New regulations on the transfer of funds into Argentina from direct investments

1.    Direct investments in Argentina

On March 5, 2007, the Argentine Central Bank (the “Central Bank”) issued Communications “A” 4632 and “A” 4633 which reduced the requirements set forth by Communication “A” 4447 and “A” 4554 for exempting the deposit equivalent to 30% of the foreign currency transferred to Argentina under the concept of direct investments of non-Argentine residents (the “Mandatory Deposit”).

2.    Capital contributions

Direct investments in local companies are exempted from the Mandatory Deposit provided that the company receiving the funds submits, simultaneously with the transfer, documents evidencing the decision to capitalize the contributions to the bank making the foreign exchange transaction by demonstrating that they had initiated the proceeding of capital increase at the Public Registry of Commerce (the “Registry”).

To date, local companies had 180 consecutive days to prove the registration of the capitalization of the contributions at the Registry.

Communication “A” 4633 extended the term originally set forth by Communication “A” 4554 to provide the financial entity with evidence of having completed the capital increase proceedings to 250 consecutive days following the transfer.

If the capital increase is not completed, the term of 10 consecutive days for constituting the Mandatory Deposit will begin on the date when the capital contribution was not accepted or 240 consecutive days following the date of initiation of the capital increase proceeding at the Registry, whichever occurs first.

Moreover, before the issuance of these Communications, the Mandatory Deposit had to be constituted provided that upon expiry of the term the company did not provide the required evidence. These regulations also clarified that the company may require the reimbursement of Mandatory Deposit before the 365 day period elapses by filing documents proving the effective capital increase.

3.    Rearrangement of corporate capital

On the other hand, contributions of direct investors applied to the allocation of corporate capital (in cases of capital loss) or to cover the negative net worth of branches without capital assignment have been exempted from the constitution of the Mandatory Deposit by Communication “A” 4632.

This exemption only applies to the amounts effectively allocated to cover the negative net worth or to rearrange the corporate capital. Thus, any surplus will be subject to the constitution of the Mandatory Deposit.

With the transference of the funds, the local company will have to file: (i) copy of the financial statement of the economic year immediately previous to the transference of funds showing the corporate capital loss or negative net worth; (ii) copy of the Shareholders’ Meeting minute –or equivalent body– accepting the capital contribution; and (iii) sworn statement declaring the fund’s purpose.

In addition, the local company will have 90 days from the transference of the funds to Argentina to show the effective application of the funds to the absorption of losses by filing the correspondent accountable certification. Otherwise, the local company will have to constitute the Mandatory Deposit.

4.    Restitution of Mandatory Deposits of financial loans

Communication “A” 4633 set forth that the Mandatory Deposit constituted over funds transferred to Argentina from foreign financial loans will be released provided that direct investors of the local company capitalize such indebtedness in the local company.

The requirement of filing evidence of having initiated the proceeding of capital increase before the Registry and any other foreign exchange regulations related to capital contributions (250 consecutive days to file documents evidencing the effective capital increase) will apply.

5.    Payment of foreign assets

Finally, on March 5, 2007 the Central Bank issued Communication “A” 4634 which set forth new requirements for the access to the foreign exchange market to make payments of foreign debt.

In this sense, Argentine residents that obtained funding from abroad for the purpose of holding foreign assets of direct investment as set forth by Resolution No 365/2005 of the Ministry of Economy in excess of the applicable limit -with prior authorization from the Central Bank- will be required to show evidence of the disbursement and sale for Pesos of the amounts of the profits of such assets or the funds obtained from their sale, as applicable, in order to access the foreign exchange market for cancelling such foreign debt.