Incentive Regime for Large Investments

Law 27,742 (known as the ‘Law of Bases and Starting Points for the Freedom of Argentines’ and published in the Official Gazette on July 8, 2024) created the Incentive Regime for Large Investments (‘RIGI’, which in Spanish stands for Régimen de Incentivo para Grandes Inversiones) with the purpose of promoting investment in long-term productive projects, which foresees significant tax incentives and a tax, customs, exchange and regulatory stability regime for a term of 30 years as from the date of adhesion to RIGI.

RIGI is intended for ‘Large Investments’ in projects in the forestry, tourism, infrastructure, mining, technology, iron and steel, energy, oil and gas sectors, and Single Project Vehicles (‘VPU’, which in Spanish stands for Vehículos de Proyecto Único) owning one or more stages of a project of the afore-mentioned nature may apply to RIGI. Besides VPUs, suppliers of goods and services that meet certain requirements may register in RIGI exclusively to be able to import goods exempted from import duties for the provision of goods and services to VPUs adhered to RIGI. Term to adhere to RIGI is two years (counted as from July 9, 2024) and may be extended for one more year by decision of the Federal Executive Branch.

‘Large Investments’ are considered to be those projects in the above-mentioned sectors that meet the following characteristics:

(i)     Long-term nature: this requirement is considered to be met as long as investments have a ratio of no more than 30% between, on one hand, the present value of the expected net cash flow (excluding investments) during the first 3 years as from the first capital disbursement and, on the other hand, the net present value of the capital investments planned during the same period (such ratio may be modified by the Federal Executive Branch);

(ii)    Minimum investment in computable assets equal to or greater than USD 200,000,000: such minimum investment must be entirely made within a reasonable term to be proposed by the VPU when applying for RIGI (minimum investment amount may be increased up to USD 900,000,000 by the Federal Executive Branch, considering the sector, subsector or productive stage involved);

(iii)    Partial performance of minimum investment in the first 2 years as from the date of adhesion to RIGI: it must be no less than 40% of the minimum investment amount, which may be reduced up to 20% by the Federal Executive Branch.

To the extent that the VPU is admitted to RIGI, it may compute -for the purpose of complying with the minimum investment amount- the investments made since the effective date of RIGI (July 9, 2024) even if they are prior to the admission of the VPU to RIGI.

When applying for RIGI, the VPU must submit, among other requirements, an investment plan specifying the total investment amount, execution schedule, sources of financing, direct and indirect employment, local supplier development plan (VPU commits to hire local suppliers for 20% of the total investment amount, provided that the offer is available and under market conditions in terms of price and quality), estimation of production and exports, and technical, economic and financial feasibility.

The main incentives provided by RIGI consist of:

(i)     Reduced corporate income tax rate (25%);

(ii)    Accelerated amortization of capital investments;

(iii)    Transfer of accumulated tax losses with no time limit and possibility of transferring tax losses to third parties after 5 years have elapsed;

(iv)   Restatement of tax loss carryforwards based on the variation of the internal wholesale price index (IPIM);

(v)    Reduction to 3.5% of withholding tax applicable to dividends and profits derived from the VPU during the first seven years (counted from the date of adhesion to RIGI);

(vi)    VAT tax credit certificate system to cancel VAT obligations;

(vii)   Use of 100% of the tax on bank debits and credits as income tax credit;

(viii)  Inapplicability of the limitations to the deduction of interest and exchange differences related to the financing of the project during the first 5 years (counted from the date of adhesion to RIGI);

(ix)   Exemption from import duties and customs taxes on definitive or temporary imports of new capital goods, spare parts, parts, components and inputs;

(x)    Exemption from export duties for definitive exports made after the third year of registration in RIGI;

(xi)   Exception from the obligation of foreign currency transfer and conversion through the foreign exchange market with respect to the collection of exports of goods (20% in the first 2 years as from the start-up of the VPU, 40% after 3 years and 100% as from the fourth year);

(xii)  Exception from the obligation of foreign currency transfer and conversion through the foreign exchange market with respect to capital contributions, loans and services;

(xiii)  Free availability of foreign currency not subject to the obligation of transfer and conversion through the foreign exchange market;

(xiv) Inapplicability of limitations to holdings of liquid or non-liquid foreign assets;

(xv)  Inapplicability of restrictions or prior authorizations to access the foreign exchange market for the payment of principal of loans and other financial indebtedness with foreign countries and the repatriation of direct investments of non-resident subjects, under certain conditions; and

(xvi) Inapplicability of restrictions or prior authorizations to access the foreign exchange market to pay profits and dividends, or interest.

There are certain additional requirements and incentives for VPUs that are holders of projects that qualify as long-term strategic export projects.

Finally, RIGI also guarantees VPUs regulatory stability in tax, customs and foreign exchange matters for 30 years, which means that the incentives granted cannot be affected by the repeal of the law or by the creation of tax, customs or foreign exchange regulations that are more burdensome or restrictive than those contemplated in RIGI.

Tax stability means that new taxes created as from the date of adhesion of the VPU to RIGI, as well as the increase of existing taxes, will not be applied to the VPU; however, the VPU may benefit from the elimination of taxes or reduction of tax rates that may be established in the future and that may be more favorable. Tax stability does not comprise VAT and social security contributions. Based on the tax stability, if the VPU pays an amount that does not correspond, VPU will be entitled to use it as a tax credit for the cancellation of any national taxes. In turn, if a VPU invokes the violation of tax stability as 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 as of the date of accession, the tax authority must justify and prove that such increase has not occurred as a precondition to apply such tax or the higher rate to the VPU.

It is important to mention that the law provides that disputes arising in connection with compliance with the incentives, stability and applicable regime may be submitted to international arbitration.

Legal Department
July 2024