Encouraging investment in Patagonian Andes provinces

As mentioned in previous issues, we shall discuss some of the incentives available in Argentina at the local level. Argentina is divided into 23 provinces and the City of Buenos Aires, which is an autonomous district separate from a province. The provinces divide their respective territories into municipalities; some are also divided into districts.

The federal form of government establishes the division of powers between the national government and the provincial government, guaranteeing the provinces’ autonomy. In this system, the national, or federal, sovereign government holds jurisdiction over the entire national territory and coexists with local governments, whose jurisdictions are limited to their own respective territories.

In this column, we will review investment incentives available in two provinces in the Patagonian Andes, Neuquén and its neighbouring Mendoza.

Investment incentives

In the province of Neuquén, act no. 378 on economic promotion aims to increase the installation of new industries for the extraction, processing and comprehensive utilization of mineral, agricultural, forestry and hydroelectric resources. The act also promotes the development of tourism and the creation of new jobs.

Some of the benefits conferred by this legislation include ordinary or special emergency exemption of provincial taxes, sale of public land at preferential prices, technical advice and negotiation at the local and national level, and provision of infrastructure and services for industrial development.

Another interesting regime is the Transient Regime for Investment Attraction, Provincial Regulatory Decree 2672-771/10. The regime created the Agency for Investment Promotion and Development of Neuquén, which is devoted to developing a more dynamic and attractive investment promotion system in the province. As summarized by ADI-NQN SEP, the regime encourages private investment in the province of Neuquén in order to achieve maintenance of employment rates and the change in the productive matrix.

Benefits of the regime include:

• Exemption from existing or future provincial taxes, for a period of ten years, and in whole or staggered, as provided in the rules;
• Facilitation of the purchase, rental, or lease with option to purchase within five years and leasing of movable and immovable property of the provincial government, according to current regulations;
• Technical advice and assistance from state agencies, both in administrative and financial procedures; and
• Grants of up to 50% interest rate credit line for companies promoted.

This regime will prioritize the provision of these benefits to local investors. The benefits will be a scale-dependent characteristics of the project (labour employed, external trade integration), its location and if it is included in the priority sectors for the province to achieve the goals aimed by this regulation.

The province of Mendoza offers a financial tool to promote local investment via the Mendoza Fund for Transformation and Growth. The Mendoza Fund is a leading public entity providing financial assistance within the province. The fund promotes sustainable development and boosting the transformation of the productive sector in Mendoza. It also provides financial aid to various sectors of the economy – including both traditional and non-traditional sectors – directly or by means of alliances with other public or private bodies.

In this framework, the Mendoza Fund offers a wide menu of credit lines for various purposes.

Investment in pesos

Purpose: Investment in Argentine pesos for new companies or companies established within the last three years, for the purchase of capital goods, excluding real property, motor vehicles, anti-hail nets or irrigation equipment.

Amounts and terms: 2,000,000 pesos (US$225,000) maximum. Five-year loans. Grace period: per agreement.

Companies in operation

Purpose: Investment in fixed assets (capital goods) for companies which have been, and are currently, in operation for more than three years, and which perform agro-industrial or industrial activities or provide services, among other business activities. Real estate, motor vehicles, anti-hail nets and irrigation equipment are excluded.

Amounts and terms: 2,000,000 pesos maximum. Loan term: up to four years. Grace period: one year.

Investment in agricultural machinery

Purpose: Financing of agricultural machinery and new equipment with the aim of modernizing and increasing the use of technology in the sector’s activities.

Amounts and terms: 350,000 pesos maximum. Loan term: up to five years. Grace period: up to one year.

Incremental working capital

Purpose: Financing of working capital for micro-, small- and medium-sized companies involved in industrial or agricultural (tillage) ventures and/or the provision of services, among other activities. Excluded are wages and contributions (except in relation with tillage work in agricultural ventures and tourism), rents, services and fees,
value-added tax and fuel for transport services companies.

Amounts and terms: 500,000 pesos maximum. Grace period and amortization: Up to 15 months.

If we consider these two incentives, it is easy to conclude that each province in Argentina is free to develop its own measures to achieve the same goal. That being, namely, the creation of new companies or the enlargement of the old ones, with the final objective of increasing employment and well-being of their communities.

That is the reason why we usually advise that investors evaluate each potential location thoroughly. While there is a high level of profitability for businesses in Argentina as a whole, it is recommended that they first assess available schemes at the local level, where there are a wide range of incentives of which to take advantage.

In future issues of this column, we will continue providing information about Argentine laws and regulations at the national and provincial level. We will also identify cases where legal framework is a key issue in the investment process.

Maria Lucia Belliz is the director of the Investors Assistance Office of the Argentina Ministry of Foreign Affairs and Worship