Regulation of the Incentive Regime for Large Investments (“RIGI”)

On August 23, 2024, Decree 749/2024 (the “Decree”) of the National Executive Branch, led by President Javier Milei, was published in the Official Gazette of the Argentine Republic, approving the regulation of the Incentive Regime for Large Investments (the “RIGI”) created by Law No.  27,742. The RIGI promotes investment in projects that qualify as large long-term investments in Argentina and pertain to activities within certain sectors, by granting a series of tax, customs, and exchange incentives, as well as an efficient system for the protection of rights and dispute resolution.

Among the main aspects regulated by the Decree are:

Strategic Sectors: The sectors in which the projects developed by single project vehicles (“VPU”, for the Spanish acronym for Vehículos de Proyecto Único) must fall to access the benefits of the RIGI are precisely defined:

• Forestry Industry: Activities whose main input is wood and include forest plantation.
• Tourism: Activities related to lodging and accommodation services.
• Infrastructure: Construction of structures, networks, and systems necessary for logistics and transportation, recreational projects, and for the operation of public services and services declared of interest.
• Mining: Exploration and exploitation of mineral substances included in Title I of Law No.  1,919, as well as processes included in inc. b) Art.5 of Law No.  24,196.
• Technology: Production of innovative technological goods and services in biotechnology, nanotechnology, mobility based on new energy transition technologies, aerospace and satellite industry, nuclear industry, software industry, robotics, artificial intelligence, and defense and armament industry.
• Iron and Steel Industry: Industrialization and processing of iron ore, steel, and their alloys.
• Energy: Generation, storage, transportation, and distribution of renewable and non-renewable electric energy, production of low-carbon energies, bioenergy, and carbon capture, transportation, and storage.
• Oil and Gas: Activities related to:
• Treatment plants, separation of natural gas liquids, oil pipelines, gas pipelines, and multipurpose pipelines, and storage facilities.
• Transportation and storage of liquid and gaseous hydrocarbons.
• Petrochemicals, including fertilizers and refining.
• Production, capture, treatment, processing, fractionation, liquefaction of natural gas, and transportation of natural gas dedicated to the export of liquefied natural gas.
• Offshore exploration and exploitation of liquid and gaseous hydrocarbons.

Minimum Investment Amounts (“MIA”): The MIAs in computable assets are established for each sector and productive subsector. The general MIA is USD 200,000,000, except for the following oil and gas subsectors which require higher MIAs:

• Offshore exploration and production: USD 600,000,000
• Gas production intended for export: USD 600,000,000
• Transportation and storage: USD 300,000,000

If a project encompasses activities from more than one sector, the MIA established for the sector to which the main object of the project belongs will apply.  The expansion of a pre-existing project can enjoy the benefits of the RIGI if it meets the requirements and reaches the MIA established for the corresponding sector.

The MIA corresponding to Single Projects that also qualify as Strategic Long-Term Export Projects (“Long-Term Strategic Export Projects”) is USD 2,000,000,000.

Single Project: The concept of “Single Project” is defined, which must constitute an “indivisible economic unit”, in which:

• the components of the project are linked in such a way that their exclusion would impede the planned activities;
• the activities of the project are reasonably related and necessary to the development of the sector or sub-sector in which the project is framed;
• The components are within a radius of 200 kilometers, except for (a) related transportation infrastructure, which may exceed this radius, (b) other cases with a larger radius authorized by the applicable authority due to the lack of adequate infrastructure, or (c) Long-Term Strategic Export Projects, as long as the project components are physically integrated; and
• The VPU must own and exclusively use the project assets, except where current regulations prevent such ownership or exclusive use.

Expansions: They are defined as a set of investments in computable assets that increase the productive capacity (an “Expansion“) of a project. When the expanded project is not part of the RIGI, the expanded portion can benefit from RIGI incentives if it meets the requirements of a Single Project and the MIA. In such cases, the incentives will apply exclusively to the Expansion and not to the original project, and separate accounting will be required to ensure the correct application of the incentives, or the formation of a separate VPU for the expanded portion. In the case of Expansions of projects already adhered to the RIGI, these must maintain the status of a Single Project, and the additional investments will enjoy the same incentives as the already adhered and expanded Project, without the need for prior authorization.

Long-Term Strategic Export Projects: The requirements to qualify as a Long-Term Strategic Export Project are established, which have additional incentives.  In addition to meeting the requirements for adherence to the RIGI, Long-Term Strategic Export Projects (which can be managed by one or more VPUs) must:

• Demonstrate potential to position Argentina as a new long-term supplier in a global market where the country has little or no participation.  This can be accredited (i) if there are no previous exports of the product, (ii) if the project opens new markets, or (iii) if Argentina’s participation in the global market is less than 10%.
• Involve a MIA of USD 2,000,000,000.  The application for adherence to the RIGI must detail the duration of each stage and commit to a minimum investment of USD 1,000,000,000 per stage.  If the investment in a stage exceeds that amount, the excess can be applied to the next stage.

Suppliers: The import of goods by suppliers adhering to the RIGI is regulated, specifying which goods can be imported and under what conditions.  Restrictions and obligations are imposed to ensure that goods are used correctly and consequences for non-compliance are outlined, such as suspension of benefits or imposition of sanctions.

Enforcement authority and creation of registers: The Ministry of Economy is designated as the enforcement authority of the RIGI and will evaluate adherence applications through a Project Evaluation Committee composed of heads of Executive Branch Secretariats or officials with superior or equivalent rank. Additionally, the Register of Single Project Vehicles, the Register of Long-Term Strategic Export Projects, and the Register of Suppliers under the Incentive Regime for Large Investments are created.

Exchange Incentives: Subject to regulations and mechanisms established by the Central Bank of Argentina, the following is regulated: (1) free availability of foreign currency from exports, by defining the concept of “VPU commissioning date”, (2) access to the foreign exchange market by the VPUs, including (i) the right to access the foreign exchange market for debt payments, dividends, and repatriation of investments subject to prior settlement through the foreign exchange market, and (ii) the possibility for the Central Bank to establish a currency balance account mechanism for projects that will make use of the incentive provided in Article 198, (3) the right to access the foreign exchange market by creditors and guarantors of the VPU, (4) the possibility of establishing guarantee accounts and accumulating export collections to ensure the repayment of debt, and (5) the possibility of accessing the foreign exchange market for the repayment of interest on debt and the payment of dividends without quantitative limitation, provided that the investments that originated them were brought in through the foreign exchange market in the proportion in which they were made.

Tax Incentives:

• Income Tax (“IT”): (i) a reduced rate of 25% and a rate of 7% for dividends and profits -which is reduced to 3.5% in fiscal years that close after 7 years from the RIGI adherence- (ii) a special regime of imprescriptible, updateable losses, allowing their transfer to third parties as from 5 years after they were generated; (iii) a special regime of accelerated depreciation of capital investments – 2 equal and consecutive annual instalments in the case of depreciable movable assets acquired, processed, manufactured or imported and the term derived from reducing the useful life of the asset by 60% in the case of mines, quarries, forests and similar assets or in infrastructure works; (iv) special regimes referring to payments made to foreign beneficiaries regarding exemptions, relief and grossing up; (v) deductions of interest and exchange differences arising from the financing of the Project without application of the limitations established in Article 85(a) of the IT Law during the first 5 years from the date of adherence to the RIGI, and (vi) the possibility of computing 100% of the tax paid and/or received as tax on debits or credits in bank accounts as a credit in the tax. On the other hand, it defines the concept of affiliation for VPU transactions with related entities.
• Value Added Tax (“VAT”): Issuance of Tax Credit Certificates suitable for cancelling invoiced VAT obligations on purchases and imports -both with respect to suppliers and the Treasury-, up to the limit of the total net amount of the operations are enabled by the regulation.
• Tax-Free Reorganizations: It provides for a relaxation of the tax-free reorganization regime to facilitate the formation of VPUs and the transfer of assets within a group for the development of the project.
• Special treatment of Joint Ventures and other associative contracts, as well as Dedicated or Special Branches: It allows these business modalities to adhere as VPU and considers them as subjects of the IT under the terms of the second paragraph of subsection a) of Article 73 of the Income Tax Law. The regulation establishes the requirements to be met by these joint ventures and associative contracts in order to be able to join the RIGI. On the other hand, it provides for the cases of transfer of tax benefits and/or assets foreseen for Dedicated Branches and their specific tax and customs treatment, including the accounting requirements and the specific customs provisions applicable to these cases.

Customs Incentives:

• Imports: The regulation includes the exemption from import duties, the statistical and destination verification fees, and from any national tax collection, withholding, prepayment, or retention regimes for new capital goods, spare parts, components, and parts related to the approved investment plan, which are identified as Capital Goods (“BK”) and “Information and Telecommunications Goods” (“BIT”) in Annex I of Decree No. 557/23, as well as inputs and intermediate goods intended to be transformed into another good identified in said Annex I as BK or BIT. This is in addition to the benefit already granted by Law 27,742 concerning the exemption from export duties on goods exported for consumption obtained under the promoted project, applicable to exports made by VPUs adhered to the RIGI after three years from adherence, and after two years for exports made by VPUs holding Long-Term Strategic Export Projects.

The suspension of the payment of the PAIS tax, which applies to access to the foreign exchange market for the payment of imported goods, is established.

Timeframes are set during which imported goods exempt from taxes will be subject to destination verification, and the circumstances under which they will be considered removed from the exempted status are defined.

Tax, customs, regulatory, and exchange regime stability: Stability is guaranteed for a period of 30 years from the date of adherence, meaning that for VPUs that adhere, the regime and incentives cannot be affected by legal modifications for 30 years. Regarding tax stability, adhered VPUs will only pay the taxes in effect on the date of adherence until their general elimination, or those that have RIGI incentives. It is established the right to automatically offset against other taxes any tax that has been charged in violation of the provisions of Law No. 27,742 or the Decree. It is clarified that the VPU will have the right to benefit from any elimination or exemption of taxes under the general regime, as well as from any potential reduction in their rates.

Dispute Resolution: International arbitration is provided as a method for dispute resolution, under ICC, PCA, or ICSID rules, at the VPU’s choice, without the need to litigate in Argentina first. The RIGI Panel is also created — as an additional option for the VPU — consisting of three professionals from the fields of engineering, economics, and at least one legal professional. The RIGI Panel’s decisions must be issued within 60 calendar days, with the possibility of an extension for another 60 days if necessary.

For additional inquiries, please do not hesitate to contact rigi@bruchoufunes.com

This message is of a general informative nature and should not be considered as legal advice. In case you need professional assistance, please contact our experts.