Contractor Payments, businesses can quickly pay contractors using our platform. 

Tax and compliance requirements for independent contractors in Argentina

Contractors and businesses hiring contractors in Argentina have an extensive list of tax requirements they must follow in order to remain compliant: 

• Form W-8 BEN: Contractors working for a US-based company, but operating in Argentina should fill out a completed Form W-8 BEN to confirm their foreign status. This document is crucial in determining the applicable tax withholding for international contractors. 

• Form 1099-NEC: If you’re a business based in the US, you must report all payments issued to your Argentine contractors using Form 1099-NEC. Complete this form with the IRS and provide a copy to the respective contractor for their record-keeping.

• FATCA Compliance: Adherence to the Foreign Account Tax Compliance Act (FATCA) is mandatory when collaborating with contractors in Argentina. This usually entails gathering additional documentation to verify the tax residency and foreign financial account status of the contractor.

• Income tax: Independent contractors in Argentina are required to register as taxpayers with the local tax authority, AFIP, and remit income tax at progressive rates ranging from 5% to 35%, determined by their gross income.

• Value-Added tax (VAT): Depending on their professional category and annual revenue, independent contractors in Argentina may be obligated to levy VAT on their services. The standard VAT rate in Argentina is 21%. It is crucial to ensure that your contractors adhere to VAT requirements and accurately incorporate the applicable tax rates in their invoices.

• Social security contributions: Independent contractors are exempt from social security contributions in Argentina. However, voluntary contributions may render them eligible for specific benefits, such as unemployment insurance.

• Invoicing: Contractors must issue comprehensive service invoices, incorporating their Tax ID. 

• Reporting Requirements: All payments made to independent contractors in Argentina must be reported to the tax authorities (AFIP). The frequency of this reporting is contingent on the volume of payments and may occur either monthly or quarterly.

What are the risks of misclassification in Argentina? 

Misclassifying employees as independent contractors in Argentina carries significant risks and potential legal repercussions. This misclassification can lead to severe penalties and fines from regulatory authorities, as it often results in the evasion of employment-related taxes and the denial of statutory labor rights and benefits to workers, such as minimum wage, overtime pay, paid leave, and social security contributions. 

General distinctions between full-time and contractors in Argentina include: 

• Employees are on payroll while contractors are paid per project 

• Contractors file and deduct their own taxes 

• Employees are entitled to benefits while contractors are not 

• Contractors are not entitled to notice or severance

• Contractors set their own hours and completion of projects while employees have a set schedule 

• Employers in Argentina are required to register employees with the social security system (for healthcare), pay minimum wage, and provide annual leave, sick leave, maternity leave, public holidays off, notice, and severance 

The Argentine labor courts are known for their protective stance towards employees, and if a contractor files a claim with the court system, it’s up to the employer to provide proof that the contractor isn’t a full-time employee. If a business is found guilty of misclassification, they are required to pay all back taxes, social security contributions, and potential benefits to the misclassified employees. They may even run the risk of losing any intellectual property created by the contractor while they were working for the business. 

How Justworks Provides International EOR Services for Small Business

Through Justworks, you can now expand the boundaries of your talent search without setting up a local entity in Argentina. Focus on building your team, and leave worrying about the nitty-gritty of HR and international compliance to us. 

Our team of local labor lawyers and experts ensure that your small business always remains compliant while expanding internationally. We handle the responsibility side of things so you can focus on what matters: managing your team. 

Learn more about how you can expand your international business through Justworks, and get started today.