Argentina’s tax relaxation therapy
In December 2015 the newly elected government of Argentina announced the end of the “cepo”, stringent foreign exchange control that has been introduced in 2011. Let’s have a closer look at the principal new tax measures and how they’ve changed Argentina’s attractiveness to foreign investors.
The government controlled foreign exchange restricting individuals and businesses from freely buying foreign currencies for several years. This generated a parallel Black Market where the USD was traded against peso as much as twice higher than the country’s official exchange rate.
The new government, not without pressure from the WTO, decided last year to relax many of these restrictive measures in order to attract foreign capital into the country, stimulate international commerce and promote Argentine export sector. The majority of taxes have been abolished, except taxes on soya that represents 2/3 of Argentine exports and is the country's number one source of foreign income.
The new measures were introduced in the following areas:
Exchange control and international commerce
Nowadays any individual and enterprise in Argentina can almost freely buy foreign currencies. The compliance process has been eased and a simple sworn declaration, without supporting documents, is enough to buy foreign currencies. Prior authorization is no longer required for the following transactions: purchase of real estate abroad, loans to non-residents, direct and portfolio investments abroad.
Moreover, Argentinian companies are allowed to receive payments in USD from abroad directly on their local bank accounts whereas previously the conversion to pesos at the official rate was mandatory.
Import of merchandises has become much easier as well. Payments abroad for imports of goods and delivery of services can now be made without any monthly limit. After declaring the import to the customs authorities, the importer then has 180 days to bring the goods into the country.
In principle, the obligation to change currencies in pesos remains, but the deadline is extended. Money may be held in an Argentine foreign currency account for one year and only the remaining balance at the end of the 365-day period should be converted into peso.
The repatriation of investments has been significantly simplified. From now on non-residents are no longer required to obtain prior authorization from the Central Bank to repatriate their investments. Requirement to retain the profit from direct investments in Argentina for one year has also been lifted. However, profits from portfolio investments should still be kept in Argentina for a minimum period of 120 days.
Banks and financial authorities are now allowed to carry out foreign exchange transactions between two foreign currencies for their customers without passing by peso.
Elimination of export duties
In agriculture, Argentina’s key export sector, export duties on corn, wheat and beef were eliminated and the soybean tariff was reduced from 35% to 30%. This February the government decreed also complete elimination of taxes on mining products.
Mandatory loan deposit
The compulsory deposit scheme, “encaje”, introduced in 2005 has been lifted. It imposed, with certain exceptions, a mandatory deposit equivalent to 30% of entering foreign currency for a period of 365 days without remuneration. This measure was designed to discourage short-term capital flows and was applicable to any kinds of cross-border transactions, including loans granted by foreign parties.
At the end of 2011, the government of Cristina Kirchner restricted the acquisition and possession of rural land by foreigners, limiting the possession of agricultural land by a foreigner to 1,000 hectares and requiring an authorization certificate prior to the sale. The new decree from June 2016 relaxes and facilitates the conditions of acquisition or transfer of rural land to foreigners.
For example, if the land will be purchased by legal entities, previously, Argentine companies were considered to be foreign if foreigners controlled ¼ of the capital or a fraction sufficient to hold decision-making power. The new decree raised this threshold to 51% of the capital and suggested that it’s possible to prove that even in this case the decision-making power remains Argentine and that the land acquisition can be carried out. This measure is expected to increase the interest of foreign investors in existing opportunities in Argentina, especially in agribusiness.