The Menem administration warmly welcomes foreign investment, which it views as necessary to Argentina's continued economic growth. The government encourages investment through national treatment in most cases under a free foreign exchange regime without price controls. Foreign investors, including many American firms, operate in every major sector of the economy.
Decree Law 1853 of September 1993 governs foreign investment in Argentina, combining in one piece of legislation the liberalization measures contained in the Economic Emergency and State Reform Laws of 1989 and the Foreign Investment Law of 1993. This law stipulates that foreign companies may invest in Argentina without prior government approval on an equal footing with domestic firms. Separate legislation (Law 24,196 of May 1993), designed specifically to generate foreign participation, governs the mining sector. A Bilateral Investment Treaty is nearing final ratification as well.
Investors are free to enter the market via the most convenient vehicle, be it through merger, takeover, green field or joint venture. Foreign firms have also participated extensively and without discrimination in the Government of Argentina's ambitious privatization program, becoming most involved in the oil, gas, telecommunications, transportation, electric power and water and sewer sectors. Foreign firms may also participate in publicly financed research or subsidized research and development programs on a national treatment basis.
Foreign investors face the same tax liabilities as local firms. The bulk of taxes are assessed on consumption and importation; others are assessed inter alia on income, value-added, wages (social security), assets and other property. There is not tax on dividends. Foreign firms are eligible for the government's various export promotion schemes, including one which provides for lower import duties or restrictions on production materials tied to increased exports in non-traditional areas. Under legislation elaborated last year, mining investment will enjoy: guaranteed tax stability for the coming 30 years; exemption from taxation on assets; deductions for prospecting and exploration expenses and environmental conservation expenses; accelerated depreciation; and, exemptions from import duties and the statistical tax on equipment and parts.
Notwithstanding the highly favorable investment climate, there remain a few sectors where national treatment is denied. Foreigners cannot invest directly in uranium mining and nuclear power generation. (We understand the prohibition on uranium mining may be lifted in late 1994.) Foreigners have been denied broadcasting licenses as well, although their participation is not expressly prohibited by law. Foreigners can only enter the fishing and insurance industries by purchasing control of existing firms; no new licenses are being issued. Foreigners require permission from the National Superintendent of Frontiers, within the Ministry of Defense, to invest in non-mining activities in frontier areas; no permission is required for mining investments in these areas.
Foreign investors enjoy much the same treatment as do Argentines to the point that they occasionally suffer from the same inconsistent application of laws and regulations and alleged cases of favoritism that Argentine businesses face.
Also note that local end-users are reluctant to invest in equipment offering a different technology than the applications they are used to working with. Thus, they typically source with suppliers of similar equipment. Argentine military departments are familiar with and comfortable using U.S. technology and equipment.
Distribution and Sales
The normal sales process used by U.S. companies is through agent distributors. Principal- agent relations are basically governed by the Civil and Commercial Codes. No special legislation has been enacted to regulate the termination of agency agreements. Law 14,546 of 1958 extends Labor Law benefits to business agents. The parties may not elect foreign laws to govern the agreement. If a contract is executed abroad to avoid Argentine law, it will not be enforced by Argentine courts.
The Civil and Commercial Codes permit discretionary termination by a principal of an agency agreement. However, the terminating party may be liable for damages resulting from a wrongful termination. All agreements, whether for a definite or undefined term should include a notice of termination clause.
Transfers of know-how from a foreign individual or company to an Argentine individual or company, and transfers of patents or trademarks are governed by Law 22,426. This law establishes two categories of transactions: those between related companies and those with third parties.
Transfers of know-how between related companies are subject to prior government approval. Lack of approval does not invalidate these contracts, but any payments made on the contracts will not be allowable for tax purposes and will be subject to the 27% withholding tax.
Transfers of know-how between non-related companies, or third- parties, are required to be registered for information purposes only.
Argentine legislation permits the establishment of joint-ventures. A contract must be signed and registered with the Commercial Registry. The contract must contain a number of specific clauses and must also provide for the appointment of a legal representative in charge of management.
Establishing an Office
Foreign companies may carry out any single transaction. To carry on a continuing activity, a foreign company must establish a branch (sucursal) in Argentina. An individual must be appointed as the company's legal representative. It is not necessary to assign capital to the branch.
Foreign Structures Commonly Used by Investors
Regardless of whether they are associated with local investors, foreign investors may do business in Argentina as individuals or through corporations, branches of foreign corporations, limited liability companies, limited partnerships, general partnerships or joint-ventures.
Foreign corporations often operate in Argentina through a separately incorporated subsidiary rather than through a branch, primarily to minimize their potential liability. If a branch is used, all of the foreign corporation's assets, not only its Argentine assets, may be subject to potential liability. In contrast, if an Argentine or foreign subsidiary is used, the foreign corporation's liability would generally be limited to the assets owned by that subsidiary.
Bilateral Investment Treaty
A Bilateral Investment Treaty was signed on November 14, 1991, and was ratified by the legislatures of the U.S. and Argentina in 1994. Under the Treaty, "investment" includes equity, debt, and service and investment contracts. It includes tangible and intangible property, a company or shares of stock interests in assets, and any right conferred by law or contract and any licenses and permits. Investment also encompasses intellectual property, including literary and artistic works, inventions in all fields of human endeavor, industrial designs, semiconductor mask works, trade secrets, know-how and confidential business information and trademarks, service marks and trade names.
The Treaty establishes "national treatment" for investment, i.e., obligates each party to permit and treat investment in its territory by companies or nationality of the other party on a basis no less favorable than the accorded to investment for its own nationals. In no case shall investment be accorded treatment less than required by international law. The Treaty prohibits expropriation or nationalization except for a "Public Purpose" and in a non-discriminatory manner. In such cases, prompt and adequate compensation must be provided.
Corporations are regulated by a law effective throughout Argentina. Corporations are set up with the approval of at least two legal or natural persons, whether Argentine or foreign. A corporation may not be a partner in a partnership. A corporation can usually be established within three to four weeks if capital is supplied only in cash. If supplied in kind, the corporation can be established within approximately two months.
U.S. firms considering establishing in Argentina are encouraged to investigate the registration, tax, and legal aspects of corporation establishment with a legal counselor in Argentina. There are a number of good law firms in Argentina and most have English-speaking attorneys and tax consultants.
Argentine requirements/standards may have to be used; however, U.S., British, or similar requirements or standards may be acceptable. The importer's instructions must be followed.
- Standard Code
Argentina has signed (subject to ratification by Argentine legislative bodies) the "Standards Code" negotiated and accepted during the Tokyo Round of MTN negotiations under the GATT. For non-agricultural standards and their testing and certification systems, contact the National Center for Standards and Certification Information, National Institute of Standards and Certification Information, National Institute of Standards and Technology, TRF Building, Room A163, Gaithersburg, MD 20899. Tel: (301)975-4040. U.S. exporters can also find more information on foreign standards from the American National Standards Institute, 11 W. 42nd St., New York, NY 10036 Tel: (212)642-4900.
Weights and Measures
Metric System Regulations based on Law 11,275 of November 10, 1923, require metric labeling for packaged products.
A.C. 50 cycle, 220 volts, one phase; 380 volts, 50 cycles, three phase.
There is no requirement for Government sourcing with Argentine companies. A "Buy Argentina" program preference system was eliminated in October 1991.
Import Tariffs and Taxes
The Argentine tariff classification system--Harmonized System (H)S--was implemented on January 1, 1992 and is aligned with the GATT Customs Classification and Code adopted in 1979.
The HS classification is used for specifying tariff rates. Ad valorem duties are assessed on the C.I.F. value of the imported merchandise. The average unweighted tariff is approximately 9 percent, while duty rates range from 2.5 percent to 15 percent. The top duty rate of 20 percent applies to virtually all finished goods, except capital goods not produced in Argentina where a ten percent duty applies. Argentina has accepted (with reservations) the GATT "Customs Valuation Code."
Only a few import restrictions remain in effect. Permanent quotas remain on goods such as automobiles. Temporary quotas exist on paper, pulp and a few other items. Other goods such as pharmaceuticals, foodstuffs, defense materials and other particular items require the approval of the related government department.
to the duties applied to most products entering the Argentine market, there
is a 3 percent import statistics fee applied to the CIF value of all durable
goods. The CIF value plus
the duty and the import statistics fee constitute the base for the application of domestic taxes.
The office which drafts customs rules, regulations and tariffs is:
Direccion Nacional de Impuestos,
Ministerio de Economia
Hipolito Yrigoyen 250, Oficina 606
1310 Buenos Aires, Argentina
Tel: (54-1) 331-7330
Technical Administration for Imports
Azopardo 350, 1st Floor,
1328 Buenos Aires, Argentina
Tel: (54-1)343-0661/0669 Fax: (54-1)331-9881
Other Import Information
In the case of larger shipments or shipments of valuable items, a security escort is recommended. Before customs clearance is granted, all taxes must be paid and registered through the CUIT (Certificado Unico de Impuestos y Tributos) document.
There are no restrictions on import payments. Payment terms are worked out freely between the private trading partners.
Argentine experience with barter and counter trade is very limited. Under the current liberal foreign exchange regime, there is no financial incentive to enter into counter trade arrangements.