11 Things I Learned About Investing in Argentina
This post is also available in: Spanish
After completing my studies at the University of Canterbury I wanted the challenge of living and working abroad in a foreign language. With the help of the New Zealand Prime Minister ́s Scholarship and the New Zealand Embassy to Argentina, I undertook a three-month legal internship with Wiener.Soto.Caparrós in Buenos Aires. WSC is a mid-size law firm specialising in cross-border legal advice, with specific expertise in cross-border finance, mergers and acquisitions, corporate structuring, tax law, employment law, and commercial litigation.
The experience has exposed me to the Argentine legal and commercial landscape and has given me greater insight into foreign direct investment and what one needs to think about before making the decision to invest. Arguably one of the most exciting emerging economies, Argentina is rich with opportunity for New Zealand investors. I would like to share with you the following 11 considerations I think would be of interest to future Kiwis looking to invest:
1. Can I own a company?
Yes. There is no restriction on corporate foreign ownership. A typical corporate structure is either a stock corporation (sociedad anónima), a limited liability company (sociedad de responsabilidad limitada), or a foreign branch (sucursal). Recently, Argentina has added a single-shareholder entity and a “simplified” stock corporation but the three traditional business associations remain the preferred forms of doing business.
2. How long does it take for a company to become incorporated?
Argentina is not a place to buy a “shelf company.” Even if a company had no real business activity, it could have latent tax or labour contingencies that would go along with the purchase. Unless you are buying an existing business, you will want to form a new company. In the city of Buenos Aires, you can charter a company within 24 hours however you need time to obtain a tax ID, open a bank account and register with the Federal Tax Authority as an employer. If the company will be owned by foreign legal entities, it may take longer to have these entities “qualified.” To operate in the meantime, you can have the equity held by non-resident individuals as nominees, who will transfer the shares once the qualification process is completed.
3. How much Argentine tax would my company pay?
Tax is levied at a federal and provincial level, with local taxes assessed according to the “locus of activity” (not necessarily the place of incorporation or headquarters). The current tax rate on corporate income is 35% but has been reduced by recent tax reform and will eventually be lowered to 25% by 2020. Business must also pay a provincial gross sales tax (GST), which ranges from 1% to 5%. There is also a tax on banking transactions (0.6% on each deposit and debit) but this will eventually be fully creditable against income taxes. Value-added tax (VAT) in most transactions is 21%. VAT will apply to virtually all transactions but, for most businesses, that has a neutral effect, as it is passed along the supply chain to the end customer.
4. Do additional taxes apply to the agriculture industry?
Yes. Agricultural exports remain key to Argentina’s source of wealth and export duties continue to apply to some of them. The current administration has eliminated or reduced most of these duties, but some persist. As an example, soybean exports pay a duty of 30%.
5. Can my company employ foreign persons?
Yes. In general, there are no restrictions on the employment of foreign nationals. Working visas are available, including company-sponsored visas. Argentine labour law does not distinguish between foreign and Argentine citizens.
6. What are Argentine labour laws like?
Argentine labour laws can best be described as “protectionist.” Wages are relatively low by world standards (the minimum monthly wage for full-time workers is ARS $9,500 (about NZ $650)) but employees are entitled to various statutory benefits that would surprise many around the world, especially those coming from countries applying the“at-will” doctrine. These statutory benefits cannot be waived or adversely affected (though an employer is free to improve on them). Here are a few of the most notable features:
- Employees are entitled to a statutory bonus called an “aguinaldo.” This bonus equal to a full month’s wages and is paid half in June and half in December.
- After 90 days, all employees are entitled to statutory severance payments if terminated without cause. These severance payments include accrued vacation, the statutory bonus, mandatory notice (one or two months) and, most importantly, the equivalent of one month’s wages for each year worked.
- Collective bargaining agreements apply to employees and employers based on activity. There is no such thing as an election to join a union. If the activity is covered by a CBA, the employee is automatically entitled to its benefits and the employee and the employer must pay the union dues, regardless of the employee’s decision to join the union.
Wages are adjusted every year based on inflation. For unionised activity, these negotiations occur between the union and relevant trade group. Unless you own one of the largest employers, you will not be invited to this negotiation, even though the outcome will apply to you. For the last several years, these wage adjustments (“paritarias”) have increased worker wages around 20%-25% per year, noting however the peso has also devalued in similar proportions.
On average, 42% of payroll cost goes toward taxes, group medical, pension and unemployment benefits.
7. What about doing business through distribution and agency agreements?
Distribution and agency agreements can be a good alternative to direct investment and hiring of employees. But manufacturers need to be wary that Argentine law tends to favour the distributor/agent based on the assumption that it is the weaker party. As a result, you need to be careful when drafting the relevant agreement and take into account rules affecting termination of that agreement, such as:
- The term of the agreement, in general, must be no less than four years.
- The assigned territory is exclusive to the distributor unless agreed otherwise.
- To terminate without cause, the manufacturer must give the distributor advance notice of no less than one month for each year of the parties’ relationship.
8. Can I own property in Argentina?
Yes, however, there are restrictions on what can be purchased. A foreign investor cannot own more than 1,000 hectares of land in “core zones” (fertile agricultural lands in the provinces of Buenos Aires, Santa Fe and Córdoba) or land within 150 kilometres of a border. Any land that contains or is adjacent to a large body of water is also restricted from foreign ownership. In Argentina, no more than 15% of rural land can be foreign-owned. While these restrictions remain in place, the current government has taken steps, via executive decree, to relax interpretation of the rules.
9. How much property tax will I be expected to pay?
There is a range of provincial and federal taxes that apply to the purchase and sale of real property. When a property is purchased, the buyer is expected to pay a provincial stamp tax with the rate varying between 1% to 4% of the sale price. During possession, the owner must pay a “minimum presumed income tax,” which is 1% of the value of the estate in excess of ARS $200,000 (about NZ $13,700). Unlike residential property, agricultural land is not subject to personal assets tax.
Upon the sale of the property, the capital gain will be subject to federal income tax, unless the seller is a non-resident company, in which case the income tax rate is 17.5% over the purchase price (not the capital gain). VAT does not apply to the sale of land but does apply to any improvements on the property.
10. Does Argentina protect intellectual property?
Yes. The protection of intellectual property is a constitutional right and Argentina’sadherence to international standards providing protection for trademarks, patents, copyrights, industrial models, trade secrets, denominations of origin, and domain names. A company may register a trademark for 10 years with the right to renew. A trademark holder can obtain an injunction to stop infringement by an unlicensed user. A patent can be granted for 20 years for any novel invention or one that has an industrial application. There is a patent prosecution highway (“PPH”) available to registrants as an option to obtain expedited local protection based on priority applications granted abroad.
11. What about environmental laws?
Any activity undertaken in Argentina is subject to federal, provincial and municipal government environmental laws. Argentine law, like the New Zealand Resource Management Act, sets environmental standards and measures that companies must adhere to. According to regulation, activity capable of significantly degrading the environment or adversely affecting the quality of life is subject to an environmental impact evaluation. If an individual or legal entity believes an activity is causing environmental damage they have the right to seek an injunction from the court to stop the activity.
The foregoing article is for informational purposes only. It is not intended as legal advice or as a comprehensive analysis of the matters referred to herein.
Source: James Addington ( New Zealander )