Contents
1.
Country profile
Geographical Location and Language
Form of Government
Political System
Population Structure
Geographic and Demographic Data
Climate and Natural Resources
2.
Economy
Changes in Argentina’s Economy since 2015
Basic Economic Indicators
Foreign Exchange, Credit, Financial and Monetary Policies
Financial Markets
MERCOSUR and foreign trade
3.
The only purpose of the
information included in this
publication is to provide a
general overview of the issues
in question. It should not be
construed as comprehensive or
sufficient information to make
decisions, nor should it be used
as a substitute for profesional
advice. EY has no liability in
connection with the losses that
may arise from any action or
default by any of the persons
using this material.
© August 2016 – Pistrelli, Henry
Martin y Asociados.
All rights reserved.
Business Presence
Types of Business Associations
Association Agreements (contratos asociativos)
Corporate and Accounting Records
New Argentine Civil and Commercial Code
Oversight Agencies
Year-end, Financial Statements and Accounting and Audit Standards
4.
Foreign Investments
Legal framework for foreign investments in Argentina
Foreign indirect investment (FDI) in Argentina
5.
Tax
General Description of the Tax System
Direct Taxes
Indirect Taxes
Other Taxes
Treaties to Avoid International Double Taxation
Foreign Exchange Regulations
6.
Labor and Social Security Legislation
Labor Supply and Relations
Labor legislation
Other Employee Benefits
Main types of Employment Contracts
Social Security
3
3
4
4
4
5
5
7
7
8
9
13
17
21
21
28
30
32
33
34
47
47
49
51
51
53
64
72
74
74
79
79
79
81
82
85
1. Country Profile
Argentina is one of the most important sources of natural and human resources in
Latin America.
A variety of climates, an enormous territorial expanse, talented and highly
educated individuals and a solid industrial past are some of the different features
of this country.
EY wishes to contribute towards a better understanding and knowledge of the
surroundings characterizing Argentina from a geographical, economic,
accounting, legal and regulatory point of view. For all of these reasons, we are
presenting Doing Business in Argentina, targeting potential businesspeople and
investors.
Investment is an important step that should not be contemplated without
appropriate professional assistance. This publication is a preview and a summary
of the conditions that will be worth taking into account in an investment process,
but which does not substitute complete and competent professional advice.
1.1. Geographical location and Language
Argentina is situated in the Southern Cone of South America, bordering Bolivia,
Paraguay and Brazil to the north, Brazil, Uruguay and the Atlantic Ocean to the
east, Chile and the Atlantic Ocean to the south and Chile to the west. The country
covers most of the southern portion of the South American continent and has an
approximate triangular shape, with its base in the north and its tip at Cape
Vírgenes, the southernmost point of South American.
Its official language is Spanish.
Brazil
Bolivia
Paraguay
Argentina
Chile
3
Country Profile
1.2. Form of Government
Since 1853, Argentina has adopted a representative, republican and federal form
of government. This is reflected in the Argentine Constitution (article 1).
In this regard, the Constitution refers to the vesting of power on representatives
through the institutions and according to the type of office (although the people
may also participate more actively through semidirect democracy mechanisms).
The cornerstone of the republican form of government is the sovereignty of the
people. That is why, among other principles, the Argentine Constitution
establishes terms of office, election methods and the publication of all acts of
government for citizens to be able to exert control mechanisms and thus exercise
their sovereignty.
Federalism is characterized by the separation of powers: while there is a
sovereign state (the federal government), the provinces retain the power to elect
their authorities and regulate their local activities by drafting their own provincial
constitutions, provided they do not contradict the federal constitution. The
purpose is to decentralize power, i.e., prevent the concentration of power and
allow control over power to be shared between the federal and provincial
governments.
1.3. Political System
The Executive Branch is run by the President of Argentina, who is elected for a
four-year term and may be re-elected. The President and Vice President, who is
also President of the Senate, are elected through a direct vote. The president is
advised by a cabinet made up of ministers and the cabinet leader. There are also
a series of departments.
The Legislative Branch is made up of the Senate (formed by 72 senators elected
for a six-year period) and the House of Representatives (formed by 257
representatives, elected for a four-year period), with seats renewed every two
years.
The Judicial Brach is made up of the Supreme Court, the federal courts of appeal
and federal judges. In the provinces, the administration of justice is the
responsibility of the courts of appeal, the magistrates and ordinary judges.
1.4. Population Structure
October 27, 2010, showed that Argentina has a population of 40,117,096.
The most densely populated city, by square kilometer, is Buenos Aires City. A total
of 13,881 inhabitants per square kilometer used to live there in 2001 and now
this total has increased to 14,451 inhabitants per square kilometer.
The province of Buenos Aires is the most densely populated of all provinces,
accounting for 39% of Argentina’s population.
4
Country Profile
Between 1991 and 2011, population growth was 10% (1% annually). Between
2001 and 2010, growth was 11%. The increase in population is explained by the
low mortality rates and the increase in quality of life.
Total population
Province
Total liabilities
City of Buenos Aires
Province of Buenos Aires
24 districts in Greater Buenos Aires
Other districts in the province of Buenos Aires
Catamarca
Chaco
Chubut
Córdoba
Corrientes
Entre Ríos
Formosa
Jujuy
La Pampa
La Rioja
Mendoza
Misiones
Neuquén
Río Negro
Salta
San Juan
San Luis
Santa Cruz
Santa Fe
Santiago del Estero
Total
population
2010 census
40,117,096
2,890,151
15,625,084
9,916,715
5,708,369
367,828
1,055,259
509,108
3,308,876
992,595
1,235,994
530,162
673,307
318,951
333,642
1,738,929
1,101,593
551,266
638,645
1,214,441
681,055
432,310
273,964
3,194,537
874,006
Total
population
2001 census
36,260,130
2,776,138
13,827,203
8,684,437
5,142,766
334,568
984,446
413,237
3,066,801
930,991
1,158,147
486,559
611,888
299,294
289,983
1,579,651
965,522
474,155
552,822
1,079,051
620,023
367,933
196,958
3,000,701
804,457
Change in
population
(2001 – 2010)
[%]
10.6
4.1
13.0
14.2
11.0
9.9
7.2
23.2
7.9
6.6
6.7
9.0
10.0
6.6
15.1
10.1
14.1
16.3
15.5
12.5
9.8
17.5
39.1
6.5
8.6
Source: INDEC (Argentine Statistics and Census Institute). National Census of Population and Housing
(2010). Final results.
1.5. Geographic and Demographic Data
Argentina is the second-largest country in Latin America in terms of territorial
size, fourth-largest in the American continent and eighth-largest in the world. It
covers a surface area of 2,891,810 square kilometers of the southern portion of
the American continent, stretching around 3,800 kilometers from north to south
and about 1,400 kilometers from east to west.
The estimated number of inhabitants is 40 million. Population density is 14
inhabitants per square kilometer and the natural rate of increase of the population
is around 1% per year. Around 25% of the population is concentrated in the area
formed by the City of Buenos Aires and its surrounding districts, which is referred
to as Greater Buenos Aires.
The adult literacy rate is estimated at 97.7% and life expectancy is 75.9 years
according to the 2011 Human Development Report prepared by the UNDP.
1.6. Climate and Natural Resources
The fundamental characteristic of the Argentine landscape is the contrast
between the immense eastern plains and Andes mountain range to the west which
has the highest peak in the western hemisphere: the Aconcagua, at a towering
6,959 meters.
5
Country Profile
Following the mountain range from Jujuy down to Tierra del Fuego, there are very
diverse landscapes: From the high plateaus in the north-west, which are desertlike with valleys, ravines and colorful mountains down to the region of lakes,
forests and glaciers in Patagonia.
To the north, Chaco is a forest area tied to the Bermejo, Salado and Pilcomayo
rivers.
Between the Paraná and Uruguay rivers, the Argentine Mesopotamia region
(provinces of Entre Ríos, Corrientes and Misiones) is formed by low-lying hills,
lagoons and marshes that show traces of the ancient courses of these great
rivers.
In the center of Argentina, the Pampean region is home to the most extensive and
well-known plain. With intensive farming and livestock activities, it covers the
province of Buenos Aires, the northeastern portion of the province of La Pampa
and southern portion of Córdoba and Santa Fe. Its landscape is interrupted by the
small mountains of Tandil and Sierra de la Ventana in the south, and by the small
mountains of Córdoba in the west.
Towards the south, from the Andes to the sea, lie the stony Patagonian mesetas,
battered by the winds during most of the year. The Atlantic coast, outlined by
high cliffs, follows a sinuous course, such as the Valdés peninsula, with its marine
fauna rookeries.
Argentina has a very broad climatic range. It is mild and humid on the Pampean
plains, cold and humid in the far west of Patagonia, subtropical in the northern
part of Mesopotamia and warm in the northwest.
The area of Tierra del Fuego is cold, with strong winds, fog, rain and frequent
snowfall.
6
2. Economy
2.1. Changes in Argentina’s Economy since 2015
After the complex situation reached by the end of 2014, that included recession,
default, a wide gap between the official and unofficial exchange rates, high
inflation (higher than the previous year), huge tax deficit and foreign accounts
under pressure, the Argentine economy had an acceptable performance in the
first half of the year (it grew by 1.7% and 1.4% t/t in the first and second quarters,
respectively), but became stagnated in the second half of the year (-0.1% and 0.4% t/t in the third and fourth quarters, respectively).
Based on official figures, demand from private consumers grew by 5.0% last year
after a 5.2% decline in 2014. This relative improved performance was related to a
moderate increase in real salaries and the improvement in consumers’
expectations and trust.
Investment also rallied thanks to construction and imports of capital goods over
the past few months and closed the year with an increase of about 5.5% as
compared to the previous year.
With regards to supply, industry grew around 0.2%, despite the low basis of
comparison of 2014. The sector was mainly affected by difficulties in accessing
US dollars on the official market that slowed down the import of goodly last year´s
ongoing automotive industry crisis and the declining demand from Brazil,
Argentina’s main business partner.
The construction activity rose by about 3%, after the sluggish performance in
2014. It was mainly aided by the boost to public construction works during the
election year, the relative stability of the gap between the official US dollar and
the unofficial US dollar rates during the first half of the year, the good
performance displayed by the indicator that shows new construction permits for
private works in 2014 and the low basis for comparison.
Inflation remained high, but slowed down steadily throughout the year. In
November monthly inflation accelerated, which jumped from 1.5% to 2.4%, mainly
as a response to the expected foreign exchange unification which was finally
achieved in December. Although there was (and is) a transfer of the year-end
devaluation to prices, impact on monthly inflation will be rather moderate since
foreign exchange unification was a measure taken for granted.
Therefore, (unofficial) inflation amounted to around 27.5% by the end of the year,
which slowed down as compared to the 38% registered by the end of 2014. The
INDEC continued to show monthly rises well below private estimates and published
an accumulated inflation standing at about 12% in October.
With Mauricio Macri as the Argentine president, a new political and economic cycle
begins and it is expected that Argentina will recover investors’ trust, restore
macroeconomic balance and find its way back to a sustained growth path. In this
context, we expect economic activity to begin its recovery towards the Q4 2016,
helped by higher capital flows and investments, and to grow again in 2017.
Containing and subsequently curbing inflation will be an important challenge
to be faced by Mauricio Macri’s administration in the next few months.
Inflation strongly accelerated in the first half-year this year as a consequence
of the devaluation and the increase in public utility rates, for which reason it
is expected to be close to the 40% - 45% range in December in Buenos Aires
City.
7
Economics
2.2. Basic Economic Indicators
GDP grew by 2.4% in 2015, according to official INDEC data, mainly as a result of
the good performance of private consumption, which grew by 5% as compared to
prior year, and investment, which rose by 5.5% in year-on-year terms boosted by
the strong recovery in construction, especially due to the significant dynamism of
public works in an electoral year.
In addition, the international scenario showed a moderate deterioration and
exerted a significant pressure on foreign exchange rates and the economic
activity. In addition to the steep fall in Brazil's demand and the price of
commodities (especially soybean), US Federal Reserve rates fell, developing
countries’ growth slowed down and the US dollar strengthened globally.
Item
Nominal GDP (USD bn)
2008
2009
2010
2011
2012
2013
2014
2015
2016E
365,13 336,09 426,37 530,67 582,80 613,36 567,58 639,72 540,92
Real GDP (annual var., in %)
4,1
(6,0)
10,4
6,1
(1,1)
2,3
(2,6)
2,4
(1,8)
Official CPI (annual var. In % Dec - Dec)
8,0
7,1
10,9
9,5
10,2
11,8
23,9
n,a
n,a,
20,0
16,0
25,0
23,6
25,2
27,9
38,0
28,0
44,0
197,1
216,8
297,9
383,8
524,1
666,4
Non-official CPI (annual var. In % Dec Dec)
Total deposits (stock in ARS bn)
836,4 1,153,2 1,487,4
Exports (USD bn)
70,02
55,67
68,17
82,98
79,98
75,96
68,41
56,79
59,79
Imports (USD bn)
57,46
38,79
56,79
73,96
67,97
74,44
65,23
59,76
58,38
Trade balance (USD bn)
12,56
16,88
11,38
9,02
12,01
1,52
3,18
(2,97)
1,41
International reserves (USD bn)
46,39
47,97
52,20
46,40
43,30
30,60
31,40
25,60
34,68
3,45
3,80
3,98
4,30
4,92
6,52
8,55
13,00
16,00
7,6
8,5
7,7
7,2
7,2
7,1
7,3
Exchange rate (ARS/USD, Dec. 31)
Exchange rate (in %)
6,3
7,6
Source: Econviews based on INDEC, Argentine Ministry of Economy, Argentine Central Bank
data and own estimates.
GDP by Economic Sector
Millions of current pesos.
Q1
2016
Year
2015
Producers of Goods
Agriculture, livestock, hunting and forestry
Fishing
Mining and quarrying
Manufactured goods industry
Electricity, gas and water
Construction
1,887,105
289,469
11,973
236,203
959,973
101,618
287,870
1,652,704
279,799
13,882
178,026
842,913
65,609
272,175
Producers of Services
Wholesale and retail trade and repairs
Hotels and restaurants
Transport, storage and communications
Financial intermediation
Real estate, business and leasing activities
Public administration and defense
Teaching, social and health services
Other service activities and community, social and personal services
Private households with domestic service
|
3,796,434
822,412
155,995
387,066
269,186
662,198
531,653
701,154
208,961
57,807
3,241,229
700,033
126,568
319,416
205,608
581,959
467,220
617,370
178,246
44,808
Source: INDEC.
8
Economics
2.3. Foreign Exchange, Credit, Financial and Monetary Policies
Schedule for 2013: Charter and multiple mandates
Article 3 of the BCRA’s Charter establishes that “the purpose of the bank is to
promote monetary stability, financial stability, employment and socially equitable
economic development, within its powers and under the framework of the policies
established by the federal government."
Thus, BCRA understands that in order to fulfill its mandate, and adhere to article
42 which sets forth that “the Bank shall publish before the beginning of each fiscal
year its objectives and plans regarding the development of monetary, financial,
credit and foreign exchange policies”, policies along the following lines are
required to be maintained and strengthened given the specific characteristics of
the Argentine economy:
► With regards to policies on foreign exchange and international reserves, the
►
►
►
►
BCRA’s objective is to keep the managed float regime restricting foreign
exchange volatility. It also intends to consolidate the accumulation of reserves,
which will allow Argentina to continue its debt reduction policy with private
creditors, and especially as regards debt in foreign currency.
The credit policy is aimed at strengthening the credit channel, increasing the
credit-to-GDP ratio alongside the involvement in long-term production
financing, especially for SMEs.
With regards to the financial policy, the BCRA’s objective is to increase the
inclusion and democratization of access to financial services and ensure that
the system remains stable, enhancing prudent regulation and incorporating
the international standards agreed upon by the G20 which are compatible with
the objectives laid down by the policies established by the BCRA.
The BCRA’s role financing the Argentine Treasury, as established by its
Charter and National Budget Law, is also considered to be strategic. Such
financing gives room to implement a fiscal policy consistent with the economic
cycle.
Finally, a monetary policy is determined according to the new system of
multiple mandates and is consistent with the abovementioned policy
objectives.
Foreign exchange policy
As from October 2011, measures were introduced to regulate access to the
foreign exchange market for accumulation purposes to give preference to the use
of foreign currency in transactions involving production activities and private and
public debt repayments.
The first variable which clearly deteriorated was the informal exchange rate. The
controls and the feeling that there was an increasing exchange rate lag widened
the gap upon the implementation of each additional restrictive measure. In
addition, there was excess liquidity (the monetary base grew by 35% p.a.) and
interest rates continued to plunge. Thus, the Argentine pesos surplus was
channeled inevitably to foreign exchange demand.
As of that moment, not only did the fall in reserves and the foreign exchange
continued, but real economy was also affected. Economic activity stagnated and
the creation of employment slowed down.
9
Economics
Finally, what the government tried to avoid in late 2011 arrived in early 2014, in
a much delicate context. The January devaluation and subsequent interest rate
increase worked, but inflation deepened and accelerated the fall in activity levels.
Mauricio Macri’s government, which took office on December 10, 2015, set the
elimination of the foreign exchange clamp as the main objective for their first days
in office.
The new economic team led by Alfonso de Prat-Gay at the Ministry of Finance and
Federico Sturzenegger at the Argentine Central Bank (BCRA) managed to
dismantle foreign exchange and import controls quickly and successfully after
only seven days of taking office.
The foreign exchange unification took place after authorities negotiated a series
of financial lines to increase liquid international reserves and short-term interest
rates to raise the demand for Argentine pesos.
Natural persons are now authorized to buy US dollars with no amount restriction,
either to be transferred abroad or for local holding. In those cases where the
amount of the purchase exceeds USD 2,500, it shall be compulsory for the
transaction to be performed by debiting the amount from the client’s account.
Payments may be made abroad –in relation to commercial items (imports of assets
and/or services) or commercial items– by observing certain basic requirements,
with no amount restriction and making no restriction between affiliates and
nonaffiliates. Particularly, the payment of earnings and dividends that could not
be drawn abroad due to nonformal restrictions is currently allowed following the
compliance with the appropriate regulatory requirements.
The first results after the foreign exchange unification have been very positive
since the foreign exchange rate ranges between ARS 13 and ARS14, a level
slightly below the most optimistic expectations held by Prat Gay and Sturzenegger
before launching the new economic policy measures.
Credit Policy
As part of its credit promotion plan for 2013, the BCRA once again promoted the
“Production investment credit line”, this time considering 5% of private deposits in
pesos in November 2012 (ARS 17 billion).
Moreover, the PFPB (Bicentenary Productive Financing Program) continued
during 2012. To facilitate the transactions, new assets were incorporated that
may be accepted as security for the prepayments granted by the BCRA to the
banking system. This line finances projects aimed at increasing competitiveness
and production capacity to favor the substitution of imports, the insertion of local
companies in the international market and the creation of employment. Since the
program began, total awarded funds amount to ARS 5.78 billion, with
disbursements totaling about ARS 3.9 billion. Of all the economic sectors, the
manufacturing industry is the main recipient of resources (71%), followed by the
primary sector and the transport and telecommunications industries, with 9% and
8% respectively. The BCRA expects to continue with the PFPB bidding process.
10
Economics
Under the Charter, a third line of action to stimulate financing for the productive
sector and MSMEs in particular was the reduction in the minimum cash
requirements based on the percentage of loans to such companies over the total
loans granted to the private sector by each institution. As this proportion
increases, financial institutions can apply an increasing reduction on the minimum
cash requirement, up to a maximum equivalent to 3% of deposits if loans to
MSMEs exceed 30% of their loan portfolio for the private sector. This decrease in
the minimum cash requirement became effective in December.
In 2013, the BCRA maintained its objective of stimulating credit for the private
sector, focusing its actions on long-term productive financing, paying special
attention to MSMEs and regional economies.
Given the ongoing credit orientation policies, the financing of production will
continue to grow in relation to consumption spending financing. Loans for housing
construction will also grow in importance, mainly as a result of the continuity of
the Pro.Cre.Ar program, the launching of new loans with UVI (household units)
and new mortgage loans from banks like Ciudad or Nación.
Financial Policy
Financial stability is achieved when the banking system develops its
intermediation roles in an efficient, secure and long-term manner, actively
contributing to the economic development process. Therefore, it is essential for
the financial system to act within a supervised and regulated framework
encouraging it to channel national savings into comprehensive business financing,
thus avoiding the accumulation of systemic risks that may generate and/or spread
stress situations.
In recent years, Argentina has developed a set of macroprudential regulations
that helped mitigate the local impact of volatility in global financial markets and
avoid the creation of speculative economic bubbles.
In this regard, the managed float regime and the accumulation of international
reserves as well as the controls over foreign exchange and capital movements by
residents and non-residents have been the pillars of the macroprudential policy. It
worked adequately, which helped mitigate the external shocks caused by the
global financial crisis, thus ensuring a state of financial stability conditions in a
time of increased turbulence by avoiding sudden reversals in short-term capital
flows and a disruption of financing in the Argentine economy.
In 2013, efforts were made to consolidate the upward trend in the financial
system intermediation levels along with the expansion in economic activity, based
on the credit stimulation policies and the regulations aimed at consolidating
banking. In 2013, efforts will be made to consolidate the upward trend in the
financial system intermediation levels along with the expansion in economic
activity, based on the credit stimulation policies and the regulations aimed at
consolidating banking. Moreover, the BCRA limited the costs of bank transfers —
including the elimination of charges for electronic transfers of less than ARS
10,000— and ordered institutions to implement the possibility of bank transfers to
be credited immediately.
11
Economics
Finally, Argentina continues to amend its regulations for convergence with
international banking standards (known as Basel II and III). During 2013, the
country continued implementing the commitments assumed within the G20, the
FSB (Financial Stabilization Forum) and the Basel Committee on Banking
Supervision (BCBS), assessing in each case the adjustments required to see to the
priorities of Argentine economic policy.
Monetary Policy
The first half of 2014 was marked by the January devaluation and monetary
policy hardening. The monetary base slowed down its interannnual growth rate to
a minimum 17.5% in May. This deceleration was mainly due to the strong
sterilization carried out by the BCRA which absorbed ARS 58 billion during the
first five months of the year by placing Lebacs (BCRA bills) and Nobacs (BCRA
notes). Since May, and especially due to the considerable assistance to the
Treasury, the base started to accelerate again. Indeed, BCRA’s assistance to the
Treasury grew by 71.7% during the year and stood at ARS 162 billion, thus
operating as the main factor in monetary issuance. Thus, the monetary base grew
by 22.6% during the year, slightly below the 23.3% recorded the prior year. As for
wider monetary aggregates, M2 grew by 29.7%, 3.6 percentage points more than
in 2013, and private M2 increased by 25.6%, one percentage point more than in
2013.
In addition, the BCRA increased interest rates considerably after devaluation. The
cut-off rate in the offering of Lebacs rose 13 percentage points up to about 29%
and remained around this percentage throughout the year. The private Badlar
rate, which amounted to 20% by the end of 2013, followed along this rise and
stood above 26% in March, although it then decreased again due to the rise of
liquidity and reached about 20% by the end of the year. The interbank call rate
suffered high volatility although on average it also exceeded the amount recorded
in 2013 and rounded off the year at about 21.9%.
The monetary policy was very expansive in 2015 and was marked by fiscal
dominance. The monetary base accelerated its interannual growth rate steadily
throughout the year and hit a maximum of 40.6% in December. This acceleration
was mainly due to the assistance provided to the public sector to finance fiscal
debit which amounted to ARS 175 billion during the year. Whereas the prior year
ARS 95 billion were sterilized using Lebacs and Nobacs, this factor was expansive
by ARS 20.89 billion in 2015. The sale of currency served to curb monetary
expansion by absorbing ARS 72.14 billion during the year. As for wider monetary
aggregates, M2 grew by 37.5%, 7.8 percentage points more than in 2014, and
private M2 rose by 36.8%, 11.2 percentage points more than in 2014.
The 90-day Lebacs rate remained at 26% almost all year. However, before the
foreign exchange unification, it increased significantly up to 37.5%, in addition to
adding shorter-term Lebacs. The private Badlar rate, which stood at about 20% by
the end of 2014, displayed a slightly increasing trend, but it rose to around 30%
after the foreign exchange unification. The interbank call rate suffered high
volatility although in average it also exceeded the amount recorded in 2014 and
rounded off the year at about 25%.
After Argentina sucessfully ended the “foreign exchange clamp”, the Central Bank
began to adopt an inflation rate goal model using the 35-day Lebacs rate as a
banchmark. Decresed to levels close to 30% in February, but increased again to
38% in March, as a mechanism to contain the foreign exchange rate and reduce
the inflation rate, which had shot up due to the adjustment in public utility rates.
Since then, the Central Bank has monitored the evolution of the underlying
inflation rate to establish the interest rate, which was reduced gradually until it
reached the current 30.75%.
12
Economics
Meanwhile, the other rates showed similar changes. The private Badlar rate rose
to levels around 31% with the increase in Lebacs during March and currently
decreased to around 27%. The private Call rate rose to about 37% as from march
and reached levels below 30% in the past few days.
2.4. Financial Markets
Macro-financial System
An integral part of the Argentine financial and economic system with regards to
capital flows is a macro-financial system composed of the exchange market and
the following markets:
►
►
The Capital Market
The Financial Market
2.4.1. The Capital Market
General Characteristics
This market gathers together several different operators for them to interact in
the public listing of securities. Through this market, both companies and the
Government obtain financing from investments through a series of transactions
related to the negotiation of shares and private and government debt securities.
The operators making up the capital market are grouped in the following manner:
1.
Stock Market
►
►
Stock Exchanges
Securities Markets
Stockbrokers
Stockbrokerage firms
Listed companies
Caja de Valores S.A. (main securities depository)
Banco de Valores (primary settlement bank for the Merval)
Mutual funds
Asset management companies
Depository companies
2.
Over-the-Counter Market
►
Over-the-counter market brokers
MAE (electronic over-the-counter market)
►
►
►
►
►
►
►
►
►
All of these operators are supervised by the CNV (Argentine securities
commission), a self-regulating entity that authorizes and controls the parties
involved and the markets on which securities are listed.
Capital Markets Regulations
The main purpose of Capital Market Law No. 26,831, passed on November 29,
2012, is to reinforce the CNV’s tools and resources while promoting and/or
consolidating other market-related aspects: access, transparency, integration,
simplification, efficiency, minor investor protection, etc.
13
Economics
The new law has adjusted the scheme set by the previous system, taking into
account the transformations found in the financial markets both on global and
local levels over the last few decades (including the shift towards tighter
regulatory frameworks with wider perimeters and financial consumer protection
based on the global financial crisis that had its peak in 2008-2009) and the best
international practices in capital markets (such as the principles set forth by the
International Organization of Securities Commissions and the regulations issued
by the Financial Action Task Force). Moreover, a series of relevant regulations
related to market and public offering regulations was organized in a single
regulatory body with the force of Law.
Supplementing the banking regulatory reform process initiated by the amendment
to the Central Bank’s Charter, the new Law focuses on strengthening the role of
the public sector in capital market regulation and oversight. Additionally, it seeks
to act on other aspects, including:
►
►
►
►
►
►
Promoting the development of the capital market to drive savings towards
investments that may boost productive development.
Facilitating and extending market access and participation by various types of
players (including smaller investors and SMEs).
Ensuring transparency and reliability.
Encouraging simplification of transactions.
Encouraging the existence of a less fragmented, more federal market.
Defending the rights of minority investors which are less significant in
dimension and sophistication.
With regards to the specific developments included in this new Law, one of the
main points refers to the consolidation of the CNV’s role as regulatory and
oversight agency for the capital market as a whole. Thus, the CNV becomes the
sole agency which oversees the public offering of securities in which
authorization, registration, regulation, supervision and control roles and
disciplinary power over all players involved in the capital market are concentrated.
This implies a relevant shift from the market self-regulation paradigm that had
been effective under Law No. 17,811, as amended. In this regard, the corporate
fraud cases in the early 2000s (Enron, WorldCom, etc.) generated a trend of
regulatory changes around the world, with harsher penalties and increased
powers for regulatory agencies. This trend intensified during the global financial
crisis of 2008.
The Argentine financial regulatory framework remained virtually alien to this
global trend until early 2012, when the amendment to the Central Bank’s Charter
was approved. In the specific case of the capital market, the new law is aimed at
extending both the disciplinary power and the resources available for the
regulatory entity. On the one hand, although the previous regulatory framework
gave the CNV the power to impose penalties as regards public offering, it could
only report a market agent to the relevant market if noncompliance was verified,
and such market was the competent sphere where disciplinary measures were
taken. Thus, for instance, the CNV’s inability to exercise direct disciplinary power
over stock market agents was a peculiar characteristic of the Argentine capital
14
Economics
market that is absent from markets in other countries. On the other hand, under
the new Law the CNV has oversight and exclusive disciplinary competence over all
agents performing activities in the capital market. Such extension of the CNV’s
powers comes hand in hand with a greater availability of resources. In addition to
those allocated by annual Federal Budget laws, additional resources will be
available, such as revenues from fines, oversight and control rates and
authorization charges.
Together with the shift from the self-regulation paradigm, this change proposes
progress in the demutualization process, in line with global trends. Markets should
be made up of sociedades anónimas (Argentine business type akin to a stock
corporation) included in the public offering system, and participation in the
market as an intermediary will no longer require being a shareholder. In more
general terms, the CNV will now authorize and register the different types of
agents that perform the various activities inherent to the market based on
requirements to be established. Initially, this would extend the universe of agents,
with potential implications on competition and the costs to be borne by users, for
instance. In addition, in the specific case of credit rating, the CNV will determine
which types of organizations may perform this activity, and may include state
universities authorized by this agency.
Two measures stand out with regards to market integration and the federal nature
thereof. On the one hand, the CNV may require the different existing markets to
establish an interconnection system with a shared book of orders to avoid
fragmentation and facilitate access to better liquidity conditions for retail
investors.
On the other hand, the CNV may establish regional delegations.
Two main changes are introduced into the public offering system. The CNV will be
empowered to establish differentiated systems according to the characteristics of
the different issuers and/or subscribers. Additionally, the takeover system is
determined to be universal; it becomes applicable to all listed companies, even
those companies that would have chosen to be excluded from its application under
the current system.
Finally, the new Law seeks a more efficient use of the information collected by the
CNV while performing its regular duties, facilitating the coordinated actions by
different agencies related to financial market oversight considered under a
comprehensive approach that recognizes both the presence of financial
conglomerates as well as the high degree of interconnection between the different
products and players operating in the financial market. Regardless of the required
secrecy and confidentiality, the goal is for information to be exchanged between
the CNV, the BCRA, the SSN (Argentine insurance regulatory agency) and the UIF
(Financial Information Unit), in addition to the fulfillment of potential request for
information from similar foreign authorities with which cooperation treaties have
been signed.
In conclusion, with a constant consideration of financial markets, from a wide
perspective, with the explicit objective of guiding them to economic growth, and
supplementing the work already begun in the banking system, the new Law seeks
to bring the regulatory framework in the capital market up to date and make it
work with enhanced efficiency. In this regard, the regulation of specific issues by
the CNV and the dynamics of the implementation thereof gain relevance.
15
Economics
Also note that President Macri’s administration is analyzing and working on a new
amendment to Capital Market Law to make further adjustments to the changes
made in 2012.
2.4.2. Financial Market
Introduction
In Argentina, the banking activity is governed by Law No. 21,526 of 1977,
whereby the BCRA is the enforcement agency and, as such, it issues regulations
and controls the entities included in the law (authorization and operation
conditions in the banking industry; definition of transactions allowed, forbidden
and restricted; monetary controls; compliance with certain statutory operating
ratios; reporting; booking and control system; dissolution and liquidation; etc.).
Characteristics of the Argentine financial system
Classification
►
Commercial banks
− Government-owned banks: federal, provincial and municipal banks.
− Domestic private banks with national capital: cooperatives and noncooperatives.
− Foreign banks: foreign banks and foreign bank branches.
►
Investment banks
− Provincial government-owned banks.
− Local banks with foreign capital.
►
Mortgage banks
Development banks
Savings accounts
Finance companies
Savings and loan institutions for home building and development of other real
estate
Credit organizations
Representation offices
►
►
►
►
►
►
Financing systems. Main transactions
Financial transactions are mainly performed in Argentine pesos (legal tender), US
dollars and government securities.
The segments that constitute the Argentine financial system are:
►
►
►
Segment in Argentine pesos
Segment in foreign currency
Segment with own resources
The main transactions include:
►
►
►
►
►
16
Overdrafts in checking accounts
Signature loans
Commercial paper discount
Mortgage loans
Collateral loans
Economics
►
►
►
►
►
►
►
►
►
►
►
Personal loans
Credit cards
Demand deposits
Time deposits
Deposits in common checking accounts
Deposits in government securities
Interbank transactions
Repo transactions
Bank acceptances
Foreign exchange transactions in cash
Term foreign exchange transactions
Main regulations
►
Statutory operating ratios
►
►
►
►
►
►
►
►
►
►
►
►
Keeping minimum equity (minimum capital requirement).
Meeting investment cap requirements in other companies’ equity.
Meeting lending cap requirements; these limits are measured in terms of
minimum equity required.
Monetary regulations.
There are minimum cash requirements.
Optional deposit guarantee.
Forbidden and restrained transactions.
Banks cannot perform commercial or any other type of activity on its
own account.
Banks cannot encumber their assets without BCRA’s previous
authorization.
Banks cannot accept their own actions as debt guarantees.
Banks cannot operate with related companies and/or natural persons
under more favorable conditions than those offered to their other
clients.
Banks, except for commercial banks, cannot issue bank bills or make
transfers among different financial markets.
2.5. MERCOSUR and foreign trade
As from January 1, 1995, Argentina, along with Brazil, Paraguay and Uruguay,
organized a customs union known as MERCOSUR (Southern Common Market). In
2012, Venezuela became a full member. This union covers almost 13 million
square kilometers, with a population of around 278 million inhabitants (about 70%
of the population in South America) and an estimated GDP of 3,314 trillion US
dollars. 1
The largest economy is Brazil’s, with a current GDP of 2,244 trillion US dollars and
an estimated population of 203 million inhabitants. Argentina comes in second
with a current GDP of around 516 trillion US dollars.
At first, the countries forming part of the bloc included Chile, Bolivia, Colombia,
Ecuador and Peru. In 1996, a free trade zone was set up with Chile, which
allowed for a connection with the Pacific, and in January 1997 the same was done
with Bolivia (in the process of becoming a MERCOSUR member country).
In 2012, MERCOSUR consolidated its base and structure with the incorporation of
Venezuela as a full member and now stands as the fifth largest economy in the
world with 20% of all proven oil reserves.
1
Source: FMI – World Economic Outlook – October 2012.
17
Economics
In addition to oil, the Mercosur has large proven reserves of natural gas totaling
over 6.2 trillion cubic meters, 88.7% of which belong to Venezuela (5.5 trillion
cubic meters). If Bolivia joins the Mercosur, the bloc would add an additional 360
billion cubic meters in natural gas reserves.
Moreover, two thirds of fresh water reserves in the planet are concentrated in this
bloc, according to Brazilian statistics.
These much-coveted resources strengthen this integration mechanism, the
objectives and purpose of which seem to steer toward a new path that, without
departing from trade, leads to the cooperation between members becoming an
instrument of regional unity.
The purpose of the MERCOSUR is to consolidate the political, economic and social
integration of its member states, through the free circulation of goods, services
and productive factors, establish a common external tariff, adopt a common trade
policy, coordinate macroeconomic and sectorial policies and harmonize legislation
in the pertinent regions.
Since January 1, 1995, the MERCOSUR is a free trade zone or an imperfect
customs union and not a common market as its name indicates, with the freedom
to exchange all goods circulating in the region. This is due to the following
circumstances:
► Interzone trade in the MERCOSUR has not yet been fully opened up (for
example, the sugar and automobile sectors are exempted from the zero
interzone rate).
► Although there is a common external rate for many goods, there are numerous
exceptions to such rate, and the member States have the power to make a list
of goods that are exempt from the rate, which can be changed every six
months.
► In the Mercosur, there is no free circulation of capital, services or persons.
Notwithstanding the above, on August 3, 2010, a huge step forward was taken in
all plenary members approving a customs code.
In 2014 there was a serious deterioration in foreign accounts, with a significant
fall both in exports (10%) and imports (12.4%). Although a trade surplus of about
USD 3.2 billion (accrued base) was reached, the current account showed a deficit
of over 1.4% of GDP.
Last year, foreign accounts continued to deteriorate, affected by external and
internal factors. Firstly, Brazil’s recession (Argentina’s main business partner) and
the increasing expectations of future devaluation discouraged exports. In
addition, the difficulties encountered by companies to obtain permits and collect
US dollars on the official market were the main reasons for poor import
performance. According to official data, exports decreased by 16.9% throughout
the year, whereas imports fell by 8.4%.
18
Economics
In addition to foreign exchange controls, Mauricio Macri’s administration also
lifted import restrictions by eliminating the early import declarations (DJAI) and
the requirement to request the BCRA’s approval for transactions for amounts over
USD 50,000.
In addition, the Government reduced to 0% all withholdings over agricultural,
livestock and fishing product exports, except for soybean, the tax rate of which
decreased by 5 percentage points from 35% to 30%.
In this scenario, the trade balance accumulated a USD 480 million surplus during
the first six months of the year (a USD 484 million deficit had been recorded in the
same period in 2015), with exports dropping 2.6% and imports decreasing by 4.6%
as compared to the same period in 2015, both affected by the decline in
international prices.
Argentina’s main trade partners. January through June 2016
Exports by destination
Mercosur
ASEAN, Korea, China, Japan, India
European Union
NAFTA
Rest of ALADI
Chile
%
20
26
15
10
4
4
Imports by origin
%
Mercosur
ASEAN, Korea, China, Japan, India
European Union
NAFTA
Rest of ALADI
Chile
27
28
17
16
3
2
Source: INDEC
Main exported products. January through June 2016
Millions of
USD
Total
Flour and pellets from the extraction of soybean oil
Corn, excluded for sowing, in grain
Soybean oil, gross including degummed
Automobile vehicles to transport goods
Soybean, excluded for sowing
Durum wheat, excluded for sowing
Crude oil
Gold for non-monetary use
Contribution
(%)
27,735
4,828
1,902
2,053
1,114
1,739
1,148
341
1,005
100
17
7
7
4
6
4
1
4
Source: INDEC
Foreign debt renegotiation
In December 2001, Argentina went into default on its foreign debt with private
creditors and abandoned the currency board system. In 2005, the international
financial situation was normalized through the foreign debt restructuring. In that
year, Argentina offered the first debt swap to Par, Discount and Global
bondholders, in addition to GDP-tied bonds. The offer stood at about USD 0.33
and the adhesion reached about 76%.
Towards the end of that year, Argentina settled matured installments that
amounted to the total debt owed to the IMF.
19
Economics
During 2009, the Government decided to reopen negotiations to pay the debt
owed to the Paris Club, and reopen the debt swap for bondholders who still have
20 billion US dollars in default.
At the end of the year, the Government announced the creation of the
Bicentennial Fund for debt reduction and stability through a Decree of Necessity
and Urgency. The Bicentennial Fund would be made up of USD 6.579 million,
which represents 50% of 2010 maturities. It was annulled by the Argentine
Congress in March 2010 and replaced in the same year by the Debt Reduction
Fund.
In December 2010, the Government launched another swap of the unpaid foreign
debt totaling USD 6.1 billion, in default since 2001; bonds were issued for a total
of USD 156 million, more than what had been expected. This time, adhesion
reached 92%.
In February 2012, US District Judge Griesa ruled in favor of holdouts at the New
York Court, arguing that Argentina did not comply with the pari passu clause,
which establishes that the bondholders who did not accept the swap (holdouts)
should be treated in the same manner that those who accepted the voluntary
swaps in 2005 and 2010.
In December 2012, Argentina paid USD 3.52 billion out of its foreign debt related
to the GDP-linked coupon, which was part of the debt restructuring process and
was given to the investors around the world who accepted the swaps in 2005 and
2010.
In June 2013, the Argentine Government requested that the US Supreme Court of
Justice take the Argentine case. A year later, this request was refused and the
cause returned to Griesa’s court.
On June 30, 2014, Argentina’s financial obligations went into arrears (DISC NY
interest fell due, among other items) and the 30-day grace period to reach an
agreement with the funds litigating at Griesa’s court ending July 30, began as
from such date.
Argentina did not reach an agreement with the holdouts and entered into a
“selective default” on July, 30 2014. This default was not caused by solvency or
liquidity issues, but rather it is related to legal and political problems.
Subsequently, in September, the Argentine Congress enacted Sovereign Debt
Payment Law establishing the creation of Nación Fideicomisos to deposit the
following debt-related payments in Argentina, thus avoiding an attachment.
Although the “RUFO” clause expired on January 1, 2015, whereby holdouts
cannot be paid a higher amount than that paid to holdings, no progress was
achieved to solve this conflict.
This year, the government finally reached an agreement with the holdouts and left
its default status. For the payments to the holdouts, for bonds were issued for a
total of USD 16.5 billion, maturing in 3, 5, 10 and 30 years, with an average yield
of 7.2%. Aabout USD 9 billion was used for paying the lawsuit, and the debt
interest blocked by the default was also paid.
20
3. Business Presence
3.1.
Types of Business Associations
The types of business associations covered by Argentine General Business
Associations Law (No. 19,550) are those indicated below:
►
►
►
►
►
►
►
►
►
Stock corporation (sociedad anónima)
Limited liability company (sociedad de responsabilidad limitada)
Stock corporation in which the Government is the majority shareholder
(sociedad anómina con participación estatal mayoritaria)
Limited liability partnership (sociedad en comandita simple)
Limited liability partnerships by shares (sociedad en comandita por acciones)
General partnership (sociedad colectiva)
Partnership in which one of the partners provides the capital and the other
the services
Branch office of a foreign corporation
Companies that are not organized pursuant to the abovementioned types or
that fail to meet essential requirements or formalities established by General
Business Associations Law.
The most common forms of business associations used by foreign investors in
Argentina are stock corporations, limited liability corporations and, to a lesser
extent, local branches of foreign companies. The main characteristics of these
companies are described below.
3.1.1. Stock corporation (Sociedad Anónima, or “S.A.”)
►
Capital is represented by shares of stock.
►
Shares must be registered and nonendorsable. They may be represented by
certificates or registered in accounts opened in the shareholders’ names in a
share certificate registry by the issuing company or by commercial or
investment banks or by authorized share depositary entities. Furthermore,
according to the rights they grant, shares may be classified into common or
preferred shares. The latter usually have priority upon payment of
dividends, do not carry voting rights and, in general, are entitled to fixed
accumulative dividends.
►
They may have one shareholder (single-member stock corporation) or more
than one shareholder (multiple-member stock corporation).
The IGJ (Argentine regulatory agency of business associations) in Buenos
Aires City will not register multiple-member companies where the plurality of
owners is merely formal or in name only (for example, when one of the
shareholders owns 99.99% of shares). The scope of the IGJ's oversight
powers include verifying the actual existence of a plurality of shareholders,
for which it assesses the initial contribution made by each founding
shareholder. In deciding whether to register the company, the IGJ evaluates
if the contributions amount to a minimum economically substantial sum to
effectively constitute a plurality of shareholders. In general, a market share
of 95%/5% is deemed acceptable, although a market share of 90%/10% is
more convenient as per BCRA regulations.
21
Business Presence
►
The shareholders' liability is limited to subscribed capital.
►
The main characteristics of stock corporations (corporate purpose, duration,
management, etc.) are provided in the bylaws that require approval by the
appropriate governmental oversight agency of associations (in Buenos Aires
City, the IGJ), published in the Official Bulletin and included in a notarized
deed.
►
If the shareholders of a corporation organized in Argentina are foreign
business associations, they have to file their articles of incorporation or
bylaws with the Public Registry and provide evidence that these companies
are doing significant business abroad (see 3.1.3. below).
►
The shareholders must hold at least one regular meeting every year with the
main purpose of approving the financial statements, distributing profits and
designating directors and statutory auditors, as the case may be.
►
The Shareholders' Meeting designates a Board of Directors, which is made up
of one or more persons, who are responsible for company administration.
►
Stock corporations that fall under permanent regulatory supervision by
respective authorities, given their particular characteristics, are required to
have at least three directors.
►
As established by IGJ General Resolution 7/15, bylaws are required to
establish the directors' guarantees, which should abide by the following
minimum rules:
22
i)
It should consist in bonds, government securities or amounts in local or
foreign currency deposited with financial institutions or securities
clearing houses, to the company’s order, or in sureties, bank
guarantees, surety bonds or business liability insurance, the cost of
which should be borne by each director. Under no circumstances can
the guarantee be funded using the direct inflow of company cash;
ii)
When the guarantee consists in deposits of bonds, government
securities or amounts of money in local or foreign currency, the
conditions to create this guarantee should ensure that it remain
unavailable while the statute of limitations concerning legal liability
actions is still running(at least three years as from the end of the term
of office); and
iii)
The guarantee amount will be the same for all regular directors
(alternate directors are not required to provide a guarantee until they
hold office to replace one of the regular directors) and it shall not be
less than 60% of the capital stock amount held jointly by all appointed
directors. However, in no case shall the guarantee be smaller than ARS
10,000, individually, or exceed USD ARS 50,000 per director (similar
requirements are applicable to the managers of limited liability
corporations).
Business Presence
Very strict controls are imposed to ensure compliance with the setup of such
guarantees, which include verifications performed by the IGJ before
consenting to the incorporation, business transformation and registration of
the appointed directors, in addition to the duty of reporting such compliance
by the statutory auditor.
►
Stock corporations are subject to a series of special controls, such as:
i)
Stock corporations with special characteristics (see point 3.5) are
under constant supervision, while for other business associations
supervision is limited to the articles of incorporation or the bylaws,
their amendments and changes in capital stock.
ii)
Stock corporations subject to permanent supervision should have
their own supervisory position within the company that, depending
on the circumstances, may be filled by an individual statutory auditor
(síndico) or by a statutory audit committee (comisión fiscalizadora),
which must have an uneven amount of members (generally three)
appointed by the Shareholders' Meeting. The other stock
corporations may dispense with such duties. In that case, it is the
shareholders who are empowered to individually exercise this
control.
iii) All stock corporations can have a surveillance committee that will
work alongside the statutory audit committee or even replace it. Its
duties are considerably broader.
The law that enacted the new Civil and Commercial Code, which became effective
on August 1, 2015, also amended Law No. 19,550, now called Argentine General
Business Associations Law. Based on General Business Associations Law, “a
business would be constituted when one or more persons, in an organized manner
based on one of the types provided for by this law, undertake to make
contributions to be used in production activities or in the trade of goods or
services, availing of the benefits and bearing the losses.”
Therefore, General Business Associations Law, by eliminating the plurality of
partners, introduces the “single shareholder corporation” device. The
requirements are as follows:
a)
b)
c)
d)
e)
It should be a stock corporation;
The shareholder cannot be another single shareholder corporation;
The corporate name should state sociedad anónima unipersonal, its
abbreviation or “SAU”;
100% of the amount should be contributed upon organization and
They are subject to continuous government audits, which implies that they
are required to have multiple statutory auditors and multiple directors.
3.1.2. Limited liability corporations (Sociedad de Responsabilidad
Limitada or “SRL”)
Owners’ liability and interests, among others, are similar to those in stock
corporations, but there are some basic differences:
a)
Interest transfers shall be registered with the Public Registry.
b)
The number of owners shall not exceed 50.
23
Business Presence
c)
Decisions are adopted by the majority set forth in the company’s bylaws, if
any; otherwise, three quarters of capital is required.
d)
However, if the majority required were only one partner, the vote of another
partner shall be required; and
e)
The administration is in charge of an individual or collegial management,
governed by the rules of stock corporations’ administrators.
3.1.3. Branches of Foreign Companies
►
To be able to legally do business as a branch, these organizations must prove
the existence of their head offices abroad, register the articles of association
or bylaws with the Registry of Public Commerce, and appoint and register
representatives.
►
Branches are subject to constant control by the governmental corporate
control agency (in Buenos Aires City, the IGJ) and are required to fulfill the
same requirements as those required of stock corporations subject to that
control.
►
Branches are required to keep books separately from those of their head
offices, and to present financial statements to the corporate oversight
agency. In the case of the IGJ, this filing should be made within 120 calendar
days subsequent to year-end.
►
Under IGJ General Resolution No .7/15, foreign branches (section 118, Law
No. 19,550) are required to maintain a positive owners' equity.
The IGJ will verify that owners' equity remains positive and, as applicable,
that the capital stock assigned that was registered with the Public Registry
also remains positive, as per the last financial statements required to be
presented.
If the abovementioned financial statements show negative owners’ equity or,
as the case may be, equity lower than the assigned capital, the branch will
have a term of 90 days as from the notice received and, if no notice was
received, a term of 180 days as from the end date of the financial statements
to:
i)
Provide evidence of the restoration of the owners’ equity or the assigned
capital, as the case may be, through an independent accountant’s
certification; or
ii)
Request the branch's deregistration or, as the case may be, the
registration of the decision to reverse the allocation of capital or to
decrease its amount to a total equaling or not exceeding owners' equity.
In the event of noncompliance, once the term granted has expired, the IGJ
will request that the capital assigned to the branch be deregistered or that
the branch be wound up and deregistered, depending on the circumstances of
the noncompliance.
24
Business Presence
►
IGJ General Resolution No. 7/15 establishes important additional
requirements concerning companies organized abroad, for those requesting
registration to business in Argentina and for those already existing, providing
evidence that they are already doing business abroad, summarized in the
paragraphs below.
a)
Companies requiring registration:
They are required to report legal prohibitions or restrictions in their
country of origin to engage in all or their core activities, identify their
owners (when they hold equity interests not subject to listings and public
offerings) and evidence that they actually do business abroad, with at
least one of the following conditions:
i)
That they have one or more permanent agencies, branches or
representation offices abroad;
ii)
That they have noncurrent fixed assets or rights to commercially
use assets belonging to third parties of that nature;
iii)
hold equity interests in other companies not subject to public
offering
iv)
carry out investment transactions on a regular basis in stock
exchanges or securities markets as set forth in their corporate
purpose; or
v)
That they file financial statements approved by the Company not
earlier than 1 year, whereby any of the previous assumptions is
accredited.
With regards to the items mentioned above in points (i) and (iii),
companies are required to indicate the values shown on the last financial
statements approved by the company provided they date back to one
year at the most. As for the transactions indicated in point (iv), it is
necessary to file a certificate referring to the transactions performed
during the year preceding the year of registration, stating the types of
securities and transactions, volume negotiated and lump-sum amounts in
accordance with listed prices, the stock exchanges and securities
markets they were carried out on, and listed prices of the securities held
as of the certificate’s date of issuance. With respect to operating
property belonging to other parties, as mentioned in point (ii), registrants
are required to file certification stating the assets used and gross
revenues obtained shown on the abovementioned financial statements.
The IGJ also allows for the presentation of lump-sum certifications
reliably and reasonably showing the company’s position, when they refer
to the audited and approved financial statements with favorable opinions
and when issuance of such certifications is justified by the amount and
variety of the company’s assets and transactions.
Furthermore, the IGJ will assess the sufficiency of the documentation on
a case-by-case basis, being able to grant exemptions from certain
requirements when it is publicly and generally known that the company
engages in financially significant business abroad and that its center of
operations is also abroad. This assessment shall not be limited to
quantitative methods.
25
Business Presence
If the company forms part of an international group of companies
through a control relationship, meeting the abovementioned requirement
of being a publicly and generally known fact, this will be enough to
identify the subject or subjects under whose unified management it is and
file an independent accountant’s certification on the company’s owners’
equity resulting from the group of companies’ last consolidated financial
statements.
b)
Registered Companies:
Branches, agencies or representations (section 118, paragraph 3, Law
No. 19,550) are required to file with the IGJ on an annual basis (within
120 calendar days subsequent to financial statements closing day) jointly
with their financial statements, a certification signed by a corporate
officer, whose powers to such end must be certified by a public notary or
government official, or other appropriate documentation that:
i)
States the changes experienced in the accounts mentioned in point
(a) above, with regards to breakdown and values as of the
company’s financial statements closing date, [the IGJ may grant an
exemption from having to meet those requirements or allow the
accounting certification of owners' equity as taken from the group
of companies' consolidated financial statements as mentioned in the
last paragraph of point (a)],
ii)
Provides proof of the capital stock structure and ownership as of the
date indicated in the paragraph above, individually identifying the
partners, and
iii)
File a sworn statement of the final beneficiary (a natural person that
has at least 20% of the capital or the voting rights of an artificial
person or that exerts final, direct or indirect control over an
artificial person through other means) or provide evidence of prior
compliance under section 518 of IGJ General Resolution No. 7/15.
In addition, companies organized abroad that only hold permanent equity
interests in an Argentine company (section 123, Law No. 19,550) are
required to file the same information mentioned above required of
branches and must report the value of equity interests in Argentine
companies and percentage on capital and equity.
c)
Foreign companies acting as a “vehicle”:
Under IGJ General Resolution 7/15, foreign companies applying for their
registration or those already organized having to make the
abovementioned presentations, belonging to groups of companies, the
direct or indirect parent companies exerting individual or joint control of
which are organized and domiciled abroad and subject to foreign
regulations, shall be exempt from having to meet the requirements of
General Resolution 7/15, provided they meet the following requirements:
26
i)
Provide evidence that exempt requirements are met by the indirect
or indirect parent company.
ii)
File an express representation from management that the foreign
company is exclusively an investment “vehicle”.
Business Presence
iii) File a sworn statement through the representative including: (a) an
organization chart of the group of companies, indicating the equity
interest percentages held that show director indirect control, either
by one or more companies and (b) the identification of the Partners
owning the equity interests mentioned in (a) above.
d)
Foreign companies from countries, domains, jurisdictions, territories,
associate states and special tax systems considered noncooperative for
fiscal transparency purposes or noncooperative in combating money
laundering and cross-border crimes:
Under General Resolution No. 7/15, with these types of companies the
IGJ will assess whether the requirements set forth in such resolution
have been met, applying a strict evaluation method, although the laws in
place in that company's organization jurisdiction do not prohibit or
restrict such companies in their own territory. Particularly, foreign
branches (section 3, third paragraph of Law No. 19,550) should evidence
that they effectively do financially significant business in the place of
their organization, registration or incorporation, and/or in other
countries, in which case the IGJ may request:
i)
The filing of the last financial statements approved;
ii)
A detailed description of the main transaction conducted in such
place during the period covered by the abovementioned financial
statements or during the prior year if the period covered therein is
shorter, providing dates, parties, purpose and financial volumes
involved;
iii) Ownership titles of noncurrent fixed assets or agreements that
grant rights to commercially use assets of that nature.
The main requirements set forth in IGJ General Resolution No. 7/15 shall
not apply to foreign companies acting as “vehicles” that have already
been registered or that are registered under such resolution.
e)
Offshore companies (*):
The IGJ shall not register offshore companies from jurisdictions of that
nature. To engage in activities in furtherance of their corporate purpose
or to hold an equity interest in other companies, they must first comply
fully with Argentine legislation.
(*) Those companies organized abroad that, under laws of the jurisdiction
in which they were organized, incorporated or registered, are
forbidden or restricted from performing all of their activities, or their
main business activity or activities.
f)
Consequences of failing to comply with IGJ General Resolution No. 7/15
If a foreign company intending to be registered in Argentina fails to meet
the requirements established in General Resolution No. 7/15, the IGJ will
deny the registration. Additionally, should a foreign company that has
already been registered fail to comply with such resolution, the IGJ may
require that its bylaws meet Law No. 19,550, as set forth in IGJ General
27
Business Presence
Resolution No. 7/15, having to adopt one of the business association
types set forth in such law, that is, it will be required to turn into a local
company whenever it lacks assets abroad, whenever its noncurrent
assets abroad are not significant of if its principal place of business in
Argentina is the company's actual management center.
The IGJ may request that courts order the deregistration of the
company, as applicable and, as the case may be, that it be would up (for
foreign companies organized under section 118, paragraph 3, Law No.
19,550), when the following situations take place:
i)
Repeated noncompliance with the filings required by General
Resolution No. 7/15;
ii)
Noncompliance with Argentine laws, as applicable.
iii) Recurring failure to file required financial statements from foreign
branches, and
iv) Lack of the request for registering the new representative, after the
term set by the representative for registering the former’s
termination of office.
For Argentine companies the shareholders of which are companies
organized abroad, the IGJ will not register the documentation associated
with the shareholders’ or partners’ meetings when foreign companies not
registered under section 123, Argentine General Business Associations
Law took part in the voting. Also, for companies required to present
financial statements, the approval thereof and other company decisions
made in the respective meeting and under the abovementioned
conditions, will be deemed to contain irregularities and be ineffective for
administrative purposes.
3.2.
Association agreements (contratos asociativos)
The Civil and Commercial Code governs these agreements, including among these
the agreements formerly governed by Law No. 19,550:
►
►
►
►
Joint venture (negocio en participación)
Cooperating groups (agrupaciones de colaboración)
Temporary associations of business enterprise (uniones transitorias)
Cooperating consortium agreement (consorcios de cooperación)
These contracts are not subject to corporate regulations. They lack legal capacity
and no artificial persons arise from them. Therefore, rights and obligations
assumed fall directly on one or more of the parties to the related agreement.
These agreements are not subject to form requirements (they should be drafted in
writing and be notarized in the last three cases). In addition to opting for the type
of agreements included in the Civil and Commercial Code, the parties are free to
draw up the agreements with other contents.
Moreover, although the registration of these agreements is set forth in the Code
(in the last three cases), agreements that are not registered have effects on the
parties.
28
Business Presence
Find below the main characteristics of the aforementioned association
agreements.
►
Joint venture (negocio en participación)
The purpose consists in conducting one or more operations to be achieved by
common contributions and in the agent’s personal name. Its main characteristics
are:
i)
ii)
iii)
iv)
v)
►
It has no name.
It does not have to meet any form requirements.
It is not registered with the Public Registry.
The agent is not required to keep books, but rather to be held accountable.
Losses affecting the party shall not exceed its contribution amount.
Cooperating groups (agrupaciones de colaboración)
The purpose of this group consists in creating a common organization between
several parties, either natural or artificial persons, to facilitate or develop certain
phases of its members’ activities, or improve or increase results from such
activities. Its main characteristics are:
i)
ii)
iii)
iv)
v)
vi)
vii)
viii)
ix)
►
It shall not engage in profit-seeking ventures or manage its members’
activities, and any financial advantage it may obtain will form part of the
members’ assets.
Its term shall not exceed 10 years, but it may be extended before its due date
by its members’ unanimous decision.
It should be registered with the Public Registry.
It shall keep official books in the group’s name, which are those required by
the nature and importance of the common activity.
It shall prepare balance sheets with an audit report containing an opinion and
an authenticated signature by the related professional council, prepared
based on professional accounting standards, unless otherwise stated in the
Civil and Commercial Code, supplementary laws, administrative order and IGJ
regulations.
The balance sheets shall be approved by the members within 90 days as of
every year-end and filed with the IGJ within the 120 days subsequent to
closing date.
The administrator is in charge of bookkeeping.
Parties’ contributions and assets acquired with such money make up the
group’s common operating fund.
Members are unlimitedly, jointly and severally liable of third parties for the
obligations that their representatives assume in the group’s name.
Temporary associations of business enterprise (uniones transitorias)
The purpose of a temporary association of business enterprises (uniones
transitorias) consists in developing or executing specific works, services or
supplies, within or outside Argentina, and it can develop or carry out works
or services that are supplementary and accessory to the main purpose.
29
Business Presence
It makes up a contractual joint venture with a specific purpose. Its main
characteristics are:
i)
Its duration should be equal to the works, service or supplies that make
up its purpose.
ii)
Its name should be the name of one, some or all its members followed
by the term “unión transitoria” (temporary association of business
enterprises).”
iii) Its members make filings and are entitled to income (loss) that may
involve differentiated gains or losses for each one.
iv) The representative of the temporary association of business
enterprises has all sufficient powers of each and every member to
exercise the rights and assume the obligations required to carry out the
works, service or supply.
v) The agreement should be registered with the Public Registry.
vi) It should keep official books in the temporary association of business
enterprise’s name under the formalities established by the Civil and
Commercial Code, which are those required by the nature and
importance of the common activity.
vii) It shall prepare financial statements that include at least a balance
sheet and statement of income with an audit report containing an
opinion and an authenticated signature by the related professional
council, based on professional accounting standards, unless otherwise
stated in the Civil and Commercial Code, supplementary laws,
administrative order and IGJ regulations.
viii) The balance sheet should be filed with the IGJ within the 120 days
subsequent to closing date.
ix) The representative is in charge of bookkeeping.
x)
Unless stated otherwise in the agreement, members are not jointly and
severally liable for the acts and operations conducted by the temporary
association of business enterprises or third-party obligations.
►
Cooperating consortium agreement (consorcios de cooperación)
It is similar to cooperation groups, but its member may agree not be jointly and
severally liable.
3.3.
Corporate and Accounting Records
All private artificial persons and natural persons conducting an organized
economic activity or the owners of a company or commercial, industrial,
agricultural or service establishment are required to keep accounting records of
their transactions.
Essential records are:
a)
b)
c)
d)
30
Journal book;
Inventories and Financial Statements Book;
Records related to a proper integration of an accounting system and that are
required by the importance and nature of the activities to be carried out, and
Records established specially by the Civil and Commercial Code or other
laws.
Business Presence
Stock corporations are required to keep books of the directors’ meeting minutes
and shareholders’ meeting minutes, as well as the record of attendance at
shareholders’ meetings and the shares register. In limited liability corporations, a
minutes book of discussions and decisions should exist.
These books require binding and pages must be foliated and individualized by the
Public Registry. However, with the Public Register’s prior authorization, the
owner may:
a)
b)
Replace one or more accounting books, except for the Inventory and
Financial Statements Book, or any of its formalities, by computers or other
mechanical, magnetic or electronic means that allow operations and the
relevant payable and receivable accounts to be itemized and subsequently
verified;
Keep documentation in microfilms, optical discs or other means adequate for
such end.
The request to be made from the Public Registry should include a proper system
description, that includes a technical demonstration showing that the records
cannot be altered, which will be supported by administrative and accounting
internal controls, as well as by other operating or programmed internal controls,
applied to the data input, processing and output. This request should be filed
along with a certified public accountant’s technical opinion.
Companies under IGJ’s control carrying accounting records using computerized
booking systems such as those mentioned above should file an independent
accountant's certification with the IGJ within the 120-day period after year-end,
containing the following: (a) an exact description of the system used during the
year and (b) a properly-founded opinion on the agreement between the booking
system used during the year and the authorized booking system. If there are no
objections, the IGJ will issue a certification that should be added to the Inventories
and Financial Statements Book.
In addition, every two years a technical upgrade report issued by an independent
certified public accountant is to be filed with the IGJ regarding the obsolescence
of the system being used, and, as the case may be, a technical upgrade project for
the system and the measures and replacements needed, which will require a new
authorization from the oversight body.
The Argentine Civil and Commercial Code establishes that whoever keeps
compulsory or voluntary books should prepare the financial statements, that
include at least a balance sheet and statement of income, which should be entered
in the Inventories and Financial Statements Book.
General Business Associations Law contains provisions related to the information
that must be included in the financial statements. Additionally, oversight agencies
have specific regulations in this regard that supplement General Business
Associations Law.
Based on IGJ regulations, audit reports regarding the financial statements or
association agreements subject to audit or registration with the IGJ should include
an opinion on the financial statements.
31
Business Presence
3.4.
New Argentine Civil and Commercial Code
The new Civil and Commercial Code became effective in August 1, 2015, which
also amended Business Associations Law, which is now called General Business
Associations Law.
The new Code incorporates certain commercial issues not previously regulated
and provides a unified treatment for obligations and agreements.
With respect to evidence and types, it added electronic support. It establishes a
broad rule of evidence on legal acts and agreements and, concerning digital
formats, it requires that the technical means and support used be reliable and
allow assessing its integrity and inalterability. It also incorporated some usual
agreements that were not legislated in the past, such as agency, concession,
franchise and factoring agreement, among others. It governs bank agreements
and includes special provisions regarding consumption agreements, focusing on
consumer protection.
As for business associations, the law abrogates civil associations and amends Law
No. 19,550, which will now be called “General Business Associations Law”.
Among other issues discussed in the previous sections, Law No. 19,550 creates a
new business association category called “Section IV”, whereby the parties are
enabled to establish companies other than those set forth by law, thus comprising
those currently defined as sociedades civiles (civil associations with business
purpose), sociedades de facto or irregulares (de facto associations or associations
lacking registration formalities) and associations which are “invalid or capable of
being declared invalid due to their atypical nature or the lack of formal
requirements.” In this type of associations, the agreement could be invoked
between their members and its clauses could be used against the third parties, to
which they become known upon executing the agreement, including those
representing the company, thus avoiding conflicts between members and third
parties. In addition, the company could purchase assets and register them under
its name, subject to the approval of all its members, thus breaking down personal
assets from those used in the family business. Lastly, with regard to company’s
payables, it should be noted that unless there is a written agreement, members
are not jointly and severally liable together as they had been until this
amendment; the liability is only joint and divided into equal parts.
A significant amendment introduced by this law is related to the fact that the
reduction in the number of members to just one would no longer constitute a
cause for dissolution in the case of any association; it establishes that limited
liability partnerships or limited liability partnerships by shares (sociedades en
comandita simple o por acciones) and partnerships in which one partner provides
capital and the other the services (sociedades de capital e industria) would be
transformed by operation of law into single-shareholder corporations if no other
solution is reached within a three-month term.
This provision is in keeping with the abovementioned single-member companies.
32
Business Presence
3.5.
Oversight Agencies
The most significant aspects involving oversight by authorities are described
below:
IGJ (Argentine regulatory agency of business associations)
This is the agency through which the Argentine Government controls certain
business associations domiciled in Argentina (companies in general and especially
stock corporations, branches of foreign companies, savings and loan
organizations, non-profit associations and foundations).
There is an business associations regulatory agency in each jurisdiction, but their
names may differ according to the jurisdiction. In Buenos Aires City, the IGJ
manages the local public registry.
The agency is empowered to examine books and accounting records, request
information and any documents it deems necessary, attend shareholder meetings
and lodge complaints with administrative authorities and courts of law.
Stock corporations with the characteristics listed below are permanently
controlled:
a)
b)
c)
d)
e)
f)
g)
*
Stock corporations publicly offering their equity or debt securities (*).
Stock corporations with capital stock equal to or exceeding ARS 10 million.
Stock corporations engaging in savings or investment transactions or
obtaining money or other securities from the general public promising future
consideration or benefit.
Stock corporations managing concessions of public utilities.
Corporations that are mixed companies (where capital stock is held by both
the government and private shareholders) or in which the government is the
majority shareholder.
Stock corporations which are parent companies or subsidiaries of another
company subject to control under one of the points listed above.
Single-member stock corporations.
In these cases, corporate control is carried out by the CNV (Argentine
securities commission). See point 2.4.1. (The Capital Market).
CNV (Argentine Securities Commission)
This is the oversight agency authorizing and controlling companies wishing to
publicly offer their shares and other securities. See Point 2.4.1 (The Capital
Market).
Other
There are other specific oversight agencies that exercise authority by virtue of
their role in society, such as the Central Bank of Argentina, which regulates
financial and banking transactions, the SSN (Argentine insurance companies
regulatory agency), which regulates the insurance industry, and the SRT
(Argentine workers compensation insurance regulatory agency), which controls
the companies that manage workers compensation insurance.
33
Business Presence
3.6.
Year-end, Financial Statements and Accounting and Audit
Standards
3.6.1. Financial Reporting
Based on General Business Associations Law and IGJ regulations, stock
corporations and limited liability companies with a capital equal to or exceeding
ARS 10 million are required to prepare annual financial statements (balance
sheet, statements of income, changes in equity and cash flows) and to file them
with the Public Registry of Commerce in which they are registered. Furthermore,
parent companies are required to present consolidated financial statements as
supplementary information to their stand-alone financial statements. The basic
accounting and reporting standards are specifically defined and regulated by
statutory provisions.
The organization, operation and closing down of business associations is
regulated mainly by General Business Associations Law No. 19.550 and the
regulations issued by the different oversight agencies.
The two main requirements are as follows:
a)
The requirement of presenting audited annual financial statements (external
audit).
b)
Stock corporations and limited liability partnerships by shares without a
surveillance committee and included in section 299 of General Business
Associations Law are required to have an individual statutory auditor or, in
some cases, a statutory audit committee, a role that is held by accountants
and/or lawyers (section 284, Argentine Business Associations Law).
Companies publicly listing their securities, banks and their parent companies
and subsidiaries should have a surveillance committee.
The oversight agencies mentioned further ahead require that financial
statements be presented together with the external auditor’s report issued by
an independent public accountant, as per effective audit regulations, and as
the case may be, the statutory auditor’s report.
Oversight Authority
Main types of companies
subject to control
CNV (Argentine securities commission)
Companies with listed
securities.
BCRA (Central Bank of Argentina)
Financial institutions
SSN (Argentine insurance regulatory
agency)
Insurance companies
SART (Argentine regulatory agency of
workers compensation insurance
companies)
Workers compensation
insurance companies
IGJ (Argentine regulatory agency of
business associations) and similar provincial
authorities
Stock corporations, foreign
branches, non-profit
organizations and foundations
34
Business Presence
The terms within which to present annual financial statements vary depending on
the oversight agency in question. Such terms, counted as from year-end, are as
follows:
Company
Term within which to present
annual financial statements
Companies with listed securities.
70 days
Financial institutions
Day 20 of the second month
subsequent to year-end
Insurance companies
45 days
Workers compensation insurance companies
45 days
Foreign branches
120 days
Stock corporations subject to the IGJ’s
control:
–
Falling under section 299, Law No.
19,550
15 business days prior to the
Shareholders' Meeting (1)
–
Other companies
15 business days subsequent
to the Shareholders' Meeting
(1) (2)
Civil Associations
15 business days prior to the
Members’ Meeting
Foundations
15 business days after the
governing body´s meeting
(1) The meeting must be called within the four months the end of the financial year.
(2) The financial statements are required to be presented to the IGJ on a diskette or
compact disk, generated by the application program provided by the IGJ, along with a
sworn statement by the Company and the certification of an independent public
accountant.
According to section 66, General Business Associations Law, managers of stock
corporations and limited liability companies are required to draft a Letter to the
shareholders or owners as of the date of issuance of the financial statements
referring to the company’s position regarding its different activities and their
opinion as to the projections for operations and other aspects considered
necessary to illustrate regarding the company’s current and future situation.
Under Buenos Aires City IGJ regulations, all stock corporations and limited liability
companies with equity equal to or exceeding ARS 10 million “must include certain
information in the letter to the shareholders or owners apart from the information
set forth in General Business Associations Law regarding the company’s
organization structure, its activities and purposes and prospects for the following
fiscal year.”
Under certain conditions, in the case of stock corporations not included in section
299 of General Business Associations Law (see above) and limited liability
companies with a capital equal to or exceeding ARS 10 million, the regular
meeting may exempt administrators from preparing the Letter to the
shareholders or owners in compliance with the abovementioned IGJ requirements,
by unanimous decision of present partners/owners, justifying that it is not
necessary for its purposes and there are no shareholders and third-parties that
have shown express legitimate interest in such information.
35
Business Presence
Companies publicly listing their securities should file quarterly financial
statements and a Board of Directors’ informative overview, which are published
on the CNV’s website. This information should be presented within 42 days after
period-end. In addition, the company's subsidiaries and affiliates must also
present their quarterly financial statements within the same term.
Financial institutions and insurance companies, including workers compensation
insurance companies, are required to file quarterly financial statements with their
respective oversight agencies. Such terms, counted as from period-end, are as
follows:
Company
Term within which to present quarterly
financial statements
Financial institutions
Day 20 of the second month subsequent
to year-end
Insurance companies
45 days
Workers compensation insurance
companies
45 days
In all cases, quarterly financial statements and the Board of Directors’ informative
overview must be accompanied by a review report issued by a public accountant
in conformity with audit standards in effect.
According to Argentine General Business Associations Law, financial statements
should be prepared in constant currency, which implies recognizing the effects of
variations in the currency purchasing power. However, by virtue of Presidential
Decree No. 664/03, the enforcement agencies reporting to the Executive Branch
do not accept financial statements recognizing the effects of variations in the
currency purchasing power as from March 1, 2003. Section 3.6.2 describes the
Argentine professional accounting standards that should be applied when stating
the financial statements in constant currency.
Dividends may be distributed only based on liquid and realized income, resulting
from a related balance sheet as of the end of the year, prepared in conformity
with the law and the company’s bylaws. Companies included in section 299 of
General Business Associations Law may distribute dividends in advance or
temporarily, based on special-purpose financial statements, under the unlimited
joint and several liability of directors and statutory auditors.
Buenos Aires City IGJ regulations establish the following requirements: (a) the
capitalization of capital adjustments prior to or simultaneously with the effective
capital increase, and (b) the distribution of unappropriated retained earnings
(whether through cash or share dividends or the creation of reserves.)
Additionally, requirements were established to book irrevocable capital
contributions on account of future share subscriptions in addition to those
established in professional accounting standards, mainly that they should be paid
in cash and that their capitalization is mandatory and shall not extend beyond the
fiscal year in which it was accepted, computed as from the company’s
management acceptance of the contribution, unless that on year-end the
Shareholders’ meeting is to be held before the term elapses, in which case the
decision on the abovementioned capitalization should be adopted in the same
opportunity.
36
Business Presence
Regarding the treatment of the abovementioned unappropriated retained
earnings, the Shareholders’ Meeting should decide on the use of the
unappropriated retained earnings that, after having set the legal reserve and/or
statutory reserves, if any, may involve setting a voluntary reserve, distributing
cash or share dividends or a combination of these options.
Under no circumstances shall the Shareholders’ Meeting decide to keep any
amount of the unappropriated retained earnings.
As for the distribution of unappropriated retained earnings, CNV regulations
(General Resolution No. 2013, as amended) sets forth similar requirements to
those established in IGJ General Resolution No. 7/15, as mentioned in previous
paragraphs.
If unappropriated retained earnings are distributed by setting up a reserve, it
should be noted that section 70, Law No. 19,550 establishes that the constitution
of voluntary reserves should be decided by a majority vote as required under last
paragraph of section 244, Law No. 19,550, (special cases) when the amount
involved exceeds the amount of the capital stock plus the legal reserves. That is to
say, this case would require the favorable vote of the majority of shares entitled
to vote and a plurality of votes would be deemed insufficient (this means that the
majority should be of all possible votes and not only of those present).
3.6.2. Professional Accounting Standards
General Aspects
Argentina is a federation made up of 23 provinces and Buenos Aires City, the
country's capital.
In each of these jurisdictions there is a professional council in economic sciences
in charge of issuing professional accounting (generally accepted accounting
principles) and audit standards. The standards issued by each council are
mandatory only for the professionals registered with the respective jurisdiction.
All professional councils in Argentina are members of an organization termed
FACPCE (Argentine Federation of Professional Councils in Economic Sciences) and
this organization is in charge of coordinating efforts to issue professional
accounting and audit standards. To prepare its proposed standards, the FACPCE
has set up the CENCyA (special committee for accounting and auditing standards).
The procedure to issue standards is:
a) The CENCYA prepares proposed accounting and auditing standards, which,
once approved by the FACPCE’s governing board, are published with a
deadline (inquiry period) to receive opinions from professional councils,
government control entities, business associations, graduates in economic
sciences, among others interested in the matter.
b) After the inquiry period has elapsed and the changes approved have been
included, the projects become technical resolutions or interpretations that
require approval by the respective professional councils to come into force in
each jurisdiction.
37
Business Presence
In 1998, the FACPCE’s governing board decided to implement a plan to adapt
Argentine professional accounting standards to the IAS (International Accounting
Standards) proposed by the IASC (International Accounting Standards
Committee). This plan included:
a) Defining a general framework for Argentine professional accounting
standards;
b) Adopting benchmarks or acceptable alternatives contained in certain IAS
selected for the first stage of the harmonization plan, provided they are not
significantly inconsistent with the general framework. That is, the purpose of
the original plan and the final result was not a direct merging of the two, but
rather an approach to be suitable to the international accounting standards
On December 8, 2000, the FACPCE’s governing board approved TR Nos. 16
through 19, completing the first stage of the harmonization plan, which then
continued issuing new technical resolutions.
On March 20, 2009, the governing board of the FACPCE (Argentine Federation of
Professional Councils in Economic Sciences) approved TR No. 26 “Adoption of the
International Financial Reporting Standards (IFRS) issued by the International
Accounting Standards Board (IASB)”. This approval was the result of a common
project between the FACPCE and the CNV (Argentine Securities Commission) to
adopt the IFRS as the only way of preparing the financial statements of entities
included in the public offering system, whether through to their capital stock or
corporate bonds, although certain entities under CNV control were exempted
from this mandatory obligation, as explained ahead. The CNV issued the
regulations required to make the application of IFRS effective for the entities for
which adoption is mandatory beginning on or after January 1, 2012, and interim
periods.
Additionally, TR No. 26 established that IFRS may be applied by all entities not
covered by, or exempted from, their mandatory application, with the same scope
indicated for entities for which it is mandatory to apply IFRS.
Subsequently, on December 3, 2010, the FACPCE approved TR No. 29, which
supplemented TR No. 26 and incorporated the possibility of applying the IRFS for
small and medium enterprises (SMEs), issued by the IASB in July 2009, with the
same scope provided by such international organization, as detailed further
ahead.
Finally, TR No. 38 introduced formal changes to TR No. 26, and TR No. 43
extended its scope, as explained in the following section.
The professional accounting standards issued by the FACPCE, other than TRs No.
26, 29, 38 and 43, are aimed at the broad range of entities for which IFRS
adoption is not mandatory or is exempted, and which opt not apply IFRSs or the
IFRS for SMEs. In this regard, note that the professional financial statements
issued by the FACPCE for this group of entities shall only be mandatory for an
entity to the extent that its corporate governing body has incorporated the
professional financial statements into its accounting financial framework. Subject
to this restriction, the entities qualifying, according to the FACPCE, as small- or
medium-sized entities based on their income from sales have the option to apply
the simplified accounting standards under TRs 41 and 42.
38
Business Presence
Application of IFRS by TR No. 26 and its amendment
The application of IFRS in Argentina has the following characteristics:
(a) Scope of mandatory application
Application of the IFRS is mandatory for preparing the financial statements of
entities included in the public offering system, whether due to their capital
stock or corporate bonds, or entities which have requested authorization to
be included in this system, with temporary exemptions set forth for given
entities, which include entities authorized by the CNV to maintain the
accounting methods of a different regulating body, such as the companies
included in Financial Institutions Law, insurance companies, cooperatives and
civil associations.
For years beginning on or after January 1, 2016, the mandatory application
of IFRS in the entities mentioned in the previous paragraph was extended by
TR No. 43 to the separate financial statements of entities with control over
other entities (hereinafter, controlling entity), which until the issue of TR No.
43 only applied IFRS comprehensively in their consolidated financial
statements. However, the cost and fair value alternatives set forth in IAS 27
for the measurement of equity interests in subsidiaries, affiliates and joint
ventures cannot be used in such separate financial statements. Instead, the
FACPCE requires the mandatory investment of the equity method which the
IASB only included as a third measurement alternative in the revision of IAS
27 in 2014.
It should be noted that, for a controlling entity, its separate financial
statements are the ones that should be considered for all statutory purposes
in Argentina, while its consolidated financial statements are supplementary
information.
Except for the application of the measurement alternatives that the FACPCE
does not admit in the preparation of the separate financial statements of a
controlling entity pursuant to IFRS, as mentioned above, the application of
IFRS should be carried out fully without any changes, in conformity with the
official text in Spanish issued by the IASB. TR No. 26 originally included an
Exhibit with the list of standards and interpretations issued by the IASB and
adopted by the FACPCE's governing board as of the date of the TR’s approval.
The adoption of new IFRS or amendments to IFRS already adopted is made
through IFRS adoption circulars issued by the FACPCE, which amend the
Exhibit to TR No. 26. As of June 30, 2016, the FACPCE has issued nine
circulars whereby all IFRSs approved by the IASB through that date have been
adopted, the mandatory effectiveness of which was set for fiscal years ended
December 31, 2016.
(b) Optional application of IFRS
Based on FACPCE TRs 26 and 29, entities not covered by, or exempted from,
the mandatory application of IFRS, have the option of applying IFRS or IFRS
for SMEs, with the same scope set forth for entities that will apply IFRS
mandatorily and, in both cases, with the same restrictions mentioned in the
preceding paragraph for their application in the separate financial statements
of controlled entities.
39
Business Presence
The IFRS for SMEs cannot be used by entities that are expressly excluded
from their application by the IASB, that is, by the entities whose debt or
equity instruments are negotiated on a public market or which are in the
process of issuing these instruments for trading on a public market, or when
one of its main activities is to hold assets as a trusty for a vast group of third
parties.
Notwithstanding the option established by the FACPCE, the possibility of
optionally applying IFRS or IFRS for SMEs is subject to the respective
corporate oversight body accepting such application.
Application of the FACPCE’s accounting standards not related to TR No. 26 and
TR No. 29
The Technical Resolutions issued through June 30, 2016, other than TR Nos. 26,
29, 38 and 43, include the following:
TR No.
Issue
6
8
9
Financial statements in constant currency.
General regulations for accounting disclosure.
Specific standards for accounting disclosure by companies engaging in trade,
industrial activities and services.
Specific standards for accounting disclosures for non-profit organizations.
Accounting information regarding involvement in joint ventures.
General framework for professional accounting standards.
Professional accounting standards: Dealing with generally applicable issues.
Professional accounting standards: Dealing with specific issues.
Amendments to TR Nos. 4, 5, 6, 8, 9, 11 and 14.
Derivative instruments and hedge transactions.
Equity valuation by the equity method. Consolidating financial statements.
Information to be disclosed on related parties.
Farming activities.
Employee benefits due after termination of the payroll employee relationship
and other long-term benefits.
Specific aspects regarding accounting disclosure and audit procedures for
cooperatives.
Amendment to TR No. 11.
Partial amendments to other technical resolutions.
Impracticability. Financial Reporting – comparative information.
Changes to section 9 of TR No. 17 regarding the treatment of measurement
issues not provided for in local professional accounting standards.
Introduction to revaluation model for P&E, except for biological assets.
Balanced scorecard.
Amendment to TR No. 6 and 17 – Statement in constant currency.
Amendment to TR Nos. 9 and 11.
Recognition and measurement features for small-sized entities. (1)
Recognition and measurement features for medium-sized entities. (1)
11
14
16
17
18
19
20
21
22
23
24
25
27
28
30
31
36
39
40
41
42
(1) These simplified regulations may, on an optional basis, be applied by
entities that qualify as small-or medium-sized entities based on the
classification included in the technical resolutions.
44
40
Amendment to TR No. 26
Business Presence
Through June 30, 2016, the FACPCE issued and has enforced the following
interpretations.
TR No.
1
2
3
4
7
8
Issue
Transactions between related parties.
Statement of cash flows.
Booking income tax.
Applying professional standards to small entities.
P&E revaluation mode and accounting treatment for investment property.
Statement in constant currency (application of TR No. 17, paragraph 3.1).
The accounting model of the Argentine professional accounting standards in
effect (other than TR No. 26) is based on the following pillars:
a) Unit of Measurement
Argentine professional accounting standards regarding the preparation of
financial statements in constant currency are included in TR No. 6, in section
3.1 of TR No. 17 as amended by TR No. 39, and in Interpretation No. 8.
These standards provide a framework of accounting information requiring the
following.
(a) That nominal currency (which is similar to the constant currency) be used
until price indexes show an accumulated variation over a three-year term
equal or over 100%; this quantitative parameter is a key indicator and a
condition necessary for the restatement of the financial statements in
accordance with the practical approach adopted with respect to
Interpretation No. 8 for the application of section 3.1, TR No. 17. This
section also incorporates qualitative parameters matching those included
in IAS 29, without specifying how these circumstances should be weighed
in an inflation context that may justify adjusting the financial statements.
(b) Should the conditions for the restatement of financial statements in
foreign currency be met, the adjustment should be made during the fiscal
year in which that event takes place, and the effects of the changes in
the currency’s purchasing power that may be incorporated should be
those which have taken place as from the moment in which the
accounting standards interrupted the adjustment for inflation in
Argentina (2003) or as from the moment in which the entity started
operating, if it is subsequent to such interruption.
(c) The accumulated variation in the price indexes mentioned in previous
sections should be determined on the basis of the domestic wholesale
price index published by the INDEC.
Since the new Argentine president took office on December 10, 2015, a process
for reorganizing the INDEC has begun and, as of the date of issue of this
publication, the latest official data through June 30, 2016, regarding the changes
in the domestic wholesale price index show accumulated inflation over three years
for about 100% (especially due to a readjustment in public utility rates, which had
suffered a significant lag in previous years) but with a downward projection after
the anti-inflationary measures implemented by the current administration, which
are still underway.
41
Business Presence
At present certain Argentine corporate enforcement entities would not accept the
presentation of inflation-adjusted financial statements by the entities under their
control, considering the provisions under the Presidential Decree 664/2003,
which prohibits that adjustment. For more information, refer to section 3.6.3 on
statutory accounting standards
b) Measuring Methods
The accounting measurements may be based on the following features based
on the nature of assets and liabilities:
For assets:
►
►
►
►
►
►
►
►
Historical cost.
Current values.
Replacement cost.
Net realization value.
Net realization value based on degree of progress.
Fair value.
Discounted amount (present value) of the cash flows to be collected.
Percentage of equity interest on the accounting measurements of assets
or equity.
For liabilities:
►
►
►
►
Original amount.
Settlement cost.
Discounted amount (present value) of the cash flows to be disbursed.
Percentage of equity interest on the accounting measurements of
liabilities.
The accounting measurement methods must be based on the features that
are most appropriate in each case, considering the most likely use for certain
assets and the intention and likelihood of immediate settlement for liabilities.
With regards to non-monetary assets, TR No. 31 issued in 2011 changed the
criterion which required the application of cost model as the only
measurement criterion for assets intended for use. Effective regulations on
the measurement of the main non-monetary assets indicate the following:
(a) P&E, biological assets, property acquired for sale in the normal course of
business or in the process of construction or development for such sale.
Measured at current value by the method applicable for the type of asset.
(b) P&E, except biological assets.
Are alternatively measured:

►
►
42
At original cost, net of accumulated depreciation and accumulated
impairment losses; or
At its revalued amount, considering the amount that the entity would
receive for selling the asset, assessed based on (i) spot prices in an
active market, or (ii), if no such market exists, estimates as from the
use of valuation methods that allow arriving at present values of
future flow funds, or at its replacement cost net of any depreciation
through that time, provided that the resulting amount represents
what a party taking part in the market would be willing to pay for the
asset.
Business Presence
Revaluation surpluses are recognized directly in an equity account and
any decrease in the revaluated price is deducted from such account up to
the residual revaluation cap contained in the book value of the related
asset.
(c) Investment properties (whether leased or held unoccupied for an
increase in value), non-current assets held for sale (provided they be
available for such purpose in their current condition, the sale is highly
likely and expected to occur within a year after the classification date)
and assets retired from service.
Are alternatively measured:
►
►
At original cost, net of accumulated depreciation and accumulated
impairment losses, if any; or
At net realization value, with any change in value recognized in
income (loss).
Recognition of income though measurement at net realization value is
only admitted if there is an effective negotiation market for similar goods
with transactions near the closing date or, in case of noncurrent assets
held for sale, whenever the sale price is ensured through an agreement.
If these conditions are not met, measurement should be at original cost
or at the latest current value.
(d) Long-term investments in other companies.
When control, joint control or significant influence is exercised, the
equity method is used. In other cases, the accounting measurement shall
be made at cost.
(e) Intangible assets and goodwill (from a business combination or the
measurement of long-term investments in other companies).
Intangible assets and positive goodwill are measured at original cost, net
of accumulated depreciation and accumulated impairment losses, if any.
If useful life is indefinite, no depreciation will be deducted and goodwill
will be compared with its recoverable value as of each year-end.
In the case of negative goodwill, the portion thereof that could be related
to expectations of future expenses or losses at the initial measurement is
recognized in income (loss) in the same periods when such expenses or
losses are incurred, and the remaining goodwill is recognized in income
(loss) systematically throughout the useful life of the assets of the issuing
company subject to depreciation.
43
Business Presence
The FACPCE has established that measurement issues for which Argentine
professional accounting standards provides no accounting treatment should be
resolved through the application of (i) the provisions established by those
standards for similar or related issues, or (ii) general standards on accounting
measurement, or (iii) the concepts included in the general framework of such
standards. Whenever the issue cannot be resolved or the resolution is not
apparent based on the primary sources mentioned previously, the entity’s
Management may use the following supplementary sources in this descending
order of priority to form its judgment, provided they do not contradict the primary
sources and until the FACPCE issues a specific standard on the matter:
(a) The IFRSs approved and issued by the IASB; and
(b) In no established order: (i) the most recent pronouncements from other
issuers using a similar general framework for the issuance of accounting
standards; accepted practices in the various industries or sectors, and
accounting jurisprudence.
The term IFRS is used to refer to the set of regulations made up of:
a)
b)
c)
The IFRS issued by the IASB as form 2003;
The International Accounting Standards (IAS) issued by the dissolved
International Accounting Standard Committee (IASC) through 2001 and
adopted by the IASB; and
IFRS interpretations.
3.6.3. Statutory Accounting Standards
Legal standards regarding accounting issues may only be issued by the Argentine
government and the provincial governments by law, decree or resolutions of
government agencies to which such special legislative powers have been
delegated on the issues in question.
The Argentine government agencies mentioned below are empowered to issue
legal regulations regarding accounting matters:
►
CNV, an agency authorizing and controlling:
a) Companies with listed securities.
b) Certain entities or parties related to the public offering of securities:
securities markets, depository entities, trading agents, settlement and
clearing entities, custody agents, registration and payment agents, mutual
funds and financial trusts, among others.
►
BCRA (Central Bank of Argentina), which has the duty of controlling the
following entities: Banks, finance companies, savings and loans
institutions for home building and developing other real estate, and
mutual credit associations.
►
SSN (Argentine insurance regulatory agency), the jurisdiction of which
includes the institutions related to insurance transactions and others that
can be likened to such activities.
►
SART (Argentine regulatory agency of workers compensation insurance
companies) which controls companies managing workers compensation
insurance.
44
Business Presence
►
Argentine Cooperative and Mutual Action Institute (Instituto Nacional de
Acción Cooperativa y Mutual), controlling cooperatives and mutual aid
associations.
►
INSS (Argentine Social Services Institute), which controls statutory
healthcare organizations and similar entities.
►
IGJ (Argentine regulatory agency of business associations), which
oversees:
a)
Stock corporations (except those controlled by the CNV), foreign branches,
non-profit organizations and foundations domiciled in Buenos Aires City.
Stock corporations engaging in capitalization and savings transactions,
regardless of where they are domiciled.
b)
Generally, names and duties of provincial oversight authorities are similar to those
of the IGJ. Some jurisdictions also have specific authorities controlling
cooperatives and/or mutual associations.
Some of these government entities automatically incorporate as statutory
accounting standards the professional accounting standards approved by the
FACPCE and adopted by the Professional Council in Economic Sciences of the
related jurisdiction. Other government entities issue specific resolutions whereby
they adopt the professional accounting standards partially or in full. Finally, there
are government entities which issue their own statutory accounting standards,
which may contain significant differences with professional accounting standards,
such as the BCRA and the SSN.
The existence of accounting and statutory professional accounting standards that
may be different from one another warrants special attention as regards IFRS
application. In such regard, based on professional accounting standards, the
companies that fall outside the scope of the mandatory application of IFRS may
choose to apply IFRS or IFRS for SMEs, depending on the type of entity. However,
the actual use of this option does not depend solely on the decision of the issuer
of the financial statements, but on the authorization that may need to be granted
by the respective corporate oversight agencies to change the accounting policies
to IFRS or to IFRS for SMEs. In connection with this issue:
(a) The BCRA has prepared a roadmap for converging with IFRS in the case of the
fiscal year beginning January 1, 2018;
(b) The SSN (Argentine insurance regulatory agency) has not yet implemented a
process for applying IFRS and
(c) The IGJ, which controls stock corporations located in Buenos Aires City,
establishes that affiliates of listed companies required to apply IFRS may file
their financial statements with IGJ under IFRS. The initial practical goal of this
measure was avoiding the task of converting financial statements from one
set of accounting standards to IFRS. However, this resolution by the IGJ
creates the expectation that the agency may extend at some point the option
of applying IFRS to the rest of the companies under its control.
In the case of companies regulated by provincial authorities similar to the IGJ,
largely no authorization is required from such agencies to apply IFRS; therefore,
these companies would be allowed to file their financial statements under IFRS.
45
Business Presence
3.6.4. Audit Standards
FACPCE’s standards in effect for performing audits and limited reviews of
financial statements of entities that are not required to apply IFRS are included in
TR No. 37, which replaces TR No. 7, even though with different effective dates
depending on the Argentine jurisdiction in which the entity issuing the financial
statements is based. The earliest effective date is for fiscal years beginning as
from January 1, 2014, and the interim periods thereof, but in the case of Buenos
Aires City, where most companies are based, it becomes effective for fiscal years
beginning as from July 1, 2014, and mainly affects the audits of the financial
statements for the fiscal years ended December 31, 2015.
Regarding the issuance of reports, TR No. 37 shows no differences with the
International Accounting Standards (IAS) and the International Standard on
Review Engagements for interim financial statements (ISRE 2410) issued by the
Auditing and Assurance Standards Board (IAASB) of the International Federation
of Accountants (IAFAC). The FACPCE has also issued in Interpretation 9 “The
auditor’s report on comparative information”, as a supplement to TR No. 37.
In addition, certain enforcement agencies issued auditing and review standards
that the auditor must comply with in addition to the provisions of TR No. 37, such
as the BCRA and the Argentine regulatory agency of workers compensation
insurance companies, which has defined a list of the minimum audit procedures
applicable to the examination of the annual and quarterly financial statements of
the entities under its control.
In November 2012, the FACPCE issued the following resolutions for audits and
limited reviews of financial statements which are required to be prepared under
IFRS:
(a) TR No. 32, which adopts and requires the mandatory application of the IAS
issued by the IFAC for audits of financial statements which are required to be
prepared under IFRS, effective as from fiscal years beginning on or after
January 1, 2014.
(b) TR No. 33, which adopts and requires the mandatory application of IFAC
International Standard on Review Engagements (ISRE) 2410 related to the
review of interim financial statements which are required to be prepared
under IFRS, effective as from interim periods related to fiscal years beginning
on or after January 1, 2014, and allowing early application.
(c) TR No. 34, which adopts and requires mandatory the application of the
International Standards on Quality Control and the Standards on
Independence issued by the IFAC for all auditors who report having provided
professional services in which the regulations contained in TR Nos. 32 and 33
were applied.
In addition, TR Nos. 32 and 33 may be applied voluntarily in cases other than
those indicated in (a) and (b) above and, in such cases, application of TR No. 34 is
mandatory.
46
4. Foreign Investments
4.1. Legal framework for foreign investments in Argentina
In Argentina, both foreign investments and investors enjoy ample legal protection,
ensured by a wide array of local and international regulations which position
Argentina as a safe destination for foreign investments and investors.
The Argentine Constitution provides an equal treatment to foreigners in its
Foreword, and recognizes the same rights for foreigners as for Argentine
nationals in Article 20.
A) Foreign Investment Law
Foreign Investment Law No. 21,382 sets forth the legal framework governing
foreign investment in Argentina It is aimed at foreign investors investing
capital in Argentina, in any of the forms established therein, and used in
activities of an economic-industrial, mining, agricultural, commercial,
financial, services or any other nature related to the production and exchange
of goods and services, or the expansion or improvement of existing activities,
without requiring any prior approval. It states that such investments will have
the same rights and obligations that the Constitution and laws set forth for
Argentine investments. This law sets out definitions aimed at classifying
foreign investment, including the following:
►
Foreign capital investment: Any capital contribution belonging to foreign
investors and used in economic activities performed in Argentina and/or
the acquisition of equity interests in an existing local company by foreign
investors.
►
Foreign investor: Any natural or artificial person domiciled outside the
Argentine territory who owns a foreign capital investment, and local
foreign-capital companies investing in other local companies.
►
Local foreign-capital company: Any company domiciled within the
Argentine territory in which natural or artificial person domiciled outside
the Argentine territory directly or directly or indirectly own over 49% of
capital stock or have the number of votes required to prevail in
shareholders' or partners' meetings.
►
Local Argentine-capital company: Any company domiciled within the
Argentine territory in which natural or artificial person also domiciled in
the Argentine territory directly or indirectly own no less than 51% of
capital stock or directly or indirectly have the number of votes required
to prevail in shareholders' or partners' meetings.
According to such law, foreign investors enjoy the following rights:
►
The right to transfer abroad liquid and realized income from investments
made, as well as the right to repatriate investments.
►
The right to organize their businesses in any business association form
provided by Argentine law.
►
The right to use local credit with the same rights and under the same
conditions as locally-owned companies.
47
Foreign Investments
The law also establishes the ways in which the foreign investment can
materialize:
►
►
►
►
►
►
Readily convertible foreign currency.
Capital goods, their spare parts and accessories.
Income or capital in Argentine pesos belonging to foreign investors,
provided that such income or capital is legally eligible for transfer
abroad.
Conversion into equity of receivables from abroad in readily convertible
foreign currency.
Intangible assets, in accordance with specific legislation.
Other forms of contribution provided for in special or promotional
regulatory systems.
Furthermore, it establishes the treatment to be afforded to transitory
contributions and the relationship between parents and subsidiaries.
Transitory foreign capital contributions made as a result of the performance
of contracts for lease of things, works or services or others are not included
in the law and will be governed by the terms and conditions of the respective
contracts pursuant to the applicable legal provisions, despite which the
owners of such contributions may choose to realize their investment as
provided by the law.
With regards to the relationship between parent companies and subsidiaries,
it is established that the legal acts executed between a local foreign-capital
company and the company which directly or indirectly controls it or another
affiliate of the latter will be considered, for all effects, as executed at arms'
length provided the agreed-upon provisions and conditions are consistent
with normal practices in the market between independent parties.
Finally, Argentina has signed different bilateral treaties aimed at the
promotion and mutual protection of signatory countries’ investments. These
treaties protect the investments of foreign parties in Argentina, ensuring the
investors of member countries that the conditions they will receive shall not
be less favorable than those agreed for their own investors, or than the
treatment agreed for investors in the “most-favored nation”, if the latter was
more beneficial. The investors in signatory countries are also guaranteed the
possibility of resorting to arbitration to resolve investment-related disputes.
This alternative includes the International Centre for Settlement of
Investment Disputes (ICSID), established by the Convention for the
Settlement of Investment Disputes Between States and Nationals of Other
States adopted in Washington on March 18, 1965 (“ICSID Convention”).
B) Inflow of foreign currency and remittance of profits
For the new direct investments entered into the local foreign exchange
market and converted into Argentine pesos, nonresidents will have access to
the local foreign exchange market to repatriate their investments without
prior BCRA authorization since December 17, 2015.
In line with the definition provided by the IMF, the Central Bank considers FDIs
to be any investment by a non-resident evidencing the intention of obtaining
a long-term interest in a resident company, which for practical purposes
occurs whenever such interest in a local company exceeds or is equal to 10%
of capital stock or voting rights. After this minimum percentage is reached,
any subsequent contribution made by the non-resident investor/partner will
be equally considered to be a FDI, regardless of the amount or percentage
involved.
48
Foreign Investments
Moreover, in agreement with new regulation set forth by Communiqué “A”
5,850, funds from payables assumed abroad are not required to be brought
into the local foreign exchange market and converted into Argentine pesos
either.
However, bringing in funds through the local foreign exchange market will be
a necessary condition for subsequent access to such market for servicing
principal and interest. Should funds be entered into local accounts in foreign
currency in Argentina, evidence should be provided on the inflow of the funds
deposited.
In addition, a minimum financing term of 120 calendar days was established.
In addition, there are no restrictions to the payment abroad of interest,
dividends, profits, royalties and any other business payment duly evidenced
by the related documentation..
4.2. Foreign Indirect investment (FDI) in Argentina
FDI flows in Argentina increased slightly in 2011, to USD 7.24 billion.
Despite the government’s efforts to prevent US dollars from fleeing the country,
direct foreign investments, which could have provided Argentina with such
currency, fell in 2013 and 2014. In the midst of a heavy currency inflow in
emerging countries in general and specially in Mexico, Brazil and Chile, Argentina
did not seem very attractive for those who had capital to disburse.
In fact, direct foreign investments in Argentina went down by 36% in 2013,
despite the fact that this items includes the earnings that companies were forced
to reinvest in Argentina because they did not receive the authorization to remit
earnings abroad.
The direct foreign investment fall totaled 48% in 2014 after the default and
severe economic recession.
FDI in Argentina stood at about USD 12 billion in 2015, well above FDI in the prior
year, once again thanks to company reinvestments already located in Argentina
that were unable to remit foreign currency to their head offices.
In 2016, by eliminating foreign exchange controls, the possibility of remitting
dividends abroad and heightened investors’ trust, a higher inflow of new capital
into Argentina is expected. However, a significant decline is expected in the
reinvestment of earnings by companies already established in Argentina, which
were waiting for foreign exchange controls to be lifted to remit funds abroad.
49
Foreign Investments
FDI in Argentina (Balance of Payments)
In millions of USD
25.000
20.000
15.000
10.000
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016 E
5.000
Source: EconViews based on the ECLAC and own estimates
50
5. Tax
5.1.
General Description of the Tax System
Introduction
In the Argentine tax system, taxes may be divided into three categories: taxes,
rates and assessments.
Rates and assessments tend to compensate the State for a specific concrete or
potential activity by way of a particular service rendered to the taxpayer. Taxes,
on the other hand, are payments the taxpayer is required to pay to the State given
its control powers. As this guide intends to provide only a brief overview, we shall
limit our comments mainly to taxes.
Argentine Tax Structure
In Argentina, taxes are collected by the federal government, the provinces and
municipalities.
Federal Level
At the federal level, the DGI (Argentine Tax Bureau) is the authority in charge of
applying, receiving and collecting federal taxes (except those related to customs)
and conducting tax audits. The DGI reports to the AFIP (Federal Public Revenue
Agency), a self-governing entity forming part of the Ministry of Economy and
Public Finance, in charge of executing Argentina’s tax and customs policies.
The main federal taxes are:
►
►
►
►
►
►
►
Income tax
Value-added tax
Minimum presumed income tax
Tax on bank debits and credits
Excise taxes
Tax on real property transfers
Personal assets tax
Tax disputes may be handled through the following proceedings:
a)
Administrative:
►
►
b)
DGI
Federal Administrative Tax Court
Legal:
►
►
►
Federal courts
Appellate courts
Argentine Supreme Court of Justice
Provincial level
Provincial taxes are collected and managed by the provincial tax authority of each
jurisdiction, which report to the respective provincial Ministries of Economy.
Buenos Aires City has been recognized as a self-governing city with its own
government institutions and, therefore, certain taxes usually collected at the
provincial level are applicable here.
51
Tax
The main provincial taxes are listed below:
a)
b)
c)
Turnover tax
Stamp tax
Real property tax
Starting 2011, there is a tax on the free transfer of goods including inheritance,
legacies and donations, etc., in place in the Province of Buenos Aires. There are
initiatives in other provinces to create similar taxes.
Municipal level
Municipalities' revenues are derived from the collection of rates and assessments.
Although in general this involves lesser resources, lately the financial needs of
municipalities has led to claims against taxpayers involving the payment of rates,
even when it is questionable whether they were provided with the services as they
do not have premises or establishments in the jurisdiction.
In the last few years, certain municipalities have started creating municipal
collection systems based mainly on withholdings on credits to bank accounts of
taxpayers.
Capital Disclosure and Tax Amnesty System (Law No. 27,260)
Before describing the applicable taxes in Argentina, it should be noted that, on
July 22, 2016, Law No. 27,260 was passed, establishing a “Tax Whitewash
System”.
The Law establishes a Voluntary and Exceptional System for the Declaration of
Holdings of Argentine pesos, foreign currency and other assets in Argentina and
abroad, which applies to all natural persons, undivided successions and artificial
persons residents in Argentina as of December 31, 2015.
The new system is effective through March 31, 2017:
The special tax applicable to the declaration of assets will be as follows:
a)
b)
c)
d)
e)
f)
52
Assets whose aggregate value is lower than ARS 305,000: 0%.
Assets over ARS 305,000 and lower than ARS 800,000: 5%.
Real property located in Argentina or abroad: 5%.
Assets other than real property over ARS 800,000, declared before
December 31, 2016: 10%
Assets other than real property over ARS 800,000, declared before
January 1, 2017, and March 31, 2017: 15%.
Assets other than real property over ARS 800,000, if the special tax is paid
with the delivery of certain bonds: 10%.
Tax
However, the special tax is not applicable if the taxpayer chooses to use the
declared funds to acquire certain bonds and mutual investments funds established
in the law:
The system includes the following characteristics:
►
The release from all civil actions and criminal actions under tax criminal law,
foreign exchange law, customs law and adminsitrative infringements. This
release includes managing partners, managers, directors, statutory auditors
and members of the surveillance committee and professionals who certify
financial statements.
►
The release from the payment of taxes that the taxpayer failed to pay over
and that originated from the assets and monetary holdings declared
voluntarily and exceptionally.
Moreover, Law No. 27,260 established a system for the “Exceptional whitewash
of tax, social security and customs obligations”. This system includes taxpayers
and liable persons for taxes (including customs duties) and social security
resources governed by AFIP with past-due obligations as of March 31, 2016. The
law allows the regularization of such tax payables through exemptions and/or
reductions of interest, fines and penalties.
To access this system, the taxpayer should join the regularization before March
31, 2017, and there is the option of a 15% reduction for a cash payment or a
payment-in-installments plan.
Finally, the law has established the following benefits for taxpayers who have
complied with all their tax obligatios for the 2014 and 2015 tax periods and join
this system before March 31, 2017:
►
Exemption from personal assets tax for the 2016, 2017 and 2018 tax
periods.
►
Return or offsetting of prepayments for the 2016 tax period.
►
Compliant taxpayers who do not have acces to the benfit of the exemption
from personal assets tax can request an income tax exemption applicable to
the first installment of the statutory annual bonus for the 2016 tax period.
5.2.
Direct Taxes
5.2.1. Income tax
Worldwide Income - Source
Persons residing in Argentina pay income tax on all of their income obtained in
Argentina or abroad, and may compute the amounts actually paid for similar taxes
on the activities performed abroad as a payment on account, up to the cap of the
increase in the tax obligation caused by adding income earned abroad.
Persons residing abroad pay income tax only on Argentine-source income.
53
Tax
In general, regardless of certain exceptions, Argentine-source income is income
generated by:
a)
b)
c)
Assets located, placed or put to economic use in Argentina.
Any acts or activities capable of yielding profits.
Any events that have taken place within Argentine territory.
Requirements for Income Tax Returns
Income tax is assessed annually by taxpayers who file a tax return, indicating
taxable income pursuant to regulations in related legislation. The tax returns must
show the adjustments made to assess the taxable income or loss and the
computed tax.
In addition, companies are required to file, for tax purposes, a report certified by
an independent public accountant and, in some cases; this must be accompanied
by the Company’s financial statements through the tax authorities’ website.
Taxpayers who are required or who choose to prepare financial statements
applying International Financial Reporting Standards (IFRS) must also first file a
balance sheet and statement of income with the tax authorities that were
prepared pursuant to Argentine professional accounting standards.
How this tax is paid
Income tax is paid over to tax authorities as follows:
►
Business associations:
►
►
►
Ten monthly prepayments
Remaining amount: In the fifth month subsequent to year-end.
Individuals:
►
►
Five prepayments
Remaining amount: In April or May, as applicable.
For companies, the tax year coincides with the fiscal year (there are no legal
impediments for companies to establish the end of their reporting years at any
time during the calendar year, as decided by the company). The calendar year is
used for individuals.
There are different income tax withholding and additional withholding systems. In
both cases, withholdings and/or additional withholdings that were applied to the
taxpayer can be computed as payments on account of income tax in their annual
tax return.
Generally, certain taxpayers are required to act as withholding agents when they
pay for certain items, such as the purchase of goods, services, leases, fees, etc.
In addition, some of the main additional withholding systems include those
resulting from the import of goods (the additional withholding is applied by the
Customs Authority).
54
Tax
Types of Taxpayers
►
Stock corporations, limited liability companies, limited liability partnerships
and limited liability partnerships by shares, among others considered nonpass-through companies for tax purposes, are subject to 35% tax on net
taxable income.
►
The branches of foreign companies are considered residents in Argentina for
tax purposes, and are subject to 35% income tax on their net taxable income.
►
In general, all other business associations assess their income tax, but the
partners or owners include the taxable income in their own tax returns
proportionately to their respective shares as per the scale referred to in the
following paragraph.
►
Individuals file their income tax returns and pay income tax, including the
taxable income obtained from business associations mentioned above,
according to a progressive scale that ranges between 9% and 35%. However,
those who only obtain income from work performed personally in a payroll
employee relationship are not required to file a tax return, provided the
related tax has been withheld when the income was paid and their gross
annual income does not exceed ARS 144,000.
In certain cases, those who only receive income from their personal work in a
payroll employment relationship must fill out an online form, so as to inform
their employers of the general and personal deductions that apply to them.
►
When benefits are paid to foreign beneficiaries (natural persons and
companies organized abroad that are not Argentine residents for tax
purposes) the party paying them is supposed to withhold and pay over the tax
calculated according to the rates indicated in the related section to the AFIP,
as a single and one-time payment.
In all cases, taxable income is assessed in historical currency, as tax regulations
do not recognize adjustments for inflation that have taken place after April 1992.
However, recent Argentine Supreme Court of Justice case law has considered
that, in certain cases, failure to apply the adjustment for inflation to assess the
tax is confiscatory.
Exemptions
Until September 2013, there was a significant exemption that included income
obtained from the sale of shares of Argentine companies by foreign beneficiaries.
However, this exemption has been rendered ineffective, and the tax levied on this
transaction was 15% on net income (assessed either according to real income or
applying a presumed income of 90% of the sales price, which results in an actual
rate of 13.5%).
There are some exemptions applicable only for natural persons regarding interest
on deposits with financial institutions, transactions with Argentine government
securities, purchase of shares listed in stock markets or exchanges, among
others.
Certain non-profit associations engaged in activities provided by law are also
exempt from income tax.
55
Tax
Deductions
As a general rule, expenses that are deductible by law are those incurred to
obtain, maintain and retain taxable income, with the following express
restrictions.
►
Stock corporations and other companies
a)
Allowances and provisions
Only certain reserves expressly allowed by law can be deducted in when
making the tax assessment (for example, the tax-purposes allowance for
uncollectible accounts, with certain restrictions). Consequently, other
allowances or provisions are not generally deductible.
b)
Tax
All taxes levied on income-generating activities, other than income tax
itself, are income-tax deductible.
c)
Startup expenses
Startup expenses can be deducted in the year in which they were
incurred or amortized over a maximum term of five years, at the
taxpayer’s option.
d)
Donations
Donations may be deducted when made directly to the (federal,
provincial or municipal) government, to the FPP (permanent fund for
political parties), religious or charity institutions and exempt private
organizations with specific purposes. Deductible amounts are limited to
5% of net income for the year.
In order for the donation to be tax deductible, certain formal
requirements must be fulfilled.
e)
Foreign exchange differences
Foreign exchange gains or losses are included in taxable income on an
accrual basis. Receivables and payables in foreign currency should be
valued according to the latest listed price – buying or selling exchange
rate - of Banco de la Nación Argentina at the end of the related
reporting period.
f)
Interest
Interest and other financial expenses are deductible considering the
limitations provided in the “Thin capitalization rules” section.
g)
Extraordinary losses
Extraordinary losses caused by acts of God or force majeure events
shall be deductible to the extent not covered by insurance or
compensation.
56
Tax
h)
Other expenses and disbursements related to the course of business
In addition to the specific items mentioned above, the law allows other
expenses and disbursements related to the course of business to be
deducted provided they are necessary to obtain, maintain and retain
taxable income. For example, in order to calculate the tax, salaries,
wages, fees, directors’ fees, fees for technical services, contributions to
pension funds, entertainment expenses and travel expenses are all tax
deductible. However, there are certain limitations that may be
applicable to some of the items listed.
►
Individuals
Individual taxpayers may deduct from their income the following items in
addition to the expenses necessary to obtain, maintain or retain taxable
income:
a)
Contributions or discounts for retirement, pension or family allowance
funds, provided that such funds are managed or approved by federal,
provincial or municipal governments.
b)
Mandatory contributions to official health care organizations withheld
from salaries and wages, membership fees of health care plans and fees
for health, medical and paramedical assistance services (up to a certain
amount).
c)
Life insurance premiums (up to a given amount).
d)
Donations (similar characteristics to those made by business
associations).
e)
Other expenses specifically provided for (up to certain caps established
by law), such as interest on mortgage loans, funeral expenses, amounts
paid to domestic staff.
In addition to the above, a certain amount may also be deducted by taxpayers
when assisting their income tax on account of nontaxable income, provided
the taxpayer has resided in Argentina for a period of over six months during
the tax year.
There is also a special deduction applicable to certain forms of taxpayer
income from personal work.
There are also certain deductions allowed for family dependents, provided
that these persons’ personal income is less than a given amount during the
calendar year and that they have resided in Argentina for more than six
months out of the tax year. Examples of such deductions include deductions
for spouses and children who are dependent on the taxpayer.
57
Tax
Inventory Valuation
Regulations establish different inventory valuation methods according to the type
of asset involved. However, if market value is lower, such value can be used for
tax purposes, subject to certain requirements.
Depreciation
Income tax law allows depreciation on assets used by the taxpayer to produce
taxable income to be deducted, according to those assets’ useful lives.
There are no specific guidelines with regard to depreciation percentages of these
assets, except in the case of buildings and other constructions on real property
used in activities that generate taxable income, which should be depreciated at a
rate of 2% annually.
Depreciation and losses for disuse of automobiles and the lease thereof are
deductible only up to the caps provided by legislation. Depreciation and losses
from disuse of automobiles are fully deductible if their use involves the main
purpose of the taxable activity.
Payments of Dividends
Since September 2013, dividends or profits, in cash or in kind –except shares or
membership interests- distributed by companies and branches are subject to a ten
percent (10%) income tax rate, paid as a single one-off payment.
Notwithstanding the above, it should be noted that Law No. 27,260 (effective as
from July 23, 2016), repealed the 10% tax on dividends or earnings.
Additionally, when an Argentine company pays dividends or distributes earnings
exceeding income assessed by applying the general Income Tax Law provisions,
accumulated as of the year-end immediately preceding the payment or
distribution date, it is required to withhold 35% of such excess as single and
definitive payment. To such end, income to be considered in each year shall be
that assessed by applying the general provisions of Income Tax Law less income
tax paid for the tax period(s) in which income being distributed originated, plus
the dividends or earnings not considered upon assessing such income.
NOLs
The tax-purposes net operating loss (NOL) sustained in any given year may be
deducted from taxable income generated in the immediately subsequent 5 years.
NOLs may not be computed in previous years.
The NOLs arising from the transfer of shares, membership interests or equity
interests may only offset income of the same origin. The same applies to NOLs
from activities not to be considered of Argentine source and from rights and
obligations arising under derivative agreements, except for hedging transactions.
58
Tax
Tax Rates
►
►
Tax rates applicable to taxpayers residing in Argentina are as follows:
Stock corporations, limited liability companies, limited
liability partnerships, limited liability partnerships by
shares, and other non-pass-through companies
35%
Branches
35%
Other business associations
Owners or partners
report income in
proportion to their
interests.
Natural persons and undivided estates
de 9 a 35%
Individuals and business associations residing abroad pay tax on their
Argentine-source income at the rates indicated below, which result from
applying a 35% rate to presumed income, as set forth in Income Tax Law:
Description
1.
Technical assistance, engineering or consulting services that
Presumed
Actual
Income
Tax Rate
60%
21%
80%
28%
cannot be obtained in Argentina according to competent
authorities, resulting from agreements that comply with
Technology Transfer Law.
2.
Assignment of rights or licenses to use invention patents and
any other technology transfer in compliance with
Technology Transfer Law and not contemplated in point 1.
3.
Use of copyrights in Argentina, subject to certain conditions.
35%
12.25%
4.
Interest paid to financial institutions resident in jurisdictions
43%
15.05%
43%
15.05%
100%
35%
43%
15.05%
70%
24.5%
40%
14%
10. Leases of real property located in Argentina.
60%
21%
11. Transfer for valuable consideration of assets located, placed
50%
17.5%
90%
31.5%
considered non-cooperative for fiscal transparency
purposes 1 or when the borrower is a financial institution.
5.
Interest on financing transactions involving the import of
personal property subject to depreciation, except
automobiles, granted by the suppliers.
6.
Other interest on debts.
7.
Interest on deposits with financial institutions governed by
Law No. 21,526, namely, savings account deposits, special
savings account deposits, certificates of deposit, third-party
deposits, and any other ways of procuring the public’s funds,
as determined by the BCRA (Central Bank of Argentina) (as
long as they are not exempt).
8.
Salaries, fees and other remuneration to personnel
performing services temporarily in Argentina (less than six
months): artists, sportsmen, technicians.
9.
Personal property rentals.
or economically used in Argentina of companies organized,
settled or located abroad.
12. Other income not covered in prior points.
Or they are jurisdictions where an information exchange agreement has been signed with Argentina and, pursuant to
domestic legal rules, parties cannot claim bank, exchange or any other privacy,
1
59
Tax
The paying agent in Argentina is required to withhold and pay over the tax.
Since September 2013, dividends or profits, in cash or in kind –except shares or
membership interests- distributed by companies and branches are subject to a ten
percent (10%) income tax rate, paid as a single one-time payment.
Notwithstanding the above, it should be noted that Law No. 27,260 (effective as
from July 23, 2016), repealed the 10% tax on dividends or earnings.
Affiliates
1.
Affiliates residing in Argentina
For income-tax purposes, each enterprise is considered an independent tax
payer. Thus, tax returns cannot be filed jointly for a single group of
companies.
Since 2014, taxpayers and/or obligated parties residing in Argentina are
required to report, every month, the transactions carried out on the domestic
market with any party organized, domiciled, based or located in Argentina
with whom they are related according to the law.
2.
Affiliates residing abroad
The transactions between related enterprises (the term “related” is defined
broadly in local law) as well as those with companies located jurisdictions
considered non-cooperative for fiscal transparency purposes, should be
entered into on arms'-length terms. To do so, these companies must comply
with the transfer pricing standards established in local legislation, which
mostly follow the guidelines established by the OECD.
Taxpayers required to file sworn statements in relation to the transactions
subject to transfer pricing standards are those who:
►
►
►
►
engage in transactions with foreign companies, persons or groups of
persons that, directly or indirectly, have an equity interest in them or
which control or manage them;
engage in transactions with foreign companies or establishments, in
which a direct or indirect equity interest, is held by foreign companies,
individuals or groups of individuals that, directly or indirectly, have an
equity interest in or control or manage the former;
engage in transactions with foreigners related under other relation
criteria;
perform transactions with artificial or natural persons organized,
domiciled, or located in jurisdictions considered to be noncooperative for
fiscal transparency purposes or in low or nil taxation jurisdictions.
In this regard, regulations provide that there shall be an economic relation in
the following cases, among others:
►
60
when a person provides another with the technological property or
technical knowledge that form the basis of its activities and based on
which the latter conducts business;
Tax
►
►
►
when a person performs a significant activity only in relation to another
person, or its existence is only justified in relation to another person,
giving rise to single-vendor or single-customer relations, among others;
when a person substantially provides the funds required for the
performance of the business activities of another person by granting
loans or, in the case of third-party financing, providing guarantees of any
kind;
when a person bears the losses or expenses of another person.
In the case of exports to related parties involving grains, oilseeds, other
products of the land, oil & gas and their derivatives and, in general, goods
with widely-known listed prices on transparent markets, in which an
international intermediary, other than the effective merchandise recipient, is
involved, a special method should be applied to assess Argentine-source
income, with the specifications established in such rules.
The taxpayers in question are required to file a semi-annual sworn statement,
and an annual informative return and an annual supplementary sworn
statement; the latter shall be filed along with a transfer pricing report signed
by a certified public accountant and with the company’s financial statements.
In addition, the parties exporting and importing goods to and from
independent parties shall also be required to prove that the prices set in those
transactions are consistent with normal market conditions, to the extent that
they performed export and import transactions for an annual amount
exceeding ARS 1 million.
In the case of imports or exports of goods for which an international —publicly
and generally known— price could be set through transparent markets, stock
exchanges or similar entities, those prices shall constitute benchmarks to
prove that transactions are consistent with market practices.
Corporate reorganizations
Reorganizations of corporations, going concerns and companies in general
or/operations of any kind may be considered tax-free, and the transfer of certain
tax attributes may be transferred to the surviving company, provided certain
conditions are met.
To such end, all reorganizations are required to be reported to the AFIP, whose
approval should be obtained prior to transferring a part of a company's business
to another. In order to transfer tax attributes and benefits in a tax-free
organization, the surviving company/ies should continue to engage in the activity
of the predecessor company/ies during a period of at least two years since the
reorganization. In addition, the owners of the predecessor companies should show
that they held at least 80% of the equity interest they held in the predecessor
companies had been held during at least two years prior to the reorganization
date. At the same time, the owners of the incorporated company should maintain,
for at least two years as from the reorganization date, at least 80% of the
incorporated company at the time of reorganization. There are also other specific
requirements (or they may vary) for each kind of reorganization (merger, spin-off
and sale or transfer within the same group of companies) established in the tax’s
administrative order.
61
Tax
Some of the tax benefits that may be transferred to the surviving company
include the following:
a)
Accumulated net operating losses not yet expired. For this benefit to apply,
the equity interest is required to have been maintained for two years prior to
the reorganization date.
b)
Unused amounts arising from tax benefits or special deductions.
c)
Deferred charges not yet deducted.
d)
Unutilized tax benefits granted by certain government agencies as long as
the surviving company meets the basic conditions subject to which such
exemption was given. For this benefit to apply, the equity interest is required
to have been maintained for two years prior to the reorganization date.
e)
The option of carrying on with the methods used by the predecessor
company to value inventories, depreciate P&E and intangibles, allocate
income and expenses, and the system used to allocate tax-deductible
reserves, or choosing a new method. It should be noted that, in certain
cases, the AFIP's authorization is required prior to changing the method.
Thin capitalization rules
Interest on borrowings by local entities that are controlled by foreign parties – as
defined in transfer pricing rules - shall not be deductible in the proportion related
to the liability giving rise to such interest at the end of the year, which exceeds
double the amount of equity as of that same date. The related administrative
order clarified that the above-mentioned exception applies to those interest
amounts considered to be of 100% Argentine source-income with respect to the
foreign beneficiary and that they are subject to a 35% withholding upon payment.
The portion of interest that is not deductible shall be treated as dividends.
5.2.2. Minimum presumed income tax
Minimum presumed income tax is applicable in all of Argentine territory, and it is
determined on the basis of assets valued pursuant to the abovementioned law’s
provisions.
Assets subject to tax in Argentina whose aggregate value is equal to or lower than
ARS 200,000, are exempt from minimum presumed income tax (MPIT). When the
value of assets exceeds such amount, all taxable assets held by the taxpayer shall
be subject to minimum presumed income tax.
The following items should not be considered when calculating the tax, among
others:
►
The value of brand-new depreciable personal property, other than motor
vehicles, in the year of acquisition or investment, and in the next one.
►
The value of investments in new buildings or improvements in the year in
which total or partial investments, as the case may be, are made and in the
next one.
62
Tax
Law 27,260 repeals minimum presumed income tax as from 2019.
Persons subject to tax
Persons subject to this tax, among others, are:
a)
Companies domiciled in Argentina.
b)
Non-for-profit organizations and foundations domiciled in Argentina
(provided that they are not exempt).
c)
Sole proprietorships located in Argentina.
d)
Individuals, undivided estates, owners of rural real estate.
e)
Permanent establishments domiciled, or as the case may be, located in
Argentina for or by virtue of the performance of commercial, industrial,
agricultural, livestock, forestry, mining or any other type of activities for
speculation or profit, related to either the production of goods or the
provision of services, that are owned by natural or artificial persons
domiciled abroad or patrimony by appropriation, exploitations or sole
proprietorships or undivided estates located abroad.
Rate
Minimum presumed income tax to be paid in results from applying the 1% rate to
the tax base.
Entities governed by Financial Entities Law and insurance companies subject to
the control of the SSN should consider a tax base of twenty percent (20%) of the
value of their taxable assets. Consignees of livestock, fruit and products of
Argentina shall consider forty percent (40%) of their taxable assets as their tax
base, pursuant to the law.
How this tax is paid
Income tax assessed for the tax year in which minimum presumed income tax is
calculated may be computed as a payment on account of the latter. If computable
income tax were insufficient and thus minimum presumed income had to be paid,
minimum presumed income tax actually paid could be considered a payment on
account of any excess of income tax over minimum presumed income tax that
arises in any of the subsequent 10 (ten) tax years.
This tax is paid in as follows:
►
►
Eleven monthly prepayments.
Remaining amount: In the fifth month subsequent to year-end.
63
Tax
5.3.
Indirect Taxes
5.3.1. Value-added tax (VAT)
Overview
Value-added tax is levied on:
a)
Sales of personal property located or placed in Argentina.
b)
Works, contracts for services, and service provisions in Argentina. The
services rendered in Argentina effectively used abroad are not deemed as
having been carried out in Argentina.
Definitive importations of personal property.
c)
d)
Services provided abroad but actually used or exploited in Argentina when
service recipients are subject to VAT by virtue of other taxable events and
are registered VAT payers.
Who pays VAT
In general, those who regularly sell or provide taxable goods or services are
required to pay VAT.
Joint ventures, joint business undertakings, consortiums, among others, are also
VAT payers.
The total of this tax is assessed by applying fixed rates for transactions giving rise
to VAT to the net price of the sales, leases, works and services subject to taxation.
The tax amount that was assessed in the tax period and that was invoiced to
registered taxpayers for purchases or definitive imports of goods, contracts for
works or services, is deducted from the total assessed tax mentioned above.
Therefore, it is actually the end-consumer (or exempt party) who bears the VAT
cost.
Certain taxpayers (in general, natural persons or de facto associations with a
maximum of three partners) whose annual sales do not exceed a cap of ARS
400,000 (or ARS 600,000 in the specific case of a sale of personal property and
to the extent that certain payroll requirements are met), and provided they
comply with other requirements, may choose to enroll for the simplified system
(single tax system for small taxpayers [monotributo]), which replaces the VAT and
income tax payments for the payment of a monthly fixed amount.
VAT credit and debit system
VAT calculated by companies for sales or service provisions is known as “VAT
debit”. VAT paid by companies for goods or service purchases is called “VAT
credit”.
In general, companies deduct their VAT credit from the VAT debit every month,
file a VAT return, and pay in the difference, if any.
If in a given month the VAT credit exceeds the VAT debit, the difference may be
added to the VAT credit for the next month.
64
Tax
The tax paid for the acquisition of goods or services intended for operations that
are exempt or not subject to taxation, cannot be computed as VAT credit. Thus,
such VAT is not recoverable and is a cost. The VAT credit from the acquisition of
automobiles costing more than ARS 20,000, restaurant and hotel services, etc., is
generally not computable either, with a few exceptions.
There is a VAT reimbursement system in place for purchases made by tourists
abroad on taxable goods produced in Argentina. In addition, VAT billed for the
services provided to foreign tourists by hotels, inns, guest houses and similar
establishments at sites of tourist interest located in provinces with international
borders shall also be reimbursed.
Tax Rates
The general VAT rate is 21%.
This rate is increased to 27% when such services are provided to properties not
used exclusively as dwellings and the service recipient is a registered VAT-payer
or enrolled in the simplified system for small taxpayers:
►
Telecommunications services.
►
Gas and electricity.
►
Running water supply and sewerage services.
The general rate is reduced to 10.5% for the following taxable events, among
others:
►
Sale and import of live animals, meat and edible offal of cattle, sheep, goats
and other animals; fruits, pulse and vegetables; bee honey in bulk; certain
grains and dry pulse (beans, peas and lentils); bread and certain bakery
products; and cattle hides.
►
Services related to obtaining some of the products mentioned in the prior
paragraph.
►
Sales, manufacturing, fabrication or construction and definitive imports of
goods that qualify as "capital assets" according to the list included in VAT
law.
►
Works on real property belonging to other parties and earmarked for housing,
excluding those performed on pre-existing constructions that cannot be
considered work projects in progress, and works performed directly or
through third-parties on real property owned by the taxpayer, when
earmarked for housing.
►
Interest and fees on loans granted by financial institutions, under certain
conditions; certain health care and paramedic services; and passenger, land,
water or air transport in Argentina (when the journey exceeds 100
kilometers).
►
Sales and definitive importation of certain dailies or other newspapers,
magazines, journals and periodical publications; works of art; chemical
fertilizer for use in farming; propane, butane and liquid petroleum gas.
65
Tax
In addition, the individuals engaged in editorial production activities could be
subject to a 2.5% rate under certain assumptions.
Comments in connection VAT applicability to certain specific
transactions
►
Imports
Definitive imports, whether recurring or nor, are subject to VAT. The importer
must pay VAT before the imported goods are picked up from Customs (the
additional withholding is received by the General Customs Office). The tax
paid as an importer is a tax credit to the extent that such importer is a
registered VAT-payer.
There is an additional withholding system applicable upon importing goods
definitively. The rate is usually 20% (10% in the case of goods subject to the
reduced VAT rate). P&E imports (P&E includes all assets whose useful lives
exceed two years for depreciation purposes under income tax) are not subject
to VAT additional withholdings.
►
Service imports
Registered VAT payers must pay over VAT for the service provided by others
abroad, when those services are commercially used in Argentina.
The VAT paid on this account may be computed by the service recipient as
tax credit in the following month.
►
Leases and rentals
The lease of real property and the rental of personal property are subject to
VAT. Real property leases are VAT-exempt when the assets are to be used
exclusively for housing by the tenant and his family, and the lease charged
does not exceed ARS 1,500 per month per unit or tenant or are rural
properties used in farming activities.
►
Sale of real property
Sales of real property are only subject to VAT (excluding the value of the
land) when they are made by:
►
►
Construction companies building on their own plots of land to generate a
profit from such activity or from the subsequent sale of the building.
►
VAT payers which transfer or cease to apply works or other tasks to a
taxable activity that generated a tax credit, provided those actions take
place before 10 years have elapsed. In such cases, the tax amount to be
paid will be the VAT credit computed at the time.
Exports
Exports, whether of goods or services, are not subject to VAT. Exporters may
compute the tax for expenses related to taxable transactions they would have
been billed for against tax debits resulting from the sales and services they, in
turn, have billed.
66
Tax
If a VAT credit results from this offsetting, the taxpayer may request that the
respective amount be credited against other taxes payable to the AFIP, that it
be reimbursed, or that it be transferred to other taxpayers.
Exemptions
The sales and contracts for services and service provisions mentioned below are
all VAT exempt:
►
►
►
►
►
►
►
►
►
►
►
Books, leaflets and similar printed material and sale to the public of
newspapers, magazines and periodical publications.
Teaching services, under certain conditions.
Healthcare organization services under certain requirements.
Medical, paramedical and healthcare services, under certain requirements.
Personal services provided as a payroll employee.
Services inherent to the positions of director, statutory auditors and
members of the surveillance committee.
Certain staple foodstuffs (ordinary natural water, liquid or dried milk) for
certain consumer categories.
Lease of real properties, with the exceptions mentioned under the leases
section.
Services provided by taxis and private town cars (remise) with drivers (for
journeys covering distances of less than 100 km).
The business of organizing congresses, fairs and exhibitions and the rental of
space therein, when the services are engaged by foreign parties.
International passenger transport and freight.
5.3.2. Turnover tax
Overview
Turnover tax is a provincial tax charged by tax authorities in each of the 24
jurisdictions (including provinces and the city of Buenos Aires).
This tax is applied on revenues from the usual activities carried out for profit in
business, industry, the professions, trades, business deals, leases, contracts for
work or services, etc., regardless of the result of such activities, the nature of the
service-provider or the place where the activities are performed.
Exemptions
Among others, we may mention the following exemptions (which may vary
depending on the jurisdiction in question):
►
Transactions with securities, bonds, corporate bonds and other documents
issued by the federal, provincial, or municipal governments.
►
Transactions involving shares and dividends.
►
Publication of books, periodicals, dailies, and magazines.
►
Interest and / or indexation on savings-account, fixed-term, and checkingaccount deposits.
►
Sale of real property (with certain exemptions).
►
Goods exports (with certain exceptions).
67
Tax
Some provinces have exempted certain activities from turnover tax, such as
primary production, production of goods, real estate construction, among others,
pursuant to the commitment undertaken upon adhering to the Federal Pact for
Employment, Production, and Growth.
Rates
Turnover tax rates vary according to the jurisdiction and the activity involved. The
average rate (applicable to commerce and services) ranges from 3% to 5.5%. The
rate on production activities is generally 1.5%. Some jurisdictions set higher rates
for taxpayers who exceed certain turnover parameters, possess premises in other
jurisdictions or when production is not carried out in their jurisdiction. Higher
differential rates are applied to other activities (loans, commissions,
telecommunications, etc.).
Payment terms and manner
In general, turnover tax is calculated and paid over on a monthly basis and
taxpayers are required to file an annual turnover tax return.
Multilateral compact
Taxpayers exercising activities in more than one provincial jurisdiction should
spread the taxable turnover among the related jurisdictions, according to the
provisions set forth in the agreement signed among the jurisdictions to this end,
referred to as the Multilateral Compact.
5.3.3. Excise taxes
Overview
Excise taxes are levied on the supply throughout Argentine of certain
consumables defined specifically in the law, such as alcoholic beverages, beers,
concentrated syrups, automobiles and vehicles, certain electronic products,
luxury objects, etc., at different rates and with different declaration and payment
requirements.
This tax generally applies to manufactures or importers, so that it only affects one
of the product’s cycle stages.
5.3.4. Customs Duties
International and regional agreements
Argentina is a member of the World Trade Organization, the ALADI (Latin
American Integration Association) and the MERCOSUR (Southern Common
Market).
World Trade Organization
Argentina, as member of the World Trade Organization, has adopted, among
other basic principles, the GATT (General Agreement on Tariffs and Trade) value
code, which establishes the value guidelines for imports of goods.
68
Tax
ALADI (Latin American Integration Association)
The ALADI is an intergovernmental agency that promotes regional integration, to
ensure its economic and social development and its ultimate goal is to establish a
common Latin American market.
Its thirteen member countries are Argentina, Bolivia, Brazil, Chile, Colombia,
Cuba, Ecuador, Mexico, Panama, Paraguay, Peru, Uruguay and Venezuela.
Compacts signed among different member countries have established tariff
preferences for products originating in member countries with respect to tariffs
effective for third-party countries.
MERCOSUR (Southern Common Market)
The MERCOSUR was created in 1991, when Argentina, Brazil, Uruguay and
Paraguay signed the Treaty of Asunción.
The basic purpose of the Treaty of Asunción is to integrate the four member
countries through the free circulation of goods, services and productive factors
and establish a common external tariff.
In such regard, the import of goods originating in any of the member countries will
be subject to a 0% import duty.
Chile, Peru, Ecuador and Colombia take part in the MERCOSUR as Associate
States, while Venezuela was incorporated as a member on June 29, 2012, and
Bolivia signed the adhesion protocol that same year; the adhesion process is still
underway. The incorporation of Guyana and Suriname as associate countries is
still at the ratification stage.
Importation taxes
Import duties
In Argentina importation duties are calculated on the CIF (cost, insurance and
freight) value of goods, valued under GATT value standards.
This duty rate ranges from 0% to 35%, according to the characteristics of the
exported goods, whose identification, in order to verify the applicable tax rate,
shall be made by using the tariffs of Common MERCOSUR nomenclature.
There may be minimum specific import duties, resulting from applying a fixed
amount in US dollars by measurement unit (meters, pairs, kilograms, etc.) as
minimum import duty.
Specific import duties only apply to textile, apparel and shoe industry products.
Statistical rate
The importation of goods shall be subject to the payment of a statistical rate,
which is 0.5% of the CIF value of goods, with a USD 500 cap.
Value-added tax
See comment on imports in point 5.3.1.
69
Tax
Income tax
The definitive importation of goods is subject to a 6% or 11% income tax additional
withholding, depending on the allocation of the imported goods.
The assets that qualify as P&E for the importer are not subject to additional
withholdings.
The amount of additional income tax withholdings made shall constitute an
advance tax payment for registered taxpayers and shall be computed by the latter
in the tax return for the respective annual tax period.
Turnover tax
The definitive importation of certain goods is subject to a turnover tax additional
withholding of 2.5%. Imports of assets that qualify as P&E for the importer are not
subject to additional withholdings. The amount thus paid is considered as a
prepayment made by the importer from the withholding is made.
Export taxes
Export duties
The export duty is levied on the export for consumption, i.e., the definitive
extraction of merchandise from Argentina.
Such duty is calculated based on the FOB (free on board) value of goods, valued
under the Argentine Customs Code standards. Any other taxes and charges levied
on exports and the CIF value of materials imported on a temporary basis are
excluded from the taxable value, whenever they have been included in the value
of goods.
The rates of export duties of most agricultural, agri-industrial and industrial
products covered in several Chapters of MERCOSUR Common Nomenclature was
set at 0% based on Presidential Decree Nos. 133/2015 and 160/2015.
Some mining industry products are barred from this decreased rate of 0% and a
specific treatment was adopted for soybean and its derivatives whereby a rate
ranging between 27% and 30% was implemented, based on the tariff heading of
the goods to be exported. For oil and gas exports, if the international price is
lower than USD 71 USD/BBL, a 1% rate is applied; on the contrary, if the price
exceeds such benchmark value, export duties shall be higher based on a formula
set forth by the regulation.
Income Tax
AFIP General Resolution No. 3577/2014 establishes an income tax additional
withholding system applicable to certain definitive export for consumption
transactions in which the physical destination country of the goods is not the
same as the countries or jurisdictions in which the foreign parties who are billed
for those exports are domiciled.
In these cases, the amount to be additionally withheld by the General Customs
Authorities, as additional withholding agent, is 0.5% of the taxable value assessed
for paying customs duties and 2% when the export invoices are issued to parties
domiciled, organized or located in countries, domains, jurisdictions, territories and
associate states considered non-cooperative for fiscal transparency purposes.
70
Tax
Benefits granted to exporting parties.
Rebates
Exporters of unused goods manufactured in Argentina shall be entitled to a total
or partial rebate of the amounts paid as internal taxes in the different production
and sale phases.
Those rebates are applied to a value derived from the estimation of the FOB value
of the goods to be exported, from which the CIF value of imported goods inputs
shall be deducted, as well as the amount paid as commissions and brokerage. The
tax base for calculating rebates may not exceed that for calculating export duties.
The applicable rebate percentage depends on the classification of goods in the
MERCOSUR Common Nomenclature and currently ranges from 0% to 6%, except in
the case of fish and crustaceans, mollusks and aquatic invertebrates, which
amounts up to 10%.
Drawback
It is a customs system whereby the amounts paid for taxes levied on the import
for consumption of goods are totally or partially refunded, as long as those goods
are then exported for consumption in the following conditions:
a) After having been subject to a transformation, manufacturing, combination,
mixture, repair or any other enhancement or improvement process in the
customs territory.
b) To be used to prepare or package other goods to be exported.
The amounts to be refunded are assessed as a fixed amount for each unit of
exported merchandise.
VAT refund
See comment on exports in point 5.3.1.
Temporary import for industrial improvement
Through this system goods may be imported into Argentina for the purpose of
being perfected through an industrial process, with the obligation to be exported
in the new form for consumption in other countries; such re-exporting shall take
place within a term not exceeding one year (360 days) for goods manufactured in
series and two years (720 days) for goods not produced in series.
Goods imported under that system are not subject to the duties and taxes levied
on importation for consumption nor the statistics fee, although they are subject to
any other fees for services. Additionally, the CIF value of such goods will be
exempt from export duties.
The importer is required to provide a guarantee to cover the duties and taxes that
would be applicable if the goods in question were eventually imported for
consumption.
Some specific features of the system include the “system indirect user” and
“stock replacement” elements.
“Indirect users” are those who formalize the Temporary Importation Clearance
and assume liability for compliance with the regulations but do not actually
71
Tax
perform any process on the merchandise and, instead, they deliver it to a thirdparty for industrial processing.
“Stock Replacement” is a device that allows importing merchandise earmarked for
replacing identical merchandise of the same origin that was previously imported
for consumption but after being submitted to industrial processing was exported
for consumption. Stock replacement should be requested no later than 180 days
after the date of the export of reference.
Free-trade zones
A free-trade zone is a jurisdiction where goods are not subject to the usual control
of the customs service and their import and export are not subject to taxes.
Activities allowed to be performed in free-trade zones include storage, trade,
services and manufacturing, but the latter with the exclusive purpose of exporting
the resulting goods to foreign countries.
The main free-trade zone in Argentina is the La Plata free-trade zone, located 50
kilometers away from the City of Buenos Aires.
5.4.
Other Taxes
5.4.1. Tax on bank account transactions and other similar transactions
This tax is applied on debits and credits to accounts opened with institutions
included in the Financial Institutions Law.
In addition, all cash movements or payments are subject to this tax, whatever the
mechanism used, when made through organized payment systems in lieu of bank
checking accounts.
The general rate is 0.6% for bank debits and 0.6% for bank credits (and 1.2% when
the movement of funds is not made through a bank account) and there are
differential rates and exemptions applicable to certain transactions.
A total of 34% of the tax paid for bank account credits is computable against
income tax and/or minimum presumed income tax (the computation is 17% in the
case of taxable events subject to a 1.2% rate).
5.4.2. Tax on transfer of title to real property owned by individuals
and undivided estates
This tax is levied on the transfers for good and valuable consideration of
ownership over real property located in Argentina owned by natural persons or
undivided succession estates, as long as such transactions are not subject to
income tax.
The tax rate is 1.5%.
For sales of a person’s only home or land for the purpose of purchasing or
constructing another home intended for living in, there is the option of not paying
the tax under the conditions set forth in regulations, provided both transactions
are made within a one-year period.
72
Tax
5.4.3. Personal assets tax
Natural persons and undivided estates domiciled in Argentina are subject to the
tax for the assets located in Argentina and abroad. The tax is applicable on assets
held as of December 31 each year. The following tax rates were established
according to the reform introduced by Law No. 27,260:
►
►
►
Year 2016: 0.75% applicable on amounts over ARS 800,000.
Year 2017: 0.50% applicable on amounts over ARS 950,000.
Year 2018: 0.25% applicable on amounts over ARS 1,050,000.
Natural persons and undivided estates domiciled abroad are also subject to this
tax for the assets located in Argentina, at the rates indicated in the previous
paragraph.
The tax levied on shares and/or membership interests in the capital stock of
companies governed by Argentine Business Associations Law No. 19,550, whose
owners are natural persons and/or undivided estates domiciled in Argentina or
abroad, and/or companies and/or any other kind of legal entity, domiciled abroad,
shall be settled or paid over by the companies governed by the abovementioned
law, and the applicable rate shall be 0.25 % on the amount resulting from the
difference been the company’s assets and liabilities as of December 31 of each
year. The payment shall qualify as single and definitive.
For the purposes mentioned in the preceding paragraph, it is irrebuttably
presumed that the shares or equity interests in Argentine companies of any kind
owned by foreign companies indirectly belong to natural persons domiciled
abroad.
5.4.4. Stamp tax
In general terms, stamp tax is a provincial tax levied on acts, contracts and
transactions involving good and valuable consideration, which are formalized
through public or private documents.
Each province has its own rules, which apply to its territory, meaning that careful
attention is required to ensure compliance with the regulations of the jurisdictions
in which the effects of those acts take place.
The documents subject to stamp tax are agreements of any kind, property
transfer deeds, loans, promissory notes, securities, among others.
The general average rate is about 1%. However, there are certain differential
rates, such as those that apply to real property or automobiles, in which case the
rate is about 3.6%. However, rates vary according to the jurisdiction.
Several provinces partially abrogated stamp tax on all formalized financial and
insurance transactions earmarked for the agricultural, industrial, mining and
construction sectors under the commitment undertaken upon adhering to the
Federal Pact for Employment, Production, and Growth.
73
Tax
5.5.
Treaties to Avoid International Double Taxation
Argentina has in effect 18 treaties with a number of countries to avoid double
international taxation and thus promote reciprocal investment and trade.
Listed below are the effective income tax rates under these treaties for the items
in which an investor would be more interested:
Country
General income tax rate
Germany
Canada
Finland
France
Italy
Sweden
Bolivia
Dividends (a)
10% / 35% (a)
15%
10 / 15%
10 / 15%
15%
15%
10 / 15%
10% / 35% (a)(c)
Brazil
United Kingdom
Belgium
Australia
The Netherlands
Denmark
Norway
Uruguay
Spain
Russian Federation
Switzerland
10% / 35% (a)(c)
10 / 15%
10 / 15%
10 / 15%
10 / 15%
10 / 15%
10 / 15%
10% / 35% (a)(c)
10 / 15%
10 / 15%
10 / 15%
Royalties
Interest
21% to 31.5%
15%
3% to 15%
3% to 15%
18%
10% to 18%
3% to 15%
21% to 31.5%
(c)
21% to 31.5%
(c)
3% to 15%
3% to 15%
10% to 15%
3% to 15%
3% to 15%
3% to 15%
21% to 31.5%
(c)
3% to 15%
15%
3% to 15%
15.05% to 35%
10 / 15% (b)
0 / 12,5%
0 / 15%
20%
20%
0 / 12%
15.05% / 35% (c)
15.05% / 35% (c)
0 / 12%
0 / 12%
0 / 12%
0 / 12%
0 / 12%
0 / 12%
15.05% / 35% (c)
0 / 12%
0 / 15%
0 / 12%
The applicable rate is the general rate under Income Tax Law or that provided by
the respective treaty, whichever lower.
Also, Argentina has entered into specific international transportation treaties with
several nations.
a)
b)
We refer to the section on Income Tax – Rates – Dividends.
On credits financing the sale of equipment, bank loans, and financing of
public works: 10%.
No specific rates have been agreed upon in the treaty.
c)
5.6.
Foreign Exchange Regulations
The foreign exchange system effective in Argentina established the obligation to
bring foreign currency arising from certain transactions into Argentina and
convert it into pesos and also provided for certain restrictions on the transfer of
funds abroad.
►
Incoming funds
Exporters are required to convert foreign currency from export collections (FOB,
CyF, as the case may be) on the single and free foreign exchange market (MULC
or Mercado Único y Libre de Cambios) (Communiqué “A” 3473, as supplemented).
74
Tax
The term for the conversion is counted as from the date of shipping and was set
by Resolution No. 91/2016 of the Secretary of Trade at 365 days for all tariff
positions in the MERCOSUR Common Nomenclature. It should be noted that there
is no distinction any longer between related companies and independent parties.
The same term is applied for both.
Export prepayments and prefinancing
Export prepayments and prefinancing should be brought into the foreign
exchange market and converted into Argentine pesos within the terms indicated
by current regulations for them to be considered for the purpose of compliance
with the obligation of foreign currency to be entered into Argentina and converted
in the foreign exchange market. The term of 15 business days to bring the funds
into Argentina after collection abroad has been eliminated.
Application of goods export collections to settle export prepayments
and prefinancing and other foreign financing
Export collections abroad are allowed in order to settle the exporter’s debts in
relation to:
-
-
Export prepayments and prefinancing (point 5 of Communiqué “A” 3473).
Borrowings used to finance new investment projects to produce exportable
goods or increases in exporting capacity (point 7.1 of Communiqué “A” 5464,
as amended).
Borrowings used for exporters’ long-term financing (point 7.2 of Communiqué
“A” 5265).
Collecting payments for services rendered to nonresidents
Conversion of the foreign currency resulting from service exports on the single
and free foreign exchange market is required for 100% of the amount actually
collected in foreign currency, net of the withholdings or discounts applied abroad
by the customer. This requirement covers all service exports by Argentine
residents to nonresidents (Communiqué “A” 5264).
Through Communiqué “A” 6003, dated July 1, 2016, the term for the entry and
conversion of foreign currency for services provided to nonresidents was
extended to 365 calendar days as from collection.
Moreover, BCRA Communiqué “A” 5899 (as amended) established the possibility
of entering foreign currency for the item under analysis without converting it in
the foreign exchange market for amounts under USD 5 million, which implies a
reduction in the effective limit for the creation of foreign assets, provided the
entry occurs within the term applicable for the entry of funds into the foreign
exchange market.
►
Outgoing funds
Payments for imports of goods
Communiqué “A” 5274, as supplemented, updated the reorganization of the
regulations applicable to access the single and free foreign exchange market to
pay for Argentina’s goods imports.
75
Tax
This regulation includes different ways to make payments abroad for imported
goods through the single and free foreign exchange market:
-
Demand deposits: Have the sworn statement filed through the
comprehensive import monitoring system (SIMI), approved by agencies that
join or have joined the one-stop foreign trade services counter based on their
competence (VUCE). The term for providing evidence of the customs entry of
the goods will comprise 365 calendar days as from the date of approval.
-
Prepayment: Prior to commencing the transaction, the bank involved will first
need to verify the following: (i) the sworn statement filed through the SIMI is
approved; (ii) documentation supporting the purchase of goods abroad; (iii)
the beneficiary of the payment is the foreign supplier, the foreign financial
institution or the official credit agency that financed the foreign supplier’s
prepayment; (iv) the foreign currency is sold against the applicant’s check or
by debiting the applicant’s account in pesos through one of the current
payment methods available; (v) importer’s sworn statement that he
undertakes to evidence the customs entry of the goods within 365 calendar
days as from the application filed with the single and free foreign exchange
market.
-
Deferred payment: The importer should pay the import-related trade
payables once the commercial invoice falls due. On an exceptional basis, the
regulation provides for the possibility of paying the debt 5 business days prior
to the abovementioned due date.
Payment of services
Argentine residents can access the single and free foreign exchange market to
make transfers abroad to pay services provided by nonresidents according to the
terms agreed-upon by the parties, under applicable regulations. They must submit
the documentation proving the authenticity of the transaction in terms of the
description of the transaction, the provision of the service to the nonresident to
the resident and the amount to be transferred abroad (Communiqué “A” 5377).
If the nature of the service that is to be paid does not have a direct relationship
with the activity’s core business, the entity authorized to trade foreign currency
must demand certain documents as provided in the regulation to make sure this
payable abroad really does exist.
Tourism and Travel
Through Communiqué “A” 5850 the requirements established concerning access
to the single and free foreign exchange market to purchase foreign currency and
travelers checks on account of "tourism and travels" were removed.
At present, no prior BCRA authorization is required to purchase foreign currency.
Purchases exceeding USD 500 per calendar month should be made by debiting the
amount from a bank demand account opened in Argentine banks in the client’s
name or by transferring the funds via MEP or through a payment with a check
from the client’s own account. The monthly cap per client stands at USD 5 million.
Income (interest, profits and dividends)
Income includes interest, profits and dividends.
76
Tax
Access to the foreign exchange market is allowed to pay interest on outstanding
loans, or loans that are settled simultaneously with the interest payment,
provided the foreign exchange regulation allows access to the single and free
foreign exchange market to settle the debt service payments and all general
requirements set forth to make those payments have been met. The transaction
to purchase foreign currency can be made 10 (ten) business days prior to the due
date of each interest installment, at the earliest, computed in arrears.
Transferring profits and dividends abroad is feasible, provided these amounts
belong to financial statements that have been closed and audited.
►
Control and Reporting Systems
Comprehensive Import Monitoring System (SIMI)
By the end of 2015, AFIP Resolution No. 3823/15 abrogated the early import
declaration (DJAI) and replaced it by the comprehensive import monitoring
system (SIMI), which is used for establishing an information system applicable to
all definitive import of goods. Thus, all the recorded information is available to the
agencies involved in this system.
Import licenses
Together with the creation of the SIMI and under the scope of Resolution No.
5/2015, automatic advance import licenses (LAPI) and nonautomatic advance
import licenses (LNA) were implemented.
►
LAPI: it is the general rule that covers all imports for consumption of goods of
the different tariff headings of the Common Mercosur nomenclature, which
are subject to prior approval for its import, except for goods for which a LNA
is required.
► LNA: It is the exception; the definitive imports of goods of certain tariff
headings are subject to nonautomatic advance import licenses. In general
terms, it involves toys, threads and textiles, motorcycles, tires, paper,
metallurgical products, chemical products, optics instruments and equipment,
photographs or cinematography, and medical-surgical instruments and
equipment.
DJAS (early services provision declaration)
AFIP General Resolution No. 3276, effective April 1, 2012, implemented a
reporting system applicable to service provision agreements abroad, that is to
say, services rendered by foreign parties to Argentine residents and by Argentine
residents to foreign service beneficiaries. Argentine residents shall be considered
to be those who qualify as such under Income Tax regulations.
However, in practice the DJAS are implemented for cases in which the service is
provided by a foreign party to a party residing in Argentina.
DAPE (early declaration of payments abroad)
AFIP General Resolution No. 3417 introduced a one-stop foreign trade services
counter, the early declaration of payments abroad, which constitutes a
requirement since February 1, 2013, to make payments abroad in relation to the
courier system, with financial debts from purchases of goods that have not been
77
Tax
brought into Argentina and have been sold to other countries, resulting in
financial income.
Sometime later, the obligation was extended to also cover the lease of machinery,
tools and other moveable property (including purchases abroad of goods under
capital leases), among others.
Communiqué No 3602
This Communiqué implements a system for surveying foreign payables and the
issuance of securities from the financial and non-financial private sectors. Debtors
are required to file a declaration, which must be done on a quarterly basis through
the financial institutions and with the bearing of a sworn statement.
Communiqué No 4237
Through Communiqué “A” 4237 the BCRA established a system to review direct
investments that residents with investments abroad and which involve direct
foreign investments must comply with. This is filed at the end of each calendar sixmonth period.
78
6. Labor and Social Security
Legislation
6.1.
Labor Supply and Relations
Workforce
Argentina has a skilled workforce. Well-trained employees are generally easily
found in most industrial areas. However, in some areas that experience a
substantial increase in the volume of industrial activity, a shortage of skilled labor
may occur.
Methods of recruiting employees vary, depending on the qualifications required,
from hiring directly at the employer’s facilities to using specialized private
employment agencies. Agencies are used especially in recruiting for managerial
and technical positions.
Many are located in Buenos Aires City and its surroundings, where the labor force
is highly concentrated. Labor contracts are not required to be formalized in
writing, and they usually are not.
Executive Compensation
Executives receive various fringe benefits in addition to their salary. Foreign
companies usually provide such benefits in accordance with the parent company’s
policies. The most common benefits are health plans including ophthalmology and
dentistry, life insurance and payment of post-graduate studies.
If the employer agrees to pay all income tax and social security contributions on
salaries, executive compensation may constitute a significant cost to the
employer.
For instance, a salary equivalent to USD 55,000 a year free of income tax and
social security could result in a total executive compensation cost to the employer
of approximately USD 90,000. This kind of agreement is common for expatriates,
but not for local employees.
Salaries and wages
The salaries and wages for office and plant workers vary from one region of the
country to another. Minimum salaries are generally established by collective
bargaining, but supply and demand usually have great influence in determining
the salaries of the best qualified workers.
6.2.
Labor legislation
Minimum Wage
A single general minimum wage is established for all industrial and office workers.
It is approximately equivalent to USD 454 (ARS 6,810) and USD 2.27
(ARS 34.05) for monthly and hourly salaries, respectively.
Collective bargaining agreements establish more realistic minimum salary tables,
which are the ones most often used.
79
Labor and Social Security Legislation
A general Employment Contracts Law, supplemented by additional laws and
regulations, governs employment conditions throughout the country. In addition,
there are collective bargaining agreements that regulate the specific employment
conditions for particular sectors of activity.
However, the abovementioned law does not apply to farm workers or government
employees, whose work conditions are established in separate laws and
regulations.
There are also special laws that deal with certain categories of workers (travelling
salesmen, journalists, domestic staff, among others).
Labor Union Organizations
Almost all industrial and office workers belong to some labor union. Such labor
unions handle the collective negotiations, which cover both employment
conditions and salaries and wages scales.
Collective Bargaining
For many years only a single collective bargaining agreement for each particular
sector of activity was accepted. Some time ago, the government began allowing
parties to freely choose the type of collective bargaining practices they deem
most convenient.
The negotiation, therefore, can be by activity, by one or more sectors of an
activity, by specialization or profession, by enterprise or by any other
characteristic, but always respecting the provisions established in the main
collective agreement effective for the activity.
Registered employment promotion system
Since August 2014, a law approved a system promoting registered employment,
which provides for a reduction benefit lasting two years for the payment of
employer contributions (only including the Integrated Retirement and Pension
System, INSSJP (to fund the senior citizen’s healthcare plan, Argentine equivalent
of Medicare in the US), National Employment Fund, National System of Family
Allowances, National Registry of Rural Workers and Employees, applicable to
companies with up to 80 employees.
Employers with a headcount of up to 15 employees will not be required to make
any contributions during the first 12 months, and they will contribute 25% over
the following 12 months. In the case of employers with a headcount ranging from
16 (sixteen) and 80 (eighty) employees, the benefit will consist of paying over
50% (fifty percent) of the abovementioned contributions during the first 24
(twenty-four) months of the labor relationship.
Employers will avail themselves of this benefit in connection with each new
employee provided that the worker increases headcount with respect to March
2014.
In addition, there is a permanent system that reduces social security contributions
(to 50%), but is only applicable to micro employers having up to 5 (five) employees
(the system could be extended until headcount exceeds 7 (seven) workers). It
cannot be applied in the case of stock corporations.
80
Labor and Social Security Legislation
“First Job” Bill
The Argentine Executive power sent the “First Job” bill to Congress. This bill
establishes exemptions and incentives for employers who hire workers aged
between 18 and 24 years old with less than 3 years’ experience in the formal
labor market.
In the case of workers who provide services in the Northern region of Argentina,
the age limit is not applicable.
Employers hiring new employees under this system shall be exempt from the
payment of the different employer contribution percentages and may receive
additional financial incentives during the first 36 months of employment.
The exemption percentage or the incentives will decrease as time goes by during
employment. For companies with up to 200 workers, the bill exempts 100% of
employer contributions during the first year, 60% between month 13 and 24, and
40% from month 25 to month 36. For companies with over 200 workers, the bill
exempts 80% of employer contributions during the first 12 months, 40% between
month 13 and 24, and 20% from month 25 to month 36.
Public Registry of Employers with Labor Penalties
Law No. 26,940 created the REPSAL (Public Registry of Employers with Labor
Penalties), which includes and publishes the final judgments issued by the MTESS
(Ministry of Labor, Employment and Social Security), the AFIP (Federal Public
Revenue Agency), the authorities of the province of Buenos Aires and Buenos
Aires City, the RENATEA (National Registry of Rural Workers and Employees), and
the SRT (Argentine regulatory agency of workers compensation insurance
companies).
While they are included in the REPSAL, employers are not be able to: execute
agreements with the government, access credit lines granted by government
banks, or access programs, welfare or promotion actions implemented or financed
by the Argentine government. In addition, in the event of recidivism, during a
three-year term, the recidivist employer is not be allowed to deduct the expenses
related to the salaries and wages and payroll taxes of the whole payroll for income
tax purposes. The minimum term during which an employer may be listed in the
REPSAL stands at 2 (two) months and the maximum term, 3 (three) years.
6.3.
Other Employee Benefits
Argentine labor laws are notable for the protection they provide to employees.
Regulations cover labor contracts, forms of wage and salary payments, women
and minors in employment, and various other matters. Some of the main
regulations are detailed below.
Bonuses required by Law
Mandatory bonuses are paid on June 30 and December 18 each year. They
amount to one-half of the highest monthly remuneration paid to the employee
during the preceding semi-annual period. This is called sueldo anual
complementario (annual supplementary salary, i.e. thirteenth salary).
81
Labor and Social Security Legislation
Paid Vacation
Providing an annual paid holiday is mandatory. Vacation length ranges from 14 to
35 consecutive days, depending on the number of years of service. Vacation
length ranges from 14 to 35 consecutive days, depending on the number of years
of service. New employees are entitled to one day for every 20 days of effective
work. The compensation payable over the vacation period is required to include a
vacation bonus, which is about 19.6% for every day of vacation. Thus, the total
increase above the monthly salary will depend on the number of days of vacation
taken. Likewise, it is important to mention that the company must pay the
remuneration related to the vacation period upon the beginning of such period.
Illness and Accidents
In 1996, a new Workers Compensation Insurance Law came into force, which
implemented a system that is in effect to date and was updated on certain aspects
through recent amendments.
Workers Compensation Law requires that a mandatory insurance policy be
purchased from an authorized Workers Compensation Insurance Company,
covering the cost related to medical care, professional rehabilitation, prostheses
and orthopedic elements, funeral assistance and indemnities for partial or total
disability and death as a consequence of occupational accidents and diseases.
Employers who purchase workers compensation insurance policies are, in
principle, exempt from any civil liability with respect to their employees and their
heirs.
The insurance premium is set as a percentage of the employee’s salary, which
varies depending on the industry, number of employees and degree of compliance
with safety regulations.
Unemployment
Workers with more than six months of service on a job are included in a
government unemployment insurance system. Under certain circumstances, they
are entitled to receive monthly payments for a period of two to twelve months
based on a variable percentage of the highest monthly salary collected in the sixmonth period prior to their unemployment. Such payments are taken from a fund
comprising a portion of social security contributions. The unemployed are also
entitled to receive medical care.
6.4.
Main Types of Employment Contracts
The different types of employment contracts provided by Argentine legislation are
described below:
6.4.1. Types of contracts
Indefinite period employment contract
This feature need not be stipulated in writing in a contract, since the labor
relationship is assumed to be without time limit, unless otherwise stated in the
contract. In Argentina, it is not usual practice to formalize the employment
contracts in writing. This type of contract begins with a 3-month trial period.
82
Labor and Social Security Legislation
Fixed-Term Contract
Labor legislation provides for the possibility of hiring employees under a fixedterm contract. This type of contract cannot exceed a 5-year term. The reason for
entering into a fixed-term contract must be stated, e., that the person is hired in
place of an employee who is ill or to deal with an extraordinary work load.
If the contract is terminated before the end of the stipulated term, the employee
is entitled to claim compensation for damages; such compensation is usually
determined at the amount of the salaries that the employee did not collect
because of the early termination.
6.4.2. Severance pay
Indefinite period employment contract
The severance payment amount is generally equal to one month of the employee’s
compensation for each year of service (or any period longer than 3 months). The
calculation basis for the employee’s compensation for this purpose is the highest
monthly regular and habitual compensation received during the last year or during
the term during which the services were rendered, whichever shorter.
This base should not exceed the triple monthly amount resulting from averaging
all remunerations set forth by the applicable bargaining agreement. However, a
2004 Argentine Supreme Court ruling established that by applying the cap set
forth in the agreement, the monthly computable normal and regular
compensation for years of service cannot be reduced by less than 67% thereof,
because otherwise it would constitute a confiscation for the employee. In practice,
many companies have used this criterion upon calculating the severance pay
amounts.
The severance pay amount must never be lower than once the monthly normal
and regular compensation, which is taken as a basis.
It is important to point out that, in the case of workers who are not included in
collective bargaining agreements, the agreement related to the activity performed
in the establishment where the services are rendered will be applicable.
Severance pay may be reduced in cases of force majeure – e.g. production
contraction for reasons not attributable to the employer – subject to having
followed crisis procedures before government labor authorities.
Fixed Term of Contract - longer than 1 year
The severance payment amount is generally equal to one month of the employee’s
compensation for each year of service (or any period longer than 3 months). The
calculation basis for the employee’s compensation for this purpose is the highest
normal and habitual monthly compensation received during the last year or during
the term during which the services were rendered, whichever is shorter.
Such basis must not exceed 3 times the monthly amount resulting from averaging
all the compensation amounts established in the collective bargaining agreement.
The amount of the severance payment must never be lower than once the
monthly compensation taken as a basis.
83
Labor and Social Security Legislation
6.4.3. Compensation in lieu of notice
Indefinite period employment contract
The employer is required to inform the employee of its decision to terminate the
employment relationship with the following prior notice terms:
-
fifteen days prior to the dismissal date, if the worker’s length of service is less
than 90 days;
one month prior to the dismissal date, if the worker’s length of service ranges
from 91 days to 5 years; or
two months prior to the dismissal date, if the worker’s length of service
exceeds 5 years.
Notice must be served formally and in a sufficiently documented manner, and the
notice period shall be counted as from the day after it is served. During the notice
period, the employee affected is entitled to take two hours off each day to search
for new employment.
In lieu of the notice period, employers may opt to pay compensation in cash equal
to the salary which would have been earned in that period.
Fixed-Term Contract
The employer is required to give notice of the termination of the contract at least
one month before the agreed contract expiry date but not more than two months
before such date.
6.4.4. Unused Vacations
When the employment relationship concludes, the employee should collect an
amount equivalent to the proportion of vacation days accrued during the year.
Such amount is paid to cover unused vacations. This amount is determined in the
same way for both types of employment contracts.
6.4.5. Annual statutory bonus
Upon termination of the employment relationship, the employee must be paid the
proportion of the yearly bonus accrued during that half year. For example, if an
employee leaves the company at the end of November, the proportion of the
bonus must be calculated considering the proportion of half a monthly salary in
relation to the time worked during that half year (five months in this case). This
amount is determined in the same way for both types of employment contracts.
6.4.6. Other contracts which do not amount to an employment
relationship
Internships
This type of contract can be entered into by students, since its main purpose is to
foster the practice related to his/her education and qualifications.
In order to enter into this type of contract, the company must sign agreements
with universities or other educational institutions.
84
Labor and Social Security Legislation
In 2009 a new system of educational work experience traineeships was
implemented, which establishes, among other things, that trainees will receive a
sum of money of non-compensatory nature as an incentive allowance, which may
not be lower than the base salary of the collective bargaining agreement
applicable to the company, and which will be proportional to the amount of hours
of the traineeship.
Furthermore, as established in current regulations, the employer is required to
provide health coverage the services of which include those set forth in Statutory
Healthcare Organizations Law, with the employer being required to contribute 6%
of the incentive allowance received by the trainee.
6.5.
Social Security
Salaries paid to employees are subject to employer and employee contributions to
be sent to the Social Security System (except for some cases, among which we
can include directors-employees of companies that have opted to make
contributions only as self-employed workers).
The table below shows the employee and employer contributions, i.e. percentage
of salaries, required by law:
Item
Employer
Employee
contribution
contribution
Retirement pension
Law N° 24,241
10.17%
Family allowance
Law N° 24,013
4.44%
-
Federal Employment Fund
Law N° 24,013
0.89%
-
1.50%
3.0%
6.00%
3.0%
23%
17%
INSSJP (Argentine FederallyManaged Healthcare System
Available to Senior Citizens)
Law N° 19,032
Statutory health care
organization basic charge
Law N° 23,660
Total
11.00%
In the event that the company engages mainly in trade or in providing services,
and the average sales for the last three fiscal years exceeds ARS 48,000,000
(USD 3,200,000), tax authorities’ position is that payroll taxes to be paid by that
company total 27%. However, there has been case law accepting an adjustment
to such amount, currently standing at ARS 650,000,000 (USD 43,333,333), in
certain circumstances. Therefore, in the case of companies engaged in commerce
and services, the specific case should be analyzed before adopting a basic 23%
rate or the increased 27% rate.
Withholdings that employers are to apply to employees total 17% of their salaries,
with a cap of a tax base of ARS 56,057.93 (USD 3,737.20) as from March 2016,
for all items subject to withholding.
In addition to the above, employers are required to pay the premiums of Workers
Compensation Insurance, which covers the occupational accidents or diseases
that employees might sustain or contract while working for the company. The
premium to be paid depends on the risk as assessed by the insurance company
from which the insurance is purchase.
85
Labor and Social Security Legislation
Social benefits
There are certain benefits referred to as “social” which constitute items that are
non-compensatory, non-monetary, non-accumulable and non substitutable for
cash in nature, which do not involve consideration in terms of work nor do they
entail a financial gain. Social benefits are listed in section 103 bis, Employment
Contract Law.
The following items are not initially considered to be of a compensatory nature:
(a) the company cafeteria, (b) reimbursements of medical and drug expenses for
the employers and their families, (c) supply of apparel and elements to be used
exclusively in their work, (d) reimbursement of expenses of daycare for children
up to the age of six years, (e) supply of school supplies for children, granted at the
beginning of the school year, (f) payments of training courses or seminars, (g)
payment of burial expenses of family members that are dependants of the
employer.
Exemptions
Argentine legislation establishes a special exemption from withholdings and social
security contributions applicable to all those professionals or technicians hired
abroad to perform work in Argentina for a maximum period of twenty-four (24)
months provided they have insurance covering old age, incapacity and death in
their respective countries of origin and are residing temporarily in Argentina.
Self-employed workers
Self-employed workers must make contributions depending on the categories
established according to the activities they engage in and the annual turnover.
The monthly average contribution totals ARS 2,208 (USD 147).
Company directors and legal representatives of local branches are required to
contribute to the Social Security System as self-employed individuals even if they
are also working as payroll employees. Such persons are not under obligation to
make contributions to the Social Security System as payroll employees and the
respective employer contributions are not mandatory either.
SIPA (integrated Argentine social security system). Elimination of the
privately managed pension fund system
Law No. 26,425 was passed to create a single Integrated Pension System with
just one government-managed retirement system referred to as the SIPA
(Argentine Integrated Pension System), funded through a pay-as-you-go
government-managed system, guaranteeing enrollees and beneficiaries under the
former privately-managed individual retirement system identical coverage and
treatment as that afforded by this former system. Consequently, the privatelymanaged individual retirement account system that coexisted with the
government-managed pay-as-you-go system at that time was eliminated. The
latter will replace the former system.
The services provided by a payroll employee or self-employed worker for the
periods when the worker was a member of a privately-managed individual
retirement account system shall be considered as if they have been rendered
under a government-managed pay-as-you-go system for the purpose of
calculating the benefits set out in section 17, Law No. 24,241.
86
Labor and Social Security Legislation
The benefits of the privately-managed individual retirement account system that
have been calculated according to the type of life annuity shall continue to be paid
through the appropriate retirement insurance company.
Also, such regulation established the transfer to the A.N.S.e.S. (federal social
security administration) of the resources that are part of the privately-managed
individual retirement accounts of members and beneficiaries of the privatelymanaged individual retirement account system.
Totalization Agreements
Argentina has entered into social security reciprocity agreements with Mercosur,
Chile, Spain, Italy, Portugal, Greece, France, Slovenia, Belgium, Peru, Colombia
and Luxembourg, although only the first eight are fully operational.
There are also bilateral agreements signed with Brazil and Uruguay preceding the
Mercosur Agreement.
Finally, the Ibero-American Social Security Treaty was approved but is yet to be
implemented.
87