Doing business in Argentina

Good winds for business in Argentina
The Argentine Republic has been offering very favourable conditions for the development of business and investments for the last four years. With an increase in GDP rates of about 8-9% yearly in the last 50 months, and a decrease in unemployment rate, and higher foreign trade and (taxing and commercial) surplus rates, the country is undergoing one of the most attractive moments for investors. The money exchange rate encourages the sale of products abroad and the steady value of commodities, a sector where the country shows comparative advantages, together with a high technological level applied to production, trained human resources and a convenient communications structure, contribute to this general atmosphere.
In this sense, investment opportunities arise for those who think of diversifying investments.

Thus, for example, the real estate sector is appealing for foreign investors with prices per square meter in second-hand dwellings – in good condition – that range from US$ 1,500-2,000 and brand new units in the best areas ranging from US$ 2,500 – 4,500. There are, also, very favourable conditions in the area of biofuels (clean fuels deriving from grain and oleaginous fruit) as processing plants have been set up in production zones. This activity is being fostered due to the high price of the petroleum (needless to say that a soybean hectare with a yield of 30 quintals produces oil equivalent to ten barrels of petroleum with a raw material cost – on field – of US$ 23 per barrel). Likewise, the sector of communications and software development is being promoted due to qualified work, time zone matching US and Canada time zones, and big transnational companies have not overlooked the chance of coming down here (for example, Google has set up its offices in Argentina to operate throughout Latin America ).

Besides, the country is developing an intense commercial activity with its partners from MERCOSUR (with more than two hundred million inhabitants). Therefore, we may come to the conclusion that the current cycle is significantly favourable to develop business in Argentina, and for those to be successful it is essential to know the country's legislation. Success in any project is based on having legal assistance from the very first moment so as to know legal requirements regarding taxing, commercial, labour and civil law. Do not hesitate to rely on our assistance to make the most adequate decision and make your project come true.

Services
Companies investing in Argentina for the very first time as well as those already established and planning to expand their activities locally can rely on Prado & Llorens for the following services:

Contact with national, provincial and municipal offices and departments in investment-related areas

Contact with intermediary entities such as chambers of commerce, business associations and professional organizations with competence in investment-related areas

Contact with scientific and educational institutions

Identification of relevant incentive initiatives and assistance with the application procedures involved

Identification of financing available for productive investment projects in Argentina

Organization of activities and meetings for visiting delegations during the project's exploratory phase

Assistance with the procedures and paperwork required to ensure the correct implementation of the project. This includes:

-Obtaining residence and work permits for company executives and staff

-Opening bank accounts

-Search for potential facilities and locations

-Drafting property rental contracts and labor contracts

-Obtaining import and export permits

-Promoting new investment incentive programs

Assistance with the expansion of the companies already established in Argentina to develop new business units or develop new supplier networks

Identification of local suppliers

 

 

 

Legal Framework for Investments in Argentina
In the Argentine Republic, foreign investors and investments are protected by law, supported
by a package of national and international measures which place this country in pole position as an
attractive destination for foreign investors and investment:

Foreign Investors Rights

Foreign investors may remit abroad liquid profits arising as a return on their investment as well as repatriate their investment

They may avail themselves of any of the legal forms of incorporation foreseen by Argentine legislation

They may make use of domestic credits and loans with the same rights and under the same conditions as domestic companies depending entirely on domestic capital. Download our Legal Framework Report for more information.

 

 

 

Legal structures that companies may adopt
The main legal forms of business that foreign investors may establish when installing themselves in Argentina with any degree of permanence include setting up an overseas Branch, the acquisition of stock in an existing company or the creation of a new one.

A) Overseas branches
A Branch is effectively the same company which opens an office in the country. It is not necessary to create a new legal entity. It should be noted that the Branch answers in terms of assets to the total value of the capital owned by company's Head Office (HO) and not to the value of the branch in Argentina as assigned by HO. The branches of foreign companies are required to register their presence. They may undertake all the activities pursued by HO, in the name of HO and through the person designated as its representative.

B) Registering Branches
The Law of Commercial Companies (LCC) contemplates a wide variety of corporate forms, amongst which the most widely used by foreign investors in Argentina are the incorporated business company (Sociedad Anónima - SA) and the limited liability company (Sociedad de Responsabilidad Limitada - SRL). In these cases, unlike Branch offices, these kind of companies are only answerable in principle for the capital of the company incorporated or in which stock is acquired. Download our Legal Framework Report for more information.

Employment contracts may take different forms.

Forms of hire:
Employment contracts are non-fixed term, unless there is a specific provision to the contrary. The Law establishes a trial period of three months which may be extended to six under a collective agreement.
During this period the employee may be fired without receiving any form of indemnity. Domestic legislation foresees the possibility of part-time employment contracts. Working hours may not exceed 2/3 of a normal working day and the duration of the contract must be fixed by a collective work agreement. A part-time regime does not allow over-time.

Annual Bonus salary:
The Law provides that full-time workers and employees may take home an extra salary as a bonus ("aguinaldo") paid in two six-monthly quota in June and December. Each quota is equal to 50% of the highest monthly salary paid during the previous six-monthly period.

Vacations:
The duration of the vacations depends on the length of the working relationship to-date; if it exceeds six months and is less than five years' service it is 14 days; 21 days if the period served is five to ten years; 28 days if it is 10 to 20 years, and 35 days if the employee's period of service is 20 years or more. If the employee has been in service for less than six months, he/she may be given one day off for each twenty days worked.
If the contract expires without the employee having taken his/her vacation, he/she must receive proportional financial compensation according to the period worked, as long as this is at least three months.

Redundancy:
Employment contracts must be terminated with prior notice. Prior notice shall be given by the employee 15 days prior to the termination of the contract, while the employer must give 15 days warning when the employee is in the trial period, one month when the employee has been employed for a period not exceeding five years and two months when the period exceeds this.
Redundancy indemnity is equivalent to a twelfth part of the highest basic monthly salary paid to the employee during the last year or during the time worked if the period is less than that, for each month of work or fraction greater than 10 days.
The highest remuneration which is taken as the baseline may not be greater than three times the monthly average contemplated in the collective agreement applicable to the employee in question.
The minimum indemnity may not be less than two twelfths of the highest basic monthly remuneration paid the employee during the last year of service.
When the employer fires the employee because the latter has committed a work-related offense (of sufficient gravity) which hinders the continuity of the relationship, the latter is not entitled to receive the indemnity provided by labor legislation.

Minimum Living wage:
In Argentina, the Minimum Living Wage is set by the National Board for Employment, Productivity and Wages, made up of representatives from the Trade Unions, Employers' Associations and the Executive Power. The resolutions passed by this body require a majority vote of two-thirds of its members. Currently, the minimum living monthly wage stands at AR$ 1,400 (USD 364).
Working hours:

Full time working hours are 8 hours a day, or 48 hours a week. The working day may be extended to include hours worked over-time which should be paid at an additional 50% of the normal hourly rate

The hourly rate on Saturdays after 1 pm, Sundays and public holidays is double the normal rate. Night work is permitted but may not exceed the daily period of 7 hours between 9 pm and 7 am

There are twelve public holidays in the year

 

 

Social security contributions:
Companies make employer contributions to cover the social security services of their employees. These contributions cover family allowances, medical services, pension plans and unemployment funds. The rates are 27% of the gross salary paid by employers whose main activity is the provision and lease of services, and 23% for other employers.
In order to foster new job creation in Small and Medium-Sized Enterprises, those employers who increase the number of people in their full-time non-fixed term employment are eligible for a reduction in the social security contribution rates. This discount applies to one-third of the contributions made. At the same time, all the companies based outside the metropolitan area, whatever their size, may offset against VAT a percentage of the amounts paid as employer contributions.

Tax system
In Argentina, tax revenue is collected by the Argentine government, the provinces and municipal authorities. The tax system is structured on the basis of dues levied on income, wealth and consumption.
National taxation
At national level, the Federal Administration of Public Income (Administración Federal de Ingresos Públicos - AFIP), the independent entity which depends on the Ministry of Economy and Public Finance, is responsible for the taxation of income, wealth and consumption. The main taxes levied at national level include: Income Tax, Value Added Tax, Presumed Minimum Income Tax, Internal Taxation, Personal Estate Tax, and Taxes on Debits and Credits in Bank Accounts and Other Operations.

Income tax: All income, including capital gains, is subject to this tax. Companies resident in Argentina pay taxes on their global income, although they may submit as payment on account of these taxes those amounts effectively paid as similar taxes on their activities abroad up to the limits established of the increase in tax obligations arising from the incorporation of the earnings gained abroad. Argentines and nationalized foreigners, foreigners with permanent residence in the Argentine Republic or those who have legally resided in the country for twelve months are considered residents, as are the following; the undivided estate of taxpayers who fulfill the condition of Argentine residents on the date of decease; incorporated business companies and other business forms (one-person companies, civil associations, foundations, etc.) established in the country.

Branches established in the Argentine Republic of companies established abroad are considered resident entities and thus, subject to taxation. The tax applicable to resident companies and branches set up in this country belonging to non-resident companies is 35% of total earnings. Non-resident companies that do not own branches or any other permanent establishments in the Argentine Republic are only subject to taxes on income earned in Argentina. The tax is withheld by a payment agent in Argentina according to a taxation scale dependent on the kind of income. These taxes arise from the application of a 35% levy on presumed earnings as established in the Law on Income Tax.

Double Taxation Treaties: The Argentine Republic has signed Broad Agreements with different countries in order to avoid double taxation. The agreements seek to avoid companies or individuals being taxed twice with regard to income, capital and/or wealth taxation.

Value added tax (vat): VAT is a tax applied on the price of the sales of goods and services at each stage of the commercialization process, taking as payment on account the amounts disbursed by the payment of this tax during earlier stages in the process. General VAT is 21% while the differential VAT rate is 10.5%, half the general rate. The latter is applied to different goods and services: the sale of capital goods, transport (except for international travel, the sale of newspapers, magazines, brochures and periodicals, prepaid health coverage and interests on foreign and domestic bank loans. Imports are also subject to this tax at the same rates as domestic goods or services. Exports are not taxable and exporters may thus apply for VAT refunds on their purchases. The provision of certain services such as electricity, natural gas and water to properties not for residential use is subjected to greater taxes. Payments must be made monthly, unlike fiscal credits arising from purchases and fiscal debt arising from sales operations.

Tax on Presumed minimum Income: This tax is applicable to all assets (located both in the Argentine Republic and abroad) of Argentine companies at an annual rate of 1%. It is also applied to goods located in Argentina which are the property of permanently-established foreign individuals or entities. The amount to be paid as Income Tax is considered as payment on account for this particular tax. If the Income Tax to be paid is greater than the Tax on Presumed Minimum Income, only the former is to be paid. However, if the Tax on Presumed Minimum Income is greater than the Income Tax established, the excess may be used for a maximum period of 10 (ten) years to compensate for the potential overcharge of Income Tax defined concerning the allowance mentioned in the first instance. The calculation of tax credits for parallel taxes paid abroad for goods located outside the Argentine territory may be admitted. Similarly, advances received on account of the taxes to be levied in each tax period should be recorded.

Tax on Personal estate: This is a wealth tax as it is applied to personal goods owned up to December 31 each year, and is applicable to both individuals and undivided estates. Individuals residing in the country are obliged to pay this tax on an annual basis, consisting of a sum equivalent to 0.5% of their personal estate with a value of between AR$ 305,000 and AR$ 750,000. Amounts over this figure and up to AR$ 2,000,000, are taxed at 0.75%; from AR$ 2,000,000 to AR$ 5,000,000, at 1%, and values over these figures are taxed at 1.25%. It should be noted that subjects established in Argentina are liable for taxes on goods located both in the Argentine Republic and abroad. Individuals domiciled abroad are only subject to taxes on goods located in the Argentine Republic. The regime applied is that of liable proxy subject to a tax of 1.25%. Nonetheless, as from the 2002 tax year there is a presumption in force which does not admit evidence to the contrary, according to which, individuals domiciled abroad or undivided estates established there may indirectly own stock and/or shares in the capital of Argentine companies whose owners are companies or any other kind of legally valid entity, companies, stable establishments, appropriation of wealth or exploitations, domiciled or established abroad. Likewise, as from then, Argentine companies are obliged to calculate and pay the taxes on the stock and/or shares in the capital of Argentine companies as liable proxy, calculating the rate on the basis of a 0.50% charge on the value assigned to the stock/shares (net assets of the Argentine company as of December 31 of each year, except for certain circumstances).

Internal taxes: These are applied to the consumption of certain products at different rates and according to different payment and declaration regimes. In general, these taxes are applied to manufacturers or importers at the moment of selling their product.

Tax on Debits and Credits in Bank Current accounts: This tax is applied to credits and debits incurred in the bank accounts of the company account holder at a rate of 0.6% for debits and 0.6% for credits. All movements or transfers of money will be taxed at 1.2% when carried out using payment systems which replace the use of banking current accounts. It should be noted that there are certain differential rates and exemptions which may be applied to specific operations. Tariffs on the Import of goods: Import duties are levied at between 0 to 35%, except in specific cases where minimum thresholds are applied or the goods are from a category which receives special tax treatment. Generally, goods from ALADI members are subjected to preferences on a percentage basis. As far as MERCOSUR is concerned, import duties for inter-zone trade have virtually been eliminated. At the same time, a common external tariff has been established for goods sourced and originating outside the zone.

Other taxes that importers must pay are: Statistics Duty (0.5% on cost, insurance and freight - CIF up to USD 1,750) and in some cases, Destination Confirmation Tax (2% of CIF). Imports are also subjected to VAT (21% or 10.5% in certain cases) and Income Tax (usually 3% in most cases).

Income tax: All Argentine jurisdictions (provinces and the City of Buenos Aires) apply this tax to the gross income of any company carrying out a commercial, industrial, agricultural, financial or professional activity. The tax is levied on each commercial transaction and no fiscal credits are awarded for taxes paid during preceding stages. The taxes levied differ according to the kind of activity and the Law in force in each jurisdiction varies from 1.5% to 4%. (Primary and industrial activities in general are exempt). The taxes are paid over a calendar year with payments made on a monthly basis or every two months, depending on the jurisdiction.

Stamp duties: These are provincial taxes levied in each province generally applicable to the transactions, partnership agreements and operations of any value in the form of public or private instruments. In general, the tax rate charged is 1% although it may vary according to the deeds and legislation in force in the jurisdiction where the afore-mentioned deeds apply. In the City of Buenos Aires, this tax is only applied to the transfer of ownership for property and lease contracts or the sublet of properties in which commercial activities are carried out. The rate applicable to the transfer of property is 2.5% and to the lease or sublet of it is 0.5%.

Property tax: Properties in every jurisdiction are liable for annual taxes which are calculated by applying the rates fixed by the Law on the taxation of the fiscal valuation of land free of improvements, and of improvements. Property Tax is a realty tax applied to the value of the land and buildings without taking into account the personal situation of the taxpayer. The amount is set by the application body and is calculated according to the tax laws of each fiscal period which establish the valuation and rate scales to be applied on taxable income according to the system foreseen for each kind of property.

Municipal taxes
Retributive services taxes: Municipal tax departments charge rates for providing industrial health and safety and other services on the basis of income or other fixed parameters such as number of personnel, driving force capacity/horse power, etc.

Investments incentives
Biofuel Promotion Regime

Main Characteristics: The public sector recognizes Argentina offers opportunities for biofuel development and has provided a national law to promote biofuels. Starting in 2010, the law establishes an obligatory blend of 5% of biodiesel for diesel fuels and of bioethanol for gasoline.
The law also grants the following fiscal Incentives:

Early reimbursement of VAT and/or accelerated depreciation allowance for capital goods and infrastructure

Exemption on the minimum presumed income tax (tax paid on a company's estimated annual revenue and that can be deducted at time of the CIT submission) for the first three years

Exemption on the hydro infrastructure tax and the liquid fuels and natural gas tax.

 

 

Hydrocarbon Exploration and Exploitation Incentive Program

Main Characteristics: The benefits of the current system are:

Early VAT refund: the early credit or refund will be applicable to the total amount of expenditure and investment made during the exploration phase and investments made during the exploitation phase

Income Tax: all expenses to be capitalized and investments made during the exploration phase and the investments made during the exploitation phase will be depreciated in three annual identical and consecutive portions, counting from the year when such expenditure and investment were incurred and made

Assets belonging to companies with exploration permits and exploitation concessions granted under this law will not be considered in the calculation of the taxable base for the minimum presumed income tax for a maximum of three years as from the award date

Exemption from payment of import duties and any other duty, levy or rate for imports of capital goods not manufactured in Argentina that are necessary for exploration.