Argentina has announced a new economic reform law that includes significant tax incentives aimed at attracting foreign investments across various industries. Issued by decree on August 22, the law features a large investments incentive system known as RIGI (Regime of Incentives for Large Investments). A notable aspect of this measure is the stability provision that offers a 30-year period of tax, customs, legal, and regulatory incentives. While it remains uncertain if RIGI will lead to substantial investments in the Argentine economy and labor market, the system provides considerable benefits to qualifying local and foreign investors. These advantages are particularly appealing to projects from countries lacking a double taxation treaty with Argentina.
To fully capitalize on large investments, Argentina requires stable regulations, reasonable tax policies, a streamlined export-import system, access to foreign exchange markets for repatriating dividends, a stable currency with low inflation, and reduced country risk to minimize financing costs. The RIGI aims to tackle many of these issues. Key tax incentives under RIGI include a reduced income tax rate of 25% and a lowered withholding tax on dividends ranging from 7% to 3.5%. The law also allows for accelerated asset depreciation, unlimited carryforward of tax losses, accounting in US dollars, and exemption of imported capital assets from customs duties.
Additionally, RIGI provides stability to the foreign exchange regime, gradually exempting approved projects from foreign exchange restrictions for a period of 30 years. This aims to facilitate access to foreign exchange for the repatriation of dividends and financing of projects secured by exports. Argentina possesses substantial nonconventional gas reserves and untapped mining resources, presenting numerous investment opportunities in the oil, gas, and mining sectors, as well as the infrastructure needed for these industries. However, it is important to note that the measure excludes agribusiness activities, which are vital for generating export opportunities in the country.
The United States has historically been the largest source of foreign direct investment in Argentina, accounting for 19% of total investments, with a significant portion in the oil, gas, mining, manufacturing, and technology sectors. The RIGI could positively influence US companies’ direct investments in Argentina, affecting both new and existing projects that align with the new incentives. For instance, a US company engaged in a RIGI project aimed at producing exportable goods would benefit from the reduced income tax rate and the lower withholding rate on dividends after year seven.
Furthermore, payments made by RIGI projects to foreign entities for services such as engineering, procurement, and construction would be exempt from income tax withholdings. Payments for services, royalties, interests, and technical advice would be subject to a capped withholding of 10.5%, which is more favorable than the terms outlined in existing double taxation treaties. With the elimination of customs duties on imports and exports, a well-structured RIGI project could yield significant revenues at a reduced tax cost. US investors would also benefit from lifted foreign exchange restrictions for repatriating capital and freely accessing the market for dividends, imports, and holding proceeds from exports abroad.
Currently, investments estimated at approximately $47 billion have been announced for oil, gas, mining, and infrastructure projects related to RIGI. These projects are undergoing evaluation and are expected to receive approval under the new regime shortly. Experts suggest that these sectors could greatly enhance Argentina’s export potential, particularly in the oil and gas sector, which could achieve annual net exports of up to $30 billion by 2030. Through the implementation of RIGI, the Argentine government aims to rebuild confidence among foreign investors and provide stability for new projects amid changing political and economic landscapes. However, it will take time to determine if the recent investment announcements will materialize.
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