Factors to be considered in order to set up a foreign company in Argentina

Foreign companies can operate in Argentina by registering with the Public Registry of Commerce (Registro Público de Comercio), as a branch or a subsidiary.

Subsidiaries are created by setting up a business company. The commonest types are the Corporation (known as Sociedad Anónima or S.A.) and the Limited Liability Company (known as Sociedad de Responsabilidad Limitada or SRL).

Both, branches and subsidiaries, are subject to the same tax regime.

The following are the main characteristics and dissimilarities between the different possibilities:

DOING BUSINESS IN BUENOS AIRES, ARGENTINA: A. BRANCH

In Argentina, the Argentine Companies' Law (LSC, Ley de Sociedades Comerciales), considers that a branch (the "Branch") is a decentralization of the company's headquarters (the "Headquarters" or the "Company"). The Branch is governed by the laws of the country of origin of the Headquarters, and thus, it is authorized to perform all the acts that are permitted to the Headquarters. As a result of the relationship established between the Headquarters and the Branch, the former is indirectly responsible for the transactions carried out by the Branch.

Even though the Branch has no limitations to have its own assets, it is not obliged to have a specific capital stock. However, it must keep separate accounts from the Headquarters and submit its Financial Statements every year before the Public Registry of Commerce (the PRC) of the City of Buenos Aires.

The transactions of the Branch do not generate much administrative control, as long as there are no meetings of the partners, shareholders or board of directors and it is not necessary to keep a record of the minutes, either. However, the Branch must take the necessary administrative measures, such as the registration with the PRC and with the social security entities and tax authorities. Likewise, every year when the Branch submits the Financial Statements, it must inform the PRC about any change that might occur pursuant to what is set forth in item 4.(v) described as follows.

In order to register a Branch in the Argentine Republic, the headquarters must fulfill the following requirements before the PRC:

  1. Certificate of good standing issued by the Secretary of State or the relevant public office certifying that the company is duly authorized or incorporated and in good standing pursuant to the laws of its country of origin. This certificate must also state that such company is under no liquidation or any other kind of legal proceedings that result in restrictions imposed on its assets and/or activities.
  2. Copy of the company's bylaws or articles of incorporation, including any amendments thereto.
  3. Copy of the resolution by the headquarters' competent body, through which the following decisions are stated:

    1. to set up a branch in Argentina;
    2. to appoint a legal representative in Argentina (the legal representative may or may not have a domicile in Argentina);
    3. to establish a legal domicile in Argentina.
  4. Statement subscribed by the legal representative in Argentina, through which he:

    1. accepts his appointment as the legal representative;
    2. states his personal data;
    3. establishes a legal domicile in Argentina.
  5. Statement subscribed by a headquarters' representative with sufficient power, providing evidence:

    1. that the development of the Company's activities or its main activity or activities is not prohibited or legally restricted in its place of origin.
    2. that the company complies with any of the following conditions outside the Argentine Republic: (i) of the existence of one or more branches or permanent agencies in good standing; (ii) the ownership of fixed non current assets or exploitation rights on third parties' assets of the same kind; (iii) interest ownership in any other company in the form of non current assets, in accordance with the definitions set forth in the Generally Accepted Accounting Principles (GAAP).
    3. of the company's shareholders / partners, indicating: (i) name and surname or business name of the shareholder; (ii) domicile or registered office; (iii) corresponding number of passport or ID, or else, the data of registration, authorization or incorporation; (iv) amount of shares, votes and ownership percentage of each shareholder.

Please note that all the documents to be submitted before the PRC must be duly certified and legalized by a consulate or the Apostille (Convention de La Haye 1961).

DOING BUSINESS IN BUENOS AIRES, ARGENTINA: B. SUBSIDIARY

A subsidiary is a separate entity, independent from the headquarters (the "Subsidiary"). It has its own duties and obligations, a capital stock and its own administrative and management body.

The subsidiary is liable to third parties with its own assets, and thus, the headquarters is not responsible for the operations carried out by the subsidiary. However, this protection has been recently questioned by some local courts.

In order to set up a subsidiary, a foreign company must be registered in Argentina pursuant to what is set forth in section 123 of the Argentine Companies' Law ("LSC"), and this is only with the aim to participate as a shareholder or partner in a local company, regardless of whether it is a Corporation ("SA") or a Limited Liability Company ("SRL"). The procedure to register a foreign company for these purposes is similar to the procedure applicable to a Branch, pursuant to what has been previously set forth in item A.4.

Requirements for the registration of foreign shareholders, in order to set up or participate in Business Companies in the Argentine Republic:

First, in order to set up a company, the foreign shareholder must register with the PRC pursuant to what is set forth in section 123 of the Argentine Companies' Law ("LSC") in order to participate as a shareholder of the local company. In that sense, the shareholder must submit the following documents before such registry:

  1. Certificate of good standing of the company in its place of origin, giving due evidence of the existence of the company in this place;
  2. The company's contract or articles of incorporation and any amendments thereto;
  3. Copy of the resolution adopted by the company in order to

    1. register the company in the Argentine Republic in order to participate as a shareholder of a local company;
    2. appoint the company's legal representative in the Argentine Republic;
    3. establish a legal domicile in the Argentine Republic
    Written statement subscribed by the company's representative (i) accepting the position for which he was appointed; (ii) stating his personal data; and (iii) establishing a special domicile in the Argentine Republic;
  4. Documentation subscribed a company's officer indicating that the company has the following outside the Argentine Republic (i) one or more agencies, branches or representations in good standing; or (ii) fixed non current assets or exploitation rights on third parties' assets of the same kind; or (iii) interests in other companies that are not subject to public offer; or (iv) investment operations in stock exchanges or markets. (Said information may also be proven by submitting the financial statements approved by the company, corresponding to the last closed fiscal year);
  5. Statement subscribed by one of the company's officer individualizing its composition and the ownership of its capital stock.

The documentation must be sent with the due certification before a notary public and the authentication by the Argentine Consulate of the place that granted it, or by the Hague Apostille, as it may correspond.

Finally, if there is not enough time for the registration of the company's shareholder, it is possible to register other provisional shareholders, who shall transfer their shares to the company 123 of the Argentine Companies' Law (LSC, Ley de Sociedades Comerciales), shall transfer their shares to them.

How is a commercial partnership or corporation established?

Companies may be established by a written public or private instrument (section 4 of the Argentine Companies' Law (LSC, Ley de Sociedades Comerciales). . The instrument of organization is an agreement. The instrument of organization is an agreement In case of a corporation it is called Bylaws.

If you are planning to set up a company or do businesses in Argentina, please click on how to invest, and you will find the main characteristics of the legal regime in force regarding the different aspects to be taken into the account at the moment of investing in this city.

Distribution of dividends and repatriation of capital from a local company to its headquarters

The following is a brief description of the general principles applicable to the distribution of dividends of local companies and the repatriation of capital from a branch to its headquarters, according to the Argentine legislation.

1. Distribution of dividends in a local company with foreign shareholders

1.1. Law 19,550 and its amendments The Argentine Companies' Law (LSC, Ley de Sociedades Comerciales)

The general principle for the distribution of dividends is reflected in section 68 of the Argentine Companies' Law ("LSC"), which provides that the dividends can only be approved and distributed when, once the fiscal year is closed, there are realized and liquid profits resulting from the balance sheet that was made according to the law, the bylaws, and approved by the shareholders' meeting; "realized and liquid profits" are understood as the net profits from the fiscal year, specified with objective data, and which have an implicit irrevocable nature. The profits distributed in breach of that principle are repeatable, pursuant to the provisions of the second paragraph of said section, except if they are received in good faith, as set forth in section 225 of the Argentine Companies' Law ("LSC").

On the other hand, section 71 of the Argentine Companies' Law ("LSC") adds that the profits cannot be distributed until the losses of previous fiscal years are covered, and according to what is set forth in the second paragraph of the abovementioned section, this principle is not applicable in the case in which the managers, directors or syndics are paid with a percentage of the profits, and the shareholders' meeting stipulates the payment of their remunerations even when the losses of the previous fiscal years are not covered. According to section 261 of the Argentine Companies' Law ("LSC"), the maximum amount that can be received by the board members or the Supervisory Committee (including salaries and other remunerations for their performance in their permanent technical and administrative roles) shall not exceed twenty five percent (25%) of the profits. This maximum amount shall be limited to five per cent (5%) when dividends are not distributed to shareholders, and it shall be proportionally increased according to the distribution, up to the limit of twenty-five percent (25%) when all the profits are distributed.

The abovementioned general principle of section 68 of the Argentine Companies' Law ("LSC") is incorporated by section 224 of the Argentine Companies' Law ("LSC"), corresponding to Corporations ("S.A."). This section also contemplates the prohibition to distribute anticipated dividends, except for those companies that are included in section 299 of the Argentine Companies' Law ("LSC"), i.e., those companies that make a public offering of their shares, have a capital that exceeds $10 million, have a mixed economy, carry out capitalization or savings transactions, exploit public concessions or services, and control or are controlled by the above-mentioned companies. In this case, said companies have the possibility of distributing anticipated dividends affecting partial profits obtained by the company during a period that does not coincide with that of the annuity of the fiscal year.

Anyway, according to the legal principles and caselaw, we understand that the anticipated distribution of dividends is subject the effective closure of the fiscal year, with liquid and realized profits, so that the permit the anticipated payment of distributed dividends.

1.2. General Resolution 7/2005 ("GR 7/2005") of the Inspección General de Justicia ("IGJ", Companies' Control Authority)

Besides, section 78 of General Resolution 7/2005 provides that the term for the payment of dividends, which shall appear in the bylaws, shall not exceed the duration of the fiscal year in which they were approved. If the bylaws do not refer to this, the shareholders' meeting shall be able to establish a special term for the payment of dividends, which shall not exceed 30 days. If the shareholders' meeting does not establish this special term, the dividends shall be at the partners' disposal as of the day following the shareholders' meeting in which their distribution was approved. The payment can be made in periodical installments.

Besides, section 143 of the abovementioned GR 7/2005 provides that if the distribution of anticipated dividends is approved, this decision shall be communicated to the Inspección General de Justicia ("IGJ", Companies' Control Authority) within a period 10 business following the adoption of this decision, including the supporting documentation.

1.3. Exchange regulations

According to the exchange regulations in force, if the distribution of dividends is approved according to the provisions of the Argentine Companies' Law (LSC, Ley de Sociedades Comerciales), there are no restrictions to the foreign exchange outflow under such concept. In that sense, the dividends approved by the Shareholders' Meeting can enter the foreign exchange market and be drawn to foreign investors.

For further information, please see the exchange regulations in force which were issued by the Banco Central de la República Argentina("BCRA", Central Bank of the Argentine Republic).

2. Repatriation of profits and/or capital from a branch to the headquarters abroad

Communication A 3859 issued by the Central Bank of the Argentine Republic (BCRA, Banco Central de la República Argentina) and its amendments establishes that "...the entities that are authorized to carry out exchange transactions can make transfers abroad for the payment of profits and dividends corresponding to past financial statements certified by external auditors".

According to this regulation, the local entities authorized to make foreign exchange transactions make transfers of profits from Argentine branches to their headquarters.

To perform such operation, Communication A 4177 of the Central Bank of the Argentine Republic (BCRA, Banco Central de la República Argentina) requires the presentation of all documentation that guarantees the genuineness of the operation regarding the concept and amount. For that purpose, the exchange regulations in force require the following:

  1. Resolution by the headquarters ordering the branch to send the profits;
  2. Resolution by the legal representative or representatives of the branch, approving the transfer of the profits arising from its balance sheet;
  3. Accounting certificate evidencing the nature of the profits of the funds that are sent from the branch to the headquarters.

On the other hand, if the branch has allocated capital, it shall be able to repatriate the funds to the headquarters, making a total or partial reduction of such capital. In this case, section 6.3. of the General Resolution IGJ 11/06 establishes the procedure to be fulfilled by the branches "in case of an effective reduction as a consequence of remittances abroad" indicating the requirement, among others, of the publication contemplated in section 204 of the Argentine Companies' Law (LSC, Ley de Sociedades Comerciales ) and the submission to the creditors' opposition regime. For that purpose, the following shall be necessary, pursuant to the regulations in force:

  1. resolution by the headquarters approving the total or partial reduction of the capital allocated to the branch;
  2. publication of the notice in the Official Gazette and in a widely circulated local newspaper;
  3. submission to a period of 15 days in which the creditors of the branch can oppose to such reduction of allocated capital.

Regarding the exchange regulations, Communications A 4662 of the BCRA and their amendments establish the concepts through which non residents can have access to the Single Free Exchange Market without requiring prior conformity from the Banco Central de la República Argentina("BCRA", Central Bank of the Argentine Republic). Among others, the following is established: "...1.13. Repatriations of direct investments in companies from the private non fiscal sector, that are not controlling companies of local fiscal entities, as long as the investor registers the permanence of that investment in the country for a period no shorter than 365 consecutive days, for the following concepts: ... 1.13.3. Capital reduction decided by the local company.

It is worth mentioning that the authorization for non residents to make transfers under this concept corresponds to 05.11.07; before then, no transfer under the concept of capital reduction was permitted (neither for branches nor for subsidiaries).

Regardless of what has been stated, we would like to mention that:

  1. In all the cases the intervening exchange entity has the power to request the supporting documentation or information that it may deem necessary to verify the legal viability and genuineness of the corresponding transaction, in view of its joint responsibility under the Criminal Exchange Regime; and
  2. In the case of choosing any of the abovementioned alternatives, it is recommendable to previously consult the intervening exchange entity in order to determine if there are no diverse opinions about the operational procedure to be used, which can be frequent on the market.

In order to buy a property in the Argentine Republic, foreign investors shall not only show their legal capacity but also their contribution of the necessary funds and their origin. For further information, please enter the guide to real estate market – "Other guides of interest".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.