23 June 2009

Before You Put Money In, Know How To Get It Out

Argentina, like most South American countries, is subject to exchange controls. It is a small economy and the government wants to exercise control over who can bring money in, who can take it out, and in what amounts. As a foreign investor, this directly effects your investment because you will need to transfer the money in to make your investment and, at some point, you will most likely want to bring home the profits you have generated abroad along with the capital invested.

Getting the Money In
The Central Bank of Argentina has imposed a deposit scheme whereby 30% of the amount of most incoming transfers must be put on deposit, interest free, with the Central Bank for the period of one year. Obviously this is something that most investors will want to avoid.

One important exception to this rule is Foreign Direct Investment, which will allow foreign companies to invest in their subsidiaries or local companies without needing to deposit the required 30% with the Central Bank. The beneficiary of the transfer must document the transaction and prove to their local bank, which acts as a withholding agent for the Central Bank, that the funds will be used for a capital contribution. The local company has 250 days to make the capital contribution or it must make the 30% deposit with the Central Bank.

Investors who are involved in this kind of operation should be meeting, in person, with the "Comercio Exterior" department of the local bank that is handling the operation to ensure that all paperwork is completed properly and all requirements are being followed. The local bank is responsible for supervising the operation and they will have information as to what documents will be needed to complete the transaction properly.

Getting the Money Out
Foreign investors are guaranteed equal treatment under the law and, in principle, are treated no differently than local investors. In fact, foreign investors are provided with the right to repatriate the capital and profits from their investments abroad at any time and without prior approval from the Central Bank.

In practice, current Central Bank regulations limit this right by imposing a cap on foreign currency purchases by non-residents (i.e. the dollars you will need in order to wire the money out). Exceptions to these limits exist, however, and should not effect most small or medium-sized businesses that invest in Argentine companies and wish to transfer capital or profits abroad.

The limitations currently in place are designed to frustrate investment funds that invest in liquid securities on the publicly traded market. These so-called "speculators" have been scapegoated by Argentina's authorities as being responsible for the country's woes and current regulations are in place to discourage this type of investment.

If your foreign company is investing in an Argentine subsidiary or another local company (i.e. foreign direct investment), so long as the company's financial statements are audited by external auditors, there should be no problem in transferring profits out of Argentina, as current regulations do not limit transfers of profits abroad.

Transfers of capital are not capped, but if you are going to transfer more than $2 million in capital abroad, the mandatory 30% deposit scheme comes into effect and the deposit will need to be made.

Again, make sure to familiarize yourself with your bank's Comercio Exterior department before engaging in any of these operations.

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