The Foundations Law declares large investments as a matter of national interest, thereby creating a stimulus regime applicable to large investments (RIGI, for its Spanish initials, Régimen de Incentivo para Grandes Inversiones), applicable to sole purpose investment vehicles (“SPVs”) that involve long-term investments equal to or greater than US$ 200,000,000 (or US$1Bn for strategic exports), and the criteria set forth in the Foundations Law.

1. Scope, deadline to apply and requirements

The RIGI is applicable to large-investments in the following sectors: forestry, tourism, infrastructure, mining, iron and steel industry, technology, energy, and oil & gas.

SPVs have two (2) years following the approval of the Foundations Law to adhere, term that may be extended by the National Executive Power for an additional one (1) year.

SPVs owning a single project but involving multiple phases will be considered eligible. Admissible SPVs are the following:

  1. corporations (sociedades anónimas), sole proprietorships (sociedades anónimas unipersonales) and limited liability companies (sociedades de responsabilidad limitada);
  2. branches of companies incorporated outside of Argentina;
  3. sole purpose branches; and
  4. joint ventures and other form of associative agreements.

Additionally, concession holders of infrastructure works and/or services, which are subject to competition with other concessionaires in their industry, may adhere to the RIGI if an investment plan is submitted pursuant to the general terms of the RIGI, and the remainder requirements set by the RIGI are complied with as well. For additional comments in connection with the amended public works concession law, please access here.

Additionally, suppliers of goods or services may register in the RIGI to be exempted from import duties with respect to the imported merchandise destined to a VPU adhered to the RIGI.

2. Minimum amount of investment

The project investment shall be equal to or greater than US$ 200,000,000, which shall be made on or before the deadline provided in the relevant investment plan, with a minimum investment amount to be made in the initial stages of the project and to be determined by the National Executive (no less than 40% of the total CAPEX).

Investments must have a long tenure, i.e., with a ratio equal or less than thirty percent (30%) between (a) the present value of the expected net cash flow (excluding investments, during the first three years from the first capital disbursement) and (b) the net present value of the capital investments planned during the same period. Such percentage may be amended by the enforcement authority subject to certain requirements provided by in the Foundations Law.

The National Executive Branch may establish a minimum investment amount for certain industries comprised by the Foundations Law, in an amount greater than US$ 200,000,000, but in any case, such amount shall be no greater than US$ 900,000,000.

3. Strategic Long-term Export Projects

A specific regime is set forth for strategic projects with a project investment equal or greater than US$ 1Bn, that contribute to Argentina’s economic reach and strategic positioning on a regional, continental or international scale. Additional terms and conditions applicable to any such project will be defined in the complementary regulations.

4. Tax incentives, customs, and FX regime

4.1. Income tax

  1. The Foundations Law foresees a specific Income Tax rate to SPVs of twenty-five percent (25%) applicable over their net taxable income. Thus, the general scale provided by Section 73 of the Income Tax Law will not apply to SPVs.
  2. SPVs could choose to apply an accelerated amortization mechanism specifically foreseen by The Foundations Law.
  3. SPV’s tax losses that cannot be absorbed by taxable profits from the same tax period may be carried forward and deducted from taxable profits obtained in the following years, not subject to a time limit. After five years, any remaining losses could be transferred to third parties. Losses could be adjusted for inflation, according to the Wholesale Domestic Price Index (“IPIM”, as per its acronym in Spanish) supplied by the National Institute of Statistics and Censuses (“INDEC” as per its acronym in Spanish).
  4. Additionally, other adjustments established in the Income Tax Law shall be made considering the percentage variations of Consumer Price Index (“CPI”).
  5. Dividends from the SPVs distributed to individuals and undivided states (whether residents in Argentina or not), will be taxed at the rate of seven percent (7%). After seven (7) years from the date of adherence to the RIGI, the rate will be reduced to three-point five percent (3.5%). Payments made by the SPVs that own strategic projects to foreign beneficiaries included in Title V of the Income Tax Law, for maritime leases or charters, for international transportation services, exports, and services included in engineering and construction management contracts, will be exempt from Income Tax.
  6. When SPVs make payments not included in the preceding paragraph to foreign beneficiaries, it will be presumed that net income is thirty percent (30%) of the amounts paid (effective rate of 10.5%), unless there is a provision that contemplates a more favorable treatment. Grossing up mechanism will not be applicable to withholding tax made to foreign beneficiaries.
  7. Thin capitalization rules (which includes a limitation on the deduction of interests and FX differences for debts with related subjects) will not be applicable during the first five (5) years since the RIGI adherence date.

Finally, the SPVs may compute one hundred percent (100%) of the Tax on Debits and Credits in Argentine bank accounts paid as a tax credit against Income Tax.

4.2. Value-added tax (“VAT”)

SPVs may pay VAT applicable to the purchase, construction, manufacturing, elaboration or import of fixed assets -to their suppliers or to the Tax Authorities (“AFIP” as per its acronym in Spanish) in case of imports of goods- through the delivery of Tax Credit Certificates. SPVs will not be able to compute VAT credits derived from Tax Credit Certificates.

Tax Credit Certificates may be assigned, and the assignee shall not be subject to any claims for AFIP in connection with the use of the assigned credit

4.3. Fees

Imports of capital goods, spare parts, components, among others, carried out by SPVs will be exempt from import duties, certain fees, and any regime of collection, payments in advance or withholding of national and/or local taxes. The ownership, possession or use of the merchandise benefited from this special treatment–except for supplies– cannot be transferred, unless said transfer is made to another SPV.

Regarding exports of goods obtained from the project carried out by the SPVs, they will be exempt from export duties after three (3) years from the date of adherence to the RIGI. In the case of projects declared as strategic exports, such term is reduced to two (2) years.

4.4. Currency regime

SPVs shall be exempted from repatriating hard currency proceeds from exports in the local exchange market, pursuant to the below:

  1. twenty percent (20%), after two (2) years of the commercial operation date;
  2. forty percent (40%), after three (3) years of the commercial operation date;
  3. one hundred percent (100%), after four (4) years of the commercial operation date.

As to projects eligible as strategic-exports, the above periods shall be reduced, and will be as follows:

  1. twenty percent (20%), after one (1) years of the commercial operation date;
  2. forty percent (40%), after two (2) years of the commercial operation date;
  3. one hundred percent (100%), after three (3) years of the commercial operation date.

Additionally, proceeds disbursed under local or cross-border after the approval of the RIGI, shall be bound to no restrictions in terms of its use, i.e., SPVs will not be required to enter and/or settle hard currency in the local exchange market.

Additionally, SPVs are guaranteed, among other aspects, with the full availability of the products resulting from the project, with no obligation to trade them in the local market; full availability of their assets and investments, which will not be subject to confiscatory or expropriatory acts; the right to continue operating without interruption, except by court order; and unrestricted access to justice and other legal remedies available.

5. Exports

SPVs may freely import and export goods for the construction, operation, and development of its Project, without being subject of prohibitions or restrictions, either quantitative or qualitative restrictions of an economic nature. In this sense, they will not be affected by regulations that (i) force them to acquire goods from domestic suppliers under less favorable conditions; (ii) prevent them from constructing and operating new infrastructure for the transportation and processing of project materials, and (iii) affect the stability of long-term export authorizations previously granted.

6. Stability term

A 30-year stability term is foreseen for RIGI projects, including tax, custom, foreign exchange and regulatory stability.

In the case of strategic-export projects that are planned to be executed in subsequent stages, the enforcement authority may extend it up to thirty (30) years after the estimated start date of each stage of the project, provided that the first stage complies with the minimum investment amounts. However, in no case such period may be extended beyond thirty (30) years from the tenth year after the beginning of the first stage of the Project.

Taxes to be applied to SPVs will be those in force at the adhesion date. New taxes created as from the adhesion date and/or increases in existing taxes will not be applicable to SPVs. However, SPVs may benefit from the elimination of taxes or reduction of tax rates that may be established in the future.

7. Transfer of rights, assignments and collateral

Shares, quotas or equity interest in the SPVs may be assigned without the prior consent from the enforcement, provided a notice to such authority shall be delivered within fifteen (15) calendar days following the occurrence of the respective transaction.

Assignments, pledges, or other kinds of collateral transaction shall be informed to the enforcement authority within the same above period, and no prior consent shall be required either.

8. Termination

Regarding termination, upon the occurrence of a force majeure event or unforeseeable circumstances as defined in the Civil and Commercial Code, the SPVs may decide to suspend, close and/or restart the project temporarily or definitively, partially, or totally, without incurring in any liability. The SPVs affected to any such event must communicate such circumstance to the enforcement authority within fifteen (15) days of becoming aware of its existence, explaining whether it is a case of suspension or closure, as well as reasonably justify its decision.

9. Jurisdiction and arbitration

The Foundations Law incorporates the possibility for the SPV to choose between different arbitration tribunals to solve disputes related to the RIGI. A first stage of negotiations is foreseen, following which an international arbitration is to be held.

The arbitral tribunal must be formed by three (3) arbitrators chosen in accordance with the applicable procedural rules and none of them shall be nationals of Argentina or of the state of origin of the majority shareholder of the SPV.

Except for the arbitrations ruled by Convention on the Settlement of Investment Disputes between States and Nationals of Other States, the arbitral tribunal will determine the venue of the arbitral procedure, that must be outside Argentina, in a country party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

10. Other regimes

These benefits may not be accumulated with other incentives of the same nature in pre-existing promotional regimes. However, benefiting from the RIGI will not be incompatible with other present or future programs with incentives of a different nature, if its benefits do not overlap, accumulate, or reiterate.

***

For additional information, please contact Gastón Miani, Leonel Zanotto, Nicolás Eliaschev, and/or Javier Constanzó.