Doing Business in This document describes some of the key commercial and taxation factors that are relevant on setting up a business in Argentina.

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Background

Brief description of Argentina has had, in the areas of exports and substitution of imports, a significant Argentina is a democratic republic; it opportunity to regain both activity and is divided into 23 provinces and the profitability levels. Also, it is important to Autonomous City of Buenos Aires, where include activities like Commerce, Hotels, the Federal Government is established. and Restaurants, and Finance, Insurance The President is elected every four years. and Real Estate, that represent 13,5 % and 15% of the GDP respectively. The GPD total In Argentina, there are 43 million is estimated as USD 964 billion (2015). inhabitants, a third of whom live in Buenos Aires City and its suburbs. Buenos Aires The official currency is the Argentine Peso Province is the most important province in and the reference currency is the terms of population and economic activity, US dollar. followed by Cordoba, Santa Fe, and the City of Buenos Aires. This city has a population of 3 million people in 200 km². Infrastructure

Spanish is the official language and around The main commercial ports are Buenos 80% of the population is catholic. Aires, Bahía Blanca, Quequén, Rosario and Paraná. Over 90% of the Argentine foreign trade is carried out by sea. But the Argentine economy Argentine ports have some disadvantages: high taxes, low depth, and limited Argentina has traditionally based its infrastructure. There is no deep-water economic structure on the magnificent port, except for Madryn, which is outside natural resources it has in many areas of the commercial area. of the country, and a highly qualified manpower. Railways have developed in the last decades by through private companies, Its ‘agro’ products have been for many and freeways and routes by private decades been the sole source of its companies and the government. export policy and the mainstay of the economy. Fishing, forestry and mining, There has been a great advance in digital and agriculture and livestock represent communication networks, that allows more than 12% of the GDP. Industry has communication with the rest of the world become increasingly important since at high speed. World War II, and currently represents over 18% of the GDP. Major manufacturing From 2015, the country has started a plan industries include agro-industries and to develop railroads for short and middle- food processing, automobiles and trucks, distance transportation. Likewise, from chemicals, machinery and equipment, 2016, the new administration is opening metallurgy (including steel and aluminum), airplane routes to “low cost” companies. petrochemicals, paper, cellulose, and textiles. Since 2002, the industrial sector

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Choice of Legal Form

Business in Argentina may be conducted Corporación (Sociedad Anónima - S.A.) by incorporated companies, partnerships, individuals, and branches of foreign This form is the most commonly used constituted enterprises. In all cases for doing business in Argentina. There pertinent information must be registered must be at least two shareholders and with the Public Registry of Commerce. the shares may be either privately held or quoted publicly. The minimum capital Foreign investors generally choose is $100.000. Their operation is governed either the form of a Corporation, Limited by statutes in which the name, object, Liability Company or a Branch to start duration, capital, election and powers of operations in Argentina. The former may the Board of Directors, and all other rules be a Sociedad Anónima (Corporation) or a are established. The Board may have Sociedad de Responsabilidad Limitada. The one or more directors but the absolute Branch has certain advantages, especially majority must be domiciled in Argentina. in the initial investment. It is mandatory for foreign companies operating in Argentina The responsibility of the shareholders to name legally responsible individuals and is limited to the amount of their to keep separate accounting records for contribution, with the exception of the their Argentine operations. legal representative or the members of the Board of Directors and the Board of Oversight (Sindicatura).

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General Partnership – Unlimited Managers have the same rights and responsibility (Sociedad Colectiva) duties as the directors of corporations. Partners are responsible up to the The partners acting as legal amount of their contribution unless representatives or members of the Board they are part of the Board of Directors of Directors have unlimited liabilities for or the Board of Oversight. In recent the corporation or subsidiary. years, local subsidiaries of US companies have preferred this form, and former corporations have changed to this one. Limited Liability Partnership (Sociedad de Responsabilidad Limitada- S.R.L.) Limited Partnership These companies are similar in all aspects (Sociedad en comandita) to corporations except that: A limited partnership is subject to The number of partners may not exceed the Commercial Code, and has two 50, a corporation may not be a partner, categories of partners: “silent” partners they are always privately held, formation (“comanditarios”), whose liability to procedures are simplified and greater third parties is limited to the capital flexibility is permitted in the deed. subscribed by them, and “active” partners (“comanditados”), who do not enjoy a similar limitation of liability.

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There are two classes of limited Temporary unions of companies are partnerships: “sociedad en comandita allowed to develop or execute a specific por acciones” where the capital subscribed task, service or supply, and/or any by the “silent partners” is divided into extension thereof, both locally and abroad. nominative shares of equal value, and Their duration is therefore limited to “sociedad en comandita simple” where that particular task or service. In this the capital is proportionally divided, contract, the bankruptcy of the members but shares as such may not be issued. or the disability or death of the individual The appropriate description must be entrepreneurs does not in itself lead to the shortened to S.C.A. and S.C.S. respectively. extinguishment of the U.T.E. contract.

Non-commercial General Partnerships Both types of joint ventures must have the following characteristics: General partnerships not engaging in commercial activities (“sociedad civil”) are • They are not separate legal entities subject to the Civil Code. A “sociedad civil” in their own right. is a matter of private agreement between the persons involved, and is generally • Agreements are entered through found among professional groups. private or public deeds.

• Agreements must be registered in Societies with only one partner the Public Registry of Commerce and must include their objectives, term of It is prohibited in Argentina to form duration, name and other information societies with only one partner. It is on their partners’ responsibilities, strongly recommended that one partner financial contributions and other l holds no more than 80%. egal implications.

Joint ventures may also exist under private Joint Ventures agreements not registered in the Public Registry of Commerce when they are not Two types of contractual joint ventures are one of the two types mentioned above. recognized by law: temporary partnerships Such joint ventures enjoy similar rights (“agrupaciones de colaboración”) and and obligations and have the same tax temporary union of companies (“uniones requirements as those described above. transitorias de empresas - U.T.E.”).

Temporary partnerships embody joint Foreign Corporations organizations for renewable periods up to a maximum of ten years, to provide Foreign corporations that carry out or develop certain stages of the business occasional transactions in the country do activity of their partners, or to improve and not need to be registered. develop their mutual activities.

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Since 2003, the Public Registry of under the responsibility of the head- Commerce has announced several office, through its nominated legal resolutions that must be followed by representative, who is liable to the extent foreign corporations in order to comply of the corporation’s subscribed capital. with the framework of the Act 19550- The legal representative must apply for Business Associations. the registration of the branch, together with the necessary documentation, duly Foreign corporations registered in tax authenticated by a public notary in the havens are subject to additional conditions country of origin, then recognized by and parameters. The same applies with an Argentine consul or with the Haya’s foreign corporations that are used only Apostille, and finally translated locally as a vehicle by other companies that by an Argentine public translator. control them directly or indirectly and together with them form an economic The tax burden is similar to that of an foreign group. S.A. As the branch is managed by its legal representative through a power of attorney, his attributes may be limited Branch of a Foreign Corporation accordingly. On the other hand, as the parent is wholly responsible for the A registered branch of a foreign branch’s liabilities, it may be easier to corporation may perform all the acts deal with financial institutions and other its head office is authorized to perform. suppliers locally. Therefore, operations are carried out

Audit Requirements

It is mandatory that every “Sociedad Registry of Commerce. This requirement Anónima”’s financial statements be is applied to almost every company and audited by accountants registered in the its branches. Accounting Council, and filed in the Public

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Taxation

Corporation tax For example, the tax rates on rent rises to 26.582%. Corporation tax applies to all net profits obtained by local tax payers in Argentina Tax allowances and deductions: Some and worldwide. For local taxpayers, the special rules are applied, e.g. there are rate is 35%. Additionally, it applies to net limits on deducting car expenses and profits obtained by non-residents in their depreciation. For companies, every many cases. deduction made in the tax liquidation should have supporting documentation S.A. and S.R.L., amongst other type of (an invoice, a receipt, a bill, etc.). Net losses societies, are taxed at this rate. can be offset against the profits up to a maximum of 5 years. For other payments from a resident to a non-resident person, withholding tax rate varies from 15.05% to 53.846%, depending Small companies rate on two factors: For small companies, called PYMEs a) Class of profit paid (e.g. royalties 21% (Pequeñas Y Medianas Empresas), there or 28%, rents 21%, interests 15.05% or are to be some benefits applicable in 2018, 35%, salaries 24.5%) including the possibility of deferring VAT payments for 90 days and the possibility of b) If the local company assumes the offsetting 100% of the tax paid on banking payment of the profit plus the debits and credits. withholding tax (grossing up).

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Income tax • Exports (both for goods and services) are tax free, and all the VAT credits Income tax is applied to individuals. Tax contained in related purchases can rates vary from 9% to 35% depending be deducted from other debits or on the amount earned in the fiscal year. reimbursed. Some allowances are made for covering basic family expenses. For example, an • Imports: When entering the country, employee in charge of a spouse and two the AFIP will charge VAT on goods children pays income tax when net salary imported. VAT is also applied on is greater than ARS40,000 per month. import of services.

As from 2016, dividends are tax free. Capital gains derived from stock sales Sales tax are exempt. Provincial Tax. The usual tax for services is about 4%. In some cases it could be 6%. VAT: (Value added tax) Payment and tax returns are required monthly or bimonthly. No allowances are The general tax rate is 21%, applied to admitted. sales (goods or services) and importations. 27% is applied to public services and 10.5% to some machinery. Tax on minimum presumed income (IGMP) The following must be considered: This tax is calculated as an annual 1% on • A VAT payer will charge the tax always assets and must be paid when it’s higher when the service is rendered or is than corporate income tax. Only those going to have effect in Argentina, with assets greater than $ 200,000 are even if A FOREIGN COMPANY is the subject to this tax. party invoiced. In this case A FOREIGN COMPANY adds a cost to operations here in Argentina, because ARGENTINA Tax on banking debits and credits has to deposit the VAT invoiced. ARGENTINA will invoice $ 100 + 21 = Since March 2001 every debit and credit 121, the foreign company will pay $121, made in current accounts, saving accounts and only $100 will stay in the group. and similar are taxed at a rate of 0,6% that is directly debited in that bank account. • Services rendered outside of the 34% of tax on credits may be applied as country but to be consumed in credit to income tax, corporate income tax Argentina are subject to VAT. The local or IGMP. importer must calculate and pay the VAT debit and can claim the VAT credit in the following month.

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Tax treaties Capital gains

Argentina has signed tax treaties with In general, an individual’s capital gains many countries, including , , are not subject to income tax, except , and . These those derived from sales of shares and treaties reduce withholding tax rates participations in companies. In these in many cases. Argentina has recently cases, the rate applied to individuals is been leaving these treaties and starting 15% on net income. conversations to produce new types of treaties, to include exchange of information. Taxation of individuals

Individuals resident in Argentina are Transfer pricing liable for Income tax at gradual rates on their worldwide income. Non-resident Since 31/12/98 transfer pricing analysis individuals are liable for Argentine income is required to value operations between tax only on their Argentine-sourced related parties. income, on which tax is levied as a final and lump-sum withholding tax at various In many cases, sales of shares are imposed effective rates, depending on the type of if the company is not listed in the stock income exchange and the seller is a resident or a non-resident holding company established Argentine-sourced dividends are not in a country that only permits it to operate usually subject to income tax but may outside the country. The rate for non- be subject to withholding taxes at the residents is 17.5% or 35% on net profit of moment of payment, under certain the sale. circumstances.

Tax return must be filed annually (in the 5th month after the end of the fiscal year). Some payments in advance could be required (equivalent to a monthly 9% of the last year’s tax).

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Allowances

Argentina has several regimes designed Refund of VAT to promote productive development and investments. The treatment of these is the VAT paid in the purchase of goods same for both foreigners and domestic destined for use in investment projects investors. Some of these regimes must be can be refunded. All VAT not offset will granted by the authority. be refunded in cash three months after purchase.

Initial cost of investment reduction Import regime for large industrial investments Accelerated depreciation Zero tariffs are imposed on imports This is for machinery, equipment, of brand new capital goods destined and infrastructure works destined for to autonomous production lines of investment projects. Capital goods tangible goods. purchases may be depreciated in the balance sheets for three years after Environmental equipment, necessary purchase and infrastructure project to eliminate pollution or contaminating depreciation will be reduced by 50% vis- elements from the air, soil, or water in a à-vis the usual depreciation period. The production plant, may also be imported purpose of accelerated depreciation is to under this regime. A 20 percent minimum allow companies to reduce the tax burden of domestic suppliers is required. Spare during the first years of the project. parts may also be imported duty free

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provided their value does not exceed five zone). Industries exporting through FTZs percent of the total value of the imported benefit from incentives available in the equipment. Goods imported under this Argentine Territory, avoid VAT, and save regime may not be transferred nor re- by not paying internal taxes on basic exported for a period of two years from supplies such as electricity, gas, water, and the date of importation. telephone services.

The import duty for a broad range of new Currently, there are free trade zones in capital goods is zero percent and it applies Buenos Aires, Córdoba, Chubut, La Pampa, only to imports of new equipment. Mendoza, Misiones, Salta and San Luis.

VAT reduction on capital goods Drawback

VAT reduction (10.5%) applies on locally The drawback mechanism was established purchased and imported capital goods to refund various import charges. The (finished goods) and information and following charges are rebated: import telecommunication goods (including tariffs; the statistical fee on imports (0.5%); their parts and components). and the value-added tax of 21% (10.5% in the case of capital goods). To benefit from this mechanism, the imported Export promotion incentives raw materials must be substantially transformed or embodied in the production of goods for export. Free trade zones (FTZ)

In these zones imports are free of customs duties, statistics rate, and VAT, as is the Temporary admission regime equipment needed to build operations This mechanism allows duty free there. The purchasing of supplies and admission for those goods substantially raw materials from third countries is transformed or embodied in the also exempt from duties or taxes so production of goods for export. The manufacturers can produce for export exports must be completed within the at a lower cost. stipulated time, as set by customs, in Goods may remain in the zone for a accordance with the type of imported maximum period of five years, meaning inputs. Failure to re-export goods will that they do not need to be released result in a fine. The transfer of property, until a purchaser is found, thereby possession, or use is not permitted. A delaying payment of duties and taxes bond will be needed to cover the value (free zone customers pay the duties of import charges for the goods, which is and taxes on goods sold and leaving the cancelled when the goods are re-exported.

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Customs at factory treatment in the territory of the other contracting party. Each contracting This mechanism can be used by party guarantees to an investor of the manufacturing companies, allowing other party the unrestricted transfer of the temporary entry of goods for investments and returns. Each contracting transformation and re-export, without party also guarantees the unrestricted paying import-related tariffs and duties transfer of funds in repayment or loan until final goods are exported. Temporary directly related to a specific investment, entry raw materials, parts, components, the proceeds of the total or partial auxiliary material, and packaging liquidation of any investment, and wages material used in the process of industrial and other remuneration accruing to a transformation or production for their citizen of the other contracting party. BITs subsequent exportation concludes when establish clear limits on the expropriation a definitive export with transformation, of investments and provide for payment re-export without transformation, or of prompt, adequate and effective importing for consumption within the compensation when expropriation takes company occurs. The regulation provides place. In case of disputes between the different timeframes depending on the contracting parties, BITs give investors final destination of the products. Another from both parties the right to submit advantage of the system is that it allows an investment dispute with the treaty Argentine importers to compensate the partner’s government for international VAT due on definitive imports made arbitration. through this regime with their favorable fiscal balance. Small and medium size companies (PYMEs) Reimbursement regime on exports As well as the benefits described under Total or partial reimbursement up to taxation, a new reform grants further 6% of indirect taxes paid on exports benefits for PYMEs such that they can outside MERCOSUR, especially for those receive a tax credit on investments on products that incorporate technology, fixed assets. develop trademarks, and foster regional economies.

Bilateral investment treaties (BITs)

The BITs promote stable and market- oriented policies towards foreign investment through non-Discriminatory Treatment, because the investment of each contracting party shall, at all times, be accorded fair and receive equitable

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Employment

The following points must be considered Social security system when dealing with employees. Both employers and employees have to Salary: Government rules a minimum contribute to the pension and retirement salary for workers, currently $8.060. system, and to the health care system. Employees or the self-employed can also “Aguinaldo”: Annual complementary choose to contribute to the public or salary or “thirteenth salary” is to be paid private system. In the first case, employees in two halves in June and in December. It contribute 14% of their salary, and the 10% is equivalent to 50% of the best salary of in the latter. Employees contributions are each calendar semester. calculated within the maximum limit of ARS 73.000. Vacations: Must be pre-paid before they are taken. Every employee with at least 6 Employers’ contributions to Social Security months in payroll has the right to take a depend on the activities carried out by minimum of 14 days. the company. In the case of the rendering of services the contribution is 21%, while Termination package: When firing an the usual rate is 17%. These payments employee, the employer must pay of Social Security taxes contributed by compensation equivalent to one month’s employers include payments to the salary for each year of work plus some pension and retirement fund, to the family benefits. allowances system, and to the Federal fund for unemployment

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Independent or self-employed workers social security contributions, but only for (“trabajadores autónomos”) have to contracts of less than two years’ duration. contribute to the retirement system Such exemptions considerably reduce with a fixed amount that is related to payroll costs. the estimated income they earn and depending on the type of activities carried out. Companies’ members of the Board of Health care system Directors are required to become affiliated to the retirement system for independent The medical system is managed between workers. Directors may choose to national and provincial government, and contribute also to the payroll or regular private companies. Every employee is employees’ retirement system, provided covered through social security payments. that they also perform administrative or Companies usually pay an additional technical activities for the company. medical insurance to get better coverage for their employees. Argentina has signed international agreements on social security matters with On salaries, 3% and 6% (up to certain Brazil, Chile, , Italy, , , limits) must be paid by employees and Spain and . Given the reciprocal employers. These rates are intended to nature of provisions in those agreements, cover the obligatory medical plan (PMO). they allow for the mutual recognition of services rendered in one or the other of the signatory countries.

Employment of foreign personnel

Argentina places no restrictions on the employment of foreign workers beyond compliance with standard immigration regulations. Expatriates may work in foreign-owned businesses as long as they hold a valid resident permit. Argentina maintains agreements with Uruguay, Brazil, Chile, Italy, , Greece, Portugal, and Spain: foreign professionals employed in Argentina are exempt from being subject to payroll taxes for a period of 2 years. Companies that have foreign scientists, professionals, or technicians under contract may apply for an exemption from most employer

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Withholding Taxes

Withholding taxes apply in many Interest circumstances: Interest paid to non-residents is imposed a) Withholding tax applies on payments when funds are used in activities in made by a resident to a non-resident. Argentina. The tax rates applied varies between 15.05% and 35%. Grossing up b) Withholding tax for individuals: When is required when a local payer assumes a local company pays salaries over a withholding as a cost. minimum, income tax is retained. c) Withholding tax on other payments Royalties is considered as paid in advance of some taxes, e.g. income or corporate Withholding tax reaches 21% or 28% income tax, VAT, sales tax and social depending on the technical service contributions. rendered. If the service cannot be obtained within Argentina, 21% is applied. Grossing Money withheld must be transferred up is required too, under conditions to the fiscal authority (AFIP - described above. Administración Federal de Ingresos Públicos) twice a month. Dividends d) Argentine sourced income taxes are imposed for non-residents. Dividends paid from local companies are tax free, according to the integration system adopted by our corporate income tax, where income tax is applied only on corporations (including S.A. and S.R.L.).

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Miscellaneous

As mentioned, dividends are tax free exporters are obliged to sell – subject according to the integration system of to certain due dates – foreign currency income between companies and physical obtained through their exports, to obtain persons. All income is subject to tax in pesos. companies’ top level, and is tax free when it flows to shareholders (or partners in Transfers of capital from other countries case of S.R.L.) as dividends. are obliged to constitute a time deposit for 360 days with no interest, equivalent However, an equalization tax is applied to 30% of the currency received. This when the amount of dividend paid is rule has some exceptions, e.g. transfer of higher than the accumulated taxable currency to acquire participations in local income. Equalization tax rate is 35%. companies.

Transfers out of the country must have Restrictions on transferring foreign a certain origin, permitted by the Central currency in to and out of Argentina Bank. Otherwise, the Central Bank rejects selling foreign currency. Banco Central de la República Argentina, or Central Bank, is designated to manage foreign currency negotiation. Importers must acquire from the Central Bank the foreign currency to pay abroad, and

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This document is provided by Estudio If you are setting up a business in Sambuccetti y Asociados as a general Argentina, the members of DFK overview of matters to be considered International can help you to achieve when setting up an overseas business in this efficiently. You will receive practical Argentina. It is essential to take advice advice on business issues, tailored to on specific issues. No liability can be meet your objectives, from experienced accepted for any action taken or not business advisers. taken arising from the information provided in this publication. For further information on the services available from the DFK member firms in Argentina please see overleaf.

Last updated October 2017

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Cordoba

Estudio Vocos R. y Asociados Javier A. Vocos Remorino [email protected] +54 (0)3514 214113 www.estudiosya.com.ar

Sante Fe

Estudio Ilharrescondo y Asociados Gustavo Ilharrescondo [email protected] +54 (0)3414 258920 www.estudiosya.com.ar

Buenos Aires

Estudio Sambuccetti y Asociados Gabriel Sambuccetti [email protected] +54 (0)9116 9114894 www.estudiosya.com.ar

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