Argentina’s New Tax Incentives to Shore Up Foreign Investments

Argentina’s economic reform law has significant tax implications for various industries. The law, issued by decree on Aug. 22, includes a large investments incentive system known as RIGI. A key feature of the measure is a stability provision for a 30-year period, encompassing tax, customs, legal, and regulatory incentives.

It’s too early to determine whether the RIGI will result in material investments in the Argentine economy, labor market, and development of large projects. However, it offers qualifying local and foreign investors extraordinary benefits, including multiple incentives that can benefit projects by companies from countries that don’t have a double taxation treaty with Argentina, such as the US.

To unlock Argentina’s full potential for large investments, the country requires stable regulations; reasonable tax policies, a simplified system for exports and imports; access to the foreign exchange market for repatriating dividends and paying debts; a stable currency with low inflation; and reduced country risk to lower financing costs. The RIGI aims to address many of these challenges.

The RIGI’s tax incentives include a reduced income tax rate of 25% and reduced rate of 7% to 3.5% for withholding taxes on dividends. It also accelerates depreciation of assets, allows tax losses to be carried forward with no time limit, allows accounting in US dollars, and exempts imported capital assets from custom duties.

Notably, the RIGI provides stability to the foreign exchange regime: All approved projects will be gradually exempted from foreign exchange restrictions, which can’t be reinstated for 30 years. This simplifies access to foreign exchange for repatriation of dividends and financing of projects secured with exports in offshore collateral structures.

Argentina has one of the largest nonconventional gas reserves in the world and significant mining resources that haven’t been maximized. The RIGI presents many investment opportunities for oil, gas, and mining; infrastructure necessary to produce them, including roads, pipelines, ports, and power generation; and services related to those industries. Unfortunately, the measure excludes agribusiness activities, an area that generates significant export opportunities in Argentina.

The US has long been the country with the most foreign direct investment in Argentina. It accounts for 19% of all such investment in the country, including 38% in oil and gas and mining industries, 20% in manufacturing activities, and 10% in technology and telecom services.

The RIGI could positively impact many US companies’ direct investments in Argentina. This impact extends to both new projects and existing ones that can be aligned with the RIGI, and to companies that may provide services to RIGI projects.

For example, a US company with a RIGI project destined to produce exportable goods will benefit from a reduced income tax rate (25%) and a reduced withholding rate on dividends after year 7 (3.5%). All payments made by the RIGI project to any foreign entity in concept of engineering, procurement, and construction will be exempted from income tax withholdings.

Also, payments made to foreign entities for any kind of services, royalties, interests, and technical advice will be subject to a withholding capped at 10.5%, which is a tax benefit more beneficial to the one contemplated in the double taxation treaties executed by Argentina.

Adding the exemption of customs duties for imports and exports, an efficiently structured RIGI project can assure large revenues at a low tax cost. US investors also can benefit from the lifting of foreign exchange restrictions for the repatriation of capital, free access to the market to pay dividends, imports, and for the possibility of holding abroad the proceeds from the export of goods and services.

So far, investments estimated to be worth about $47 billion have been announced for oil, gas, mining, and infrastructure developments related to those projects. The projects are under evaluation and are likely to be approved under the RIGI soon.

These sectors have the capacity to substantially enlarge the exporting potential of Argentina. In the oil and gas sector alone, it could reach up to $30 billion on annual net exports by 2030, according to some local experts.

By implementing the RIGI, the government is seeking to regain confidence from foreign investors and shield new projects from changing political and economic decisions. It will take time to see whether the new investment announcements becomes reality.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Augusto Nicolás Mancinelli is head of DLA Piper’s tax and customs department.

Marcelo Etchebarne is managing partner of DLA Piper Argentina.

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