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Modifications to the Large Investments Incentive Regime and new implementation rules

The following regulations were published on October 22, 2024:

1. Decree 940/2024 (“Decree 940”), which amends Decree 749/2024 (“Regulatory Decree”); and

2. Resolution 1074/2024 of the Ministry of Economy (“Resolution 1074”), which approves the “Procedures for the Implementation of the Large Investments Incentive Regime” (“RIGI”).

The RIGI was created by Law 27,742 (“Foundations Law”) and regulated by the Regulatory Decree (see our comments on these regulations here and here).

1. Decree 940

Decree 940 amends certain aspects of the Regulatory Decree, such as:

1. Capital goods destined to the realization of a RIGI Project are added as goods to be imported by suppliers adhered to the RIGI.

2. The Single Project Vehicle (the “SPV” or Vehículo de Proyecto Único) may request the voluntary withdrawal of the RIGI provided that it has not been notified of an infringement procedure with a final resolution.

3. The Tax for an Inclusive and Solidary Argentina (for its Spanish acronym, “Impuesto PAIS”) is suspended for the purchase of foreign currency destined to the payment of imports of capital goods made by the SPVs adhered to the RIGI.

2. Resolution 1074

Resolution 1074 establishes five procedures to adhere to the RIGI through the Trámites A Distancia (“TAD”) platform:

1. Adhesion procedure for SPVs.

2. Adhesion procedure for Strategic Long-Term Export Projects (“SLEP”).

3. Adhesion procedure for the Expansion of Pre-existing Projects.

4. Adhesion procedure for local suppliers; and

5. Procedure to request a voluntary withdrawal of the RIGI.

3. Term for the resolution of applications

The term for the Ministry of Economy to approve or reject an application of adhesion or cancellation is forty-five (45) business days. This term may be suspended if additional information is required from other agencies or from the applicant.

In case of rejection, the applicant may submit a new application up to two additional times in the same calendar year.

4. Adhesion procedure

The adhesion procedure includes the following stages:

1. Generation of an electronic docket with the Ministry of Economy.

2. Preliminary analysis of the feasibility of the Project.

3. Intervention of the Central Bank of Argentina and the Antitrust Agency, if necessary, which will temporarily suspend the procedure.

4. Recommendation of the Evaluation Committee for the approval or rejection of the adhesion.

5. Issuance of the Certificate of Adhesion to the RIGI for the approved Projects, allowing the SPVs to access the benefits and incentives.

5. Voluntary withdrawal

SPVs may withdrawal from the RIGI through the submission of a report explaining the reasons for their decision through the TAD platform.

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For additional information, please contact Nicolás Eliaschev, Javier Constanzó, Daiana Perrone, Milagros Piñeiro, Victoria Barrueco and/or Giuliana Manzolido.

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by trsym

The Government of Argentina releases the implementation rules of the RIGI

On August 23, 2024, the Government of Argentina published Decree 749/2024 (“Decree 749”) which contains the implementation rules of the recent large-investment regime bill approved by Law 27,742 (for its Spanish acronym, “RIGI”) (for additional comments in connection with the RIGI and other aspects of the Foundations Law, please access here).

Further implementation rules from other governmental entities are to be published no later than 30 days following the publication of Decree 749.

The key takeaways of Decree 749 are summarized below:

1. Eligible Sole Purpose Vehicles

Existing sole Purpose Investment Vehicles (“SPVs”) may adhere to the RIGI. These include corporations (sociedades anónimas), sole proprietorships (sociedades anónimas unipersonales), Limited Liability Companies (sociedades de responsabilidad limitada), branches (sucursales), and joint ventures (uniones transitorias).

2. Minimum amount of investment

The Minimum Investment Amount (the “Minimum Amount”) remains at two hundred million United States dollars (US$ 200,000,000) (net of VAT) for most of the RIGI sectors, including Preexisting Projects subject to an Expansion (as such terms are defined below).

As to oil and gas transportation and storage, the Minimum Amount is set at three hundred million United States dollars (US$ 300,000,000). For offshore oil and gas exploration and production, and gas exports, the amount is set at six hundred million United States dollars (USD 600,000,000).

Finally, for Strategic Long-Term Export Projects (“SLEP”) the Minimum Amount is raised from one billion united states dollars (US$ 1,000,000,000) to two billion United States dollars (US$ 2,000,000,000).

3. Expansion of Preexisting Projects

Decree 749 defines an “Expansion” as the group of investments in qualifying assets that will result in the increase of the productive capacity of a project adhered to the RIGI, or a Preexisting Project (not adhered to the RIGI).

In this way, Preexisting Projects that comply with the requirements set by the RIGI, e.g., the Minimum Amount, may be eligible to adhere to the RIGI, but the benefits provided by the RIGI will solely apply to the Expansion (i.e., not to the Preexisting Project).

4. Qualifying Assets

Investments made before to the enactment of the RIGI in qualifying assets (including, in this definition, mining, oil & gas concessions, real estate, etc.) are not eligible for purposes of the Minimum Investment Amount, as Decree 749 further clarifies that only those made following the approval of the RIGI may be considered as Qualifying Assets.

5. Essential services

Decree 749 states that essential services, accountable up to 20% of the Minimum Amount, are defined as those without the RIGI project could not have been executed. Approval from the Enforcement Authority is required. Services provided by affiliates are excluded.

6. Strategic Long-Term Export Projects

To be considered as a SLEP project, Decree 749 further indicates that the following criteria must be met (apart from those provided in Decree 749 and in the RIGI):

1. The SLEP will result in the international positioning of Argentina as a new long-term supplier in the global market.
2. Each stage of the project shall involve a minimum investment amount of one billion United States Dollars (US$ 1,000,000,000).
3. 20% of two billion United States Dollars shall be investment in the first and second year of the SLEP’s term.
4. The components associated to the SLEP shall be interconnected, within a maximum radius of 200 km, provided that such radius shall not apply if the components are located at a greater distance but are physically integrated.

7. Tax and Customs Incentives

7.1. Income Tax

7.1.1. Income Tax Rate

The Decree 749 stipulates that the benefit of the 25% rate established by Section 183 of the Foundations Law will apply over net income subject to tax derived from SPVs’ activity, as of the SPVs’ adherence to the RIGI.

7.1.2. Special Amortization Regime

SPVS may choose to apply the amortization regime foreseen in the Income Tax Law or the accelerated amortization mechanism specifically foreseen by Section 183 of the Foundations Law. The Decree 749 specifies that in case the SPV opts for the latter, it shall be applied to all assets, of the SPV, and the assets must remain in the SPVs’ possession until the end of its activity or their lifespan, whichever occurs earlier. If this requirement is not met, the SPVs must reinstate the amortization previously deducted in its tax balance, considering it as taxable income and applicable interests shall accrue. Once the option is exercised, it must be reported to the Enforcement Authority and to the tax authority, and the assigned lifespan of the depreciable assets must be reported annually.

7.1.3. Transfer of Tax losses

Tax losses incurred by the SPVs can be transferred to third parties under the conditions specified by Section 183 of the Foundations Law. Decree 749 states that such third will be able to apply the assigned tax losses in the fiscal period in which they are assigned, even if this occurs after the end of that period (but before the due date for filing the Income tax return). Further, tax losses can be carried forward for 5 years.

Transferred losses will be considered general losses of Argentine source for the recipient.

The transfer is subject to approval from AFIP, which must issue a resolution within 45 business days.

If the AFIP rejects the transfer for formal reasons, the taxpayer may amend the inconsistencies, and AFIP must thereafter issue a new resolution within the following 10 business days. The third subject will be exempt from any liability if AFIP challenges the transferred loss, and the claim will be directed to the original SPV that generated it (except in cases where the SPV qualifies as a sole purpose branch, and the deduction of tax losses has been done by the parent company).

7.1.4. Dividends

Dividends will be subject to tax at a 7% rate if distributed to individuals or undivided estates. Decree 749 provides that after 7 years from the end of the tax period of SPVs’ adherence to the RIGI, a reduced tax rate of 3.5% will apply, as it is specified by Section 185 of the Foundations Law, regardless of the income origin.

7.1.5. Payments from Strategic Long-term Export Projects to foreign beneficiaries

30% of the amounts paid will be presumed as net income (unless a more favorable treatment or exemption under current regulations applies) and the withholding tax must be applied.

7.1.6. Transactions between affiliates

Transactions or operations that an SPV performs with affiliates (either located within the country or abroad) will be subject to the Transfer Pricing rules established by the Income Tax Law.

The transactions or operations that an SPV carries out with their related parties located in the country and abroad will be subject to the Income Tax Law’s rules.

Conversely, with regards to entities residing in Argentina, they will be considered as affiliates in case that the following requirements, established by the Decree 749, are met:

• A subject holds all or most of the stock capital of another.
• Two or more subjects have a common entity holding all or most of their stock capital.
• A subject holds the necessary votes to form the corporate will or prevail in the shareholders' or partners' assembly of another subject.
• The members of a joint venture, or any other associative agreements or the entity that created sole purpose branches, or the foreign companies’ branches and resident subjects in Argentina are related as per the points above.
• There are agreements, circumstances, or situations granting the direction to a subject, whose participation in the stock capital is minor.

The AFIP must amend the Transfer Pricing regime foreseen by the Income Tax Law in order to make it applicable to transactions performed between SPVs and related parties which reside in Argentina.

Section 186 second paragraph of the Foundations Law states that to determine if the cost-sharing agreements signed between SPVS and their related parties are aligned with market practices between independent parties, the value of contributions or inputs made by each participant must be equivalent to what an independent company would accept under comparable circumstances. In this regard, Decree 749 stipulates that:

• A subject is considered to be a participant in the agreement if they have a reasonable expectation of benefiting from the result of that agreement.
• Contributions and expected benefits should be valued as if they had occurred between independent parties.
• This contributions valuation should be made without considering the benefits obtained within the RIGI framework.
• In specific cases, the AFIP may determine the correct valuation of the participations and benefits attributable to each participant and may also create an information regime over the operations of SPVs.

7.2. Value-added Tax (“VAT”)

The amount of VAT invoiced to SPVs for the purchase of fixed assets or infrastructure investments and/or necessary services for their development and construction, or the VAT for definitive imports, will be applied to a Tax Credit Certificate, without requiring the AFIP’s authorization.

The SPVs must report to the AFIP the certificates issued on a monthly basis, and, if the AFIP detects inconsistencies, VAT must be paid along with its applicable interests and fines, and it will be computable by SPVs as a VAT credit against VAT debits in the following period.

7.3. Tax Treatment of Joint Ventures or other associative contracts

Decree 749 states that these subjects will be able to adhere to the RIGI as SPVs if they are formed by independent companies that are duly registered in the relevant Public Registry and whose economic activity is orientated to third parties (e.g., projected to market).

7.4. Imports

7.4.1. Exemptions

Section 109 of the Foundations Law establishes that Imports of capital goods, spare parts, components, among others, carried out by SPVs will be exempted from import duties, certain fees (including destination verification), and any regime of collection, payments in advance or withholding of national and/or local taxes.

Decree 749 specifies that exemptions will apply to imports directly related to the approved investment plan and, for that purpose, at the time of approving the SPVs’ adherence to the RIGI, the following information must be provided to the Enforcement Authority:

• Details of the goods for which the incentive is requested.
• Identification of the adhering SPVs and the respective RIGI project to which the goods will be allocated.
• An affidavit certifying that the goods will be allocated to the RIGI project.
• Additionally, a guarantee must be posted as provided in Section 182 of the Foundations Law.

The goods will be subject to destination verification and must be allocated to the RIGI project until the end of the goods’ lifespan, the project or SPVS’ termination, the re-exportation of such goods, the payment of taxes that should have been paid if the benefit had not been granted, and/or the resolution of the Enforcement Authority.

The SPVs cannot change the declared destination of the goods, and they may only be transferred to another SPVs which has previously adhered to the RIGI, with the prior authorization of the AFIP.

7.5. Tax Treatment of Sole Purpose Branches

The taxpayer who creates the sole purpose branch may opt for:

• Transfer tax benefits proportionally to the value of the net worth transferred to the branch, as transferable losses of Income Tax and VAT balances. In this case, there are two alternatives:
  • Allocate tax credits proportionally to the net worth transferred.
  • Transfer tax credits directly obtained from the purchase or manufacture of the transferred asset.
• Transfer the assets, which will keep the same value that they had for the entity who creates the sole purpose branch, without transferring tax benefits.

7.6. Tax and Customs Stability

Section 201 of the Foundations Law established the tax and customs stability for SPVs, regarding the incentives mentioned above, which cannot be affected by the repeal of existing regulations or the creation of a more burdensome or restrictive new law. Additionally, the Decree stipulates that stability will apply to taxes, tax rates, and contributions payable by SPVs, as well as to rights, fees, or other charges on imports or exports. The SPVs may oppose the imposition of additional taxes or higher tax rates than those previously established, and also have the right to benefit from any elimination or exemption of taxes of the general tax regime, as well as from a possible reduction in tax rates.

Consequently, SPVs adhered to the RIGI will have the right, for a period of 30 years from the date of adherence, to pay exclusively:

• Taxes with the incentives offered by the RIGI; and
• Taxes not covered by the RIGI that were in effect at the time of their adherence, until they are eliminated from the general tax regime.

7.7. Tax for an Inclusive and Solidarity Argentina

The Decree establishes the suspension of the payment of this tax (as established by Section 35 of Law No. 27.541, subsection a), which applies to the purchase of foreign notes and currencies and other currency exchange transactions made by Argentine residents for the import of goods which are subject to the incentives mentioned in Section 190 of the Foundations Law.

8. Foreign Exchange Incentives

8.1. Collections from exports of goods and Start-Up Date

According to Section 198 of the Foundations Law, collections from exports of goods made by the SPV are exempted from the obligation to enter and settle foreign currency by a percentage equivalent to 20%, 40%, and 100% starting from the second, third, and fourth year, respectively, counted from the “Start-Up Date” of the SPV.

Decree 749 defines Start-Up Date as the date falling on the earlier of: (a) first export of the RIGI project; or (b) 40% of the Minimum Amount in qualifying assets is completed (net of accountable investments that can only be counted up to 15% and 20% according to Sections 38 and 39 of Decree 749).

The Start-Up Date must be reported by the SPV to the Enforcement Authority, specifically detailing the manner in which one of the two conditions outlined in the first paragraph has been fulfilled (e.g., the date of the first export, disbursement, the amount and eligible asset to which it was applied, etc.). This information will be forwarded by the Enforcement Authority to the Central Bank of Argentina (“BCRA”)

8.2. Incentive Percentage

Decree 749 also clarifies that the percentages indicated in the previous point will be calculated based on the amount received according to the agreed sales terms of the exported goods, shipped after the period corresponding to the Start-Up Date has elapsed.

8.3. Export Financing

Decree 749 provides that the incentives set forth for the export of goods (i.e., the possibility of not settling collections up to certain percentages) will be applicable to advances, pre-financing, and post-financing of exports, to the same extent that the incentive applies to the financed export.

8.4. Local Financing

Decree 749 clarifies that, for the purposes of the foreign exchange incentives under the RIGI, local financings in foreign currency shall include financial indebtedness with local financial institutions, issuance of securities in the local market, or promissory notes and other instruments approved by the BCRA.

8.5. Prepayment of Debt and Absence of Minimum Stay Period

Decree 749 establishes that access to the foreign exchange market by the SPV for the repayment of the principal of financial indebtedness with foreign creditors can occur at any time before the due date of the service, provided that such financing has been entered and settled through the foreign exchange market.

In the case of direct investments by non-residents, the SPV may access the foreign exchange market for the repatriation of the investment at any time, provided that the investment has been entered and settled, without the need to comply with any minimum stay period.

8.6. Limits for Accessing the Foreign Exchange Market

Decree 749 establishes that, as long as the provisions of the general foreign exchange market regime impose the obligation to enter and settle all or part of the proceeds from exports, the BCRA may require that the SPV only be allowed to access the foreign exchange market for any purpose to the extent that the total amount of foreign currency entered from abroad and settled in the foreign exchange market by the participating VPU is, at the time of each access, greater than or equal to the amount of foreign currency demanded by that date for the project, including the requested access.

It is also clarified that the above will not apply to the payment of interest on financial indebtedness and/or dividend payments.

8.7. Contributions in Kind and Commercial Debt

Investments by the SPV made through direct foreign investment contributions of capital goods in kind or the importation of capital goods financed by the supplier or another foreign creditor with direct disbursement to the supplier will receive the same benefits as those entered and settled, provided that such investments have been duly registered following the procedures established by the Enforcement Authority and/or the BCRA.

8.8. Partial Entry and Settlement

In cases where the SPV has partially entered through the foreign exchange market amounts corresponding to capital contributions or other direct investments, or loans or other financial indebtedness with foreign creditors, access to the foreign exchange market for the payment of profits, dividends, or interest to non-resident entities may not exceed the proportional part of the capital contributions or other direct investments, and the loans or other financial indebtedness with foreign creditors that have been entered and settled through the foreign exchange market.

8.9. Collections in Pesos by Foreign Creditors

Non-resident creditors of the SPV, including related parties, who have received pesos in Argentina as a result of a collection against the SPV due to a breach by the SPV (e.g., in the case of the enforcement of collateral), as well as guarantors of the SPVs obligations -including related parties- whose collateral is expressly established in the debt agreements for the payment of said granted collateral, will have access to the foreign exchange market for the repayment of principal and interest under the same terms and conditions that would have applied to the SPV.

8.10. Collateral for Foreign Creditors

Decree 749 establishes that the BCRA may: (i) approve mechanisms for accessing the foreign exchange market to allow the SPV to establish collateral in Argentina or abroad for the payment of principal and interest on foreign indebtedness that has been entered and settled through the foreign exchange market; and (ii) allow to accumulate collections from exports of goods and services in accounts within the country or abroad for the purpose of securing the repayment of such indebtedness, for example, onshore and offshore reserve accounts.

8.11. Impact on the Normal Development of the Project

Decree 749 sets forth that if a SPV adhering to the RIGI verifies that the normal development and execution of its project has been affected by actions or omissions of public bodies and/or private entities involved in administrative procedures related to compliance with the formal and/or substantive requirements and/or conditions established in the foreign exchange regulations, the SPV may notify the Enforcement Authority about the existence of such a situation with a detailed explanation of the case, providing any evidence in its possession, if any, and identifying the public bodies and/or private entities and their respective officials, agents, or employees involved, so that, if applicable, the Enforcement Authority can immediately take the necessary measures to restore the normal development and execution of the SPVs project adhering to the RIGI.

Such measures must be taken by the Enforcement Authority within five (5) business days of receiving the SPVs notification, including sending a notice to all parties identified by the SPV requesting explanations regarding the reported situation. This is notwithstanding any administrative, civil, and criminal consequences that may arise from the situation reported by the SPV.

8.12. Additional Regulations by the BCRA

Within 30 calendar days of the publication of the Decree 749, the BCRA must issue the necessary complementary regulations to enable, with respect to foreign exchange regulations, the effective use of the rights recognized under the RIGI.

The aforementioned regulations will also address cases of contributions of goods by foreign entities and the mechanisms for handling collaterals for local and foreign financing, including the application of the SPVs own exports, up to the amount of foreign currency that the SPV has entered and settled through the foreign exchange market in relation to the foreign indebtedness, plus its interest.

8.13. Accumulation of Benefits

With respect to foreign exchange incentives, the benefits provided under the RIGI in this matter cannot be accumulated with the incentives of other existing or future promotional regimes, including, but not limited to, the following: (i) Decree No. 929/13; (ii) Decree No. 234/21; (iii) Decree No. 892/20; (iv) Decree No. 277/22; (v) Decree No. 679/22; and (vi) Decree No. 28/23, or any regulations that may replace them in the future.

9. Procedure to adhere to the RIGI

The filing of the application must contain the documentation required by the Decree 749, and shall be submitted to the Enforcement Authority, signed by the legal representative and notarized. The Enforcement Authority must issue its decision on the adherence of the SPV to the RIGI within forty-five (45) business days. If the Enforcement Authority decides to request additional information to analyze the feasibility of the project or to call the legal representative to a hearing, this term shall be suspended.

Once this term has been resumed, the Enforcement Authority shall issue a decision within the remaining days of the established term, or within the following fifteen (15) business days, the longer of the two. The lack of pronouncement shall not be interpreted as an acceptance.

In case of rejection of the application, an adjusted filing may be submitted up to two (2) times during the same calendar year in which the notification of the first rejection was received.

10. New Registries

Decree 749 creates the “Registry of Sole Purpose Vehicles”, the “Registry of Strategic Long-Term Export Projects”, and the “Registry of Suppliers of the Incentive Regime for Large Investments”.

11. Enforcement Authority

The Ministry of Economy is designated as the Enforcement Authority of the RIGI.

12. Jurisdiction and arbitration

The SPV may establish, together with the Enforcement Authority, at the time of the filing, the forms, procedures and other requirements to be observed to communicate the existence of a dispute. This notice shall be made to the Enforcement Authority with a copy to the Attorney General’s Office.

Likewise, the Decree 749 introduces the concept of “Arbitration Contract”. The SPV adhered to the RIGI must state in writing its acceptance that both the SPV and its partners or shareholders will resolve disputes through the mechanisms set forth in the Foundations Law. Once the adherence has been accepted, the Arbitration Contract will enter come into force as of the date of the administrative act approving the adherence request to the RIGI.

Also, the filing shall provide that the calculation of the compensation shall contemplate consequential damages and loss of profit, as well as the impact on the economic and financial balance of the project.

Exceptionally, the Enforcement Authority may propose to the National Executive, with the express consent of the SPV, specific dispute resolution mechanisms for the project.

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For additional information, please contact Nicolás Eliaschev, Javier Constanzó, Julieta De Ruggiero, Francisco Molina Portela, Gastón Miani, or Leonel Zanotto.

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by trsym