New Regime for Large Investments

The bill called "Bases y Puntos de Partida para la Libertad de los Argentinos", creates an Incentive Regime for Large Investments ‘Régimen De Incentivo Para Grandes Inversiones’ (RIGI).

 

The sectors included in the RIGI are the following (i) agribusiness; (ii) infrastructure; (iii) forestry; (iv) mining; (v) gas and oil; (vi) energy; and (vii) technology.

 

Adhesion to the RIGI will only be for single project vehicles (SPVs) holding a project that qualifies as a Large Investment in the Sectors Included, and they must have the sole and exclusive purpose of carrying out a single investment project admitted to the RIGI. The following will be considered SPVs: (i) corporations (including Sole Shareholder Corporation -SAU- and limited liability companies); (ii) branches established by companies incorporated abroad; and (iii) joint ventures and other associative contracts. Likewise, dedicated branches are considered as VPU, being those companies that develop one or more activities that are not part of the investment project or own one or more assets not affected to the project, provided that they comply with the requirements established in the RIGI.

 

In order to join the RIGI, an investment in computable assets must be foreseen for an amount equal or higher than the amount established from time to time by the Executive Power. For such purposes, the following shall be considered as investment in computable assets:

• • the acquisition, production, construction and/or development of assets affected to sectors included in the RIGI;
  • the acquisition of quotas, shares and/or corporate participations may be considered if the complementary requirements are met,
  • the acquisition of quotas, shares and/or equity interests in an SPV.

 

The application for the adhesion must also comply with the investment plan requirements included in the RIGI.

 

The incentives established by the Project for the RIGI are as follows:

 

1. Tax benefits

Income tax. Beneficiaries who adhered to the regime may be subject to a special tax treatment.

1. The tax rate will be 25%, and the progressive scale of Income Tax Law ("ITL") will not apply.
2. Beneficiaries may, for the investments they make, choose to practice the respective depreciation of the assets, in accordance with the rules provided for in the ITL, according to the depreciation provided for in the promotional regime to which they were already adhered prior to the regime, or according to the regime set out below, with certain limitations:
   1. On depreciable movable property acquired, manufactured, produced or imported: at least in two equal and consecutive annual instalments.
   2. In infrastructure works started in that period: at least in the number of annual, equal and consecutive instalments resulting from considering their useful life reduced to 60% of the estimated useful life.
3. Net operating losses of the vehicle in a tax period, which cannot be offset by taxable profits of the same period, may be deducted from taxable profits obtained in the immediately following years, with no time limit. After five years without having offset such losses against taxable profits, they may be transferred to third parties, and in the case of Special Branches, they may also be used to offset taxable profits of the company.  

Net operating losses may be restated taking into account the variation of the general consumer price index (CPI) between the month of the end of the fiscal year in which they originated and the month of the end of the fiscal year to be settled.

4. Restatements established in the ITL will be made on the basis of percentage variations of the CPI, and Section 94 of such  law will not be applicable.

Dividends and profits. When dividends and profits from the vehicles are distributed after three years as from the end of the tax year in which the profits were obtained, they will be subject to a 0% Income Tax rate. It will only be applicable to profits obtained in fiscal years that close after 4 years from the date of adhering the regime.

Transactions between vehicles and related parties. Transfer pricing rules of Section  17 of the ITL shall apply, except formal obligations.

Value Added Tax (“VAT”). A system based on "Tax Credit Certificates" is established to pay obligations, based on the following considerations:

Under certain conditions, the vehicles may pay VAT to their suppliers, or to the Argentine tax authorities in the case of imports of goods, through the delivery of Tax Credit Certificates. Tax Credit Certificates shall be considered by suppliers as a balance in favour of the tax. When the supplier requests the refund or transfer to third parties of balances of such certificates and the Argentine tax authorities does not proceed with the refund within a period of 3 months, the beneficiary may transfer said Tax Credit Certificates to third parties without the need for prior approval. Beneficiaries may not compute actual tax credits paid with Tax Credit Certificates.

The regulation shall establish the requirements, procedures and conditions for the issuance, delivery and/or transfer of Tax Credit Certificates and the Enforcement Authority  shall establish the operational aspects.

Beneficiaries established under joint ventures or other associative contracts. They will be considered subjects for income tax purposes. Distributions of profits of these vehicles to their members shall not be computable by their beneficiaries for purposes of assessing their net profit. Likewise, no provincial or municipal taxes may be levied on transactions, transfers, sales, leases, services or any other economic relationship between the vehicle and its members.

Tax on Debits and Credits on Bank Accounts. Beneficiaries adhered to this regime will be able to compute 100% of the amounts paid and/or received in concept of the tax as a credit for income tax.

Accounting records in US dollars. Vehicle beneficiaries of this regime may choose to keep their accounting records and financial statements prepared in US dollars using International Financial Reporting Standards.

Tax treatment of Special Branches. Special treatment is established for this type of vehicle, as indicated below:

1. Income Tax. They will be considered subjects for income tax purposes. Distributions of profits to the company to which they belong will not be computable by their beneficiaries for the determination of their net profit.

The assignment of assets made from the company to the Special Branch for the purposes of its establishment, registration and incorporation to the Regime: (i) will enjoy the tax attributes that the company to which it belongs had, in proportion to the assigned assets; and (ii) certain tax rights and obligations corresponding to the company to which they belong will be transferred to the Branch, depending on the value of the assigned assets, such as losses, positive balances of the inflation adjustment, tax exemptions, among others.

2. VAT. Allocations made as a consequence of the establishment of the Special Branch for the purpose of adhering to the regime will not be deemed to be sales. Existing tax balances in the company will be assigned to the Special Branch in the proportion of the assets allocated.
3. Other national, provincial and/or municipal taxes. No other national, provincial or municipal taxes may be levied on transactions, acts or economic relations between the company and the Special Branch.

Limits. Tax incentives granted through this regime shall not produce effects if they result in a transfer of income to foreign tax authorities through the application of a global minimum tax under the second pillar of the Inclusive Framework of the Organization for Economic Co-operation and Development (OECD).

Corporate Reorganization. Reorganizations of companies carried out for the purpose of establishing a vehicle or making investments in qualifying assets may qualify as tax-free in accordance with the provisions of Section 80 of the ITL, with certain modifications.
 

2. Customs-related benefits for RIGI Projects

According to the Bill, projects that qualify for the RIGI regime will be exempted from customs duties and will enjoy other benefits, such as a guaranteed stability of the customs regime for 30 years.

Projects included in the RIGI will be exempted from import duties, statistical fee, and any other advanced payment regime on definitive imports of capital goods, parts, pieces, components, and raw materials. Export duties will also be fully exempt for definitive export carried out by projects included in the RIGI regime three years after their inclusion.

The Bill proposes that projects included in the RIGI regime will be subject to no direct or indirect restrictions or prohibitions for importing or exporting other than non-economic prohibitions. Besides, there are new mechanisms proposed for projects to generate their own manual declarations and assessments to guarantee the ‘customs stability’ granted under this regime.
 

3. Foreign Exchange Regime

The export collections of products adhered to the RIGI are exempted from their obligation to be repatriated and settled in the foreign exchange market in the following percentages:

a.         20% as from the first year since its adhesion to the RIGI;

b.         40% as from the second year; and

c.         100% as from the third year.

These funds will be considered freely available funds for the SPVs. Likewise, they will not be obliged to repatriate and settle in the FX Market the funds corresponding to other items (e.g. capital contributions) related to the approved investment plan, being these also considered freely available funds.

Foreign currency from local or external financial loans taken by the SPVs adhered to the RIGI will not be subject to any restriction, an will be considered freely available funds both in the country and abroad, and may be used for any purpose, provided that they are disbursed after the entry into force of the Project. The SPVs will not be limited to the holding of liquid external assets, although they may have future restrictions to access to the FX Market.

Foreign exchange regulations that establish, currently or in the future, restrictions or prior authorizations required to access the FX Market for the payment of principal on any loan or for other indebtedness with foreign countries; repatriation of direct investments of non-residents or capital contributions; or for the payment of profits, dividends or interest generated by capital contributions, loans or other financial indebtedness with foreign countries will not be applicable to the SPVs.

The Project guarantees to the SPVs the full availability of the results of their projects, with no obligation to trade their products in the local market; the full availability of their assets and investments, which will not be subject to confiscatory or expropriation acts; and the right to the payment of profits, dividends and interest through access to the FX Market, among others.
 

4. Stability - Compatibility with other pre-existing promotional regimes – Transfers

Tax stability. The regime provides for tax stability for 30 years. Taxes to be applied to the vehicles adhered to the Regime will be the ones in force on the date of inclusion of the regime considering the modifications herein set forth. New taxes created after the date of inclusion other than those in force at the date or provided for in this regime, will not be applicable to such vehicles, nor will increases in existing taxes.

Vehicles will be able to benefit from the elimination or reduction of taxes that may be established in the future which are more favorable.

This benefit does not include VAT or social security contributions.

This benefit grants the right to reject any claim by the Argentine tax authorities for amounts exceeding the tax payable in accordance with the preceding paragraphs. If the vehicle pays the amount that does not apply, this benefit will enable the vehicle to use it as a tax credit and may apply it to the payment of any other national tax.

Vehicles who invoke tax stability shall be responsible for proving in each case that it has actually occurred. However, when the breach is a consequence of the creation or increase of a new tax or of a legal or regulatory modification of any aspect related to the taxes in force at the date of inclusion, it shall be the responsibility of the Argentine tax authorities to prove and justify that the increase has not occurred as a precondition to apply such tax or the higher rate to the vehicle.

Argentine tax authorities will be waived from filing a criminal complaint when the vehicle has revealed and informed the criteria used to assess the tax obligation through a written filing submitted prior to the submission of the tax return.

Foreign Exchange stability. The Project guarantees foreign exchange stability to the SPVs adhered to the RIGI, therefore, the foreign exchange regime in force in the Project may not be affected by any regulations that establish more burdensome conditions. 

Transfer of shares, quotas or equity interests of vehicles. Shares, quotas or equity interests of the vehicles adhered to the regime may not be transferred, directly or indirectly, without prior authorization from the Enforcement Authority. They may not be pledged, assigned as a guarantee, in trust and/or any other type of legal guarantee business with financial institutions, credit institutions, local or foreign, without prior authorization from the Enforcement Authority.

Compatibility with other promotion and incentive regimes. The benefits provided for in this regime may not be combined with incentives of the same nature existing in other pre-existing promotional regimes. 

By adhering to this regime, there is no waiver or incompatibility with other current and/or future promotional regimes. Incentives of different nature may be combined, provided that they do not overlap or duplicate with the incentives provided for in this regime.

Termination of Incentives. The termination shall be ordered by the Enforcement Authority through an administrative act specifying the reason. The termination of the incentives shall not have retroactive effects, nor shall it affect the incentives enjoyed prior to the termination. Once it has occurred, the vehicle may not be included again in this regime.

Creation of a specific area in the Argentine tax authorities. The Argentine tax authorities are instructed to create a specific area whose functions will be to create the Tax ID assigned to the vehicle and review the compliance with the tax obligations of such subjects.

The term for the adhesion to the RIGI will be 2 years from its entry into force.