2.1. Treatment and Regulation of Foreign Investment
Investment in Argentina is governed by a number of regulations, including international treaties and local provisions, concerning the treatment of foreign investments, regulation of foreign companies, monetary policy rules, exchange control and foreign currency transfers to and from Argentina.
Except in certain sectors of the economy, such as government-regulated activities such as banking or insurance, purchase of real estate in frontier or security areas, or in certain special sectors such as Defense of Competition, prior government approval is not necessary to start a new venture or acquiring an existing venture.
If the investor is a company from abroad who wishes to purchase interest in a local company, it must previously register the foreign company with the Public Registry of Commerce in the jurisdiction where the local company is organized. Depending on the jurisdiction, it may be necessary to make regular (usually annual) filings to update such information.
In respect of investment in communications, there is a restriction for a foreign investor –except from the United States, under an already existing investment promotion treaty– who acquires an interest in excess of thirty per cent (30%) in the equity and voting rights. Such percentage may be expanded based on reciprocity with countries who contemplate foreign investment in communications means therein, up to such percentage as they allow.
2.2. Foreign Investment Regulations
2.2.1. Promotion and Protection of Investments
The Law No 21,382 (as amended by Decree 1853/1993) provided a legal system intended to promote foreign investment in the country, based upon the principle of non-discrimination between Argentine and foreign investors.
The main provisions in the Law No 21,382 determine that:
• A foreign investor may make an investment in the country for the promotion of economic business, or to expand or improve an existing business, under the same conditions as an investor with domicile in Argentina, with the same rights and duties provided by the Constitution and the laws for an Argentine investor, subject to the Law No 21,382 and any provisions in special or promotion systems.
• An investment may be made in any of the following manners: (i) freely convertible foreign exchange; (ii) capital goods and their spares and accessories; (iii) profits or capital in Argentine currency owned by a foreign investor, provided that it may be lawfully transferred abroad; (iv) capitalization of foreign claims in freely convertible foreign currency; (v) intangible goods under the relevant legislation; or (vi) other ways of contribution contemplated in special or promotion systems.
• A “foreign capital investment” is considered to mean: (i) any capital contribution by a foreign investment in economic business done in Argentina; or (ii) any purchase of interest in the equity of an existing local company, by a foreign investor.
• “Local foreign-capital investment” means any company domiciled in Argentina, in which an individual or entity domiciled outside Argentina holds a direct or indirect interest of above forty-nine per cent (49 %) in its equity, or is the direct or indirect holder of such number of voting rights as are necessary to prevail at a shareholders’ or partners’ meeting.
• A foreign investor may transfer abroad any liquid and realized profits from its investment, and repatriate its investment. This right may be exercised at any time after the minimum term of residence that may be determined from time to time by the Central Bank of the Argentine Republic, under applicable exchange control regulations. At the present time, such minimum term is three hundred and sixty-five (365) days.
• A foreign investor may use any of the legal manners of organization contemplated under national legislation.
• A local foreign-capital company may use local credit with the same rights and under the same conditions as a local Argentine-capital company.
• A juridical act done between a local foreign-capital company and the company which directly or indirectly controls it, or an affiliate of the latter, are considered as an arm’s-length act if the consideration and conditions are consistent with usual market practice between independent parties.
2.2.2. Bilateral Investment Treaties. Mercosur
The Argentine Republic has entered into various treaties to guarantee foreign investments. Certain of such treaties secure the investments against risks including political risks, such as the availability and the right to transfer foreign exchange, condemnation or similar action, contractual default by the government of the host country, war and civil disturbances. In most cases, prior approval is required to determine the lawfulness of the investment and insurance coverage by the government of the host country.
Since 1990, in order to increase foreign investment in the country, Argentina has signed treaties, promoting and protecting foreign investment, with many countries including: United States of America, Italy, Belgium, United Kingdom, Germany, Switzerland, France, Poland, Chile, Spain, Canada, Turkey, Egypt, The Netherlands, China, Denmark, Hungary, Finland, Korea, Portugal, Israel, Australia, Peru, Venezuela, Bolivia, Mexico, Russia, South Africa, India, New Zealand and Japan.
Generally speaking, under such treaties Argentina agreed to give a fair and equitable treatment to an investor from the signatory countries, and agreed to refer disputes to the jurisdiction of international arbitration tribunals.
Likewise, in the 1980s, Argentina promoted the Southern Common Market (Mercosur), which since its creation and to date, also includes Brazil, Paraguay and Uruguay as full members, and Chile, Colombia, Ecuador and Peru as associate members. The purpose of the Mercosur is to phase out all customs barriers among member countries, and provide a common foreign tariff with respect to the rest of the world. Since the creation of the Mercosur, trade among member countries has substantially increased.
2.3. Monetary and Exchange Policy
The primary purpose of Argentina’s monetary and exchange policy is to control capital flows and the value of local currency with respect to other currencies, especially the U.S. Dollar. To this end, our country reinstated exchange control by the Central Bank of the Argentine Republic (“BCRA”).
Currency violations are penalized in different ways. Fines, of up to ten times the value of the transaction made in violation to the rules, apply jointly and severally to legal entities, to top officers and to those who participated in the transactions.
2.3.1. BCRA Exchange Control System. Currency Inflows
At the end of 2001 exchange controls were restored in Argentina to control currency inflows and outflows. At the beginning of 2002, the currently existing One Free Exchange Market (“MULC”) was created as the only environment where exchange transactions can be lawfully made.
The MULC is only available to residents and non residents in Argentina, to make transactions permitted under the exchange systems within prescribed limits. A transaction not specifically permitted may only be made upon prior approval by the BCRA.
On the subject of foreign investments, the existing exchange system for currency inflows includes the following among its main provisions:
• Recording currency inflows: Currency inflows are subject to recording by the BCRA. The recording is done at the same time as the currency sale in the MULC.
• Minimum time for an investment: Investments are subject to minimum times, the currently applicable minimum time is three hundred and sixty-five (365) calendar days.
• Creation of non-compensated deposits in foreign exchange, with a term of three hundred and sixty-five (365) days: Where foreign currency is recorded in the exchange market in respect of financial debt or to make portfolio investments, a non-compensated deposit must be created for three hundred and sixty-five (365) days by an amount equal to thirty per cent (30 %) of the inflowing currency. There are multiple exceptions to the creation of such deposit, for example for direct investments (a significant long-term investment in a local company) and real estate acquisitions.
Likewise, there is a duty to enter and settle in the MULC any foreign exchange amounts from exports of goods and services from Argentina. We should note that certain activities are exempted –in whole or in part– because of their own nature from the duty to enter and settle foreign currency from exports, e.g. those relating to the mining or hydrocarbon business.
2.3.2. Repatriation of Capital. Currency Outflows
On the subject of repatriating capital in foreign exchange, the current exchange system provides the following among its key provisions:
• Recording outflows of currencies: Currency outflows are also subject to recording by the BCRA. The recording is done at the same time as the purchase of currencies in the MULC.
• Minimum investment time: as noted in 2.3.1 above, investments are subject to minimum terms, so the MULC is not available to repatriate capital if the amount has not remained the current minimum term, which is three hundred and sixty-five (365) calendar days.
• Payment of profits and dividends: Cash transfers abroad can be made to pay profits and dividends to foreign shareholders, provided that they relate to closed and audited balance sheets.
• Repatriation of direct investments and/or investments in real estate: Direct investments (i.e. from sale, liquidation or reduction of an investment in Argentina) may also be repatriated, with certain restrictions as to amounts and terms. Repatriation of an investment is subject to prior approval by the Central Bank of the Argentine Republic where the beneficiary from abroad is organized or has its domicile in a jurisdiction where taxation is inexistent or low.
Also, access to the MULC is subject to certain requirements for the payment of imports of goods, but there are no restrictions for the payment abroad of services provided by non residents. A transaction not specifically permitted may only be effected with prior permission by the BCRA.
2.4. Rule on Prevention of Asset Laundering and Funding of Terrorism
By Asset Laundering, crime converts economic income from criminal activities into funds from an apparently lawful source.
At present in Argentina, the asset conversion must be made by a person who has not participated in the abovementioned crime. There are several amendments to the Asset Laundering Prevention law under review, which include the punishable self-laundering behaviors.
The agency responsible for preventing asset laundering is the financial reporting unit Unidad de Información Financiera (“UIF”), an agency specifically dedicated to supervise compliance with the regulations, with special focus on preventing asset laundering in relation to narcotics, contraband of weapons, child prostitution and pornography, corruption, politically-motivated crimes and terrorism. The UIF is managed by a President, a Vice-president and an Advisory Committee, which includes representatives for the Central Bank of the Argentine Republic, the agency responsible for collecting taxes (AFIP), the national securities commission Comisión Nacional de Valores, the Secretariat of Prevention of Drug Addition and two experts from other government areas.
Certain types of businesses and persons, including financial institutions and brokers, insurance companies, public notaries, have the duty to analyze unusual transactions and report suspicious transactions in which they participate, and provide information to the UIF on a regular basis. The obligors have the following duties:
• “Know your Customer” and obtain from the customer any documentation showing his/her identity, address and other basic details, which are determined by controlling regulations issued by the UIF;
• Storing any data of the customer in the manner that is determined under resolutions issued by the UIF and for a period of 5 years;
• Report to the UIF any suspicious transaction (defined as any transaction that, based upon the company’s experience and upon taking into account usual practice for the type of transaction, is unusual, not financially or legally reasonable, or unreasonably complex); and
• Not revealing to the customer or any third party any information relating to transactions that are suspicious or associated to the issuance of reports of suspicious transactions.
The UIF has provided specific resolutions for each business sector subject to suspicious transaction (ST) reporting (financial institutions, insurance, notaries, accountants, etc), including general guidelines to identify suspicious transactions and preventing asset laundering. Such resolutions also provide terms or procedures to submit ST reports.
Asset Laundering is a crime punished with fines and imprisonment, and failing to report suspicious transactions is penalized with fines, the amount of which can vary from one to ten times the amount of the suspicious transaction not reported.
With few exceptions, confidentiality duties determined by law or contract may not be asserted against the UIF, so an obligor of such duties cannot assert professional privilege and refuse to report suspicious transactions.