The following discussion provides an overview of several types of minimum taxes in Argentina, the Dominican Republic, Colombia, Panama, El Salvador, Guatemala, Ecuador, and Mexico.
Taxpayers conducting business in these countries need to be aware of these taxes, which need to be considered in determining cash/tax projections, in heading off foreign tax credit issues, and in computing the global effective tax rate.
Argentina - asset tax
Argentina has a “minimum presumptive income tax” (impuesto a la ganancia minima presunta) that essentially functions as a minimum tax by presuming that a company’s assets located in Argentina or abroad are subject to tax at a rate of 1% of the value of taxable assets.
Argentine taxpayers pay the greater of (1) the corporate income tax or (2) the minimum presumptive income tax.
If the minimum presumptive income tax is greater than the regular corporate income tax, the amount of regular corporate income tax may be credited against the minimum presumptive income tax for that period, and the excess can be carried forward as a minimum deemed income tax credit for a 10-year period. This credit can be used to offset the future excess regular tax over the minimum tax.
Dominican Republic - asset tax
The Dominican Republic also has an asset tax. Companies are subject to an asset tax at a rate of 1% of the total value of assets based on information contained in the taxpayer company’s financial statements.
Taxpayers pay the greater of (1) the corporate income tax or (2) the asset tax. The tax is filed in the same income tax return form, and payment of the asset tax is made in two installments. The tax paid is creditable against the company’s income tax.
Colombia - alternative taxable base
Colombia has a minimum presumptive income tax. Colombian taxpayers are required to determine their taxable income for the regular tax and the new "fairness tax" (referred to by its Spanish acronym as “CREE”) by comparing the greater of (1) their ordinary taxable income or (2) their presumptive taxable income.
The CREE tax base is 3% of the taxpayer's tax net worth measured at the end of the previous tax year. The amount by which the taxpayer's presumptive taxable income exceeds the taxpayer’s ordinary taxable income may be deducted from ordinary gross income over the next five years for the regular tax liability.
For the CREE tax, there is no future deduction if the presumptive taxable income exceeds ordinary taxable income. Thus, for the CREE tax, if the amount of presumptive taxable income is greater than the amount of ordinary taxable income, the CREE tax may be viewed as tax based on the taxpayer’s net worth.
Panama - alternative taxable base
Panama also has a minimum taxable base that aims to impose tax on minimum taxable income. For these purposes, taxable income is the greater of (1) the net taxable income, or (2) 4.67% of the taxpayer’s total taxable income.
El Salvador - minimum tax based on revenue
Taxpayers in El Salvador may be subject to a minimum tax that is based on the taxpayer’s gross revenue and subject to a rate of 1% of gross revenue. There are special rules excluding certain entities from the payment of the minimum tax and also listing amounts excluded from the taxpayer’s gross income (such as the income previously subject to final withholding tax, nontaxable income, salaries and wages, among others).
Guatemala - minimum tax based on revenue
In Guatemala, taxpayers can elect to be taxed on net income or on their gross revenues. Under the net income regime, taxpayers are subject to tax at a rate of 31% of their taxable income; for these purposes, taxable income is defined as gross income minus costs and expenses necessary to generate such income or to preserve the revenue source.
Under the gross revenue tax regime, companies are subject to tax on their gross income. Taxpayers operating under this regime are subject to income tax at the rate of 5% of gross income, regardless of their profit margin or income levels. The tax is paid through a withholding system or by direct monthly payments made by the taxpayer.
Ecuador - advance tax payments
Ecuadorian tax law includes a minimum advance payment of tax. The minimum advance payment may be a percentage of the previous year tax liability, or the resulting amount determined by applying a formula (i.e., a percentage based on the taxpayer’s equity, costs and expenses, and assets and revenues). The minimum advance payment is payable when the income tax is due.
What distinguishes this system from an estimated tax regime is that when the advance payment amount exceeds a taxpayer’s income tax, the minimum advance payment constitutes the final payment of the income tax, and there is no right to future credit for the overpayment.
Mexico - IETU
In Mexico, taxpayers pay the greater of the corporate tax or the business flat tax (IETU) which is imposed at a rate of 17.5% of an amount that is business income minus business expenses (determined under a cash method).
Taxpayers that pay the IETU are not allowed any future tax credit.
Only profits that have been subject to “ordinary tax” can be distributed without any additional Mexican tax.
For more information, contact a tax professional with KPMG’s Americas Center in Miami:
Marco A. Banuelos
(305) 341 6424