Mandatory registration of foreign companies that acquire real estate in Argentina

1.    Facts. Resolution of the Public Registry of Commerce

By General Resolution No 8/2003 of the Public Registry of Commerce (“PRC”, “Inspección General de Justicia”, and“GR 08/2003”, respectively) a supervisory system was created in cooperation with the Real Estate Registry of the City of Buenos Aires (“RER”, “Registro de la Propiedad Inmueble”) to monitor the constitution, acquisition, transfer and cancellation of in rem rights involving foreign companies registered with the RER. The GR 08/2003 also ruled that the RER must inform the PRC all acts being registered under the category of “isolated act”.

Sections 118 and 124 of the ACL require registration of foreign companies that perform “habitual acts” in Argentina, and exempt from registration those companies that only perform “isolated acts”. One of the aims of the supervisory system is to enforce compliance of these sections, which previously relied mainly on the representative’s statements regarding the nature of the foreign company’s activities in Argentina.

On July 2004, complying with its supervisory duties under GR 08/2003, the PRC investigated the acquisition of an apartment located in Argentina by the Uruguayan company Frinet S.A. (“Frinet”) in order to determine if it involved a habitual activity of the foreign company in the country.

To determine the purpose pursued by Frinet’s real estate acquisition, the PRC inspected the apartment and discovered it was leased to another person. The PRC considered that the existence of a lease agreement between the foreign company and the lessee was sufficient to disregard the alleged character of “isolated act” declared by the foreign company’s representative when registering the acquisition of the apartment, and ordered the company to comply with the registration with the PRC provided under Section 118 ACL.

In the PRC’s resolution on this matter, some guidelines were provided regarding the activities   of foreign companies in Argentina, as follows:

i)             as a general principle foreign companies must register with the PRC to acquire real estate in Argentina;

ii)            the purpose of the acquisition must be evaluated, it being understood that an acquisition to lease the property as in Frinet’s case would not be considered a simple temporary investment, as it could have been if the real estate property was immediately sold;

iii)            the habitual nature of the act must not be determined exclusively on a quantity basis, and therefore Frinet must register with the PRC even when the acquisition of the apartment was the only activity performed in the country; and

iv)           categorization of an act as an “isolated act” performed by a foreign company in Argentina should always be restrictive.

2.    Ruling Room B of the Commercial Court of Appeals

Room B considered that an “isolated act” is an occasional act that is not performed on a habitual or permanent basis and does not result in the setting up of an establishment or branch. Nevertheless, the acts may still be “isolated acts” even if they are more than one, as not only a quantitative but also a qualitative analysis of these must be made.

Room B upheld the PRC’s resolution that orders the registration of Frinet based on the following:

i)             the representative did not declare if the acquisition was a single temporary investment or if the foreign company purchased the apartment for its subsequent sale,

ii)            the lease agreement is a contract to be performed in more than one act, which does not qualify as a sporadic act;

iii)            the foreign company entered into an act of economic significance without explaining which activities it performed in its country of origin and without showing evidence of its activities in this or any other country; iv) the lease agreement implies the existence of legal relationships in Argentina, which are sufficient for third parties to be interested in having available information regarding the foreign company (e.g. charter and by-laws, identity of shareholders, legal representative in the country, place to notify the foreign company regarding eventual liabilities of the real estate property, etc), and therefore the foreign company must register with the PRC.