InterAm Database
National Law Center for Inter-American Free Trade
LEX MUNDI
DOING BUSINESS IN ARGENTINA
Prepared by
Marval, O’Farrell & Mairal
Argentina
NOVEMBER, 1995
The information contained in this publication is given by way of general reference only and is not to be relied upon. No responsibility will be accepted by the authors or publishers for any inaccuracy or omission or statement which might prove to be misleading. You are advised to seek your own professional advice before proceeding to invest or do business in Argentina.
TABLE OF CONTENTS
I. THE CONSTITUTIONAL AND POLITICAL SYSTEM
II. RECENT POLITICAL AND ECONOMIC DATA
III. THE FOREIGN INVESTMENT REGIME
A. International Treaties
B. Choice of Law and Jurisdiction
C. Argentine Foreign Investment Law
1. Major Considerations
2. Monetary Policy and Foreign Exchange
D. Investment Protection and Promotion
VI. INVESTMENT CORPORATE VEHICLES
1. The Sociedad Anónima ("SA")
V. THE TAX REGIME
A. Income Tax
1. Income Tax on Residents
a. Profits
b. Allocation of Profits
c. Taxable Income Determination
d. Loss Carryforward
e. Filing and Payments requirements
2. Income on Non-Residents
B. Tax On Assets
C. Value Added Tax
D. Turnover Tax (Tax on Gross Revenue)
E. Tax treaties
VI. THE INTERNATIONAL TRADE REGIME
A. Import Requirements
B. Anti-dumping legislation
VII. LABOR LAWS
A. Salaries
B. Contributions and Withholdings
C. Vacations and other leaves of absence
D. Dismissal Considerations
E. Certain Other Employers’ Liabilities
F. Special Employment Contracts
1. Promoted Employment Regime.
2. New Activity Employment Regime
3. Qualified Employment Training Regime
4. Unqualified Employment Training Regime
5. Promoted Employment for minorities and disabled
VIII.THE PROTECTION OF INTELLECTUAL PROPERTY
A. Trademarks and Trade Names
B. Patents
C. Copyright
D. Licensing and other Technology Transfer Agreements
I. THE CONSTITUTIONAL AND POLITICAL SYSTEM
Argentina is a sovereign, federal, democratic republic. The Argentine Constitution, established in 1853 and partially recently amended in August 1994, provides for a tripartite system of government consisting of an executive branch headed by a President, a legislative branch and an independent judiciary. In addition, the Constitution expressly provides for fundamental human rights such as equality before the law, personal liberty, freedom of expression, peaceful assembly, and the right to private property. Argentina is a member of the American Convention on Human Rights and accepts the jurisdiction of the Inter-American Court on Human Rights.
The executive branch has been the dominant branch at the federal level. The President is elected by direct vote and may serve a maximum of two consecutive, four-year terms. The Argentine Congress comprises two houses, the Senate and the Chamber of Deputies. Senators are elected to staggered six-year terms, with one-third of the Senate elected every two years. Deputies are elected to staggered four-year terms; one-half of the Chamber is subject to election every two years. Congress has exclusive power to enact laws concerning federal legislation, including international and inter-provincial trade, immigration and citizenship, patents and trademarks. The Constitution entitles the Federal Congress to enact the Codes concerning civil, commercial, criminal, mineral, labor and social security matters. Said Codes are enforceable nationwide although they are not federal laws and therefore provincial courts have jurisdiction on cases involving the interpretation of said Codes.
The judicial system is divides in federal and provincial Courts, each of them comprising lower courts, courts of appeal and supreme courts. The supreme judicial power of Argentina is vested in the Supreme Court of Justice, which has nine members who are appointed by the President with the consent of the Senate. The Supreme Court has exclusive and original jurisdiction in cases involving ambassadors, public ministers, consuls, and those in which Argentine provinces are a party thereto. The provincial court system comprises also lower courts, courts of appeal and supreme court. Both the federal and the provincial court systems are divided according to specialty areas (criminal, civil, commercial, labor, administrative law, etc.).
Each province has its own constitution, elects its own governor and legislators, and appoints its own judges without the federal government’s interference.
II. RECENT POLITICAL AND ECONOMIC DATA
After President Menem assumed office in July 1989, his administration implemented a series of economic reforms and stabilization measures designed to reduce inflation and the public sector deficit, as well as deregulate and privatize government-owned industries. Although these measures succeeded in reducing inflation initially, the recurrence of high rates of inflation in late 1989 and 1990 led to the installation of a new economic team headed by the Minister of Economy and Public Works, Domingo Cavallo, in February 1991.
In March 1991, Minister Cavallo announced a new economic reform program, known as the "Convertibility Plan", designed to reduce inflation and achieve long-term economic growth. The Convertibility Law was passed by the Argentine Congress in March 1991. Under the Convertibility Law, the Central Bank of Argentina (the "Central Bank") is obliged to sell dollars in exchange for pesos at the rate of one dollar per peso; it buys dollars at a fixed rate, currently (December, 1994) 0.998 pesos per dollar. The Central Bank is also obligated to maintain gross international assets (consisting of the CB’s holdings of gold, foreign exchange (including short-term investments), U.S. dollar-denominated Argentine government bonds ("Bonex") and its net Asociación Latinoamericana de Integración claims, all valued at market) to support the monetary base (consisting of currency in circulation and peso deposits of financial entities with the Central Bank) at the rate of one dollar of assets per peso. Under this arrangement, no increase in the domestic monetary base can occur without an equivalent increase in gross international assets. Any changes in the foregoing provisions would require legislative action.
The Convertibility Plan also provided for a prohibition on indexation (ending all price and wage adjustment clauses in contracts), certain tax increases and improvements in tax administration, a reduction in public sector employment, limits on Central Bank funding of official provincial banks, a program to strengthen the social security system’s finances and the consolidation of the internal public debt owed to provincial governments, suppliers, retirees, pensioners and other litigants, all of which had been suspended from August 1989 to August 1991 under the State Reform Law. Under the Federal Debt Consolidation Law, passed by the Argentine Congress in August 1991, all such obligations were consolidated and the creditors provided with the option of converting such obligations into Bonos de Consolidación de Deudas Previsionales (10 years, including 6 years grace) or Bonos de Consolidación (16 years, including 6 years grace). Recipients are given the choice of a peso or a dollar denomination, and may apply the bonds to the payment of most debts owed to the federal public sector. The bonds may also be applied to the acquisition of assets sold by the Argentine government.
Deregulation of the domestic economy, liberalization of trade and reform of investment regulations are prominent features of Argentina’s structural adjustment program. On October 31, 1991, the Argentine government promulgated its principal deregulation legislation which, in general terms, deregulated the domestic market for goods, services and transportation, abolished restrictions on certain imports and exports, and abolished or simplified a number of regulatory agencies. In the financial sector, this legislation abolished all stamp taxes relating to public offerings and listed securities, all capital gains taxes on stocks and bonds held by non-resident investors and fixed commissions on the stock exchanges.
In addition, restrictions on foreign direct investment and capital repatriation were eliminated.
On September 8, 1993, the Argentine Congress adopted legislation abolishing the three-year waiting period for capital repatriation, allowing foreign investors to remit profits abroad at any time and to organize their companies and make use of domestic credit under the same conditions, and with the same rights, as local investors.
The process of deregulation and liberalization is being continued with the privatization process, the reform of the social security system, participation by Argentina in Mercosur (described below), and further labor reforms. The State Reform Law, adopted in 1989, declared 32 state-owned enterprises eligible for privatization (the number of eligible enterprises has since been increased). The privatization program has been accompanied by a series of regulatory reforms designed to permit public services that had been previously regulated as natural monopolies, such as telephone, electricity and natural gas, to be provided by private companies under a clarified regulatory framework.
The privatization program has also served as an important conduit for direct investment in Argentina, attracting interested investors from Europe, Asia, North America and Latin America. Through both direct sales and share offerings, Argentina’s privatization program has allowed the government to raise approximately US$ 9.7 billion in cash proceeds and reduce the principal amount of its debt by approximately US$ 13.4 billion as of December 31, 1993, through the exchange of equity in the enterprises privatized for outstanding government debt. In addition, principally as a result of the privatization program, there has been a reduction in public sector employment from 1989 to 1993 of over 240,000 employees (excluding the defense sector). Only an estimated 50,879 public enterprise employees remained at the end of 1993.
Argentina’s relationship with the rest of Latin America has emphasized cooperation in trade and investment issues, most notably with the creation of the Mercosur Common Market ("Mercosur"), composed of Argentina, Brazil, Paraguay and Uruguay. Mercosur calls for the gradual integration of the signatory countries’ economies and an accompanying harmonization of economic and fiscal policies. Tariff barriers had been abolished by January 1, 1995, and non-tariff restrictions on trade are gradually being eliminated.
In 1990 Mercosur trade was US$ 3.6 billion. In 1994 Mercosur trade reached almost US$ 12 billion. At present, 90% of trade among countries is free of tariffs. The remaining 10% tariffs will continue to fall until eliminated in the year 2000. The common external tariff levied on all imports from non-Mercosur countries covers 80% of the products and ranges from 0% to 20% with an average of 14%. Total conversion is planned by the year 2001.
On a global scale, Argentina is a charter member of the United Nations and a founding member of the Organization of American States. Among other things, Argentina has signed 31 bilateral agreements for the promotion of direct foreign investment, including Agreements with the United States, Canada, Chile and Germany. Trade between Argentina and the United Kingdom has been regularized following its disruption subsequent to the Malvinas-Falklands War.
III. THE FOREIGN INVESTMENT REGIME
A. International Treaties
Upon ratification by Congress, international treaties are constitutionally supreme to federal and provincial laws.
Argentina is a signatory to many international treaties including the Hague Conference on Private International Law, the New York Convention of 1958 on Arbitration and the United Nations Convention on International Sales of Goods.
B. Choice of Law and Jurisdiction
Choice of Law Provisions. The laws of Argentina permit parties to international agreements to select the laws that will govern the interpretation and enforcement thereof, and such provisions are typically honored by Argentine courts. However, a limitation on this contractual freedom will come into play when the application of a foreign law would contravene Argentine public policy (in these cases the Argentine court would substitute the applicable rule of Argentine law for the foreign rule) or if Argentine law contains mandatory provisions which would apply to the transactions contemplated by such agreements irrespective of the law chosen by the parties (e.g.: exchange controls, bankruptcy laws, etc.).
An analysis of the enforceability of choice of law provisions governing in rem rights, such as those created by the pledge agreements which may secure a party’s performance, takes on a slightly different form than the in personam rights discussed above. Argentina, Uruguay and Paraguay are signatories to the Treaty of Montevideo of 1940 on International Trade Law (the "Treaty"). The Treaty provides that the rights and duties of parties to a pledge agreement are governed by the law of the place where the pledged assets were located at the time the pledge was created, regardless of the location of the pledged assets at the time enforcement is sought. Interestingly, Argentine courts have extended the Treaty’s application to disputes between parties whose countries have not ratified its provisions. Accordingly, the only certain formula for ensuring that the parties’ choice of law provision is enforced by Argentine courts is to have the pledged assets located in the country whose law the parties desire to have applied at the time of the pledge’s creation.
Argentine Legal Process. The Argentine Constitution guarantees non-Argentine citizens the same rights as Argentine citizens, including access to Argentine courts for the resolution of legal disputes. Specifically, a foreigner may access Argentine courts provided the defendant is domiciled in Argentina, or the place for performance of any obligation is located in Argentina. Argentine law generally allows parties to contractually agree as to which court will hear the dispute.
Certain assets are unavailable to satisfy any judgment obtained or determined to be enforceable in Argentina. Such assets include public property of the Argentine government, international assets backing the Argentine monetary base, assets that are essential to the providing of public services, and certain assets of state-owned companies or companies that operate utilities. In order to avoid the judgment-proof defendant, foreign entities should evaluate the extent to which an Argentine counter-party has assets available to satisfy any potential judgment both prior to entering any transaction and periodically thereafter. In addition, the enforcement of judgments for payment of money against the government, its agencies and companies, may encounter substantial impediments.
A forum selection clause will be deemed valid if the following requirements are met:
1. the dispute submitted to the foreign court is 'international'; and
2. the dispute involves a "pecuniary matter".
In the absence of an applicable international treaty, enforcement of foreign judgments or arbitral awards will be governed by the Argentine procedural rules (see 4.1, below).
C. Argentine Foreign Investment Law
Presently, foreign investments are governed by Argentine Foreign Investments Law 21,382 enacted in 1976, as amended by Laws 22,208, 23,697 and 23,760, restated by Decree 1,853/93.
The latest changes to the basic rules governing foreign investments were introduced in late 1993 with the purpose of placing foreign investors on a totally equal footing with local investors.
Foreign investment is understood as the flow of resources coming from outside Argentina, in the form of direct investment or portfolio investments, to develop or finance an economic activity. Direct investment mechanisms include investments by multinational companies through the incorporation of a branch or local subsidiary, a partial or total acquisition of an existing company, the acquisition of assets, or the association with existing or newly formed companies. Indirect mechanisms include portfolio investments through the acquisition of private or public shares.
The existing foreign investment legislation classifies companies as local companies of foreign capital or as local companies of local capital depending on whether or not the foreign investor holds more than 49% of the capital or represents the necessary amount of voting rights to prevail at shareholders’ meetings.
1. Major Considerations
a. The law states, as a general principle, that foreign investors investing in economic activities in Argentina enjoy the same status and have the same rights that the Constitution grants to local investors. Both are entitled to select any legal organization permitted by the law, and they have free access to domestic and international financing. Presently no prior approval is required to make foreign investments except in specific activities (e.g., banking or broadcasting).
b. No limitations on profit remittances (including dividends paid to non-residents) and capital repatriations exist. Therefore, all investors enjoy the right to repatriate profits and capital at any time.
c. Dividends, profit remittances and capital repatriations are not subject to any kind of withholding tax.
d. With respect to related parties transactions such as transactions between a local company of foreign capital and a company which, directly or indirectly, controls it, said transactions are considered as taking place between independent parties when entered at arm’s length.
2. Monetary Policy and Foreign Exchange
In order to control inflation and stabilize the economy the government has taken unprecedented monetary reform measures in the last few years. Exchange controls were lifted in 1989 after more than four decades of strict controls. Foreign exchange may now be freely bought and sold, and transferred in and out of the country.
Additional regulations have been issued which provide that foreign currency deposits may be held in local financial entities (banks, etc.) and that such deposits can not be forcefully seized or converted to local currency by the government.
With the enactment of Decree 530/91, exporters are no longer required to repatriate and exchange into local currency the proceeds of exports.
A corner stone of the government’s economic program is the Convertibility Law 23,928 enacted on March 27, 1991, which:
a. Establishes the convertibility of the local currency for U.S. dollars at the rate of 1 peso = 1 U.S. dollar; the Central Bank is obliged to sell dollars at the above rate and must withdraw the Argentine currency received in exchange from circulation.
b. Establishes that at all times the gold and foreign currency reserves of the Central Bank shall be not less than the Argentine currency in circulation plus sight deposits of financial entities at the Central Bank.
c. Forbids indexation clauses in all agreements in local currency as from April 1, 1991; all conflicting contractual or legal provisions are declared null.
d. Amends the Civil Code by providing that foreign currency obligations are to be paid in the agreed-upon foreign currency.
D. Investment Protection and Promotion
During 1989, Argentina implemented the treaty signed in 1958 with the United States regarding the Overseas Private Investment Corporation ("OPIC"), which is an agency of the U.S. government that provides insurance to U.S. investments in developing countries. Later, in October 1990, Argentina became a member of the Multilateral Investment Guaranty Agency ("MIGA"), sponsored by the World Bank, which provides insurance coverage to foreign investments made by persons or companies established in member countries.
These agencies insure investments against political risks such as availability and right to transfer foreign currency, expropriations or similar measures, breach of contracts by the government of the host country, war and civil unrest, among other things. Both agencies require the prior approval of the lawfulness of the investment and insurance coverage by the government of the host country.
In addition, in the past two years, Argentina has signed treaties for the promotion and protection of foreign investments with the U.S., Germany, Switzerland, Italy, UK, Belgium, Japan, Canada, France, Chile, Spain, Sweden, Egypt, Turkey and Poland. Many of these treaties have been ratified by the Argentine Congress.
VI. INVESTMENT CORPORATE VEHICLES
In order to conduct business in Argentina on a permanent basis a foreign company should either (i) qualify a representative or a branch, or (ii) incorporate a local corporate entity (subsidiary).
The main types of investment vehicles that are adopted by non-resident individuals and foreign companies are the _Sociedad Anónima_(SA) and the Branch. Setting up procedures are comparable, while operation of a subsidiary is slightly more complicated than that of a branch. In the past, branches were more heavily taxed than subsidiaries; currently, both branches and SAs are subject to a 30% effective tax rate.
1. The Sociedad Anónima ("SA")
An SA is formed with at least two shareholders which can be either corporate entities or individuals. The capital is divided into shares the form of which may be bearer or registered, endorsable or non-endorsable. Minimum capital is Ps. 12,000 (about Ps. 1 = US$ 1). Twenty five percent (25%) of the capital must be paid in upon subscription and the balance within two years thereafter. Investments in real estate, equipment or other non-monetary assets must be contributed in full at the time of subscription. Since there are no nationality nor domicile requirements, all shareholders can be foreign residents or companies.
The SA is governed by a board of directors elected at a shareholders’ meeting and may be controlled by a statutory auditor (s¡ndico). The directors and even the president of the company may be foreigners; however, the majority of the members of the board of directors must be Argentine residents. They need not be shareholders. If the capital exceeds $ 2,100,000 or publicly offers its shares, the corporation is subject to permanent control by the Superintendency of Corporations or a similar agency in the province where it is registered. In such case three or more (always an odd number) statutory auditors must be appointed and more than one director is required. The statutory auditor’s responsibility is to protect the shareholders’ interests and to ensure that the corporation abides by the law in the day-to-day business. In the case of wholly-owned companies, members of an outside auditing firm are generally appointed as statutory auditors.
V. THE TAX REGIME
A. Income Tax
The Income Tax Law 20,628 ("ITL") creates a federal tax on income obtained by individuals and legal entities.
Since 1992, the ITL has adopted the worldwide taxation principle; therefore, all profits obtained within the Argentine territory or abroad by individuals or legal entities domiciled in Argentina are subject to taxation. In the case of income deriving from foreign sources, similar taxes paid abroad may be off set against the amount due in Argentina up to increase in tax liability brought about by those profits obtained abroad.
Non-resident beneficiaries are only levied on income deriving from Argentine sources. The ITL sets forth the general criteria for the determination of the source of income. In this respect, the ITL levies income deriving from: (i) capital assets or rights located, placed or exploited in the Argentine territory and (ii) the performance of any non-commercial or commercial activity or personal work rendered in Argentina.
1. Income Tax on Residents
The tax rate applicable to the taxable income of corporations domiciled in Argentina is thirty percent (30%). Dividends are tax exempt and not subject to any kind of withholding.
The income tax rate for Argentine branches and other permanent establishments of foreign companies in Argentina is thirty percent (30%). Remittance of profits abroad by such branches or establishments are tax exempt.
a. Profits
In principle, taxable income includes profits obtained in Argentina or abroad, whether derived from the performance of ordinary business or from occasional activities.
b. Allocation of Profits
Taxable income is calculated on the basis of net profits obtained during the fiscal year.
The general principle for revenue obtained by businesses is that it is allocated to the fiscal year in which it accrues. However, this principle is set aside in cases such as interest from public securities and bonds where allocation must be made on the fiscal year in which they are made available.
c. Taxable Income Determination
In principle, all ordinary and necessary expenses incurred in obtaining taxable income are tax deductible. (such as interest, salaries, taxes, etc.).
Expenses follow the same allocation method used for profits; that is, they are allocated to the fiscal year in which they are accrued.
d. Loss Carryforward
Losses incurred during a fiscal year may be carried forward and deducted from taxable income obtained within the five subsequent taxable years. Once this five-year period expires, no further deduction of the loss can be made.
Losses arising from the sale or other form of disposition of stocks, shares, corporate quotas, including quota parts of common investment funds, may only be off set with revenues deriving from the disposition of such assets.
Losses arising from activities considered to be of foreign source may only be compensated for with profits of the same kind.
e. Filing and Payments requirements
Tax payers must file, before the fifth month following the closing of their business year, an annual tax return.
Corporations and branches of foreign companies are required to make eleven monthly pre-payments, commencing the sixth month of any given fiscal year.
Pre-payments are calculated on the basis of the tax paid the preceding fiscal year.
2. Income on Non-Residents
In principle, any income deemed to be of Argentine source obtained by non-resident individuals and foreign companies without a permanent establishment in the country is subject to withholding tax.
Effective withholding rates on the gross amount paid are indicated below. In all cases mentioned, should the local payer assume the obligation to bear the tax, the percentage rate must be calculated on a grossing up basis (showed in brackets):
a. Amounts paid pursuant to technical assistance agreements, engineering or consulting services that the authorities consider to be unavailable in Argentina, provided such contracts are registered in compliance with the transfer of technology law: 18% (21.9512%);
b. Contracts registered in compliance with the transfer technology law and not included among those mentioned above: 24% (31.5789%);
c. Contracts subject to the transfer of technology law and not registered: 27% (38.9863%);
d. Copyright royalties paid pursuant to agreements which comply with the requirements of the Copyright Law: 10.5% (11.7318%);
e. Interest on loans obtained abroad: 12% (13.6364%);
f. Payments to non-residents working on a temporary basis in Argentina for a period to exceeding six months: 21% (26.5823%);
g. Rentals paid for leases of personal property: 12% (13.6364%);
h. Rentals paid for real estate leases: 18% (21.9512%);
i. Proceeds on the sale of personal or real property: 15% (17.6471%); and
j. The general effective withholding rate for earnings not specifically mentioned above (whether individuals or companies): 27% (38.9863%).
In cases 8 and 9, the tax payer is not bound to use the mentioned rate on gross income and may, otherwise, apply a 30% on net profit (i.e., the foreign beneficiary will be able to deduct from the amount received the actual expenses incurred in obtaining that taxable income), provided it obtains the consent of the tax authorities.
Non-resident individuals and companies are entitled to all of the tax exemptions stated in the ITL, subject to the filing of a certificate before the fiscal authority evidencing that the exemption will not cause a transfer of income to foreign treasuries. Such certificate should be issued by the competent foreign tax authorities or a certified public accountant.
Among the most relevant tax exemptions stated in the ITL is that related to interest accruing from accounts and deposits made in Argentine financial entities (not applicable to Argentine corporations nor branches or other permanent establishments belonging to foreign companies) provided the certificate mentioned above is filed by the foreign beneficiary of such interest.
Decree 2,284/91 grants a tax exemption on profits obtained by foreign investors deriving from the purchase, sale, exchange, swap, or any other king of disposal of shares, bonds, and any other kind of security. In this case, the filing required by the ITL is not needed.
B. Tax On Assets
The assets of corporations, branches of foreign companies, joint partnerships and sole proprietors are levied by Law 23,760 (_ATL_). This tax is levied as those assets located in Argentina and abroad. However, companies with branches or permanent establishments in Argentina are taxed solely on their assets located in Argentina. Concerning those assets located abroad, the amount of similar taxes paid abroad may be offset against the amount due in Argentina, up to the increase in tax liability brought about by those assets located abroad.
The general rate of 1% is applied on an annual basis to all of the assets belonging to the tax payer at the end of each fiscal year. Valuation of assets, for the purpose of this tax, is specifically provided for by the ATL. Liabilities are not deductible from the tax base.
In certain cases -such as those pertaining to insurance companies and financial entities, the taxable basis is fixed at 40% of the value of the assets.
The ATL has very few tax exemptions. Among the most relevant is the exclusion from the taxable base of (i) shares or stocks of companies that are subject to the assets tax and (ii) quotas of mutual funds.
Decree 1,684/93 has abrogated the tax on assets effective for the fiscal years closing after June 30, 1995.
C. Value Added Tax
Sales and rentals of movable assets within Argentina, leasing and rendering of services in Argentine territory, and imports of goods are subject to the Value Added Tax ("VAT").
The standard rate of this tax is eighteen percent (18%) - temporarily increased until March 31, 1997 to twenty one percent (21%) by law 24,468 -and must be added to the net price of the service rendered or the goods sold. The standard rate added to the net price generates the so called "fiscal debit".
The tax charged to the tax payer by another registered tax payer that supplies inputs connected with taxable revenue is computed as "fiscal credit".
Tax payments are calculated on a monthly basis by deducting from the "fiscal debits" the amounts corresponding to "fiscal credits". A tax return must be filed and the balance resulting must be paid. If this offsetting results in an excess of "fiscal credits", the balance may be carried forward to the subsequent months.
Exports are VAT exempted. In addition, exporters may recognize a tax credit for the VAT charged to them if effectively connected with any stage of the exporting for the goods exported.
D. Turnover Tax (Tax on Gross Revenue)
The turnover tax is a local tax levied on gross income. Each province and the Federal District has its own legislation on this matter and, thus, different rates apply. In any case, most provinces apply a 1% rate on agricultural and cattle breeding activities, 1.5% on industrial activities, 3% on trade or services in general, and 4.9% on financial activities. Double taxation is avoided through a Multilateral Agreement among the provinces (including the federal capital).
The tax is levied on the gross amount of revenue originating from business activities carried out within the respective provincial jurisdictions.
Pursuant to the "Federal Agreement for Employment, Production and Growth", this tax is gradually being eliminated in most jurisdiction with respect to agriculture, industry, mining and construction sectors. Its complete replacement by a retail sales tax is expected by March, 1996.
E. Tax treaties
Argentina has signed tax treaties with several countries, generally dealing with the issue of double taxation. In some cases the treaty imposes a ceiling on dividend or royalty withholding taxes. This ceiling is usually set at a rate of 18% provided the agreements are registered under the transfer of technology law.
Countries with which these treaties exist are Canada, Brazil, Bolivia, Chile, Sweden, Germany, France, Italy, Austria and Spain. The treaties signed with Latin American countries do not provide for special withholding taxes. At present, there is no tax treaty between Argentina and the United States, except as it relates to international transportation.
VI. THE INTERNATIONAL TRADE REGIME
A. Import Requirements
Most goods and services available in the market may be imported into Argentina. As an exemption, foreign manufactured cars are subject to quota restrictions in order to protect the Argentine car industry. Used cars may not be imported except for collection purposes. Imports must be done through a registered importer. The registration for becoming such an importer is simple and straightforward.
Tariffs levied on imports from non-Mercosur countries range from 0% to 20% with an average of 14%. The taxable base is calculated on the CIF price of the imported good. In addition to the duty tax, the following levies are payable on importation:
(i) 3% "statistics" tax,
(ii) 21% Value Added Tax [plus an additional 9% if the importer is not an end-consumer],
(iii) Income tax pre-payment of 3%. Payments of Value Added Tax may be off-set with VAT debits originated in the importer’s sales. The income tax pre-payment is deducted form income tax reports at the end of the fiscal year.
B. Anti-dumping legislation
Argentina has adopted the Geneva agreement concerning the interpretation of Article VI of the General Agreement on Tariffs and Trade. In addition, Argentine law prohibits dumping and other unfair competition practices. Dumping complaints must be filed with the International Trade Commission. Said agency may apply compensatory tariffs on imports considered to be unfairly competing with local products.
VII. LABOR LAWS
Most of the legal framework of labor contracts is contained in Law 20,744, enacted in 1974 and restated by Decree 390/76. In addition, each branch of industrial activity is governed as to wage scales and specific conditions by collective agreements negotiated from time to time between management and union representatives.
A. Salaries
Salaries may be fixed on a monthly, daily or hourly basis, depending on the type of work rendered by the employee. Employees are entitled to an annual bonus paid in two installments, in June and December, each one equivalent to 50% of the highest monthly wage received during each semester. The normal working day is 8 hours, and the normal working week is from 40 to 48 hours. Overtime earns a 50% premium on working days and a 100% premium on Saturday afternoons, Sundays and holidays.
B. Contributions and Withholdings
Family allowances are paid to employees and financed through a rather complicated scheme. The actual financial load is 9% of the total salaries paid by an employer.
Pension fund contributions are borne both by the employee (14% of the salary) and the employer (18% of the total salaries paid).
Decree 2,609/93 establishes a deduction ranging from 30% to 80% of the contributions that employers are obligated to pay in activities such as primary production, industry, construction, tourism, scientific and technologic research. Said deductions are limited to certain jurisdictions.
There is a 3% employee contribution deducted from salaries for the funding of social welfare services. The employer contributes 5% for the same purpose.
As mentioned above, contributions to the family allowances fund, pension funds and social welfare organizations are calculated as a percentage of the employee’s salary. However, the salary on which contributions and withholdings are calculated cannot exceed a ceiling established by the government, which is currently $ 3,780. When salaries exceed such amount, contributions and withholdings are calculated on said ceiling.
Finally, most collective agreements provide for the compulsory withholding of union dues which are normally between 1% and 2% of the employees’ salaries.
C. Vacations and other leaves of absence
Employees are entitled to annual paid holidays which vary from 14 to 35 calendar days depending on seniority. In addition, they are entitled to short leaves of absence in the event of marriage, birth, death of a close relative and high school or university examinations.
Female employees have certain additional rights, the most notable being those in connection with maternity (special leaves of absence of 45 days before and 45 days after childbirth, allowances during maternity leaves and other fringe benefits).
In the event of inability to work due to accident or illness, employees are entitled to their full salaries for a period which may vary from 3 to 12 months, depending on seniority and existence of family. If the impediment continues beyond the foregoing periods, there is an additional period of up to one year during which the employer must preserve the employee’s position. This benefit extends also to employees drafted for military service, or elected as union officers or to government posts.
D. Dismissal Considerations
Employees may be dismissed at the employer’s will by giving them from one (if seniority is less than five years) to two (is seniority is greater than five years) months’ notice, and paying severance indemnity at the rate of one month’s salary per year of employment with the firm, or fraction if more than three months. In computing these annual payments, the maximum per annum cannot exceed three times the monthly amount arising from the average of the remuneration set forth in the collective bargaining agreement applicable to the employee at the time of the dismissal. However, in no case can this payment be less than two full monthly salaries.
Neither the indemnity nor the advance notice are due if the dismissal is based on the employee’s gross misconduct (which must be proved by the employer in case of litigation).
In case of force majeure or involuntary reduction of the employer’s operations, the employer may gradually dismiss personnel, beginning with those most recently hired and paying them 50% of the indemnity.
E. Certain Other Employer’s Liabilities
Labor accidents resulting in a worker’s death or disability give rise to an indemnity in favor of the worker or his/her heirs, as the case may be. Employers normally purchase insurance to cover this risk.
The change of employer and/or employment conditions which negatively affects employees will, in principle, give right to the employees to consider themselves dismissed and claim the severance indemnification explained above. As to the obligations arising from the labor relationship, the law imposes a joint liability on the assignor and assignee.
F. Special Employment Contracts
In order to reduce the employer’s labor costs, increase productivity and benefit minorities and the youth, several special employment regimes have been enacted. Certain of these types of contracts are:
1. Promoted Employment Regime.
Requirements: Employees who have been discharged of companies or offices of the federal, state or municipal government, as a consequence of payroll reduction policies and employees who are registered as unemployed with the Employment Registry. Permanent positions must be vacant for at least six months before they may be filled with employees under this promotional regime.
Duration: At least 6 months and in no case more than 18 months. Each renewal term within the 18 month limit shall not be less than 6 months. Employers must serve notice of termination one month in advance.
Advantages: 50% reduction of the employers’ contributions to the pension fund system and family allowances contributions. Severance payment limited to half a monthly salary.
2. New Activity Employment Regime.
Requirements: The project must consist of the creation of a new establishment or production line.
Duration: Its feasibility is limited to the first four years of the new activity. The employment term must be of at least 6 months and in no case more than 24 months.
Employers must serve notice of termination one month in advance. During the first year after the initiation of the hiring under this regime, no reductions in the payroll may occur in the previously existing establishments or lines of production, except in particular instances in relation to employee misconduct. Noncompliance shall trigger the cessation of all benefits granted to the employer under this regime.
Advantages: 50% reduction of the employers’ contributions to the pension fund system and family allowances contributions. Severance payment is limited to half a monthly salary.
3. Qualified Employment Training Regime
Requirements: Employees must be under 24 years of age and must provide the employer with satisfactory evidence of prior professional, technical or job training which relates to, and entitles them to take, the position.
Duration: One year. Employers must serve notice of termination one month in advance
Employers’ Advantages: 100% reduction of the employers’ contributions to the pension fund system and family allowances contributions. No severance payment is due upon termination.
4. Unqualified Employment Training Regime
Requirements: Employees must be under 24 years of age. No prior education is required. Between half and a quarter of the total working time must be dedicated to education.
Duration: At least 4 months and no more than 2 years. Employers must serve notice of termination one month in advance.
Employers’ Advantages: Time dedicated to education shall be paid by the Ministry of Labor. 100% reduction of the employers_ contributions to the pension fund system and family allowances contributions. No severance payment is due upon termination.
5. Promoted Employment for minorities and disabled
Requirements: Employees must be either: (i) females; (ii) over 40 years old; (iii) disabled; or, (iv) war veterans.
Duration: At least 6 months and no more than 2 years. Employers must serve notice of termination one month in advance.
Advantages: 50 % reduction of the employers’ contributions to the pension fund system and family allowances contributions. No severance payment is due upon termination.
VIII.THE PROTECTION OF INTELLECTUAL PROPERTY
The Argentine Constitution states in Article 17 that every author or inventor is exclusive owner of his work, invention or discovery for the period established by law.
A. Trademarks and Trade Names
Trademark Law 22,362 of December 26, 1980 and its regulation, Decree 558 of March 24, 1981, govern matters related to trademarks and tradenames. The law provides that the ownership of a trademark and the right to its exclusive use are obtained only by registration with the Registry of Trademarks. Accordingly, registration, and not use, confers proprietary rights. The duration is 10 years, renewable indefinitely for periods of ten years if said trademark has been used within a period of five years prior to each renewal to market products, rendering of services, or as a tradename.
Failure to use the trademark for an uninterrupted period of five years makes it subject to cancellation. A similar use requirement for the 5 years preceding renewal of a trademark is also established. This does not apply if the trademark has been used to market a product in a different class or if the trademark is used as a tradename. Registration is based on the international classification and includes service marks.
The overriding principle of the law is good faith in dealing with and using trademarks. Notorious trademarks have been afforded special protection by Argentine courts.
In the cases of distributorship and similar contracts, the manufacturer should register its trademarks in Argentina and grant a license for their use to the distributor for the term of the contract so that the use inures to the latter_s benefit.
B. Patents
Until very recently, patents were governed by Law 111 of October 11, 1864, as amended. New industrial products, new methods and the new applications of known methods are patentable. Medicines, financial plans, and discoveries or inventions which have been published within or outside the country sufficiently to enable them to be carried out before a patent is applied for, or which are purely theoretical without any indication of their industrial application or which are contrary to public policy or the law, are not patentable.
Law 111 provided that patents may be granted for 5, 10 or 15 years depending on the merit of the invention and/or the applicant_s request, but in practice they are granted in general for 15 years. Patents of addition are granted for improvements for a maximum of 10 years or the remaining life term of the parent case. Revalidation patents (import patents) can be obtained on foreign patents and are also granted for 10 years or the remaining life of the original patent. Patents lapse if the invention is not exploited within two years of the granting of the patent or if such exploitation is suspended for the same period of time. Compulsory licenses of patents are not contemplated by Argentine law.
Law 6,673 dated August 9, 1963 and Regulatory Decree 5,682/65 give the exclusive right to own and use new designs or industrial models. They specifically protect the ornamental character of the creation and do not encompass functional aspects. For foreign models the law grants protection if given equal treatment in the country of origin. The duration is 5 years renewable for two additional five year periods.
Argentina has been a party to the Paris Convention and to its amendments since 1966, including the 1958 Lisbon Agreement and the 1967 Stockholm Agreement.
A new Patent law 24,572 was enacted in September, 1995. The most relevant provisions of the new law are:
1. A patent application is to be published within 18 months of its filing. At request of applicant, publication may take place before this term lapses.
2. Patents are granted for a 20 years period as from the filing date of the application.
3. Pharmaceutical products’ inventions shall be patentable.
4. Compulsory licenses may be requested under similar conditions as those provided by the Paris Convention.
5. Utility models are now regulated by law.
6. A new agency is created under the name of National Institute of Industrial Property. The Agency is vested with all regulatory powers affecting industrial property rights.
The Regulatory Decree includes the following important aspects which complement Law 24.572.
1. The Law is to be interpreted within the principles of GATT/TRIPS, since in view of Articles 31 and 75.22 of the National Constitution, as well as art. 27 of the Vienna Convention, international treaties prevail over national laws in case of conflict of the respective provisions.
2. Article 2 of our previous Patent Law 111 is included in the new Law, and therefore patents of revalidation are provided for.
3. Biotechnology inventions are subjected to the provisions of GATT/TRIPS (Art. 27.3.b).
4. Patent applications will be published within eighteen months from the filing date.
5. Examination must be requested by applicant within three years from the filing date.
6. Importation without authorization of the patentee is not licit.
7. Importation, to an extent sufficient to satisfy the needs of the local market, will be considered to constitute working.
8. Compulsory licenses are to be decided by the Economy Ministry.
9. Patent applications pending on January 1, 1995 can be amended in accordance with Article 70.7 of GATT/TRIPS.
10. Exclusive commercialization rights are provided in accordance with Article 70.8 of GATT/TRIPS, although they are to be granted only after a transition period of five years.
11. Patent applications claiming pharmaceutical products can be filed in accordance with Article 70.8 of GATT/TRIPS, although they are to be granted only after a transition period of five years.
12. The different laws that have been recently sanctioned, Numbers 24.481 and 24.572, as some provisions of law 111, have been reunited in a single text by the Executive Power.
With respect to agricultural products, as of September, 1994, Argentina is a party to the International Convention for the Protection of New Varieties of Plants ("UPOV"), as revised
in Geneva on November 10, 1972 and on October 23, 1978. The UPOV provides for a registration proceeding in the member countries granting an exclusive right in the commercialization of the registered product. With respect to patents on agricultural products, the general regime for patents explained above is applicable hereto, with the exception of vegetable varieties, animals and purely biological processes which are not considered patentable by the Patent Office although no prohibition is provided by law.
C. Copyright
Rules governing copyrights are established by Law 11,723 of September 28, 1933 as amended (the "Copyright Law").
Copyright protection may be obtained for scientific, literary and artistic works, including literary, drama and musical compositions, films, paintings, sculptures, maps, etc. The rights granted by the law pertain to the author for life and to his/her heirs and assignees for 50 years after his/her death. For photographic works, the copyright period runs for 20 years from first publication and for films, 30 years. The copyright of anonymous works by institutes, corporations, or other legal entities lasts for 50 years as from their first publication.
The Copyright Law grants protection to unpublished works. This kind of protection is granted for 3 years and can be renewed indefinitely while the work has not been published.
Copyrights can be transferred by written assignment. All assignments including licenses must be recorded at the "Registro Nacional del Derecho de Autor" (the National Copyright Register or "NCR"). Assignments do not require a quid pro quo.
Article 13 of the Copyright Law provides protection for foreign works as long as requirements for protection have been complied with in the country of origin. In order to be granted protection in Argentina, evidence that the author of the work is a citizen of a country which protects intellectual works and that such author has fulfilled all necessary requirements to be granted protection in the country in which the publication took place must be submitted. Protection is granted as from the date of the first publication. Alternatively, if the country of the author does not grant protection, the Bern Convention could apply.
The registration of foreign works in Argentina is not mandatory in order to enjoy copyright protection. Notwithstanding, local registration is advisable in order to open a file with the NCR in which transfers related to such rights may be recorded and in order to enjoy tax benefits. Also, should it be necessary to pursue infringements it is procedurally easier and less expensive to do so on the basis of a registered copyright than to prove compliance with conditions imposed by foreign law.
Argentina has signed the following copyright conventions:
1. Bern Convention for the protection of literary and artistic work of 1886 (1948 text).
2. Washington Interamerican Convention of 1948.
3. Geneva Universal Copyright Convention of 1952.
Through law 24,481 of 1995, Argentina ratified the Conclusions of the Uruguayan Round of GATT, including the TRIPS Chapter.
D. Licensing and other Technology Transfer Agreements
Transfer of technology agreements are governed by Law 22,426 (the "Transfer Technology Law") of March 12, 1981 as amended. The license or transfer of trademarks, patents, industrial designs, and know-how from a non-resident to a resident for consideration are subject to said law.
Pursuant to recently enacted Decree 1853/93, transfer of technology agreements are no longer subject to prior government approval. However, agreements between independent companies as well as between related companies (such as parent-subsidiary) must be registered with the Instituto Nacional de Tecnolog¡a Industrial (Transfer Technology Registry) for information purposes.
If the agreement is not submitted to be recorded, the agreement is not invalid, but payments made to the licensor under the agreement are not deductible by the licensee as operating expenses (therefore receiving the tax treatment of profits) and royalties paid to the licensor are subject to 27% withholding tax instead of 24% or 18% (see 3.1.1.2, above).
Copyright 1997 Inter-Am Database
