Congress approves new law with incentives to boost investments in key sectors – Allende & Brea

On June 28th, 2024, Argentina Congress passed the bill for the Basis and Starting Points for the Freedom of Argentines Law (“Basis Law“), including a new Incentive Regime for Large Investments (“Investments Regime” or “RIGGIES” for its Spanish acronym). The Basis Law have followed the course of the enactment process and the Investments Regime entered into force on July 8th, 2024, through its publication in the Official Gazette. The main objective of the new Investments Regime is to attract large investments by creating frameworks that would provide these, certainty, legal security and special protection, to promote economic development. The Investments Regime will be applicable to those projects involving the acquisition, production, construction and/or development of assets that will be assigned to activities in the forestry, tourism, infrastructure, mining, technology, steel, energy, oil and gas sectors

“Major Investments” will be those involving an amount of investment in computable assets of at least USD 200,000,000, although that the Executive Branch may establish different minimum investment amounts for each productive sector or sub-sector, or by productive stage, up to USD 900,000,000. Furthermore, Mayor Investments must comply with a minimum for the first and second year (these amounts will be established by the Enforcement Authority), which may differ for each of the years, but which must reach at least 40% of the minimum amount of the investment at the end of the two years. In addition, the investments must be of a long-term nature. ⁽¹⁾
Adherence to the Investments Regime
The term to adhere to the RIGI will be 2 years from its entry into force, and the Executive Branch may extend for a single time the term for a period of up to 1 year

Single Project Vehicles (the “Vehicles”) that own a project that qualifies as a Major Investment are eligible to join the Investments Regime.

The Vehicles must have the sole and exclusive purpose of carrying out a single investment project admitted to the RIGI. Accordingly, the Vehicles must not carry out activities or own assets not assigned to such project, except for temporary investments of its working capital for the prudent management of the company’s funds. The following are considered Vehicles: (i) Corporations, including sole proprietorships and limited liability companies; (ii) Branches established by companies incorporated abroad in accordance with Section 118 of the Argentine Company Act; (iii) Dedicated Branches^(1);
(iv) Transitory unions and other associative contracts.

In addition, suppliers of goods and services that import goods and inputs to be used for services provided to Vehicles members of the RIGI, may apply for their own adherence to the benefits provided in the Investments regime exclusively for said goods.
Tax incentives

Income tax: 25% tax rate, compared to the applicable scale of approximately 35%;
They may choose to practice the respective amortizations of said tax on an accelerated basis. In movable assets depreciable in at least 2 equal and consecutive annual installations, and in mines, quarries, forests and similar assets or in infrastructure works, reducing their useful life to 60%;
Net operating losses incurred by a Vehicle may be deducted from taxable profits in the next years indefinitely. After 5 years without being offset, they may be transferred to third parties;
Income Tax adjustments will be made on the basis of the percentage variations of the general level consumer price index (IPC) supplied by the National Institute of Statistics and Censuses; (3)
Income tax rate on dividends and utilities will be 7%, and after 7 years from joining the RIGI it will be 3.5%;
Payments made by vehicles carrying out projects declared as Long Term Strategic Exports (“Strategic Exports“) to foreign suppliers are exempt from income tax on certain services, and for which 30% of the amounts paid will be presumed to be net profit, unless there is a more favorable treatment in other law;
Value Added Tax: may be paid through the issuance of Tax Credit Certificates; and
The Vehicles may compute 100% of the amounts paid and/or collected as tax on debits and credits in bank accounts.

Customs incentives

Vehicles may freely import and export goods and services for the construction, operation and development of their project, without any prohibitions or direct restrictions, quantitative restrictions, quotas or quotas of any kind, nor qualitative restrictions of an economic nature;
Import of new capital goods, spare parts, part components and consumer goods will be exempted from import duties, from statistics and destination verification, and from any regime of perception, collection, advance payment or withholding of national or local taxes;
Exports for consumption carried out by the Vehicles will be exempt of export duties, after 3 years from the date of adhesion to the Investments Regime.

Foreign Exchange incentives

Export income generated by the project’s products is exempt from the obligation to enter and liquidate in the Argentine foreign exchange market, in the following percentages: (i) 20% after 2 years from the start-up of the vehicle, (ii) 40% after 3 years, (iii) 100% after 4 years;
For Strategic Export projects the deadlines are reduced by one year respectively; and
Excepted income from entry into the Argentine foreign exchange market will be freely available for the Vehicles.

Stability

The Vehicles will be granted regulatory stability in tax, customs and foreign exchange matters during the 30 years following the date of adherence to the new Investments Regime, i.e., the incentives granted may not be affected either by the repeal of the Law or by the creation of tax, customs or foreign exchange regulations that are respectively more burdensome or restrictive than those contemplated in the Investments Regime.
Criminal Tax Regime
The Tax Administration (AFIP) will be exempted from filing a criminal complaint when the Vehicle has externalized the criteria used to determine the tax liability – including those aspects related to the taxable base, tax rate, exemptions, taxable event, scope and/or violation of tax stability, among others – through a written presentation made to the AFIP prior to the submission of the tax affidavit. In addition, AFIP shall establish a free manual self-assessment procedure that guarantees the Vehicles the possibility of submitting the liquidation of duties and other import or export taxes that it deems appropriate and of registering the import or export destination incorporating such liquidation, without being required in any case to make prior payment of the amounts that may be applicable under the regulations in force at any time. Said procedure may not be subject to prior authorization or requirements or conditions of any kind.
Dispute Resolution Clause
All disputes arising out of or in connection with the Investments Regime, between the Argentine State and a Vehicle, shall be settled by amicable consultation and negotiation. If the Dispute cannot be settled amicably, the dispute could be submitted to arbitration, in accordance with – at the option of the Vehicles -: (i) the CPA Arbitration Rules 2012, (ii) the International Chamber of Commerce Arbitration Rules (with the exception of the Expedited Procedure Rules), or (iii) the Convention on the Settlement of Investment Disputes between States and Nationals of Other States of 1965 or, as the case may be, the CIADI Arbitration (Additional Facility) Rules.
Nevertheless, the Executive Branch may set forth other dispute resolution mechanisms with the vehicles, specific to each project, when issuing the administrative act that approves the application for adherence and the investment plan.
Finally, the Executive Branch will designate the Enforcement Authority that will be in charge of the evaluation of applications for adhesion, inspection and control of the Investments Regime, verification of compliance, expiration of incentives, and issuance of operating rules. Furthermore, the Executive Branch will regulate the current regime, although the lack of regulation will not prevent the use of the Investments Regime incentives, which are fully operational since their entry into force. We will keep you updated on the regulatory advances to come regarding the new Investments Regime in order to provide you with further reports.

(1) (1) Section 172, par. 2°: “(…) They shall be considered long-term investments as long as they have a ratio of no more than 30% between, on the one hand, the present value of the expected net cash flow, excluding investments, during the first five years as from the first capital disbursement and, on the other hand, the net present value of the capital investments planned during the same period. The Authority of Application may modify this ratio, simultaneously for all the sectors involved, provided that with such modification the regime maintains the purpose of providing stability guarantees only to long maturity investments.” ⁽¹⁾Section 170: “In those cases in which a corporation or a limited liability company wishes to adhere to the RIGI and develops one or more activities that will not be part of the investment project, or owns one or more assets that will not be affected to such project, it may opt for the sole purpose of its adhesion to establish a branch that must comply with the following requirements: (a) Be registered in the Public Registry corresponding to its place of seat; (b) Obtain a Unique Tax Identification Code and register for the taxes corresponding to the activities it carries out, independently from the company to which it belongs; (c) Have an assigned capital; d) To have designated as its sole purpose the development of the investment project for which the inclusion in the RIGI will be requested; (e) To have assigned only the assets, liabilities and personnel that will be affected to such investment project; (f) To keep separate accounting records from the company to which it belongs. The adhesion to the RIGI and its benefits of the RIGI will only be applicable in relation to this branch.” (3)