Doing Business in Argentina | Legal Briefing
*Included in “Doing Business in Latin America | Spring 2021 | Legal Briefing”, published by The In-House Lawyer/The Legal 500
DOING BUSINESS IN ARGENTINA
The Argentine Republic is a federal republic and representative democracy, comprised of 23 provinces and the city of Buenos Aires. Argentina is the second largest economy in South America, and is part of the G20. With a mainland area covering 2,780,400 square kilometers, Argentina is known for its vast natural resources and highly diversified economy.
Foreign investment is regulated by a series of laws, the most important being the National Foreign Investment Act (Law No 21.382, as amended and restated), which grants foreign investors the same status, rights and obligations as local investors. There are also bilateral and regional treaties with many countries to protect foreign investment and to avoid double taxation.
Notwithstanding, there are a few restrictions and certain acts require approval from various governmental agencies if completed by foreign individuals or companies (eg, the acquisition of rural land or border zone properties are subject to certain limits and prior approval in determined cases; some transactions must be filed for merger control and may be subject to approval by the Argentine Competition Authority if there is a change of control and certain monetary thresholds are met; etc).
Investors can structure different vehicles permitted under local corporate law. Foreign investors are usually recommended to incorporate as corporations (Sociedad Anónima or SA, with its sole shareholder variation, the Sociedad Anónima Unipersonal) or limited liability companies (Sociedad de Responsabilidad Limitada or SRL), or to acquire stakes in such types of companies, or to set up a branch (Sucursal). In addition to such established legal vehicles, the simplified share company (Sociedad por Acciones Simplificada or SAS), an entity introduced in 2017 by means of Entrepreneurship Law No 27,349, has also proven to be a useful vehicle for foreign investment.
Regardless of the legal vehicle adopted, if any of the shareholders is a foreign company, previous registration with the competent registry of commerce is required to demonstrate that it has been duly organised in accordance with the laws of its country of incorporation.
Foreign investors tend to prefer to incorporate a subsidiary to limit their liability exposure as opposed to a branch, since the latter is legally considered to be the same legal person as their head offices.
FOREIGN EXCHANGE CONTROLS
The foreign exchange market is regulated (the FX Regulatory Framework) and therefore all foreign exchange transactions must be performed subject to the regulations issued by the Argentine Central Bank (BCRA), regardless of the investor being an individual or a company. Such regulations are related to:
1. Inflow of funds. Funds transferred to Argentina must be registered with the BCRA through a local bank. In some cases (such as exports of goods and collection from exports of services), the regulation sets forth the obligation to transfer payments in foreign currency into Argentina and convert them to local currency within limited timeframes.
2. Outflow of funds. The FX Regulatory Framework establishes certain limitations and regulations to access the FX market in relation to the import of goods, payment of offshore services, payment of dividends and earnings, repayment of loans, etc. As a general rule, in order to grant access to the FX market, financial institutions require an affidavit indicating compliance with the FX Regulatory Framework.
In practice, there are some alternatives to overcome disadvantages of the FX Regulatory Framework, like the ‘blue chip swap’ that allows companies to access a more efficient exchange rate, by enabling companies to purchase bonds that are traded in Argentina and abroad and sell them in US Dollars. Regulations must be carefully considered as there are many restrictions, exceptions and requirements that must first be complied with.
Infringements of the FX Regulatory Framework are subject to the Foreign Exchange Criminal Regime Law No 19,359, which provides for sanctions that vary from monetary fines to prison sentences for individuals involved in the transaction in case of recidivism.
When setting up a business in Argentina, the following tax aspects should be considered: (i) fiscal obligations arising from the incorporation of a new company or the establishment of a branch; and (ii) main national taxes that might apply to foreseen transactions and investments.
If the company is an employer, it must be registered with the Administración Federal de Ingresos Públicos (AFIP)/Dirección General Impositiva (DGI) as taxpayer under the social security regime. Likewise, the company must be registered with the tax authorities of the provinces – or of the city of Buenos Aires – where it will develop its activities, for respective provincial taxes.
Employment law is very protective of employees and there are numerous laws and regulations. One of the most prominent is the Employment Contract Law No 20,744 (ECL), which regulates the main conditions in employment agreements, including but not limited to salaries, contributions and withholdings, vacations and leaves of absence, termination and severance, and work risk insurance.
INCENTIVES FOR TECHNOLOGY BASED BUSINESSES
Over the years, Argentina has fostered technology-oriented businesses through various tax incentives. Most recently, Law No 27,506 (as amended and regulated), also known as the ‘Knowledge Economy Promotion Regime’ grants certain tax and social security benefits to companies that carry out activities such as software and digital services (eg, cloud computing, software as a service, help desk services exported to foreign markets) and audiovisual production and postproduction. To benefit from it, companies must meet certain requirements, including the generation at least 70% of their revenues from the promoted activities and investing certain percentages of sales in research and development.
KEY AREAS OF OPPORTUNITY
In addition to Argentina’s well-known agribusiness and natural resources strengths, the country is a regional leader in innovative and technology-based industries including fintech, life sciences, and TMT. Its entrepreneurial spirit has produced unicorns such as Mercado Libre, Despegar, Globant, OLX and Auth0.
As a leading full-service firm, Beccar Varela has been helping clients develop traditional and ground-breaking businesses for over 120 years. We are ideally positioned to support cross-border M&A initiatives and are the go-to firm in Argentina for clients concerned with global issues such as corporate sustainability and triple impact and ESG-centric business models.
Edificio República, Tucumán 1, piso 3 (C1049AAA), Ciudad Autónoma de Buenos Aires, Argentina.
Northern Buenos Aires office
Torre de las Naciones, Luis García 695, piso 9 (B1648AEC), Tigre, Provincia de Buenos Aires, Argentina.
Doing Business in Argentina | Legal Briefing
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