Doing Business in Argentina
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Foreword The Argentine Republic has unique comparative advantages that make it a highly sought after destination for global investors: a wide range of climates, a homogenous population without ethnical or religious conflicts, a highly qualified and skilled workforce, opportunities to develop renewable energy sources, a leadership position in Latin America, diversified and high quality sources of food and a manufacturing industry with experience in global integration. All these factors contribute to Argentina providing interesting and attractive investment opportunities in a wide range of industries. Estudio Torrent Auditores, a member firm of RSM International in Argentina, has prepared this guide to provide general information on how to do business in this country. It contains a description of the key areas to consider when setting up a business, ensuring compliance with local regulations and standards. However, it is hard to make generalizations about such a vast and diverse country as the Argentine Republic. Additionally, business and tax laws and regulations often can and do change. A thorough and detailed analysis of these regulations is required so as to avoid unpleasant surprises and enable savings and efficiency improvements. This guide is not intended to replace any specific advice on an actual business venture. While due care has been taken in preparing this book, the data provided reflects current information and is intended for information purposes only. Therefore, companies doing business in Argentina are advised to seek current and independent professional advice prior to making investment decisions. Contact details for Estudio Torrent Auditores and the RSM member firms can be found at the end of book. We will be happy to serve you.
Buenos Aires Previous image - Aconcagua, the highest mountain in the Americas, in the province of Mendoza Cover image - Argentine National Congress, Buenos Aires
Contents 1. Environment
2. Main Government Policies Affecting Business
3. Exchange Controls & Central Bank Regulations
4. Business Formation and Management
5. Accounting Legislation
6. Tax Legislation
7. Labor Obligations
8. Relevant Websites or Further Reading
9. About RSM International
10. About Estudio Torrent Auditores
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1. Environment 1.1. Geography The Argentine Republic is located in the Southern and Western Hemispheres. Its capital city and major urban area is Buenos Aires1, which is also the country’s economic, financial, commercial and educational hub. In addition, there are other important cities throughout its territory, such as Córdoba, La Plata, Mar del Plata, Rosario, San Miguel de Tucumán, Mendoza and San Carlos de Bariloche. The country’s location in South America allows it to have strong ties with other countries in the region. The country has a total surface area of 2,780,400 km2, and is the second largest country in Latin America, the fourth in the American continent and the eighth in the world. Because of its vast territorial extent, it features a wide variety of climates and landscapes. The key characteristic of the Argentine relief is the huge contrast between the eastern plains and the Andes range to the west, comprising the highest peak in the Western Hemisphere: the 6,959-meter Aconcagua. From Jujuy to Tierra del Fuego, the mountain range features high plateaus in the northeast (arid, with valleys, gorges and colorful hills) and the lakes, forests and glaciers of the Patagonia, in the south of the country. In the north, there is Chaco, a forest area linked to the Bermejo, Salado and Pilcomayo rivers. Between the Paraná and Uruguay rivers, the Argentine Mesopotamia region consists of low hills, lagoons and marshes that mark the old courses of these major rivers. In some sectors, in the heart of the subtropical jungle, there are ruptures that create spectacular waterfalls as the Iguazú Falls. In the central area of Argentina, the Pampas is the vastest and best-known plain. Its landscape is cut by the small Tandil and La Ventana hill ranges to the south and by the Córdoba hills to the west. In the south, from the Andes to the ocean, there are the arid and rocky plateaus of the Patagonia, which are wind-swept most of the year. In certain areas, the Atlantic coast, which is flanked by high cliffs, creates winding shapes, such as the Valdés Peninsula.
The official name since 1994 is Autonomous City of Buenos Aires. It is usually called Capital Federal.
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2 Climate and Natural Resources Argentina has a wide range of climates due to the length of its territory and the diversity of its geographical features. The arid climate encompasses an area stretching from the northeast to the southeast (the Puna, the Andes of Catamarca, La Rioja and San Juan, and the extra-Andean Patagonia). The temperate climate covers the province of Buenos Aires, a part of Entre Ríos, the central and southern region of Santa Fe, the east of Córdoba and the northeast of La Pampa. The humid climate is characteristic of the provinces of Misiones and Corrientes, the north of Entre Ríos and the east of the Chaco region, as well as the sub-Andean areas of Jujuy and Salta, whereas the hot, dry climate is found in the west of the Chaco region. The cold climate comprises the humid area of the Patagonian Andes, which stretches along the southeast of the country. This variety of climates helps create the right conditions for growing a wide range of crops and carrying out production activities. Argentina is one of the countries with the greatest abundance and diversity of natural resources in the world. It’s extremely fertile lands (especially the ones in the vast plains of the Humid Pampas); covering about 180 million hectares, place it among the top food producers in the world. The main crops sown are soy, wheat, corn and sugar cane. These fertile Pampas lands are also covered with grass suitable for the grazing of livestock. The livestock breeding activity gives rise to the meat packing, dairy and textile industries. The national territory also has substantial forest resources, mainly in the northeast and the Andean Patagonia. There are mineral deposits of gold, silver, zinc, copper, oil, manganese, lithium, uranium and sulfur throughout the 4,500-kilometer Andes range, and rich aquifers, ocean deposits and fish resources in the hundreds of lakes, the 11,000-plus kilometers of water routes and the 4,725-kilometer Atlantic coast. The Argentine continental shelf and the Mar Argentino have plenty of fish and oil & gas resources. Argentina actively fosters the sustainable development and protection of its natural resources, for instance, by voluntarily reducing its carbon dioxide emissions.
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1.3 Population According to the 2010 census, Argentina’s current population is over 40 million inhabitants, which accounts for a 10.6% growth as compared to the previous census of 200, and an average density of 14.4 people/km2. 92% of the population lives in urban areas. The Buenos Aires Metropolitan Area (comprising the City of Buenos Aires and its surrounding suburbs) concentrates 33% of the total population, i.e., around 13 million people. Thus, Buenos Aires is fourth among the 17 existing megalopolis in the world, and the third most populated urban area in Latin America, well below Mexico City and São Paulo. Buenos Aires is by far the most highly populated province in the country, with 15,594,428 inhabitants (almost 38% of the total country population in 2010), of which 10 million live in Greater Buenos Aires and 5 million, in the remaining parts of province. The Buenos Aires province is followed by Córdoba and Santa Fe in terms of size. 60% of the country’s population is concentrated in a region formed by the above three provinces (Buenos Aires, Córdoba, Santa Fe) and the City of Buenos Aires, accounting for less than 22% of the country’s total surface area. The Patagonia region, in the south of the country, had the largest demographic growth according to the 2010 census, which suggests a slow population movement to the south. Conversely, the City of Buenos Aires was the one that grew the least, by only 4%. According to the latest data from the INDEC (National Institute of Statistics and Censuses), the Argentine population comprises 19,575,219 males and 20,516,140 females, and has a sex ratio (number of males every 100 females) of 95.4. As regards age distribution, the INDEC estimates that 64.2% of the Argentine population is between 15 and 64, and that people aged 65 and over and 60 and over account for 10.2% and 14.1% of the total population, respectively. Argentina thus ranks third in Latin America in terms of population ageing, below Uruguay and Cuba. The 2010 population distribution can be seen overleaf. The country’s current ethnical composition results from the interbreeding between the local population and the great immigration wave that arrived in the country from the mid-19th century to the mid-20th century, mainly Europeans from Italy and, to a lesser extent, Spain. Since then, the ethnical composition was basically influenced by the great internal migrations from the rural areas to the city and from the north to the littoral, and the immigration from neighboring countries, mainly Paraguay and Bolivia. Additionally, Argentina has large minority groups from Germany, Slovenia, Arab countries, Armenia, Japan, China and Korea.
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Recent scientific studies have found that the average genetic mix is made up of the following ethnic groups: 85-97% European, mainly Italian and Spanish, 15% Amerindian and 2-4% African. The racial mixing process not only has involved Europeans, indigenous people and Africans, but also dozens of unique ethnic groups that form each of these major groups (Italians, Spanish, Polish, Jews, mapuches, diaguitas, collas, guaraníes, bantúes, yorubas, among others). As regards education, the Federal Government, the provinces and the City of Buenos Aires are responsible for planning, organizing, supervising and funding the Argentine education system, which comprises education services provided by the public and private sectors, cooperatives and NGOs in all Argentine jurisdictions, including the following levels: Nivel Inicial (pre-school education), Educación Primaria (primary education), Educación Secundaria (secondary education), Educación Técnico Profesional (professional technical education), and Educación Superior Universitaria (higher education). According to UNESCO’s Statistics Institute, Argentina ranks among the LatinAmerican countries with the highest literacy rates (c. 97%). It also has one of the highest net primary school and high school enrollment rates (100% and 74%, respectively), the latter only surpassed by Cuba (75%). On the other hand, the gross university enrollment rate amounts to 47%.
According to information provided by www.argentina.gov.ar.
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Argentina has no official religion. The Roman Catholic Church, which has traditionally had the largest following, is granted a different legal status from the other religions by the Argentine Constitution, which requires the Catholic religion to be supported (Article No. 2). Along with Catholicism, there are over 2,500 registered cults in the country, such as Protestantism, Pentecostalism, Judaism and Islam, among many others, and their followers live in perfect harmony. Freedom of worship is provided for by the Argentine Constitution.2
1.4 Transport Argentina has a highly developed infrastructure and transport system: over 39,322 kilometers of national roads and 195,837 kilometers of provincial roads; one of the largest railroad networks in the world (35,753 kilometers); 43 ports (7 seaports); and 33 airports (21 international airports). Over 30 airlines offer nonstop flights from Argentina to more than 40 destinations in the five continents. Thanks to this infrastructure, Argentina ranks second in Latin America in the World Bank’s Logistics Performance Index. The major port of the country is the Buenos Aires port, which is used by river and overseas vessels, and serves as the port of entry and exit for most foreign trade transactions. It is also worth mentioning the seaports of La Plata, Bahía Blanca, Neuquén, San Antonio Oeste and Madryn, and the river ports along the Paraná River, such as Rosario, San Lorenzo, Santa Fe, Barranqueras, San Nicolás and Campana. Air transport is the best means for traveling long distances. Argentina has 33 airports, the main of which is the Ministro Pistarini International Airport, located in Ezeiza, 37 km from downtown Buenos Aires. The City of Buenos Aires also has its own airport, called Jorge Newbery, which is mainly used for domestic flights. The flag airline is Aerolíneas Argentinas.
1.5 Language The official language of the Argentine Republic is Spanish. It was brought by the Spanish conquerors and changed as a result of their coexistence with the indigenous peoples. Later, it was further modified by the massive waves of immigrants that came during the 19th century and the beginning of the 20th century, mainly from Europe. However, this mixture of peoples and cultures, far from making communication difficult, made it richer, giving our current language its own style. All business transactions in Argentina are conducted in Spanish, and all documents and records shall be in Spanish to be considered valid evidence. Business documents in other languages shall be translated by a certified sworn translator in order to be submitted to Argentine authorities for legal purposes.
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1.6 Currency The official Argentine currency is the peso, usually abbreviated with the $ symbol. There are 2-, 5-, 10-, 20-, 50- and 100-peso bills, and 1-peso, 5-, 10-, 25- and 50-cent coins.
1.7 Weights and Measures Argentina uses the Metric System. The most common units are: gram for weight, meter for length, and liter for liquids. Temperature is measured in Centigrade or Celcius degrees. Conversion table: Weight: 1 gram = 0.035 ounces 1 kilogram (1,000 grams) = 2.205 pounds 1 pound (lb) = 0.454 kilograms Length: 1 centimeter = 0.39 inches = 0.033 feet 1 meter = 3.28 feet = 1.09 yards 1 kilometer = 0.62 miles 1 inch = 2.542 centimeters 1 feet = 0.305 meters 1 mile = 1.609 kilometers Area: 1 hectare = 2.471 acres 1 square kilometer (km2) = 0.386 square miles 1 acre = 0.405 hectares 1 square mile = 2.590 km2 Temperature: 0 º Centigrade (0 ºC) = 32 º Fahrenheit
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1.8 Constitution and Government The national territory is formed by 23 provinces and the City of Buenos Aires, which is the capital city. Under the Argentine Constitution, Argentina adopts a federal, representative and republican form of government, and the separation of powers into three branches: executive, legislative and judicial. The Executive power is exercised by a President and a Vice-president for a 4-year term, and they may only be re-elected for one consecutive term. The Legislative power is vested in two houses: the Senate, made up of three senators per province and three for the City of Buenos Aires, and the House of Representatives, formed by representatives elected directly and proportionally to the number of inhabitants in each district. The President and Vice-president, the Buenos Aires City Mayor (Jefe de Gobierno), province governors and lawmakers are elected through secret and mandatory universal suffrage by both male and female citizens over 18. The Judicial power comprises the Supreme Court of Justice and other lower courts. Under the Argentine Constitution’s principles, declarations and rights, as well as the federal representative system, each province draws up its own constitution, which governs their acts of government. The current Constitution dates back to 1853. Nevertheless, it was amended in 1860, 1898, 1957 and 1994. The last amendment, in August 1994, allows the President to be reelected for one additional term.3
According to information provided by www.turismo.gov.ar
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2 Main Government Policies Affecting Business 2.1 Overview There are many government agencies whose actions have an impact on economic activity. Relevant rules and controls are established by federal, provincial or municipal laws, but the different Ministries also adopt a number of economic regulations and provisions. At the federal level, rules dealing with the domestic and foreign trade policy and tax collection, among other issues, are undoubtedly laid down by the Ministry of Economy and its different offices.
2.2 Foreign Investments The Argentine Constitution ensures foreign investors the same rights and obligations as Argentine nationals. In addition, there are specific laws that protect and regulate foreign investments. Law No. 21,382 defines the legal framework governing foreign investments in the country. Foreign investors may invest in Argentina without previous approval in the same conditions as Argentine nationals. Under current legislation, investors have the following rights: •
To transfer abroad the net realized gains from their investments, as well as to repatriate their capital.
To use any of the legal forms of organization established by Argentine legislation.
To have access to the domestic credit market with the same rights and under the same conditions as local Argentine-capital companies.
Any legal acts between a local foreign-capital company and its direct or indirect parent, or any other of the latter’s subsidiaries, shall, for all purposes, be considered to have been executed between independent parties when the transactions thereunder and terms and conditions thereof conform to the usual market practices on an arm’s-length basis. Argentina has entered into many bilateral treaties with other countries for investment promotion and protection.
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2.3 Antitrust Law Antitrust provisions (Law No. 25,156 and Decree 1019/99) are included in the socalled Antitrust Law (Ley de Defensa de la Competencia). This law prohibits the acts or behaviors aimed at limiting, restraining, falsifying or distorting competition or market access, or entailing an abuse of power, thus being detrimental to the general interest. These provisions apply to enterprises doing business in Argentina and also to activities carried out abroad, insofar as they have an impact in Argentina. Forbidden activities include, but are not limited to: •
Directly or indirectly fixing, agreeing on or manipulating the price of goods or services offered to the market, or sharing information for the same purpose.
Requiring that only a limited or restricted amount of goods or services be produced, distributed, purchased or marketed.
Horizontally distributing areas, markets, customers and supply sources.
Arranging or coordinating positions in bidding or tendering processes.
Preventing third parties from entering the market.
Making the sale of goods conditional on the purchase of other goods or services.
Business combinations intended for or resulting in the restriction or distortion of competition.
It is worth noting that certain mergers and acquisitions require a prior approval from the Antitrust Court if the aggregate business volume exceeds a certain amount (ARS 200 million).
2.4 Trademark and Name Registration Law No. 22,362 lists a wide range of items that may be registered as trademarks for product and service identification (e.g., one or more words with or without conceptual content, drawings, emblems, images, color combinations, phrases, wrappings, etc.). Trademark registration with the relevant office grants the owner of the trademark the exclusive right to use it for ten years. This term may be indefinitely renewed under certain conditions.
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2.5 Copyrights Law No. 11,723 protects scientific, literary and artistic works, including writings of any kind and length. Protected items include, without limitations: software source and object code, data compilations, dramatic works, musical compositions, architecture works, models and artistic or scientific works applied to commerce or manufacturing, printed matter, blueprints and maps, and, in general, any scientific, literary or didactic production regardless of its reproduction process. The copyright over a scientific, literary or artistic work enables the author to use, publish, perform, represent and publicly exhibit, dispose of, translate, adapt it or authorize its translation, and reproduce it in any way. Intellectual property rights over works shall be held by the authors thereof during their lifetime and by their heirs or legal successors up to 70 years as from January 1st of the year following the author’s death. Intellectual property rights over anonymous works belonging to institutions, corporations or legal entities shall last 50 years as from publication thereof.
2.6 Patents Invention patents and utility models are governed by Law No. 24,481. Ownership over an invention is evidenced by means of the following industrial property titles: •
Invention patents, and
Utility model certificates.
Product or procedure inventions shall be patentable as long as they are new, nonobvious and industrially applicable. Under the abovementioned law, an invention shall be any human creation allowing matter or energy to be transformed for utilization by man. The patent rights shall belong to the inventor or his/her assigns, who shall be entitled to assign or transfer them by any legal means, and to enter into license agreements. Patents are granted for a 20-year term. The holder of a registered patent shall have the right to prevent others from manufacturing, using, offering for sale, selling o importing the patented product without permission. When the patent covers a procedure, the holder shall be entitled to prevent others from using the procedure without permission. In order to get a patent, a written application shall be submitted to the INPI’s (National Institute of Industrial Property) ANP (Federal Patent Administration).
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2.7 Technology Transfer The transfer, assignment or licensing of trademarks by foreign persons to Argentine residents is governed by Law No. 22,426. Any legal acts between a local company and its foreign direct or indirect parent shall be previously approved by the regulatory agency, namely, the INPI (National Institute of Industrial Property) if the abovementioned transactions are involved. The INPI will check whether the transaction involves “technology” in accordance with its guidelines and so whether it requires special treatment. Registration is key in order to enjoy reduced withholding rates (both where double taxation treaties have been subscribed or not) and for the taxpayer to deduce the expense from income tax. It is worth noting that the following transactions are not deemed technological transactions by INPI, (and so a reduced withholding rate is not applicable): •
Purchase of products.
Technical assistance services, as well as know-how licenses or licensing of information, knowledge or application methods in the financial, business, legal, marketing, bid preparation, and securities placement areas, as well as any transactions that do not clearly and duly evidence the actual inclusion of technical knowledge directly applied to the local company’s production activity.
Software use or update licenses.
Plant or machinery repair, supervision or start-up services that do not involve training the local company’s staff.
2.8 Import and Export Policies Argentina is a member of the World Trade Organization and abides by its principles, standards and guidelines. Since its creation in 1991, Argentina is a member of MERCOSUR, a trading block originally formed by Argentina, Brazil, Paraguay, Uruguay and Venezuela. Later, Bolivia, Chile, Peru, Ecuador and Colombia became associate members. This block sought to create a single market for the free trade of goods and services, the coordination of macroeconomic policies and the fixing of a common external tariff. MERCOSUR’s member states account for about 50% of Latin America’s GDP and almost 60% of its total surface area. At present, the free trade zone and the common external tariff apply to most products. Imports from other MERCOSUR member states are not subject to import duties as long as their origin is checked. However, each country still sets different rules for exemptions on sensitive products, but it is expected that the common external tariff will eventually be adopted for all products.
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In 1995, Argentina implemented the MERCOSUR Common Nomenclature (NCM) for the classification of exported or imported products. This system, which is in line with the existing international Harmonized System, is the basis for managing foreign trade. Customs legislation is basically included in the Customs Code (Law No. 22,415, as amended). This code lays down standards and procedures governing foreign trade, as well as the entry, exit, transport and control of goods. The regulatory authority is the DGA, an agency that operates within the AFIP (Federal Administration of Public Revenues). Registration with the DGA’s Registry of Importers and Exporters is required for importing or exporting goods. There are no restrictions on the remittance of corporate profits abroad. However, as a result of the 2001 crisis, there still is an exchange control system in place. Exporters are required to bring the proceeds from export transactions into Argentina and convert them in the single foreign exchange market within a set term. Importers are required to obtain a license in order to carry out import transactions.
2.9 Environmental Protection Law No. 25,676 establishes the minimum budgets required for sustainable and appropriate environmental management, biodiversity preservation and protection, and sustainable development implementation. All citizens have the right to obtain environmental information from the authorities –as long as it is not classified–, and express their views on administrative environmentalprotection procedures. Any work or activity in Argentine territory that may degrade the environment or any of its components, or significantly affect the population’s life quality, shall be subject to an environmental impact assessment process prior to being performed. The procedure shall be initiated by filing an affidavit stating whether the works or activities will affect the environment. The relevant authorities shall require that an environmental impact study be submitted (the study requirements shall be listed in a separate law), and shall therefore conduct an environmental impact assessment and issue a statement approving or rejecting the abovementioned study. Those causing an environmental damage shall be responsible for redressing such damage. If this is not technically feasible, they shall pay compensation as assessed by the ordinary courts to an Environmental Compensation Fund, which shall be managed by the enforcement authority, regardless of any other legal actions that may be brought against them.
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3 Exchange Controls & Central Bank Regulations 3.1 Foreign Currency Inflows Argentina has a foreign exchange control system in place. One of the main issues to consider as regards Foreign Currency Inflows is the “encaje” (mandatory deposit), which is a non-interest-bearing mandatory deposit for all loans granted by foreign persons to Argentine residents. The idea behind this provision is to discourage temporary capital inflows that may significantly alter Capital Market exchange rates. This is required by the provisions of Decree 616/05, which, in brief, established a system for: (i) registration of all Foreign Exchange Market fund inflow transactions; (ii) restrictions on transferring registered funds abroad for a 365-day term; and (iii) making a mandatory, unavailable and non-interest-bearing 365-day deposit in US dollars for 30% of the US dollar amount equivalent to foreign currency brought into the Foreign Exchange Market (the “encaje”). The general principle is that all foreign currency inflows from abroad on account of loans to the private sector are subject to the “minimum cash requirement.” The following items are excluded from this requirement: •
Foreign trade financing.
Debt issuance and payables to multilateral credit agencies.
Loan principal repayment and/or formation of foreign assets.
Investment in non-financial assets.
Direct foreign investment (e.g.: contributions for capital stock increases duly registered with the IGJ [Regulatory Agency of Business Associations in Capital Federal, or with, its equivalent in Argentina’s provinces, the IGPJ]).
Repatriation of investments by residents (to the extent not exceeding the monthly amount of USD 2,000,000).
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3.2 Collection of Goods and Services Exports The proceeds from exports shall be converted into pesos within the local financial system. The deadline for bringing them into Argentina and converting them ranges from 60 to 360 calendar days as from the shipment date set by the Department of Industry, Commerce and Small- and Medium-Size Enterprises4 based on the type of exported item. Current exemptions from this requirement are restrictive, and apply to certain exported goods5 , in the event of certain occurrences6, or when it is possible to use foreign currency abroad to make certain payments. The proceeds from service exports shall also be brought in and converted, but the deadline in this case is 15 business days as from collection or crediting thereof in Argentina or abroad. It should be noted that, under BCRA (Central Bank of Argentina) regulations, a “service export” is considered to take place where a resident provides any service to a nonresident (even in Argentina). Since it is mandatory to bring revenues from goods and services exports into Argentina and convert them, they are exempt from the “minimum cash requirement” described above.
3.3 Foreign Currency Outflows Foreign Investments Residents may purchase foreign currency, for example, to make investments abroad. The monthly (calendar) cap set for this type of transfer and applicable by all financial institutions is USD 2,000,000, which may be subsequently repatriated up to this monthly cap (see Foreign Currency Inflows, minimum cash requirement exemptions). This right may be exercised based on the above caps, to the extent that those who want to make a transfer do not carry any past-due debts abroad on account of principal and interest payments for debts of any kind upon purchasing foreign currency.
Reporting to the Ministry of Economy and Production.
For example, minerals, hydrocarbons, etc.
Shortfalls, shortages, deficiencies, lack of payment, transactions with no commercial value, etc.
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Freely Available Foreign Currency Foreign currency held abroad may be considered “freely available”, as long as not generated by: •
Repayment of foreign loans; or
Other transactions requiring proceeds to be brought into Argentina and converted.
Therefore, foreign currency generated by the following transactions may be considered “freely available”: (a) transfers from Argentina for any of the above purposes; (b) capital contributions received abroad; (c) income earned abroad (i.e., payment of dividends); etc.
Import Payments Residents may purchase foreign currency to make advance and demand payments for Argentine imports. In the case of demand payments, the importer has 90 days to file customs clearance documentation. Upon expiration of this term without completing the import, the importer shall make the advance or demand payment again if he/she has no documentation, or pay the difference amount, if the value of imported goods stated in the customs documentation filed is lower than the amount of the advance or demand payment made. In all cases, the payment shall be made to the order of the supplier or the foreign company stated in the document issued by the exporter.
Service Payment The BCRA (Central Bank of Argentina) provides that “there shall be no restrictions on payments abroad for services provided by non-residents, regardless of the item covered (freight, insurance, royalties, technical advisory services, fees, etc.). The bank through which the transaction is performed shall check that: •
The payment is for services by non-residents; and
There is “documentation evidencing the validity of the transaction, including a certified copy of the agreements giving rise to the obligation and the external auditor’s opinion on the existence of the obligation”, if the service nature is not directly related to the applicant’s activity.
Income Resident companies may remit funds abroad on account of dividends or earnings distribution, provided that: (i) their stockholders are “non-residents”; and (ii) dividends relate to year end financial statements duly certified by external auditors.
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Business Formation and Management
4.1 Introduction Under current Argentine legislation, it is possible to set up different types of companies, such as partnerships, stock corporations, limited liability companies, foreign company branches, and so on. The organization, requirements and operation of the different types of companies are governed by the Argentine Code of Commerce and specific laws, as supplemented. In the City of Buenos Aires, where a significant number of the country’s business associations are located, the relevant regulatory agency is the IGJ. Not-for-profit civil associations are subject to the Argentine Civil Code. Stock corporations (Sociedad Anónima, SA) and partnerships limited by shares can only be part of joint stock companies. In spite of the various legal forms available, those most widely preferred by foreign investors are stock corporations, limited liability companies (Sociedad de Responsabilidad Limitada, SRL)7 or a branch of a foreign company. Foreign companies operating in Argentina are required to appoint individuals to be liable for their actions in the country. The position name depends on the type of company: Directors, for stock corporations; Managers (the equivalent position to that of the Stock Corporation’s [SA’s] President), for limited liability companies and branches; etc. Apart from compliance with laws in general, Argentine companies are required to keep accounting books separate from those of their parent companies, in accordance with Argentine regulations.
Mainly by American companies or investors.
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4.2 Types of Companies a)
Stock corporations (SA)
Stock corporations (S.A.) are owned by stockholders, whose liability is limited, based on their contributions. At least 2 (two) stockholders are required. This type of company requires multiple stockholders (they may not have only one). Regulatory agencies have different opinions regarding the minimum shareholding percentages to achieve this plurality. The IGJ (Regulatory Agency of Business Associations) sets this percentage at 4%, whereas BCRA (Central Bank of Argentina) authorities require the minority shareholder to have at least a 10% equity interest. The shares of stock corporations may or may not be publicly traded. The operation of these companies is governed by their bylaws, which state their corporate name, purpose, life, capital stock, board of directors, election system and other governance and operating standards. The board shall have one or more members, and most of them shall reside in Argentina. These companies are subject to supervision and control by regulatory agencies. For example: •
The CNV (Argentine Securities Commission) regulates companies listed on the stock exchange.
Banks are regulated by the BCRA.
The SSN (Argentine Insurance Regulatory Agency) regulates insurance companies.
Companies whose subscribed capital is equal to or above ARS 10,000,000.00 are required to have a statutory auditor or surveillance committee
Broadly speaking, the remaining types of companies are subject to supervision and control by the IGJ in the City of Buenos Aires or by the relevant agencies in the different provinces.
Capital stock The capital stock shall be fully subscribed and committed upon executing the articles of incorporation. Also at this time, at least 25% of the total capital shall be paid in cash. The remaining capital shall be paid in over a 2-year term. Although the minimum capital stock is ARS 12,000, it is advisable to set a capital amount enabling the normal course of the company’s business. When capital is not subscribed in cash, it shall be fully paid in before requesting the regulatory agency’s approval.
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Stockholders shall be liable for interest and damages resulting from failing to meet this obligation and all voting rights shall be automatically suspended in that case. Stockholders’ liability is limited to paying in the subscribed shares. Stockholders may increase capital up to five times its value without official approval, provided this is permitted by company bylaws. In all other cases, the appropriate official approval shall be obtained and the capital increase shall be duly published and registered. The capital stock may be reduced by decision of a special stockholders’ meeting, which shall be supported by a special statutory-auditor report and meet a series of formalities to preserve creditors’ rights.
Stockholders’ Meeting The regular stockholders’ meeting shall be convened within four months after yearend to discuss the annual report, the appointment, performance and compensation of directors and statutory auditors, and the distribution of earnings. Regular meetings may also be convened at any time to address the liability of directors and “síndico” (statutory auditor), or to increase capital up to five times its value. Special stockholders’ meetings are convened to discuss issues not addressed at regular meetings. Directors and statutory auditors have the right and obligation to attend all meetings.
Governance and Representation Management is delegated to the board, which is made up of one or more directors (in the case of companies under permanent government surveillance there shall be at least three) appointed by the stockholders’ meeting or by the “síndico” (statutory auditor), as the case may be. Directors have a three-year term of office, but may be reelected and shall serve until replaced. The board shall meet at least every three months, except in the case of companies under permanent government surveillance, which require the board to meet on a monthly basis. A simple majority is required to have quorum. Usually, the chairman is the company’s legal representative, but company bylaws may authorize the vicechairman or one or more directors to fulfill this role. Directors are jointly and severally liable for the decisions made by the board.
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Private Supervision (Legality Control) This type of supervision is generally entrusted to one or more “síndicos” appointed by the stockholders’ meeting, which shall also appoint up to three substitutes. This position is optional for companies not subject to continuous control by a government agency. The law requires a certified public accountant or attorney degree to be a statutory auditor. The law also provides for another type of control body, namely, the surveillance committee. The duties of this committee, which are broad and shall be established by company bylaws, may include: •
Replacing statutory auditors and thus appointing external auditors.
Supervising directors, requesting and reviewing all information deemed necessary.
Convening stockholders’ meetings when deemed necessary.
Performing other control and reporting functions.
This alternative form of supervision is not preferred by investors and is rare in practice.
Parent Companies, Controlled Companies and Affiliates Annual financial statements shall separately disclose the relations with parent companies (those holding an equity interest sufficient to have the majority voting rights, either directly or through other subsidiaries), controlled companies (the ones controlled as described above) and affiliates (in which the reporting company holds over a 10% interest). Parent companies are required to file consolidated annual financial statements as supplementary information.
Limited Liability Companies (SRL)
With simpler organization processes and more flexible bylaws, they are similar to stock corporations, but differ in the following respects: •
Their name shall be followed by “limited liability company” or the acronym S.R.L.
The number of members may not be over 50.
A stock corporation may not be a member.
They are not allowed to go public.
A change in members requires amending the respective articles of organization.
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Capital stock Capital subscription rules are the same as for stock corporations. The articles of incorporation may allow additional membership interests to be issued, but only with the approval of over half of the capital stock, followed by the relevant publication and registration. The capital stock is divided into membership quotas, and members’ liability is limited to paying in the subscribed or acquired membership quotas. Membership quotas shall have the same value and voting rights, but members may hold more than one membership quota. The law does not curtail the transfer of membership quotas, but the articles of incorporation may do so.
Shareholders’ Meetings If the articles of incorporation do not lay down specific rules for holding meetings, the rules for stock corporations shall be applied. Summons to shareholders’ meetings shall be sent to members’ home addresses.
Governance and Representation Managers (equivalent to the title of President in a Stock Corporation, SA) have the same rights and obligations as stock corporation directors, but their term of office is not limited to three years. Members shall appoint one or more managers to assume the responsibilities of business operations.
Mandatory Supervision Companies whose subscribed capital is equal to or above ARS 10,000,000.00 are required to have a statutory auditor or surveillance committee. If subscribed capital is below this amount, control is optional and governed by the provisions of the articles of organization.
In these partnerships, partners have unlimited liability. The other types of companies may not be members of these partnerships. Their corporate name shall be followed by “General Partnership” (“Sociedad Colectiva”).
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Not-for-Profit Civil Associations
These associations have no commercial purposes and are governed by the Argentine Civil Code. These articles of association are actually the agreements subscribed between partners. In many cases, professional associations take this form.
These partnerships are also governed by the Argentine Code of Commerce and have two types of partners: “limited” partners, whose third-party liability is limited by their capital contributions, and “general” partners, who have full liability. There are two types of limited liability partnerships: a) partnerships limited by shares (S.C.A.), in which limited partners’ capital is divided into shares of equal value, and b) plain limited partnerships (S.C.S.), in which the capital is also proportionally divided, but no shares are issued. Their name shall be followed by the acronym S.C.A. or S.C.S., as the case may be. In general, the stock corporation provisions of the Argentine Code of Commerce apply to partnerships limited by shares, and general partnership provisions are applied to limited partnerships.
Argentine legislation provides for two types of associations: 1) Associations for collaboration purposes and 2) Joint Ventures (U.T.E.). The former are enterprise associations for renewable periods of up to 10 years intended to carry out the business activities of partner companies and to improve or perform joint activities. The latter are associations intended to carry out a specific task, activity, project, service, etc., in Argentina or abroad. The life of these associations depends on their purpose. Both types of associations have the following characteristics: •
They are not legal entities separate from their members.
Agreements between partners may be public or private.
Members may be individuals or companies, both residents and non-residents, who have set up a branch or permanent establishment in Argentina
Agreements between partners shall be registered with the Public Registry of Commerce and include information such as: the association purpose and term, name and other information about members, their responsibilities and committed contributions.
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Enterprise associations may also exist in the form of private agreements, i.e., without being registered with the Public Registry of Commerce, if they do not exactly meet the above requirements. These associations have the same rights and obligations as described above, as well as the same tax treatment.
Foreign companies performing occasional transactions in the country do not need to be registered. Conversely, those carrying out business activities on a regular basis, including setting up branches, agencies or permanent representations, shall be registered. Foreign companies may also set up a company in Argentina for which they shall be registered, file the articles of incorporation and appoint a legal representative. However, if their main business is conducted in Argentina, they shall be treated as Argentine companies. The IGJ has issued a series of resolutions aimed at ensuring that foreign companies operating in the City of Buenos Aires appropriately fall under the rules of Business Associations Law No. 19,550, especially in relation to compliance with registration, booking and reporting requirements, owners’ identification, equity interest and assignment of duties. Foreign companies registered in offshore or null- or low-taxation jurisdictions are subject to additional conditions and parameters that prevent the IGJ from issuing a favorable opinion on their registration in Argentina. The same applies to foreign companies that are used only as a vehicle of other companies directly or indirectly owning them and with which they form a foreign group of companies.
Foreign Company Branches
Foreign company branches shall also be registered and may carry out all activities of their head office. These activities are conducted on behalf of the head office and by an appointed representative. The legal representative shall submit a branch registration application, containing head office information. This information shall be notarized in the country of origin, certified by the Argentine consul in that country and, if not in Spanish, translated by an Argentine sworn translator. The branch is managed by a legal representative having a power of attorney, which can be limited depending on the circumstances. However, it should be borne in mind that the head office is liable for all branch payables, and the power shall be broad enough to execute dealings with financial institutions, regulatory agencies and other local suppliers.
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5.1 Accounting and Auditing Requirements All companies located in Argentina, regardless of their legal form and size, are required to keep an analytical accounting system for their operations and to issue annual financial statements. In the case of stock corporations, financial statements shall be audited by an independent certified public accountant. Companies governed by the CNV (Argentine Securities Commission) and the BCRA (Central Bank of Argentina) are also required to file quarterly financial statements jointly with limited review reports issued by independent certified public accountants. This requirement involves some basic aspects regulated by specific laws and control systems, such as currency (Argentine pesos), language (Spanish both for the description of each transaction and the chart of accounts), applicable accounting standards, and basis of financial statements presentation, among others. Regulatory agencies include, without limitations: •
IGJ (Argentine Regulatory Agency of Business Associations): enforcement agency for Business Associations Law in the City of Buenos Aires, and its equivalent agencies in the provinces;
CNV (Argentine Securities Commission): for listed companies.
BCRA (Central Bank of Argentina): for financial institutions;
SSN (Argentine Insurance Regulatory Agency): for insurance companies;
Professional accounting standards enforcement agencies, made up of licensed accountants in each province (Professional Councils).
All companies shall record their transactions in books officially stamped by the respective regulatory authority in each jurisdiction. Statutory books include: Journal and Inventory and Financial Statements Book, and Subsidiary VAT Purchases and Sales Journals, for tax purposes. It is also usual to record transactions in subsidiary ledgers (Cash on hand-Cash in banks, collections and others).
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Statutory books shall have pre-numbered pages and may not have blank pages or spaces. These books may be replaced by loose leaves or magnetic media as long as previously approved by the IGJ. All companies shall file annual financial statements, covering 12 months of activity, which shall at least contain: •
Annual Report, required only for stock corporations.
Balance Sheet, including assets, liabilities and stockholders’ equity amounts.
Statement of Income, showing profits and losses.
Statement of Changes in Stockholders’ Equity, starting with balances at the beginning of the fiscal year and disclosing the changes and movements that occurred over the year.
Statement of Cash Flows.
They are also required to include exhibits and analytical notes, stating the content of each financial-statement account. Notes usually include information about contingencies, transactions with related parties, receivables and payables due dates, expenses (classified by type) and other events that should be known by the reader of the financial statements.
All financial statements filed, and the accompanying notes and exhibits, shall be presented comparatively with the previous accounting term, in the case of interim financial statements. When a company holds over 50% of another company’s shares or several companies jointly own another company, they shall file consolidated financial statements. This requirement also applies when, despite not actually controlling the company by virtue of the number of shares, a significant influence is exerted over it, whether due to being the only customer or supplier, or to having the same board of directors, for example. These consolidated financial statements disclose the cash and financial position of the group of companies, excluding transactions among each other.
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5.2 Applicable Accounting Standards Argentine professional standards are issued by the FACPCE (Argentine Federation of Professional Councils in Economic Sciences) and approved by each provincial Professional Council in Economic Sciences. Professional standards are called technical resolutions (RT) and are divided into accounting, auditing and “sindicaturas” (statutory audit) standards. These standards are supplemented by a series of interpretations, technical recommendations and other resolutions to be taken into account upon applying them. In line with international financial reporting standards, the conceptual framework of professional accounting standards states that the objective of financial statements is to report on the issuer’s equity as of a given date and on the economic and financial changes undergone by it over the period covered in order to facilitate economic decision-making, and lists a number of attributes to be fulfilled by accounting information: •
Essence (substance over form)
Neutrality (objectivity or lack of bias)
Professional accounting standards are, in certain respects, very similar to the standards effective in other countries, such as the International Financial Reporting Standards (IFRS) or U.S. GAAP.
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The main exceptions include: •
Adjustment for inflation: In times of economic stability, the nominal currency is used (the FACPCE shall assess the need to resume the adjustment based on the occurrence of certain events).
Deferred tax assets and liabilities: They are discounted at each year-end, except in the case of listed companies, where they are kept at nominal value.
Valuation of inventories in general at year-end: They may be valued at yearend at replacement cost.
Measurement of PP&E, capital expenditures and intangible assets with a definite useful life: They may only be valued at original cost, net of depreciation/amortization.
Capitalization of start-up costs: In the case of a new activity or operation, they are required to be direct costs and clearly incremental with respect to the other company costs.
Appraisal revaluation reserves (fair value revaluation): Not allowed.
Legal reserve: It is required by Business Associations Law (5% of income for the year up to 20% of the capital stock).
It is also worth noting that there are several –in some cases, significant– differences in terms of financial-statement disclosure, which need be carefully analyzed on a case-by-case basis. Furthermore, as from 2012, listed companies (with a few exceptions) shall issue their financial statements for publication under international financial reporting standards (IFRS), which shall eventually be adopted by all types of companies.
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5.3 Applicable Auditing Standards Professional auditing standards establish the basic condition for the performance of the audit, i.e., independence from the information subject to the audit, and the guidelines for performing work and preparing the auditor’s report. By means of audit procedures, the auditor shall obtain valid and sufficient evidence to support his/her report. An auditor may perform the following work: •
An audit to determine the fairness of the information disclosed in the basic financial statements.
A limited review of financial statements for interim periods, less in scope than required for determining the fairness of the information disclosed in the basic financial statements.
Analyses of facts or special verifications that do not require the issuance of a technical opinion (certification).
The objective of the audit is to issue a report signed by the independent auditor, expressing any of the following opinions: •
Unqualified favorable opinion
Qualified favorable opinion (except-for qualifications or qualifications for unresolved uncertainties)
Although these standards are essentially in line with International Standards on Auditing, the latter are more comprehensive and cover more topics that Argentine Standards. The main topics not covered by Argentine standards include: quality control requirement; framework for assurance engagements; risk assessment and management; specific procedures to deal with irregularities and fraud; special reports, such as compilation or agreed-upon procedures. Finally, it should be noted that the Argentine standards issuing body is currently planning to adopt international standards on auditing in full.
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6.1. Taxes Argentina is organized as a federation. Therefore, there are 3 levels of government that may levy taxes: •
The Federal Government.
Each of the Provincial Governments (23 Argentine provinces plus the City of Buenos Aires, which is equivalent to a province for these purposes).
Municipal Governments (an undetermined number of municipal districts, well above 1,000).
Each of these levels may issue tax rules and regulations. The distribution of taxes among jurisdictions basically stems from the National Constitution, Provincial Constitutions and Agreements between the Provinces and the Federal Government. The main taxes are: •
At the federal level: Corporate Income Tax, Personal Income Tax, Minimum Presumed Income Tax, Value Added Tax, Excises Taxes, Tax on Bank Account Debits and Credits, Fuel Tax, Customs Duties.
At the provincial level: Turnover Tax, Stamp Tax, Real Estate Taxes, Automobile Taxes.
At the municipal level: Health and Safety Taxes, Street-Lighting, Sweeping and Cleaning Taxes, Advertising Taxes.
Observing all the regulations adopted by the various jurisdictions really is a constant challenge. It is impossible to even attempt to describe all applicable federal, provincial and local rules and regulations in a brochure like this. This is only a description of the most relevant tax issues, but in no way can it replace specific advice from experienced professionals.
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6.2. Framework of the Law In accordance with constitutional provisions, for a tax to be valid, it shall be created by a law duly passed by Congress (the federal congress, provincial legislatures or municipal councils). Tax legislation is complex and ever changing. Also, the various tax authorities at each government level have the power to issue many regulations, which may not create taxes, but impact on taxpayers’ compliance. Unlike other countries, tax changes are not only included in Budget Law, but also applied throughout the year. Based on Argentine Supreme Court interpretations, tax laws may not be retroactively enforced. The administration of federal taxes is the responsibility of the AFIP (Federal Administration of Public Revenues). This agency has broad powers to monitor and enforce tax laws. It may also issue interpretations and regulations on different matters. The AFIP’s counterparts at the provincial level are the provincial Tax authorities (which are usually called Direcciones Provinciales de Rentas, but receive different names depending on the province). Their powers are similar to those of the AFIP. Furthermore, all municipal districts have a municipal tax or Bureau Office.
6.3 Federal Corporate Income Tax a)
This tax is levied on income, including capital gains, obtained by companies residing or domiciled in Argentina. Companies residing in Argentina pay tax for their worldwide income. However, the equivalent taxes paid abroad may be computed as a payment on account of income tax. For tax purposes, foreign company branches are considered residents and are therefore subject to tax. Each company is considered a separate company; there is no tax consolidation. Non-resident companies only pay tax on the activities and income obtained in Argentina through a system of withholdings at source.
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Companies shall file their income tax returns usually between the 19th and 23rd of the fifth month after fiscal year-end. Tax returns shall disclose the worldwide income obtained, be stated in Argentine pesos and be submitted by means of the official form or software. Most documents shall be electronically filed over the Internet. There are no automatic term extensions.
Over the year, companies shall make 10 monthly advance payments on account of income tax for the year in question. Payments shall start in the sixth month after fiscal year-end.
Statute of Limitations
Tax authorities will have 5 years as from January 1st of the year following the income tax due date to claim any tax differences.
Computation of Income
Companies pay a 35% income tax rate on the difference between taxable income and deductible expenses. All costs required to obtain, maintain and preserve income may be deducted.
The following is a brief description of the most common differences: •
Donations: they may be deducted as long as they have been made to an entity duly recognized as exempt by the AFIP. In any case, deductions on this account may not exceed 5% of taxable income.
Taxes: almost all taxes are deductible, except corporate income tax itself, tax on minimum presumed income or tax fines or penalties.
Entertainment expenses: only up to 1.5% of the total amount paid by the company on this account is allowed as a deduction.
Depreciation: to the extent that they are appropriately accounted for, there are no limitations on the useful lives assigned to assets. However, for tax purposes, only the straight-line method is allowed (except for mining activities or assets subject to depletion).
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Automobile depreciation: depreciation of these assets has certain limits for tax purposes.
Start-up expenses: for tax purposes, there is the option to expense the amounts in the year incurred or to amortize them over 5 years or less.
Inventories: there are detailed rules depending on the relevant activity. No general allowances for impairment in value of inventories are permitted.
Allowances for bad debts: no such allowances are permitted for tax purposes.
Net Operating Losses
Losses incurred in a given year may be carried forward for 5 years. Net operating losses may not be carried back.
Transfer Pricing Rules
Transfer pricing rules apply to transactions between an Argentine company and other group companies located abroad. The items to be reviewed range from the purchase and sale of goods and services to interest and royalty payments. Argentina adopts the basic rules of the OECD based on the arm’s-length principle. Every year, businesses shall file a tax return and a transfer pricing report to account for the price of transactions performed.
Minimum Presumed Income Tax
This tax was created for the purpose of ensuring that companies pay a minimum tax amount for their business activity. This is an annual 1% tax levied on total assets valued in accordance with tax rules. It applies both to assets located in Argentina and abroad. The amount paid in tax is considered an income tax credit. If income tax is higher than this tax, only the former shall be paid. If tax on minimum presumed income had to be paid (because it was higher than income tax), the excess thereof may be used as a credit to offset future income tax payments for a period of 10 years.
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Taxation of Non-Resident Argentine Companies
Foreign persons having no permanent establishment in Argentina and obtaining income in the country shall pay income tax by means of withholdings at source. These withholdings are applied by the Argentine resident upon paying income. The main items subject to withholding are as follows:
Technical assistance or consulting services not available in Argentina by virtue of
agreements complying with the provisions of Technology Transfer Law Assignment of rights or patents and other services not mentioned above complying
with the provisions of Technology Transfer Law Items mentioned above not complying with the provisions of Technology Transfer Law
Copyrights, under certain conditions
Interest paid to financial institutions located in jurisdictions other than tax havens
Salaries, fees or other compensation for temporary services in the country
Lease of personal property
Lease of real property
Sale of property in Argentina
Other, unspecified items
Dividends shall not be taxed as long as income tax has been paid on income that generated them in the relevant periods. Otherwise, the difference will be subject to a 35% income tax withholding.
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Argentina has subscribed a series of bilateral treaties with a number of countries with which it does business. These treaties have an effect on to the taxation of activities and on sea and air transportation. In general, these treaties considerably limit the withholdings referred to above on items such as interest and royalties. They also contain special provisions for capital gains, treatment of branches and permanent establishments, etc. As of January 2011, Argentina has subscribed double taxation treaties with the following countries: •
Great Britain & Northern Ireland
6.4 Federal Individual Income Tax a)
Argentine residents shall pay tax on Argentine and foreign income. Non-residents shall only pay tax on income earned in Argentina. There are no joint tax returns for spouses.
Individuals shall file their tax returns between April 14th and 20th of each year, depending on the last digit of their tax identification number (CUIT). Most documents shall be electronically filed over the Internet.
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Computation of Income
The tax is levied on recurring income, whether in cash or in kind, but capital gains, gains from certain financial investments and dividends are free of tax. Deductions are very limited. In general, deductions are allowed for public and private healthcare organizations, social security contributions, life insurance (up to a certain amount), donations (cap equal to 5% of net income), and mortgage interest (up to a certain amount). Notwithstanding the above, individuals are entitled to certain fixed deductions provided by the law, the main being: Tax Deduction
Being an Argentine resident
Performing personal work
Performing personal work as a payroll
employee Spouse or equivalent allowance
Being an Argentine resident
Being an Argentine resident
Tax Rates and Scale From
On the excess of
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6.5 Value Added Tax (VAT) a) Overview VAT is a general consumption tax levied on most sales of goods and services in Argentina, including financial services provided by banks. It also applies to the import of taxable goods and services; in the latter case, the tax is to be understood as applying to services rendered abroad for use in Argentina. VAT paid on purchases of goods and services, called Input Tax, are offset against VAT on sales, or Output Tax. The amount payable is the difference between these two items. Final imports are subject to VAT. In this case, VAT is paid to Customs before picking up imported goods. VAT paid on this account is also a VAT credit. Additionally, imports are subject to a sort of surcharge called “additional withholding”, to be paid along with VAT upon clearing goods from Customs. This amount also becomes an input tax to be used in the future. This additional tax rate does not apply to the importation of fixed assets. For taxpayers having the Import Data Validation Certificate, the VAT rate is 10%. If the importer lacks this certificate, the rate is doubled. Exports of goods and/or services are subject to a zero rate, but exporters may use VAT paid on purchases to pay other transactions on the domestic market and other taxes, or request reimbursement thereof. The main exempt items include: •
the sale of books, newspapers and magazines;
natural water, bread and milk;
the sale to of medicines for human use to end consumers;
lease of real property for dwelling (up to a certain limit);
education services in line with the official curricula;
healthcare services provided by healthcare organizations;
international passenger transport;
certain financial investments.
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When an individual carries out a VAT-exempt activity, he/she is not required to pay VAT on sales, but may not claim reimbursement for VAT on purchases. VAT shall be paid for any transactions, including intra-group transactions, performed in Argentine territory.
b) Rates General rate: 21% Increased rate: 27% for the sale of public utilities, such as gas, electricity, water and telecommunications, not intended for homes. Reduced rate: 10.5% for the sale of meat, live animals, fruits, vegetables and other specific foodstuffs, certain home-building activities, certain capital goods.
All VAT returns are monthly and due between the 19th and 23rd of the following month (based on the last digit of the tax identification number). Most documents shall be electronically filed over the Internet.
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6.6 Other Federal Taxes a)
This tax is levied by the federal government. It is paid by the first consumer or the importer. It is applied to certain products and services, such as alcoholic beverages, tobacco, luxury goods, etc. Rates vary based on the type of service.
Tax on Bank Account Debits and Credits
It applies to all bank account credits and debits within the Argentine financial system. The general applicable rate is 0.6% for each credit or debit, that is, every time money enters or leaves the bank account. Therefore, transactions are subject to 1.2% tax. This tax is directly collected and withheld by the bank. Transactions involving the use of bank checking accounts will be taxed a 1.2% rate.
Argentina is a member of the World Trade Association, ALADI (Latin American Integration Association) and MERCOSUR (an incomplete customs union formed by Brazil, Argentina, Paraguay, Uruguay and Venezuela, in addition to Chile and Bolivia, which have a special status). As one of MERCOSUR’s member countries, it has adopted the Common External Tariff. This tariff is applied by all MERCOSUR countries for imports from other countries not belonging to the organization. Nevertheless, there are several products that are not subject to the Common External Tariff (e.g., textiles, footwear, etc.). Import duties range from 0% to 35%. In 2009, Argentina applied an average 12.6% rate to all imported products. Import duties are calculated based on the CIF value (cost, insurance and freight) of goods valued in accordance with GATT and MERCOSUR standards. Additionally, there is a so-called Statistical Taxes, which is also applied to the CIF value of imported goods. This rate is 0.5%.
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6.7 Turnover Tax a) Overview This tax exists in all Argentine provinces and in the City of Buenos Aires. It is levied on companies’ gross income derived from business, manufacturing, agricultural, financial or service activities. It applies to every production stage of goods and/or services without any tax credit belonging to purchases and previously paid turnover tax amounts. This tax covers a wide range of sales of goods and services, such as sales, leases, royalties, interest, general services, professional services, construction, etc. Turnover tax exemptions are limited and vary from province to province. Several provinces exempt –with limitations– the primary and industrial sectors. Rates vary greatly based on the province and the type of activity. In general, they range from 1.5% to 4%/4.5%. The tax is paid over the year on a monthly and bimonthly basis, depending on the province.
Individuals who carry out activities subject to turnover tax in more than one province shall distribute the tax base among the various jurisdictions, in accordance with the provisions of a special compact signed by all provinces and the City of Buenos Aires. The mechanism basically consists in calculating an annual distribution coefficient, which is determined based on the taxpayer’s income and expenses in each of the provinces and the City of Buenos Aires.
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6.8 Stamp Tax This tax is in force in all Argentine provinces and the City of Buenos Aires, and is levied on documents, deeds or contracts of any value. The most widely applied rate is 1% on the total contract value. However, the rate also varies depending on the province and the type of contract.
6.9 Real State Tax This tax is levied on real state in all provinces. It is directly calculated by provincial tax authorities based on a fixed rate on the real state value set by the province. This tax does not take into account the taxpayer’s payment ability to pay.
6.10 Municipal Taxes Most municipal governments have the power to collect taxes for services provided to the taxpayer, such as street lighting, sweeping, cleaning and maintenance, garbage collection, street advertising, etc. Many municipal districts levy a kind of tax called “Health and Safety Rate”, which is usually set based on net income obtained in the municipal district or on the number of people employed there.
6.11 Tax Incentives Tax incentives are varied and ever changing. These incentives may be offered by the Federal, Provincial and Municipal Governments. Activities shall be reviewed on a case-by-case basis. Below is a list of some federal-level incentives.
In order to encourage the acquisition of machinery and the use of new technologies, numerous systems have been implemented to promote the final and temporary import of capital goods, and the import of used production lines. Benefited products enjoy a 0% tariff. There is also a system providing for a reduced 10.5% VAT rate for specifically selected capital goods and computer products.
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This system allows the import of goods without paying import duties and VAT, as long as they are re-exported within a specified period of time either in their original condition or as part of a new product.
In order to promote the creation, design, development and production of software, as well as the related technical documentation, this program likens the software industry to the general manufacturing industry so it may also benefit from other incentive programs intended for manufacturing activities. In addition, tax stability is provided (tax rates shall not be increased) regarding federal taxes, import duties and other direct taxes for a period of 10 years. A non-reimbursable and non-transferable tax credit is offered (except for corporate income tax) of up to 70% of social security contributions paid by the employer. There is also a maximum 60% reduction of corporate income tax in each tax period if the company carries out verifiable research and development activities.
d) Biofuel This system is designed for the sustainable promotion and use of biofuel. It offers accelerated income tax deductions and early VAT refund for capital goods allocated to infrastructure works.
The mining activity enjoys a number of incentives, such as: double deduction from income tax of exploration expenses from income tax; the possibility of deducting up to 100% of amounts invested in project feasibility studies; a period of tax stability (commitment not to increase federal tax rates) for a 30-year term; the possibility of accelerated depreciation for income tax purposes; and import duty exemption for capital goods allocated to the project.
It covers forest plantation, exploitation and industrialization processes. The main benefits are: tax stability for 30 years, with the possibility of extending it to 50 years, the possibility of accelerated depreciation for income tax purposes, and early VAT refund for capital goods acquired to be used in the project.
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7.1 Overview The payroll employment system, governed by Law No. 20744, is mainly based on an employment contract for an indefinite period of time (from the date when the worker joins the company until he/she qualifies for retirement benefits). Furthermore, under special circumstances, fixed-term, temporary, seasonal or team contracts may also be subscribed, but the failure to meet mandatory requirements for these contracts make them “indefinite.” Depending on their duties and roles, people joining the company may be covered by a labor union (unionized staff) or not. Those enrolling in a labor union are entitled to a minimum wage set by collective bargaining agreements. Usually, the minimum wage paid to unionized staff is supplemented by bonuses based on length of service, attendance, performance or the type of tasks carried out by the worker. The salary of non-unionized staff, on the other hand, is agreed between the company and the employee. Workers are required to make contributions to a healthcare organization (employee: 3% and employer: 6%) and to the social security system (employee: 14% and employer: 17%) after obtaining a CUIL (labor identification number), by which they are identified within the Argentine labor and social security system.
7.2 Basic Rules of Employment The basic rules of employment are laid down by labor laws and those establishing the rights and duties of the parties, but, in short, it may be said that the employment contract is based on the good faith of the parties, on fairness, and on the compensation to be received by the worker from the employer for his/her work. An employment contract requires certain subordination categories, which do not necessarily have to be supplementary: Technical, economic, and legal subordination and economic risk.8 Under effective legislation, it may be presumed that an employment contract exists when any of the abovementioned subordination types are found.
The employer will assume this risk when the worker is on a salary condition.
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7.3 Working Hours The number of working hours is set by Workday Law No. 11,544 and its administrative order, but collective bargaining agreements may establish special hours for the activity they regulate. Broadly speaking, there is a regular 8-hour workday and working time may not exceed 9 hours a day or 48 hours per week. After the regularly scheduled working hours, overtime shall be paid. The maximum overtime worked may be 3 hours a day, 30 hours per month or 200 hours per year. Overtime is paid with a 50% surcharge over the hourly rate, except overtime worked on Saturdays after 1 pm, Sundays or holidays, which has a 100% surcharge Also, night hours, from 9 pm to 6 am of the following day, shall be considered. In these cases, 8 minutes shall be added per worked hour, which results in 13.33% above daytime working hours. Therefore, night working hours may not exceed 7 hours a day or 42 hours per week.
7.4 Termination There are several forms of employment termination: a “justified” dismissal, where termination is considered to be the worker’s fault; “resignation” or “unjustified absence from the workplace”, where the responsibility for termination is placed on the worker; or “by mutual agreement”, where the worker and the employer agree on employment termination. In all of these cases, the worker shall not be entitled to any severance payments in addition to his/her regular compensation for the provision of services. Thus, if termination is due to dismissal “for well-grounded reasons”, “resignation”, “unjustified absence from the workplace” or “by mutual agreement”, the worker shall be paid his/her “salary” until the termination date, the proportional “thirteenth salary” and the proportional “unused vacation time” (this is not part of the salary, and, therefore, not subject to employee and employer contributions). On the other hand, upon dismissal “for no reason” decided by the employer, the worker shall receive a “severance pay” that broadly represents 1-month’s salary per year of service or fraction greater than 3 (three) months. In these cases, the employer shall notify the dismissal to the worker in advance; otherwise, he/she should compensate the worker for failing to give notice by paying him/her a 15 (fifteen)-days’ salary if the worker is on trial period (the first 3 months), a 1 (one)month’s salary if the worker’s has been an employee for less than 5 (five) years, or a 2 (two)-months’ salary if the worker’s length of service is over 5 years.
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If the employer fails to give advance notice and the dismissal occurs before the last day of the month, the employer shall also compensate the worker by paying him/ her the remaining days until the end of the month, on account of “dismissal month payment”. The severance pay, the compensation in lieu of notice and the dismissal month payment are, by definition, not subject to employee and employer contributions.
7.5 Social Security Costs Social Security costs can be summarized as follows: Item
I.N.S.S.J. Y P.
Companies with an average annual turnover of ARS 80,000,000 in the last 3 fiscal years shall pay 4% more in social security contributions, bringing the total to 27%. Additionally, the company shall purchase workers’ compensation insurance. The cost of insurance shall depend on the risk entailed by the activity performed and on compliance with occupational health and safety regulations, and shall be calculated based on a percentage of the worker’s salary. For example, in a business activity, the cost may range from 2% to 4% of the salary. The company shall also purchase a life insurance policy for workers, which currently costs ARS 2.46 per worker.
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7.6 Working Conditions (Trial Period, Paid Leaves, Holidays, Vacation) Current legislation requires contracts for an indefinite period to include a 3-month trial period, during which the employer may dismiss the worker without having to pay any compensation other than that applicable for failing to give advance notice. The employer shall notify the worker 15-days before employment termination during the trial period; otherwise, he/she shall pay the worker a 15-days’ salary. Holidays, as well as vacation days, shall be calculated on a different basis that the salary. Salaries are calculated on a 30-day basis, while holidays and vacation are calculated on a 25-day basis, resulting in a 0.6% surcharge per day.
7.7 Overtime Overtime worked within the 48-hours-per-week limit shall be paid at the regular hourly rate. Upon exceeding this limit, it shall be paid as explained in the “Working Hours” section.
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Relevant Websites or Further Reading
www.argentina.gov.ar www.torrent.com.ar www.rsmi.com www.afip.gov.ar www.bcra.gov.ar www.mecon.gov.ar www.indec.mecon.gov.ar
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About RSM International
RSM International is a worldwide network of independent accounting and consulting firms. RSM International and its member firms are separate and independent legal entities. RSM International does not itself provide accounting or consultancy services. All such services are provided by member firms practicing on their own account. RSM is represented by affiliate independent members in 90 countries and brings together the talents of over 32,500 individuals in over 700 offices worldwide. The network’s total fee income of U$S4bn places it amongst the top six international accounting organizations worldwide. Member firms are driven by a common vision of providing high quality professional services, both in their domestic markets and in serving the international professional service needs of their client base. RSM International is a member of the Forum of Firms. The objective of the Forum of Firms is to promote consistent and high quality standards of financial and auditing practices worldwide.
Executive Office 11 Old Jewry London EC2R 8DU United Kingdom T: +44 (0) 20 7601 1080 F: +44 (0) 20 7601 1090 E: [email protected]
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About Estudio Torrent Auditores
Estudio Torrent is a multidisciplinary professional firm that provides Audit, Tax Advisory and Consulting services since 1947. Our methodology is characterized by teamwork, customized assistance, commitment to service and our expert guidance to the economic activities of the Argentine mid-market and foreign companies. The stability of our client portfolio accounts for the strong links we have with our clients.
Tailored solutions Throughout our history, the firm has maintained and renewed its commitment to providing high quality professional services, customized to each and every one of our clients. Our goal is to have a complete understanding of the characteristics of our clients’ businesses so that we can use our experience to provide useful advice for their needs and expectations.
We know your business Given our history and diverse client portfolio, it is likely that any difficulties or need you may have has already been addressed and solved by our professionals. Our response to the needs of professionals from different types of organizations, whether public or private, large or small, allows us to deal successfully with all kinds of issues throughout Argentina.
Audit, Tax and Consulting The core of our services consists of a wide range of audit and assurance services and local and international tax services. Nevertheless, at Estudio Torrent Auditores, we have found how to get closer to the different needs of our clients. Over the last few years, we have diversified our activities beyond audit and tax to include mergers and acquisitions, the review of compliance with IGJ Regulations, and Sarbanes-Oxley Act related services. Today, we apply these skills and offer our clients the experience and professional and business expertise of our partners and managers, all of whom are leaders in their professional field. Whenever appropriate, we include recommendations for improving our clients’ internal control systems, as well as their working methods and booking and timely information generation procedures.
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Global Compliance and Supporting Services One of our main service lines of is outsourcing. “ABC Basic Services” refers to the outsourcing of accounting, payroll processing, tax compliance and related financial services that foreign companies with operations in Argentina may need.
Estudio Torrent Auditores Bdo. de Irigoyen 330, 4th Floor C1072AAH – Ciudad Autónoma de Buenos Aires Argentina T: +54-11-5031-1150 F: +54-11-4334-2213 E: [email protected]
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Cerro Torre, Los Glaciares, Patagonia
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RSM International Executive Office 11 Old Jewry London EC2R 8DU United Kingdom T: +44 (0)20 7601 1080 F: +44 (0)20 7601 1090 E: [email protected]
www.rsmi.com The aim of this publication is to provide general information about doing business in Argentina and every effort has been made to ensure the contents are accurate and current. However, tax rates, legislation and economic conditions referred to in this publication are only accurate at time of writing. Information in this publication is in no way intended to replace or supersede independent or other professional advice. Copies of this booklet or additional information can be obtained from the RSM International Executive Office or Estudio Torrent Auditores. RSM International is the name given to a network of independent accounting and consulting firms each of which practices in its own right. RSM International does not exist in any jurisdiction as a separate legal entity. The network is administered by RSM International Limited, a company registered in England and Wales (company number 4040598) whose registered office is at 11 Old Jewry, London EC2R 8DU. Intellectual property rights used by members of the network including the trademark RSM International are owned by RSM International Association, an association governed by articles 60 et seq of the Civil Code of Switzerland whose seat is in Zug. © RSM International Association, 2011. 56 | DOING BUSINESS IN ARGENTINA