INVESTING IN ARGENTINA

The Constitution of the Republic of Argentina sets forth several fundamental rights. According to its own text, it is the supreme law of the Nation and, therefore, it must prevail in case of any conflict with other national or local rules and regulations.

By virtue of the 1994 constitutional reform, there are eleven treaties on human rights ranking pari passu the Constitution and they must be understood to supplement the rights and guarantees set forth in such Constitution. Treaties include the American Declaration of the Rights and Duties of Man, the Universal Declaration of Human Rights, the American Convention on Human Rights, the International Covenant on Economic, Social and Cultural Rights, the International Covenant on Civil and Political Rights and its Optional Protocol.

In addition, the constitutional reform has stated that international treaties rank higher than the laws, and therefore, in case of conflict between a treaty and a national or local provision, the treaty shall prevail. This is especially relevant in relation to the more than sixty bilateral treaties for the protection of foreign investments ratified by Argentina.

The following rights, among others, are protected by the Argentine Constitution: The right to work and engage in lawful trade; the right to use and dispose of property; the right to ownership (according to which nobody can be deprived of such right without a court decision based on the law); the legality principle (according to which nobody can be forced to do anything not ordered by the law, or be deprived of anything not prohibited in the law); the tax legality principle (according to which taxes must be established exclusively by the Congress); the equality principle and the right to defense.

The Constitution also establishes that foreigners enjoy within the Argentine territory all the rights awarded to citizens; they may engage in, perform and execute their industry, trade and profession; they may own real property, buy and dispose of such property, and they are not obliged to pay mandatory extraordinary assessments.

To attract direct foreign investment, the Republic of Argentina has entered into Bilateral Investment Treaties (BITs), among other countries, with the USA, Canada, the United Kingdom, Germany, Switzerland, France, Poland, Sweden, Spain, Italy, Luxembourg and Belgium. It has also ratified the Convention on International Arbitration and the Convention on the Settlement of Investment Disputes between States and Nationals of Others States. Any disputes arising under BITs are subject to the jurisdiction of the International Centre for Settlement of Investment Disputes of the World Bank, and other international arbitration tribunals.

Business Companies and Branches

There are three main types of legal entities through which commercial activities may be carried out in Argentina: corporations: Sociedad Anónima or Sociedad Anónima Unipersonal (a Sociedad Anónima with only one shareholder), or limited liability companies: Sociedad Responsabilidad Limitada, and branches of foreign companies (sucursales de sociedades extranjeras). The regime applicable to such legal entities is regulated by Argentine Partnership and Corporations Act, Law 19550 (Ley General de Sociedades) (“APCA”).

Corporations

Corporations in Argentina have the following main characteristics:

Shareholders
A minimum of two shareholders is required to register a Sociedad Anónima. The APCA does not establish minimum or maximum amounts of capital or any percentage that a person should hold in a corporation in order to be considered a shareholder. However, the current criterion of the Inspección General de Justicia (the “Office of Corporations”) is that the maximum participating interests that may be held by one shareholder is 95% of the capital stock. Shareholders can be local or foreign companies, as well as individuals of any nationality or residence.

Shares
The capital stock is represented by shares. Shares must be registered, non-endorsable and may or may not be represented by certificates.

Capital
There is a statutory nominal minimum capital stock required.
Shareholders’ Meetings
They are the governing body of the corporation. Unless the shareholders’ meetings are unanimously held, meetings should be notified by means of publications in the Official Gazette. Shareholders may authorize a person other than a director, employee or surveillance officer to act on their behalf at the meetings by means of a proxy.

Board of Directors
The Board is in charge of the management of the corporation’s business. No minimum number of members is required, unless they are subject to permanent administrative control under Article 299 of APCA (except for the Sociedades Anónimas Unipersonales included in item 7), as a consequence of which the Board may consist of only one director. However, the absolute majority of directors must reside in the Republic of Argentina.

Surveillance Officer
The Surveillance Officer is an officer of the corporation entrusted with the task of supervising that the corporation’s acts are in accordance with the law and the by-laws. The surveillance officer is required to be an attorney or accountant. Appointment of a Surveillance Officer is not mandatory, except as provided for in the law, in case of a Sociedad Anónima Unipersonal, or when the stock exceeds a certain capital threshold (corporations under Article 299 of APCA).

Accelerated Proceedings
The Office of Corporations offers accelerated proceedings to register a Sociedad Anónima or a Sociedad Anónima Unipersonal within 24 hours, which includes the assignment of the Tax Identification Number (CUIT).

Limited Liability Companies
The limited liability company is one of the most commonly used legal structures after corporations. Its main characteristics are as follows:

Members

There must be a minimum of 2 and a maximum of 50. The Office of Corporations applies to limited liability companies the same criteria explained for corporations as regards the maximum percentage of capital to be held by one member. Members can also be local (except for corporations) or foreign companies, or individuals. From a US taxation perspective, limited liability companies are considered pass through entities in relation to “check-the-box” rules.

Capital
The capital stock is represented by quotas, and must be appropriate for the performance of the company’s purpose, as may be determined by the Office of Corporations.

Management
The management of the limited liability company is under the charge of one or more managers, acting individually or jointly as set forth in the articles of incorporation. The absolute majority of all managers appointed by the members must reside in Argentina.

Surveillance Officer
Although it is not common, a surveillance officer may be appointed. Should the limited liability company exceed a certain capital threshold, the appointment of a surveillance officer is mandatory.
The Office of Corporations offers express proceedings to register a Sociedad de Responsabilidad Limitada within 24 hours, which includes the assignment of the Tax Identification Number (CUIT) and the issue of corporate and accounting logs.

The Office of Corporations offers express proceedings to register a Sociedad de Responsabilidad Limitada within 24 hours, which includes the assignment of the Tax Identification Number (CUIT) and the issue of corporate and accounting logs.

Simplified Corporation (SAS)
The Venture Capital Support Act, Law 27349 (Ley de Apoyo al Capital Emprendedor), created a new corporate type (not regulated or implemented yet): the Simplified Corporation (Sociedad por Acciones Simplificada – SAS), which may consist of two or more shareholders or only one shareholder. The main advantages are: (i) organization and accounting book-keeping via Internet; (ii) registration within 24 hours, including the assignment of a Tax Identification Number (CUIT); (iii) required minimum capital lower than the minimum capital for a Sociedad Anonima; (iv) simplification of the company’s internal operation; and (v) absence of surveillance by the Office of Corporations, which entity only has registration capabilities.
This type of legal entity is not fully implemented at present in Argentine and is primarily associated with small and medium businesses.

Foreign Companies’ Share Interests
Foreign companies interested in incorporating local companies or in holding participating interests in local companies must, in accordance with Article 123 of the APCA, be previously registered with the Office of Corporations.

Foreign companies shall also inform whether they are subject to prohibitions or legal restrictions to develop the activities related to their corporate purpose in their place of origin.

At least one legal representative must be appointed who shall be duly authorized to represent the foreign company in Argentina.

Capital
There is no need for the branch to have a specific amount of capital stock, with the exception of branches acting in certain industries such as the banking sector.

Management
At least one legal representative must be appointed who shall be duly authorized to operate the branch.

Accounting
The branch must have accounting records separate from its head office, and it must file annual financial statements with the Office of Corporations.

Branches must also comply with the initial and quarterly filing requirements as foreign companies registered under provisions of Article 123 of the APCA, as described above. From a US taxation perspective, limited liability companies are considered pass through entities in relation to “check-the-box” rules.

Income Tax

Argentine companies, either local companies, local subsidiaries of foreign companies (“subsidiaries”) or branches of foreign companies, are subject to federal income tax at a 30% rate, coming down to 25% applied on the net income (gross income less admitted deductions and amortizations). Payment of dividends to shareholders is subject to income tax withholding at a 7% rate coming up to 13%. Tax losses may be carried forward for a five-year term.

Treaties for the avoidance of double taxation are in force with Canada, Australia, Great Britain, Sweden, Bolivia, Chile, Germany, Brazil, France, Italy, Finland, Denmark, Belgium, Netherlands, Norway, Spain, Uruguay and Russia. In 1981, Argentina and the United States of America entered into a treaty for the avoidance of double taxation, but such treaty is not effective yet.

Value Added Tax (“VAT”)

General

This federal tax is applied on the sale of personal property, the rendering of services and the import of goods. The general tax rate is 21%. In a few cases can the tax rate be higher (27%) or lower (10.5%). Exports are exempted from VAT.

The difference between VAT credits and VAT debits must be paid to the Argentine Administration of Public Revenues (AFIP) on a monthly basis. VAT credits may be carried forward from one month to the other with no time limit.

For VAT purposes, Temporary Associations (UTs) are considered to be independent form the companies that are members of such associations.

Tax on Personal Assets

Local companies must pay 0.25% annually on the value of shares, quotas or interests held by foreign entities, valued at their proportional net worth as at December 31 of the applicable fiscal year. Argentine companies paying such tax are entitled to recoup the amount paid from the foreign entities.
The sale of shares, quotas and participating interests in local companies is subject to a 13.5% income tax withholding or a 15% tax rate for the sum of money resulting from deducting any related expenses form the gross benefit paid.

Tax on Bank Debits and Credits

Such tax is levied on debit and credit activities in bank accounts. The general tax rate is 0.6% each time debit or credit activity occurs. A percentage of 33% may be calculated for the payment of Income Tax.

Customs

Law 22415, also known as the Argentine Customs Code, governs foreign trade matters for the entire territory, water and air space subject to the sovereignty of the Republic of Argentina. As part of such areas, the law defines the concepts of “general customs territory” and “special customs territory”, depending upon the application of a general or special tariff system of economic prohibitions on imports and exports. An example of a special customs territory is Isla Grande de Tierra del Fuego.

The Argentine Customs Code provides for different import and export modalities. The most common modalities include the following:

• Import for consumption: In this case, imported goods may stay for an indefinite time within the customs territory.
• Temporary import: Under this modality, imported goods may stay for a specific purpose and for a certain term within the customs territory. Goods may undergo a transformation or not, but as from the time of their release, they are subject to the obligation of being re-exported for consumption prior to expiration of the above-stated term.
• Export for consumption: In this case, exported goods may stay for an indefinite time outside the customs territory.
• Temporary export: Under such modality, exported goods may stay for a specific purpose and for a certain term outside the customs territory, and they may undergo a transformation or not. As from the very moment of the export, goods are subject to the obligation of being re-imported for consumption prior to expiration of the above-stated term.

Both imports and exports for consumption are subject to taxes, the type and amount of which depend on the relevant goods. Temporary imports and exports are not subject to taxes.

In January 2017, export duties for oil and gas were reduced to 0%. However, a recent regulation established, until December 21, 2020, a 12% export duty on all goods and services with a cap of AR$ 4 per dollar exported in case of primary products, and a cap of AR$ 3 per dollar exported for processed goods.

PROVINCIAL TAXES

Gross Income Tax

Such local tax is applied on the gross income obtained by entities or individuals that carry out economic activities within the territory of a province. Tax rates vary depending on the activity and the province, but they generally range between 1% for primary activities, 3% for trading and 5% for financial activities or intermediation.

Stamp Tax

Stamp tax is a tax levied on agreements which are either executed within the territory of a province or that cause effects in it. Tax rates vary depending on the type of agreement and the province. Most fiscal codes set forth that agreements will be subject to tax when they are either formalized (i.e., signed by the parties or notarized by a deed) or executed by exchange of letters. Consequently, it became a common practice among several companies to execute agreements with acceptance by way of action. Generally, the action consists in a bank deposit or delivery of a certain product referred to in the agreement. A few provinces, such as Tierra del Fuego and Neuquén, have expressly levied agreements executed with an acceptance by way of action, but such extension of the tax is questionable from the constitutional point of view.

FOREIGN EXCHANGE REGULATIONS

From time to time, Argentina has established foreign exchange regulations stating the obligation to clear into the country any proceeds from exports of goods and services through the Central Bank within a specific period of time.

No such regulations have been in effect in Argentina since Macri’s administration took office in December 2015.

Argentine Antitrust Act, Law 27442, prohibits and punishes acts that limit, restrict or distort competition or access to the market, or represent an abuse of a dominant position in the market, which might result in damages to the “general economic interest”. Furthermore, it provides for certain rules that regulate mergers and acquisitions of companies and assets by submitting them to a process of governmental authorization.

Mergers and acquisitions in cases when the aggregate amount of the business of companies involved exceed a certain capital threshold denominated in Argentine pesos, approximately, are subject to authorization by the enforcement authority of the Act, the Argentine Antitrust Commission. Some transactions are exempted from such authorization, including the acquisition of a single company by a single foreign company not previously having assets or shares of other companies in Argentina, or acquisitions of companies in which the buyer already held over fifty percent (50%) of shares.

When deciding on a given transaction subject to authorization under the Act, the Argentine Antitrust Court may authorize the transaction, may subject the transaction to certain conditions or may deny the authorization.

Employees working in the Republic of Argentina shall be subject to Argentine labor and social security laws.

Employment of personnel may be made on a temporary or permanent basis. The employment relationship may be terminated without cause by making severance payments.

Personnel employment shall be subject to the laws in force and the collective bargaining agreement corresponding to the employer’s activity. Application of such laws and agreements is mandatory.

There are minimum standards of working conditions that must be observed. Such standards include salaries, work day and personnel benefits.
The company shall be jointly and severally liable for labor and social security obligations with respect to its contractors’ personnel when they perform tasks related to the company’s main purpose. It is important to constantly check compliance with such obligations in order to avoid contingencies.

Argentina has an integrated system of work risks coverage, established by Work Risk Act (Ley de Riesgo de Trabajo). Such system obliges employers to take out a Work Risk Insurance Company (Aseguradora de Riesgo de Trabajo – ART). Work Risk Insurance Companies have the double function of a preventive work to avoid the occurrence of work accidents and occupational illnesses, and to indemnify and give medical and pharmaceutical treatment to those workers suffering any kind of labor accidents.

Trade Unions

The trade union structure in Argentina is arranged as a pyramid, and it consists of trade unions, federations (formed by a group of trade unions) and confederations (formed by a group of federations). In turn, union associations may group workers of the same activity, workers of the same profession or category even when performing different activities, or workers of the same company. The union association having the greatest representativeness within its territorial and personal scope obtains the union standing (personería gremial), and thus it is enabled – on an exclusive basis – to represent workers, within such scope, in collective bargaining.

The main rules and regulations on this matter are Law 23551 (on Union Associations) and Law 14250 (on Collective Bargaining Agreements).

Social security and other costs

The social security and healthcare cost is paid both by the employer and by the employee. Approximately 23.50% (depending on the company’s activity) is paid by the employer and 17%, by the employee. Percentages are calculated on the employee’s gross remuneration.

There are additional costs provided for by the collective bargaining agreement applicable to each activity. Additional amounts shall be paid for overtime.

Members of the Board of Directors (or any other management body) of Argentine companies have an option not to pay contributions as employees of the company (with the relevant withholdings) but to pay taxes under the “independent workers” system (trabajadores autónomos). The amount payable depends on the Director’s annual gross income.

Article 41 of the Constitution states that every inhabitant of the Republic of Argentina is entitled to an environment that is healthy, balanced and suitable for human development.
The Federal Government shall issue regulations containing the minimum protection standards, and that the provinces shall issue the regulations necessary to supplement those passed by the Federal Government.
In 2002, the Congress enacted Law 25675 that:

• Sets forth the principles of the environmental policy;
• Provides that any activity that might materially damage the environment or some of its components, or that negatively affects the population’s quality of life, will be subject to a previous environmental impact assessment;
• Provides that when remediation is not technically feasible, the compensation that a Court might establish shall be deposited in an Environmental Compensation Fund – created by the law– notwithstanding other judicial actions that might be applicable;
• Establishes that liability will only be released by providing proper evidence that, despite having adopted all the measures necessary to avoid the damage and without negligence by the responsible party, the damages were caused by the victim’s negligence or by the negligence of a third party for which the responsible party shall not be liable.
• Sets forth the obligation to have an insurance policy in full force and effect materially enough to guarantee the financing of remediation works.

In addition, the Federal Constitution forbids the admission of actually or potentially hazardous waste into the country, as well as of radioactive waste.

The Federal Constitution provides for injunctive relief protection (amparo) against any action or omission of public or private authorities that actually or imminently impairs, restricts or threatens rights and warranties acknowledged by the Federal Constitution, including the rights protecting the environment.

The Federal Constitution further provides that environmental damage triggers the obligation to remediate the environment.

At federal level, there are general environmental provisions applicable to all activities, as well as sector provisions regulating specific activities. Among such general provisions, we may point out General Environmental Act, Law 25675, Industrial Waste Integral Management Act, Law 25612, Water Environmental Management Act, Law 25688, Residential Waste Management Act, Law 25916, Native Forests Act, Law 26331, and Glacier and Periglacial Environment Preservation Act, Law 26639. Sector provisions include: Environmental Protection Act, Law 24585, concerning mining activities and Resolution 105/92 passed by the Argentine Secretary of Energy for hydrocarbon activities.

At provincial level, each province has broad legislation regarding the regulation of the land, air, water, wild flora and fauna, industrial and residential waste, as well as other environmental laws. Each province has a central body (ministry, secretary or provincial board) acting as competent authority for the control and surveillance of environmental rules and regulations.

Some activities such as mining, hydrocarbons, agriculture and irrigation are subject to a sectorial body which controls and oversees compliance with specific environmental rules and regulations applicable to the sector.

In order to develop remunerated tasks in Argentina, a temporary residence must be obtained which is delivered for a one-year period. Such temporary residence may be renewed for three periods, until a definitive residence is obtained following two to four years of residence. Proceedings to obtain such permit are simple. The type of permit must be chosen taking into account the duties to be performed by the person entering Argentina.

The most common modalities are the following:
    (i) under a labor agreement in the Argentine company, or
    (ii) as legal representative of the foreign company.
Other types of residence are established by means of Migration regulations depending on the purpose and term of residence in Argentina.

Such Act states that a registered trademark is effective for a 10-year term. The term can be extended indefinitely for periods of 10 years each if the trademark has been used within the 5- year period prior to lapsing, in the marketing of a product, in the rendering of a service or as part of the identification of an activity.

The lapse of trademark registration is 5 years, i.e., the registration of a trademark may be declared lapsed if the trademark was not used within 5 years before the date when the application for such declaration is filed.

Patent protection in Argentina is governed by Law 24481 as well as by the 1883 Paris Convention for the Protection of Industrial Property.

According to the Act, patents can be granted for a 5-, 10- or 15-year period in accordance with the merit of the invention and the intention of the person applying for the registration. Furthermore, the ratification of a foreign patent is issued for a 10-year period, but in no case shall such ratification exceed the term granted to the original patent, and it shall terminate with it.

A patent registration lapses after 2 years during which such patent has not been used.

The head of the federal judicial branch is the Supreme Court of Justice, which was inspired in the American Supreme Court, and has a similar jurisdiction. Cases brought to provincial courts can also be heard by the Supreme Court via an extraordinary motion based on constitutional grounds (Recurso Extraordinario Federal) if a federal question arises during the proceedings, which motion is similar in nature to a writ of certiorary before the US Supreme Court. All courts control the constitutional nature of the laws, but the final decision is made by the Supreme Court.

The constitution and the laws of Argentina include all the most common judicial guaranties such as the constitutional injunction grounded on an imminent violation of a human right (“amparo” action), habeas corpus, habeas data (protecting against the entry of inaccurate or discriminatory data in public or private records), etc. In addition, the case law of the Supreme Court has accepted class actions in some cases regarding non-economic fundamental rights.

Arbitration, both at national and international level, has become very common in Argentina, especially for contracts with an international point of contact. ICC, AAA and UNCITRAL rules are often referred to in those contracts.

By virtue of the Argentine law, the choice of law in matters not entailing mandatory and non- waivable provisions is widely accepted. As regards competence, the governing principle is that, except for cases in which no jurisdiction other than the jurisdiction of Argentine courts can be elected, the parties have the right to choose foreign courts with respect to matters with an international point of contact, only related to net worth or equity issues.