New Central Bank regulations on repatriation of foreign investments in Argentina

On May 11, 2007, the Argentine Central Bank (the “Central Bank”) issued Communication “A” 4662 which restated regulations applicable to the purchase of foreign currency in the foreign exchange market (the “MULC”) by non-Argentine residents, and to broaden the scope of transactions that do not require prior Central Bank approval (particularly relating to the sale and liquidation of certain investments).

Purchase of foreign currency by non-Argentine residents

Under current foreign exchange regulations, non-Argentine residents require prior Central Bank approval to purchase foreign currency in the MULC (and transfer it abroad) in an amount exceeding US$ 5,000 per month, unless the trade qualifies for one of the exemptions described below.

Up to the amount of US$ 500,000 per calendar month

Communication “A” 4662 maintained the limit to repatriate portfolio investments. Accordingly, non-Argentine residents can purchase foreign currency in the MULC and transfer abroad up to US$ 500,000 per month for the amounts collected under portfolio investments (including interest) and/or resulting from the sale of such portfolio investments (i.e., stock portfolio and participation in local companies, investment in mutual investment funds and local trusts, purchases of bank credit portfolios, investments in local bonds issued in pesos and purchases of other local credits). The non-Argentine resident will be required to provide evidence that the investment has been maintained in Argentina for at least 365 days.

Without limitation

By Communication “A” 4662, the Central Bank revisited the list of trades for which the access to the MULC does not have limitation. Accordingly, non-Argentine residents can purchase foreign currency in the MULC for the amounts collected in Argentina by or for:

(i)     international Organizations and Official Export Credit Agencies included in the list provided by the Central Bank (i.e., BANCOMEXT, ECGD, ECIC, EDC, EXIMBANK), diplomatic and consular delegations and local Representation of Courts, Authorities, Offices or Commissions created under International Treaties in connection with the performance of their duties. These entities (except for Export Credit Agencies) can also purchase foreign currency, checks and travelers’ checks required to perform their duties in Argentina without prior Central Bank approval;

(ii)     import transactions paid on demand;

(iii)    foreign commercial debts under imports of goods;

(iv)   services, income and other current transfers (components of the current account of the balance of payments);

(v)    foreign financial debt;

(vi)   interest payments under Government Securities and guaranteed loans denominated in local currency;

(vii)  credits recovered in local bankruptcies and reorganization proceedings, provided that the foreign creditor has been judicially recognized as creditor;

(viii)  inheritances;

(ix)   benefits granted by the Argentine Government under Laws No. 24,043, 24,411 and 25,914 (these regulations grant benefits to individuals illegally arrested by military governments, their relatives and children);

(x)   export transactions executed through the Reciprocal Payment and Credit Agreements (Convenios de Pagos y Créditos Recíprocos) entered into by Argentina in which the exporter discounted export receivables with a foreign entity, provided that the exporter sold in the MULC the foreign currency collected under the discount; and

(xi)   repatriation of direct investments (any participation of 10% or more in the capital stock of a company) in local companies maintained for at least 365 days for the following concepts: sale and/or final liquidation of the direct investment in Argentina, capital reduction and reimbursement of capital contributions by the local entity. In these cases, the purchase of foreign currency and its transfer abroad can be executed by the non-Argentine resident that is repatriating its investment or directly by the Argentine resident (company).

One of the most significant amendments introduced by Communication “A” 4662 was including capital reductions and reimbursement of non-capitalized irrevocable capital contributions within the above exemptions (see paragraph (xi) above). Furthermore, the Central Bank established that in those cases, the following information must be submitted to the financial entity executing the transfer:

(a)    documentation evidencing the identity of the shareholder/partner that made the capital contribution and its participation in the capital stock of the local company;

(b)    accounting certificate of an independent auditor evidencing: (i) the effective transfer of the capital contribution to the local company, and (ii) that the local entity does not register due and unpaid debts with the tax authorities (Administración Federal de Ingresos Publicos or AFIP);

(c)    certified copy of the Extraordinary Shareholders’ Meeting minutes –or equivalent corporate body- that decided the reimbursement of the capital contribution or the capital reduction;

(d)    documentation evidencing that the local company complied with publication and registration requirements set forth by Companies Law No 19,550 (i.e., notice in the Official Gazette informing the corporate decision of reimbursing the capital contributions);

(e)   report of the statutory comptrollers stating that the reimbursement of the capital contribution or the capital reduction do not affect the financial situation or the rights of creditors of the local company. Relevant accounting documentation (i.e., audited financial statements) must also be submitted;

(f)    copies of the validations issued by the Central Bank pursuant to the foreign debt information regime set forth by Communication “A” 3602 (if applicable);

(g)   accounting certificate of an independent auditor informing the amount in Pesos of the debt as of the date of the non-acceptance of the capital contribution or decision by the relevant corporate body of reducing the corporate capital; and

(h)   copy of the certificate of deposit evidencing the mandatory deposit (constituted in U.S. Dollars in a local financial entity for 365 days equal to 30% of the amount of foreign currency transferred into Argentina and sold for Pesos in the MULC) (if applicable).

The Central Bank also provided that financial entities must request all the information and documentation necessary to verify that the transactions are reasonable and genuine, which include the following: providing evidence of the type of investment declared and that the funds were not applied to a different investment than the one declared, a sworn statement of not having made any prior transfer for the same transaction and evidence of compliance with any other applicable foreign exchange regulation in force.

Lastly, non-Argentine residents receiving payments of principal and interest under foreign currency denominated Government Securities and other securities issued by Argentine residents in foreign currency payable abroad, may choose to: (i) collect those funds in foreign currency in Argentina (in cash or account deposit), or (ii) transfer those funds to an account abroad. Foreign exchange regulations in force applicable to portfolio investments of non-Argentine residents in Argentina will apply in the event that the non-Argentine resident decides to sell the foreign currency received for Pesos in Argentina.