Argentina Announces Lifting of Foreign Exchange Restrictions

Communication "A" 5850 ("New Regulation") modifies the existing regimes related to, among others, (i) the purchase of external assets by Argentine residents for investment purposes (a practice commonly referred to as “atesoramiento”); (ii) travel and tourism, and family assistance; (iii) arbitration and foreign currency swap; (iv) financial indebtedness (i.e., repatriation obligation, mandatory deposit, minimum waiting period; prepayment); and (v) imports of goods and services.

1. Acquisition of External Assets

The request and registration of foreign exchange transactions under the “Exchange Transactions Consulting Program” of the Argentine Administration of Public Revenues (AFIP) has been rendered without effect, and Communication “A” 5245 and its ancillary regulations have been repealed.  Therefore, the AFIP’s prior approval is no longer required for the purchase of foreign currency. The latter was confirmed by the issuance of AFIP’s Resolution 3821 on December 16, 2015, which was published in the Official Gazette on December 18, 2015.

Additionally, the New Regulation replaces the rules regarding access to the foreign exchange market for the purchase of external assets by Argentine residents as provided in the Annex to Communication “A” 5526 by the following:

• External assets may only be acquired by Argentine individuals, legal entities from the private sector incorporated in Argentina that are not authorized to trade on the foreign exchange market, assets (patrimonios), and other entities incorporated in Argentina and local government agencies.

• Access to the local foreign exchange market without requiring prior Central Bank approval is allowed for all of the following: real estate investments abroad, loans granted to non-Argentine residents, Argentine residents’ contributions of direct investments abroad, portfolio investment of Argentine individuals abroad, certain other investments abroad of Argentine residents, portfolio investments of Argentine legal entities abroad, purchase of foreign currency bills to be held in Argentina, as well as purchase of traveler checks.

• The total amount of foreign currency purchased for all the above mentioned items cannot exceed USD 2,000,000 per calendar month in the aggregate, in all the institutions authorized to trade in the foreign exchange market.

• For purchases of foreign currency bills for the aforementioned items that exceed the equivalent of USD 500 per calendar month in all the entities authorized to trade on the foreign exchange market, the transaction must be made through (a) a debit from a client’s account at a local financial institution, or (b) transfer of funds via MEP to the intervening institution from the client’s account or (c) by check. For the purchases for USD 500 or less per calendar month, the use of cash is admitted.

• In the case of foreign currency sales to Argentine residents for portfolio investments abroad, the transfer has to be made directly to the bank account of such Argentine resident, which must be located at foreign banks or financial institutions that regularly conduct investment banking activities, which are not incorporated in countries or territories considered not to be cooperative for purposes of fiscal transparency in terms of the provisions of Section 1 of the Decree No. 589/13 and its complementary provisions, or in countries or territories that do not apply the Recommendations of the Financial Action Task Force. For these purposes, countries or territories considered to be uncooperative are the countries or territories identified by the Financial Action Task Force (www.fatf-gafi.org).

• Argentine residents that as of 12/17/15 register sales of foreign assets of their own in the foreign exchange market will not be subject to the USD 2,000,000 million threshold to purchase foreign currency up to the amount sold on the foreign exchange market. However, any amount in excess of this may only be used for investments abroad, when the foreign currency coming from abroad has been sold on the foreign exchange market.

• The proceeds of the sale of foreign currency by Argentine residents in the foreign exchange market for all the items must be credited in a checking or savings bank account in pesos in a local financial institution in the client’s name provided that such proceeds exceed USD 2,500 per calendar month.

2. Tourism and Travel – Family Assistance – Services between Related Entities

Paragraphs 3.2, 3.3, 3.4, 3.6, and 3.9 of the Annex to Communication "A" 5264 as amended by Communication "A" 5377 and point 3 of the Communication "A" 5295 and Communication "A" 5294, are repealed. Hence, certain specific requirements (e.g., Central Bank prior approval) are eliminated with respect to the purchase of foreign currency for tourism and travel; family assistance, rental or lease of real estate to non-Argentine residents, certain services when the beneficiary is a non-Argentine resident related to the client or is established or domiciled, and the purchase of foreign currency bills by non-Argentine residents for any amount not exceeding USD 2,500 per calendar month.

3. Arbitrage and Exchange (arbitraje y canje)

Institutions authorized to trade on the foreign exchange market may conduct arbitrage and exchange (arbitraje and canje) of foreign currency with their clients, under the following conditions:

1. When the foreign currency proceeds being sold (i) are coming from abroad, (ii) are not subject to the obligation of sale in the foreign exchange market, the beneficiary may instruct that the funds are to be credited in a local account in foreign currency opened in a financial institution in his or her own name (such institutions must execute the corresponding technical foreign exchange ticket).
2. Foreign currency funds deposited in local foreign currency accounts may be transferred abroad through the execution of such technical foreign exchange tickets. Deposited funds corresponding to foreign indebtedness, investments of non-residents, repatriations of portfolio investments of residents credited in local foreign currency accounts as from 12/17/15 that were not sold through the foreign exchange market may be transferred abroad, subject to compliance with the minimum waiting period.

4. Financial indebtedness

Repatriation: Paragraph 2.1 of the Annex to Communication “A” 5265 has been replaced, removing the obligation to transfer and sell in the foreign exchange market with regards to any new foreign financial indebtedness incurred by the foreign financial sector, the non-financial private sector and local governments. However, the transfer and sale of the funds in the local foreign exchange market will be necessary in order for the debtor to repay principal or interest through the local foreign exchange market.

Minimum waiting period: The minimum waiting period established in paragraph 2.2 of Communication “A” 5265 was reduced from 365 to 120 calendar days (counted as from the date on which the funds are transferred to Argentina). For financial indebtedness granted or renewed before 17/12/15 the existing 365-calendar day period will apply.

Prepayment: Subparagraph e) of paragraph 4.3 of the Annex to Communication “A” 5265, as amended by Communication “A” 5604, allows Argentine residents to access the foreign exchange market to prepay, totally or partially, principal corresponding to foreign financial indebtedness the proceeds of which was settled in the foreign exchange market as from 12/17/15, and subject to compliance with the minimum waiting period.

5. Imports of goods

Nationalization of goods: The third paragraph of point 4.2 (vi) of Communication “A” 5274, amended by Communication “A” 5647, has been modified. It established that in the case of payments in advance of non-capital goods, the term to provide evidence of the nationalization of the goods is, as from December 17, 2015, 180 calendar days. For capital goods, the term is 365 calendar days.

Imports made prior to 7/1/2010: The prior approval requirement for import transactions with a customs clearance date prior to July 1, 2010, set forth in Communication “A” 5507 as amended has been repealed.

Access to the foreign exchange market for the payment of imports with customs clearance date as of 12/17/2015 can be paid through the local foreign exchange market without any limit.

Imports of goods debts pending of payment as of 12/16/2015 may be repaid through the local foreign exchange market in accordance to applicable rules, in the following cases:

1. Debts of federal and local governments, entities controlled by the public sector.
2. Debts secured by letters of credit or the like issued or granted by local financial entities until 12/16/2015.
3. Debts incurred with International Agencies or Official Credit Agencies and/or guarantee by them.

The remaining debts from imports of goods may be repaid through the local foreign exchange market provided that applicable rules are complied with, and subject to the following schedule:

1. From the date hereof until 12/31/2015, the amount of foreign currency purchased for this purpose may not exceed the equivalent of USD 2,000,000.
2. From January 2016 to May 2016, the amount of foreign currency purchased for this purpose may not exceed the equivalent of USD 4,500,000 per calendar month.
3. From June 2016, without any limits.

6. Imports of Services

Access to the foreign exchange market for payments of services rendered as from 12/17/2015: may be carried out without any limits.

Debts for rendered and /or accrued services until 12/16/2015 may be repaid through the local foreign exchange process provided that applicable rules are complied with, and subject to the following schedule:

1. From February 2016, the amount of foreign currency purchased for this purpose may not exceed the equivalent of USD 2,000,000.
2. From March 2016 to May 2016, the amount of foreign currency purchased for this purpose may not exceed the equivalent of USD 4,000,000 per calendar month.
3. From June 2016, without any limits.

It should be mentioned that this rule has not provided access to the foreign exchange market for the payment of services rendered during the last part of December 2015 and during January 2016. In these cases, access to the foreign exchange market is only allowed as from February 2016.

By means of a Press Report dated 12/17/2015, the Central Bank of Argentina stated that it will implement certain mechanisms through the issuance of sovereign bonds in order for importers of goods and services to repay import debt in advance of the abovementioned schedules. This alternative has not been included in the New Regulation.

7. Mandatory Deposit

The New Regulation refers to the amendment of subsection c) of section 4 of Decree No. 616/05 that established a 30% mandatory deposit for the inflow of certain funds to Argentina through the foreign exchange market (the “Mandatory Deposit”). Hence, it states in a broad manner that Communication “A” 4359 and its ancillary rules have been modified. On December 16, 2015, the Ministry of Economy and Public Finances issued Resolution 3/2015 (published in the Official Gazette on December 18, 2015), amending Decree No. 616/2005. Pursuant to the Resolution, the mandatory waiting period is reduced from 365 to 120 calendar days and the mandatory deposit is reduced to zero percent. Despite this, the method chosen by the Central Bank to amend the rules related to the mandatory deposit could generate doubts about its scope and application.

8. Non-Argentine Resident Portfolio Investments

As for new portfolio investment of non-Argentine residents which are transferred and sold in the foreign exchange market as from the date of the New Regulation, non-Argentine residents will have access to the foreign exchange market to repatriate their investment without requiring prior approval from the Central Bank, provided that the applicable minimum term is met.

9. Advance Payments and Pre-Financings of Exports

Communication “A” 4443 and ancillary rules, which regulates payments in advance and pre-export financings, has been repealed. Therefore, all the requirements necessary for an advance payment or a pre-export financing to be treated as a commercial debt, are eliminated.

The rest of the exchange control restrictions existing as of the date of the issuance of the New Regulation remain in full force and effect. Thus, among others, Argentine residents are still required to transfer and sell on the foreign exchange market the foreign currency proceeds collected from exports of goods and services, and for the sale of non-financial non produced assets. General requirements for the purchase of foreign currency for making payments of imports of goods and services would also remain in place.

Lastly, it is important to point out that the criminal foreign exchange regime that sanctions non-compliance of foreign exchange regulations has not been abrogated.