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Argentina adopts new promotional regime for large investments
August 2024
In brief
What happened?
The Argentine Congress passed comprehensive reform, effective July 8, 2024, that introduces, among several legislative amendments, a Promotional Regime for Large Investment (RIGI for its Spanish acronym). RIGI aims to provide certainty and legal stability to specific long-term investments in Argentina, by offering tax, customs, and currency exchange incentives. The Executive Branch will designate the administrative authority that will administer this new regime's application.
Why is it relevant?
The regime applies to several industries, including forestry, tourism, infrastructure, mining, technology, steel, energy, and oil and gas. The deadline to apply for the benefits of the regime is two years from the law's enactment, with an option for a one-year extension.
Action to consider
Investors should evaluate the possibility of benefiting from this new incentive regime. Argentine taxpayers should continue to monitor for further clarification to be included in future regulations.
Eligible participants
Benefits are only available for domestic Special Purpose Vehicles (VPUs for its Spanish acronym) incorporated by foreign and/or Argentine residents.
The term VPU includes (1) corporations, including single-member corporations (i.e., Sociedad Anonima Unipersonal) and limited liability companies (i.e., Sociedad de Responsabilidad Limitada or SRL); (2) branches established by foreign-incorporated companies; (3) dedicated branches of domestic entities established according to the terms of the law; and (4) temporary joint ventures and other associative contracts.
VPUs must exclusively hold and engage in qualifying assets and activities. An existing entity may allocate part of its assets to create a VPU through a dedicated branch. In this case, the incentives under the RIGI will apply only to the dedicated branch and not its head office.
Requirements
- Formation of a VPU (authorized entity type or creation of a dedicated branch).
- Minimum investment amount: A minimum investment in ‘qualifying assets’ of at least USD 200 million (potentially may be increased to USD 900 million for some sectors to be defined by regulations) must be completed before the investment plan’s deadline. 40% of this minimum investment must be completed within the first two years. For these purposes, qualifying assets are those acquired, produced, constructed, and/or developed to carry out the activities included in the regime, excluding financial assets and inventory.
- Long-term investment: Long-term investments are those with a ratio not exceeding 30% between the present value of the expected net cash flow (excluding investments made) during the first three years from the initial capital disbursement and the net present value of planned capital investments during the same period.
- Application process and investment plan must comply with the requirements set by the legislation.
Tax incentives
Corporate income tax
Tax rate: The maximum rate will be 25% (as opposed to the current maximum rate of 35%).
Accelerated amortization: (1) For depreciable movable assets, amortization can be taken in two equal and consecutive annual installments. (2) For investments in mines, quarries, forests, similar goods, or infrastructure, amortization can be taken in the number of equal and consecutive annual installments based on 60% of their estimated useful life.
Tax losses: Tax losses will be adjusted for inflation with no time limit for carryforward (as opposed to regular five-year carryforward period). If tax losses are not absorbed by taxable income within five years, these losses can be transferred to third parties.
Dividend and profit distributions: Taxable at a rate of 7%, which is the same withholding rate applicable on dividend and profit distributions by non-VPUs; however, after seven years from the registration date, VPU distributions will be taxed at a reduced rate of 3.5%.
Interest expense and foreign exchange losses: Restrictions on the deductibility of interest expense and foreign exchange losses derived from foreign and local financing will not be applicable during the first five years from the registration date.
Benefits for projects qualified as Long-term Strategic Exporters (that comply with specific requirements including minimum investment of USD 1 billion investment and other requirements to be determined by regulations): (1) No withholding tax on payments to non-residents relating to international transportation services and services included in engineering, procurement, and construction management contracts. (2) a reduced withholding tax of 10.5% on payments to non-residents in all other cases (unless a lower rate is applicable by virtue of domestic law or an applicable tax treaty). No gross-up provision (that otherwise would apply if payments are performed net of taxes) should apply on those payments.
Value added tax (VAT)
VPUs will be allowed to pay VAT to their suppliers using Fiscal Credit Certificates. Conditions and the process to obtain these certificates will be addressed in future regulations.
Tax on banking transactions (or Financial Transaction Tax, FTT)
Financial Transaction Tax, which generally applies at a 0.6% rate on debits and credits in Argentinian bank accounts will be fully creditable against income tax payments (as opposed to regular credit of only one third of the FTT allowed as a credit for income tax purposes).
Customs incentives
Import duties: Imports of goods, as well as temporary imports of capital goods, spare parts, parts, and components, will be exempt from import duties, statistical rate, and from all federal and/or local tax withholding, collection, advance payment, or retention regimes. This exemption also may be extended to imports made by local suppliers that are ultimately destined to VPUs (subject to special suppliers' registration).
Export duties: Exports performed by VPUs will be exempt from export duties, if applicable, after three years from the approval of the application process (reduced to two years for projects declared as Long-term Strategic Exports).
Import and export restrictions: Registered VPUs can freely import and export without direct prohibitions, quantitative restrictions, quotas, or economic qualitative restrictions.
Foreign exchange incentives
Proceeds from exports performed by the VPU will be exempt from the obligation to enter and/or negotiate and liquidate in the foreign exchange market in the following percentages: (1) 20% after two years from the registration date; (2) 40% after three years from the registration date; and (3) 100% after four years from the registration date. These periods are reduced by one year for projects qualified as Long-term Strategic Exports.
Further, VPUs also will have free availability of foreign currency from local or external financing disbursed after the enactment of the regime. Additionally, exchange regulations imposing restrictions or prior authorizations for accessing the currency market for repaying loans, interest, accessories, other financial debts, or repatriating direct investments by non-residents, or for paying dividends, profits, or interests to non-residents, will not apply to VPUs provided some requirements are met.
Stability
RIGI will grant eligible VPUs with regulatory stability in tax, customs, and exchange matters for their projects, ensuring that the incentives awarded will not be affected by their repeal or by the creation of more burdensome regulations. This stability will last for 30 years from the registration date.
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