Inaugurated in December 2015 the government of President Mauricio Macri has decided to open up the country after years of isolation, which has resulted in a deep cultural change in the legal sector.
Foreign Investments Law
The Foreign Investments Law was created to promote and attract foreign investments. This law expressly recognises the right of foreign investors to be treated equally as local investors, as well as stating the investors’ right to transfer corporate profits and dividends and repatriate their investment. Decree No. 1853/93 establishes that foreign investors do not require prior governmental authorisation solely on the basis of their nationality and reinforces their right to equal treatment with local investors.
Notwithstanding the above, there are some specific industries or sectors in which local laws have established restrictions regarding foreign investments, such as broadcasting, the purchase of rural land and the purchase of land in a frontier area.
Argentina has entered into numerous bilateral and multilateral investments, promotion and protection treaties which, as per the Argentine National Constitution, prevail over local laws.
In general, these treaties establish Argentina’s obligation to (i) afford foreign investors a fair and equitable treatment as that offered to local investors and investors from third parties; (ii) afford full protection and security to foreign investment; (iii) not expropriate or nationalise foreign investments without payment of fair compensation; and (iv) allow foreign investors to freely make transfers relating to their investments, guaranteeing the repatriation of the investment, among others.
Various types of companies are regulated by Law No. 19,550, the General Companies Law (GCL), which is the main rule governing corporate matters in Argentina. The two types of companies most commonly used are stock corporations and limited liability companies. Recently two other types of companies have been introduced: the single shareholder corporation was launched in August 2015 and the simplified stock corporation in July 2017, the latter with the aim of promoting entrepreneurship. In addition, the GCL provides the possibility of registering branches of foreign corporations in Argentina, which have minor restraints and regulations imposed upon them, although the acts which they are entitled to perform are more limited. Stock Corporations: The GCL requires that these have at least two shareholders, which may be individuals or legal entities. In the case of foreign legal entities, they must be registered with the public registry to be able to act as shareholders of a local corporation. In regards to the shareholders’ liability for the corporation’s obligations, in principle, the responsibility of shareholders is limited to the capital that they have contributed. Except for specific cases provided by the law and other regulations, there are no nationality or residency requirements to become or hold shares in a stock corporation. Foreign entities and/or individuals may hold up to the total (100%) of the authorised capital stock of the company.
In principle, shares are freely transferable and while by-laws may impose transfer restrictions they may not prohibit the same. Transfers of shares are valid vis-à-vis third parties from the registration thereof in the corporation’s stock ledger.
Dividend distribution requires shareholders’ approval. Dividends may only be approved and paid out of retained earnings as stated in the corporation’s financial statements. In the absence of specific rules in the by-laws, dividends are distributed pro rata of the shares held by each shareholder.
Applicable laws require corporations to allocate at least 5% of their net income to a legal reserve until such reserve equals 20% of subscribed capital stock. The management and administration of a stock corporation is vested on the board of directors, which must be composed by the number of directors as determined in the by-laws. While members of the board of directors may be foreigners, the majority of the board members must be Argentine residents. Limited liability companies: These companies may be formed by two to 50 partners. If the partners are foreign legal entities, no prior governmental approval is required; however, they must register with the public registry in order to be able to act as a foreign partner of a local company. As to the partners’ liability for the company’s obligations, in principle the responsibility of each partner is limited to the capital stock it has contributed. However, each partner jointly guarantees to third parties the paying-in of the contributions of the other partners.
In regards to the transfer of quotas, the by-laws may restrict but not prohibit the transfer. The transfer of quotas is instrumented through the execution of a transfer agreement that must be registered with the public registry to be enforceable vis-à-vis third parties. Dividend distributions require the partners’ approval. Dividends may only be approved and paid out of retained earnings as stated in the company’s financial statements. The applicable laws require these companies to allocate at least 5% of their net income to a legal reserve until such reserve equals 20% of the subscribed capital stock. Single shareholder corporation: The single shareholder corporation has similar features to the stock corporation, but only one shareholder is required. This shareholder may be an Argentine resident, a foreign individual or a legal entity.
In the case that the shareholder is a foreign legal entity no prior governmental authorisation is required; however, the shareholder needs to register with the public registry in order to be able to act as a shareholder of the local corporation. Single shareholder corporations may not be shareholders of other single shareholder corporations. With regards to the single shareholder’s liability for the single shareholder corporation’s obligations, in principle, the responsibility of the shareholder is limited to the capital it has contributed. Simplified Stock Corporation: The simplified stock corporation is a new type of company created in March 2017 by Law No. 27,349 in order to promote entrepreneurial activity and encourage investment for entrepreneurs starting up.
The simplified stock corporation can be constituted in a simple, agile and electronic way. Registration is made within 24 hours and can be formed by single or multiple partners – there are no minimum or maximum number of partners. It can be constituted with a minimum capital equivalent to two minimum wages, around AR20,000 ($1040). The registration process is economic. It includes the registration, the granting of the unique code for taxpaying identification and the publication in the Official Gazette.
In regards to a shareholder’s liability for the simplified stock corporation’s obligations, in principle, the responsibility of each shareholder is limited to the capital it has contributed.
Given the federal organisation of Argentina the power of taxation is distributed between the federal government, the provinces and local municipalities. The basic rules of taxation power distribution are defined in the Argentine National Constitution and have been regulated by special legislation, approved by both the National Congress and provincial legislatures. Additionally, for purposes of avoiding double or multiple taxation regarding provincial taxes, the provinces and the Autonomous City of Buenos Aires entered into a multilateral agreement called the Convenio Multilateral.
Argentina has also entered into treaties for the avoidance of double taxation with several countries. In the Americas, these include Bolivia, Brazil and Canada, while in Europe they are Belgium, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Sweden, Switzerland, Spain and the UK, in addition to Australia in Oceania.
On December 29, 2017 Law No. 27,430 was published in the Official Gazette as the Tax Reform, which introduced several modifications to the former tax regime regarding income tax and reducing tax levied on large companies from 35% to 30% for 2018 and 2019, and eventually down to 25% by 2020. In addition it provides for a tax return of value-added tax (VAT) regarding purchases of assets destined for business or productive activities. As of the printing of this report, the Tax Reform has not been regulated, and is not applicable until it is regulated.
The following taxes are levied by the federal government:
• Income tax – Income tax is a direct tax on income obtained within Argentina or, in the case of Argentine residents, worldwide income.
• Capital gains – Gains from the disposition of equity interests, bonds and other securities are taxable.
• Equalisation tax – Equalisation tax on dividends is levied at a rate of 35% over any portion of profits distributed, whether as a dividend or as redemption of shares, in excess of accumulated taxable income pursuant to the general income tax rules.
• Transfer pricing rules – Transfer pricing for cross-border transactions between related parties are subject to transfer pricing regulations.
• Net equity tax – Net equity tax is a tax over the net equity value of a company’s own shares held by residents or non-residents (entities or individuals), which must be paid by local vehicles.
• Presumed minimum income tax – Presumed minimum income tax is levied at a 1% rate on the gross value of the assets held by local business entities.
• Value-added tax – VAT is assessed on the sale of moveable assets located or placed in Argentina. The current tax rate is 21%, although higher and lower rates apply to specific cases.
• Tax on debits and credits – Tax on these financial moves are levied on each debit and credit made in a bank account held at a local financial institution.
• Excise taxes – Excise taxes are assessed on the sale or import of specific goods.
• Tax on transfer of real estate – Tax on the transfer of real estate is assessed on transfers by individuals or undivided estates of title to real property in Argentina. A 1.5% rate applies on the value of the transfer. Provincial governments raise the following taxes:
• Gross turnover tax – Gross turnover tax is a provincial tax levied on the gross revenues arising from carrying out business activities within the provincial territory. If the taxpayer engages in activities in more than one province, then the Convenio Multilateral rules are applicable for purposes of the allocation of the tax among the relevant jurisdictions and subsequently avoiding double taxation.
• Stamp tax – Stamp tax is a provincial tax levied on the signing of contracts, deeds and other legal documents, which can be avoided by means of the instrumentation of transactions through offers with tacit or separate simple acceptance.
• Tax on real estate property – Tax on real estate property is a direct tax assessed by the provinces on the ownership of real estate property located within their territory. This tax is levied on the owners of the real estate property. Finally, at the most local level of government, municipal taxes are established by the relevant municipal tax code, which is supplemented with the annual tariff ordinance in which tax rates and forms of payment are determined for each year.
Productive Financing Law
Enacted in May 2018 the Productive Financing Law (PFL) was thought to contribute to the economic growth of Argentina by eliminating regulations affecting the development of the country’s capital markets and creating instruments to facilitate access to financial markets for small and medium-sized enterprises.
The PFL significantly modified the existing Capital Markets Law. Micro, small and medium companies are the beneficiaries of this new regulation as it enhances their financing. In addition the PFL ended the excess powers of the National Securities Commission, the governmental agency regulating capital markets. The PFL made rules regarding the public equity offering process more flexible and modified certain aspects of the tender offer regime.
All of the aforementioned changes introduced by this law were enacted with the objective of improving Argentina’s economic development.
Public-Private Partnership Law
The Public-Private Partnership (PPP) Law of November 2016 and regulated in February 2017 includes a variety of protections in favour of the private sector, mainly contractors and lenders, in order to effectively foster the development schemes with the state in terms of infrastructure and construction.
The PPP Law allows the use of PPP schemes for various purposes, including the design, construction, extension, enhancement, supply, exploitation, and/ or operation and financing of the development of infrastructure, rendering of services or other activities. It does not predetermine the manner in which the PPP should be structured, admitting both the use of contractual techniques or institutional methods through the incorporation of companies between the public and private sector.
In addition, the PPP Law establishes that the state must duly control projects and authorises the hiring of national and international consulting experts to assist the state in such tasks while also including transparency and anti-corruption rules.
The law includes significant protections, recognising the importance of the projects’ bankability and the need of legal certainty to ensure the successful development of PPP structures. These include the limitation of the state’s power to unilaterally amend the contract, requiring that the administration request the judicial termination of a contract due to illicit conduct and obligating it to pay 100% of the required compensation as a conditional precedent to taking control of the contract in the case of termination for reasons of opportunity or convenience.
The New Antitrust Law (New AL), enacted by Congress on May 9, 2018 introduced amendments to the previous antitrust regime. It implemented an ex-ante control, determining that change of control cannot take place prior to obtaining the corresponding antitrust clearance. It also established that a fast-track procedure must be implemented, targeting economic concentrations that may be less likely to affect the antitrust regime.
In addition, the New AL assumes the existence of anti-competitive conduct in cartels or agreements between competitors that have as their purpose or effect to: (i) fix prices or purchase of goods or services; (ii) establish production or commercialisation obligations; (iii) distribute markets; and/or (iv) arrange for the coordination of bids, contests or auctions. Thus, the New AL establishes that the above mentioned cartels constitute anti-competitive conducts per se, indicating that they are null and void and, consequently, that they do not produce any legal effect. Another significant modification of this law is that it increases the thresholds of the transactions subject to control.
Labour relations in Argentina are governed by the Labour Contract Law No. 20,744 (LCL) which determines the relationship between employers and employees. Another important source of labour rules are Collective Bargaining Agreements (CBAs). The parties of a labour contract cannot establish, either through a CBA or an individual agreement, terms less favourable to the employee than those set forth by the LCL or any other relevant labour law. Any amendment to labour regulations in detriment to employee interests is null and void – even with the employee’s consent. A company may not agree with the employee labour conditions which fall below the mandatory provisions and those collectively bargained for that particular occupation. In turn, a CBA must abide by the provisions of mandatory legal rules. Consequently, Argentina’s labour system does not authorise the negotiation of benefits, except in the case of CBAs, and on the condition that no legal rules shall be modified so that they might be prejudicial to employees. The LCL and relevant labour laws regulate in detail most of the possible situations that can arise in labour relationships, including, among others, illnesses, labour-related accidents, holidays, special holidays, dismissal compensations and inventions. Mandatory social security contributions are to be made by the employee and by the employer. PROMOTION TO ENTREPRENEURIAL CAPITAL LAW: The purpose of the Promotion to Entrepreneurial Capital Law (PECLA) is to support entrepreneurial activity in the country and its international expansion, as well as generating entrepreneurial capital. The PECLA provides for benefits granted to entrepreneurs, who voluntarily register in the Registry of Entrepreneur Capital Institutions. Among the benefits is the exemption of income tax payment regarding investment contributions. In addition, the PECLA provides for the creation of a fiduciary trust for the development of entrepreneurial capital and to create the simplified stock corporation.
The Promotional Framework for the Use of Renewable Resources in Power Generation established by Law No. 26,190, set the ambitious goal for renewable energy sources to contribute 20% of national electricity consumption by December 31, 2025. At the time of the law’s introduction in October 2015, energy from renewable sources represented less than 1% of power production.
The framework provides tax benefits for companies investing in renewable energies by exemptions of VAT and part of the income tax. In addition, it determined the creation of the Trust Fund for the Development of Renewable Energies for the financing of related projects and the establishment of the contribution electric power users to the fulfilment of its objectives. In 2016 the Argentine government formally launched the RenovAR programme, which marked the beginning of the bidding process to contract the wholesale electric market from renewable energy sources. The RenovAr programme has already carried out three rounds of bids in which there have been 147 adjudications of renewable energy projects for a value of $5.8bn. The fourth tender will be launched in October 2018 and the success of the programme is expected to fulfil the goals of renewable energy production as set out by the state.
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