A brief overview of Argentina’s regulatory regimes for business

In the January issue of this column, we highlighted how the bilateral economic relationship between China and Argentina has grown and developed. This growing rapprochement can be seen in the proliferation of business linkages; more precisely, in the growth of trade and investment, and in the support both nations’ governments have conferred on economic activity by signing numerous international legal instruments – which provide the framework for business development under mutually beneficial conditions – to strengthen the strategic relationship between the two economies.

Trade and investment queries

Despite the undeniable rapprochement on trade and investment matters between Chinese and Argentine companies, businesspeople from both countries continue to have many questions and doubts regarding business affairs as a result of the geographical, cultural and linguistic distance that separates them, reflected in the numerous inquiries received daily at the Ministry of Foreign Affairs and Worship of Argentina and our missions abroad.

For this reason, we consider it timely to cover the regulatory regimes governing foreign business activity in Argentina in this issue, in an effort to close any gaps that a lack of information may cause when making investment decisions.

As an introduction to the legal framework in effect, it is important to point out that foreign investors – and their investments – are protected by Argentine law. Their rights are protected under a wide range of national and international provisions that make Argentina a safe destination for foreign direct investment (FDI) and foreign investors.

The Argentine constitution guarantees foreigners equal treatment in its preamble, in addition to section 20, which establishes that foreigners have the same rights as Argentine nationals. The Foreign Investment Law defines the legal framework that regulates foreign investment. It is aimed at foreign investors investing in Argentina, through any of the vehicles established, to carry out economic activities – manufacturing, mining, agriculture, commerce, finance, services or other activities related to the production and exchange of goods and services – as well as the expansion or consolidation of existing investments.

No prior approval of foreign direct investment is required. The law states that foreign investors are granted the same rights extended to domestic investors under the Argentine constitution and all applicable laws. In the same regard, it establishes that foreign investors are subject to the same obligations as their local counterparts.

In practical terms, the Law of Foreign Investment grants companies that choose to locate in Argentina the following rights:

• To remit abroad profits earned as a return on their investment, as well as repatriate their investment;
• To avail themselves of any of the legal forms of business organisation foreseen by Argentine legislation;
• To access domestic credit facilities and loans with the same rights and subject to the same conditions as domestic companies.

The wide array of foreign investment regulations in Argentina also provides a set of important incentives that, with public support, are aimed at improving profitability conditions of foreign companies wishing to develop economic activities in Argentine territory.

Considering only general incentives, and leaving sector incentives granted to companies settled in Argentina for future editions of this column, the following incentives are worth highlighting:

Investment incentives

1. Reduction in import duties on capital goods (decree No. 1026/2012). Aimed at the export of new capital goods that are not produced in Argentina; this incentive establishes an extra-MERCOSUR import duty of 2%.
2. Reduction in value-added tax (VAT) decree No. 493/2001; decree No. 496/2001. This incentive establishes the application of a reduced VAT rate of 10.5% (the standard rate is 21%) applied to the purchase and import of finished capital goods and IT & telecoms products.
3. Incentives for national production of capital goods, IT, telecoms and agricultural machinery (decree No. 379/2001 as amended; decree No. 917/2010; decree No. 362/2011). This incentive encourages investment and domestic production of capital goods and agricultural machinery, providing local manufacturers with a tax refund of 14%. This refund is made by way of a tax credit that can be applied against VAT, income tax, excise taxes, and minimum presumed income tax payments. Manufacturers of capital goods, IT, telecoms and agricultural machinery are eligible for this incentive.
4. Import of capital goods for large investment projects (resolution No. 256/2000 as amended). This programme allows investment costs to be offset to zero (0%) on imported capital goods that make up a complete and independent production line. This programme also provides for replacement parts to be imported up to a value of 5% FOB (freight on board) of the production line. Apart from capital goods, there are many other elements that make up a production line and are subject to tariffs, as is the case with pumps and mechanical equipment, among others. Thus, the savings represented by tariff reductions should be weighed up against other duties and the consignment of replacement parts itself, which would be otherwise subject to tariffs.

In order to offer a quick picture of the wide array of incentives available for companies settled in Argentina, we can summarise them in the following list:

• Investment incentives for capital goods and infrastructure;
• Sector-specific incentives;
• Location incentives;
• Incentives for innovation and technological development;
• Employment incentives;
• Investment financing;
• Export promotion incentives.

In our next columns, we will provide further information about sector-specific governing legal provisions that set up incentives aimed at fostering production and investments in the auto parts industry, as well as in the software and biotechnology sectors. Following this, we shall explain tax benefits for other economic activities such as mining, forestry and renewable energy production.

Felipe Vismara is the investment promotion director of the undersecretariat for investment development and trade promotion in Argentina’s Ministry of Foreign Affairs and Worship