In the previous issue of this column, we presented an overview of the legal framework in effect, highlighting 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.
In this article, and in following issues, we will present some of the sectoral incentives Argentina is offering to investors focused on developing their businesses in specific sectors.
The automotive and auto parts industries regime, regulated by Law No. 26393, is aimed at developing and consolidating Argentina’s auto parts sector via economic co-operation with other Mercosur partners.
This initiative establishes a set of incentives to stimulate domestic automotive and auto parts production, offering the following benefits:
The programme to strengthen Argentina’s auto parts industry. Offers a cash reimbursement for the value of purchases of locally manufactured auto parts acquired by automotive manufacturers to produce new models, including utility vehicles, trucks, buses, die-cast molds, and differential shafts. The benefit to be granted on the ex-works value is equal to 8-6%, decreasing over a three-year period.
The programme for consolidation of the domestic production of engines and gearboxes. Consists of cash reimbursements for the purchase of local auto parts used in the manufacturing of engines and gearboxes for automotives including utility vehicles, buses, trucks, tractors, and other self-propelled agricultural and road machinery. The benefit to be granted on the ex-works value is equal to 10-6%, decreasing over a five-year period.
Policy for motorcycles
There is also a stimulus policy related to motorcycles and motorcycle parts industries, framed by Law No. 26457, which offers incentives for local investment in manufacturing these kinds of goods. The programme establishes the national and progressive integration of motorcycle spare parts into the domestic motorcycle manufacturing industry. It establishes a decreasing limit for the quota on imports set at 30% by the fifth year of application. It also establishes tax and tariff benefits for companies developing production projects with a term of at least five years.
Most of the benefits are related to tariff treatment. Depending on the production project, companies may enjoy the following benefits for up to five years:
- Reduction of 60% in extra-Mercosur import duties of motorcycle parts;
- Reduction of 40% in extra-Mercosur import duties for CKD (completely knocked down) and SKD (semi-knocked down) kits;
- Reduction of up to 20% in extra-Mercosur import duties for CBU (completely built up) units;
- Tax credits for the purchase of locally manufactured motorcycle parts, which may be offset against national taxes for a percentage of the ex-works value net of taxes (25% for 2009 and then decreasing on an annual basis).
Another kind of sectoral incentive is the Programme for software industry promotion, enforced by Law No. 26692 on the promotion of the software industry (amending Law No. 25922) and Law No. 25856 on the consideration of software production as industrial activity.
This programme aims to promote the creation, design, development, production, implementation and fine-tuning of software systems, as well as their technical documentation, both in terms of basic aspects and applications, and including the necessary development to integrate into different processors (in-house development is excluded).
The benefits offered are basically oriented to give companies a period of time to plan their tax duties, with the guarantee of tax stability for all national taxes during the term of the promotion (until 31 December 2019).
Software design, development and production are considered to be industrial activities for tax or credit purposes and the activities also benefit from any other incentives offered by the Argentine government to industrial companies.
To promote the creation of new qualified jobs, the programme offers non-refundable fiscal credit (except income tax) for up to 70% of employer’s social security contributions, which may be applied against national tax liabilities. The beneficiaries are not subject to any value-added tax withholdings or collections.
This industry also benefits from a 60% reduction in total income tax, applied to both domestic and foreign source income.
Why promote auto, software sectors?
The automotive and auto parts industry represents 9% of Argentina’s industrial gross production value and is one of the most important and dynamic sectors in the domestic economy. Frontline international automotive manufacturers – Fiat, Ford, General Motors, Honda, Iveco, Mercedes-Benz, PSA Peugeot-Citroën, Renault, Scania, Toyota and Volkswagen – have all chosen Argentina as a production and export platform.
Plants located in the provinces of Buenos Aires, Córdoba and Santa Fe represent 29,000 direct jobs, and the auto parts sector is growing every day, encompassing over 400 companies and employing more than 65,000 workers.
Argentina offers investors an attractive domestic market of over 40 million inhabitants with among the highest purchasing power per capita in the region. The country also has preferential access to Brazil – one of the main automotive markets in the world – and to other Mercosur member countries.
Thanks to the demand and different national and regional programmes implemented from 2003 to 2012, automotive production has grown 18% on average per year, reaching a record of 829,000 units in 2011.
Regarding the software sector, 3,800 firms ranging from globally consolidated multinationals to a growing network of innovative small and medium-sized enterprises make up the global software and IT services sector. Argentine companies’ global projections are expanding as a quarter of its production is exported to international markets. The workforce comprises qualified professionals and technical experts with excellent English-language skills.
In our next articles for this column, we will continue to provide information about sectoral governing legal provisions that set up incentives aimed at fostering production and investment in different industries, all oriented towards added value and employment in Argentina.
Maria Lucia Belliz is the director of the Investors Assistance Office of the Argentina Ministry of Foreign Affairs and Worship
Foreign Affairs and Worship
Esmeralda 1212 – Piso 6
Ciudad Autónoma de Buenos Aires
(C1005AAG) República Argentina
Tel: 54 11 4819 7904
Fax: 54 11 4819 7904