Establishing a Business Presence
To conduct business on a permanent basis a foreign company can either:
Foreign companies wishing to participate in local companies or start a new one, must file and register with the Public Registry of Commerce (PRC):
They shall also comply with an information process regarding business prohibitions or restrictions in their place of origin, the existence of other agencies or branches outside Argentina and ownership of fixed assets in their country of origin.
In the case of Vehicles Companies -for investing in other companies-, the compliance shall be fulfilled by its controlling entities.
Commercial activities in Argentina are usually carried out through one of the following:
The first two are the most common, since they limit the liability of the parent company to the extent of its interest in the local company.
The structure and rules for SAs and SRLs are quite similar although the latter has slightly less operational costs. Certain activities such as banking and insurance require that the company be incorporated as an SA.
The minimum stock capital required for SAs is equivalent to some USD 12,500. There is no minimum requirement for SRLs. However, the stock capital needs to be consistent with the corporate purpose. SAs and SRLs can be managed and represented by one or more individuals, in which case decisions shall be adopted by a majority vote. The board shall hold meetings at least quarterly, and the majority of directors need to be Argentine residents (there being no nationality requirements). The directors must also register with the tax and social security authorities.
Companies under permanent governmental supervision as well as specific situations also require notices in a nationwide newspaper. The summoning rules for SRLs are more flexible.
Corporate rules require at least two stockholders. According to the regulations and policies in force in the city of Buenos Aires, the minority holder shall own no less than 5 percent of the stock capital. If stockholders are foreigners, they shall own no less than 10 percent. The two stockholders may belong to the same group; thus, ultimately, the local company may be a wholly owned entity.
Corporate rules provide for contractual joint ventures, which are not granted legal personality and thus do not have a legal existence separate from their members. These agreements need to be registered with the local PRC in order to have effects vis-à-vis third parties and must contain term of duration, name, domicile, liability of each of the members, and the details on the decision-making process, among other specifications.
There are basically two ways of participating in or acquiring a local business:
a) Purchase of shares: the continuity of the legal entity entails risks associated with hidden liabilities, particularly tax and social security ones;
Merger processes are quite common in Argentina. Subject to compliance with certain fiscal requirements, corporate reorganizations (mergers included) can be carried out in a tax-free fashion.
Agency, distribution, and franchising agreements are governed by the recently introduced Civil and Commercial Statute.
Parties can, in principle, freely regulate their relationship.
Agency: In an agency agreement, the principal entrusts the agent with the promotion and marketing of the former’s business. The agent sponsors a principal business and receives a commission from the sales of the products or services. The agent can either simply intermediate in the sale of goods by marketing the products and/or services, and/or, on the other hand, can act as attorney in fact of the principal, carrying out negotiations and executing purchase agreements on its behalf. The main characteristic of this structure is the financial and operative independence of the agent. The agent is an independent contractor, not a subordinated businessman or an employee.
Distribution agreements also make use of independent contractors but—in this structure—the middleman does not sponsor or handle the products or services as an attorney in fact. The distributor acquires the products or services with the purpose of reselling them. In order to be considered a distributor, it needs to have an established independent organization in order to provide services related to the said products or services. As opposed to the agent, the distributor carries out the invoicing, delivery, and post-sale servicing at its own risk and receives commercial objectives, quotas, and other instructions from the principal.
Franchising agreements: its use has spread out quite widely. Though the franchisee is an independent contractor, the contractual bond is stronger than in the distribution agreement, in terms of organization, trademark, objectives, and overall economic dependence. By this agreement the franchisee uses the franchisor’s business model, commercialization system, and know-how.
Representative Offices and Other “Non-Permanent” Establishments: Foreign companies may also perform activities through a branch with a duly registered representative. Branches, as opposed to the local corporate entities, do not limit the liability of the parent company. Branches prepare their annual financial statements separately from their parent and file them with the PRC. There is no requirement for minimum branch capital, with the exception of activities such as banking or insurance.
Investment Issues and Tax Incentives
Freedom to set up a business by foreign investors is the prevailing principle. However, the “equal treatment” principle recognizes certain exceptions: inter alia, in public procurement, a preference is given to goods of domestic origin and to local services (“Buy Argentina Regime”), such as media and broadcasting.
However, the more attractive sectors for foreign investors, such as mining, forestry, leather, renewable energy, petrochemicals, agricultural machinery, biotechnology, vegetable oils, wine, cultural-related industries, software, outsourcing, and tourism, have no restrictions on foreign ownership.
As a general principle, foreign investors wishing to invest in Argentina do not require prior governmental approval, except for certain specific regulated areas (for example, media) or for general applicable regimes such as antitrust regulations (for example, the mandatory merger notification system). They enjoy the same status and have the same rights that local laws grant to Argentine investors.
Argentina has diplomatic relationships with almost all countries and is a member of several international organizations such as the World Bank, the International Monetary Fund, MERCOSUR (South American Common Market Treaty), and the International Centre for Settlement of Investment Disputes (ICSID).
Argentina has entered into several Bilateral Investment Treaties, so as to improve the guarantees provided by the Foreign Investment Law to investors, by enhancing (i) protection against expropriation; (ii) free transfer of income from local subsidiaries; (iii) fair and equitable treatment; (iv) non-discrimination; and (v) alternative dispute resolution mechanisms, whereby an investor whose rights have been violated can choose between resorting to local jurisdiction, or to have recourse to international arbitration. Since 2001, many foreign investors have asserted claims against Argentina before ICSID, many of which have been resolved and terminated.
For a foreigner to work in Argentina, the most usual procedure is to obtain a temporary residence visa, which enables him or her to work in the country, freely enter and leave Argentina, obtain an Argentine ID and driver’s license and bring personal assets into Argentina. The process is simple and usually fast.
In cases where only a short stay is needed, a Transitory Residence Visa can be requested, which allows foreigners to stay legally in Argentina during three months performing technical activities.
Even though the Argentine Law distinguishes between “Mercosur” and “Non-Mercosur” nationals, the applicable procedure is substantially the same in either case.
Several tax aspects should be taken into consideration in connection with Doing Business in Argentina either with a presence in the country or directly from abroad.
Argentina has three different levels of taxation:
Doing business either from or to a low-tax jurisdiction is always more burdensome as the income tax rules either require more evidence on the transaction or increase the taxation. Likewise, the Argentine income tax treaty network needs to be analyzed in cross-border transactions since it limits the Argentine source taxing rights in many circumstances.
Argentine labour legislation is mainly contained in the Employment Contract Act, the regulations issued thereunder, and the collective bargaining agreements applicable according to the employer’s main line of business. Hiring alternatives under local law are the following: