Your Business' Official Address

When registering your new business for the first time in Argentina, you will be asked to prove that your business is operating at a certain location. However, it is not enough to simply declare your address. You will need to "prove" it. This is done through a rental contract, presenting utilities in your business' name, a declaration from a public notary (escribano) etc. Before the government will give your business a tax id number (CUIT), you will need to prove its address.

This is sometimes difficult for new businesses, since just about everyone will ask you for your business' CUIT number before they will put any kind of service in the business' name or sign a rental agreement. These kinds of requirements will sometimes generate chicken and egg type situations where you can't start doing business until you have a CUIT, but you can't get a CUIT until you prove you are doing business.

The most complicated situation is when you try to declare an address that has already been declared for an existing business. The government will want to know why two businesses are operating at the same address, so be prepared to reply officially with the supporting documentation. In cases where this has been an issue for me, we have always resolved the issue by declaring the company to have the home address of one of the partners (assuming no other companies have been registered at that address) and then changing the company's official address after having been issued a tax id (which can be done simply over the internet).

Your Business' Official Address

Equity Financing: The Only Choice for Argentina Small Business

In Argentina the only realistic way to obtain start-up funding for any kind of business venture is through equity financing or through some other vehicle that brings investors into your company. Luckily this type of financing is readily available for small businesses that have professional management with good contacts.

Why Equity Financing is a Realistic Option
The main reason equity financing is available in Argentina is that many individuals here would prefer to invest with friends, family, and business associates than with investment funds, professional money managers, or even banks. It all comes down to trust.

In Argentina, nobody trusts anyone. And if you don't trust anyone else, you certainly won't give them your money. That's why so often you'll see people investing with their brother-in-law, best friend from college, or parents putting money in a son's business. The financial companies here have a horrible reputation (justly or not) of being happy to take your money but not no friendly when it comes to giving it back. The State exercises such complete control over the financial industry that in times of crisis, the banks are converted into mere branches of the Central Bank, taking in deposits and transferring all liquidity to the State.

This type of scenario means that the average man on the street puts a lot more trust in people he knows than in some banker who needs to respond to the orders of the Government of the day.

Business Plans
Entrepreneurs should put some effort into building a realistic and well-thought out business plan, with realistic financial estimates. Just doing this will put them head and shoulders above the thousands of other wanna-be entrepreneurs who are making the rounds looking for funds. It sounds crazy, but in the years I've been here, I've met with all the following entrepreneurs seeking funding for their venture:

1. A mining outfit in Neuquén seeking $500,000 USD to restart a closed operation.
2. An entrepreneur looking to make consumer loans to police / military officers.
3. A landowner raising funds for a boutique hotel.
4. An entrepreneur raising funds for an ice cream factory.
5. A real estate agent looking for funds to convert a failing hotel into a timeshare.

I'm certainly not the biggest angel investor in Argentina, not by a long shot. I don't have a finance degree and I am by no means a professional financial analyst. However, not one of these people who presented their idea to me came prepared with any kind of figures or estimates. Not one had a business plan written down on paper. The mining group even suggested that I send my own geologist and team of analysts to evaluate their project, but that they were not going to pay anyone to put together any kind of estimates. I have no doubt that they still haven't found any funding with that kind of attitude.

In almost all cases that an entrepreneur arrived with clearly thought out figures, a solid plan, and recommendations from advisers I trust, I've invested. Sometimes it was a good investment, other times it didn't go as planned, but I've always believed in the entrepreneur who was running the business and confident that they were prepared to lead with a clear vision of where they wanted to go.

Equity Financing: The Only Choice for Argentina Small Business

Costs to Form a Limited Liability Company (SRL)

For readers not accustomed to Argentine bureaucracy, this post will show the multitude of steps required to form a Limited Liability Company (SRL) and begin to operate a small business in the City of Buenos Aires. This does not include any steps necessary to actually obtain a place of business (i.e. office space, industrial space, or a retail store). These are the steps just to create the entity itself. After completing all these steps, the company will theoretically be ready to do business.

Steps

1. Choose a company name using IGJ form #3 (reserva de nombre) and pay the required fee. This reserves the company's name for 30 days.
2. Certify the signatures of the company's owners by a notary public (escribano).
3. Deposit the initial capital of the company in Banco Nación as a guarantee (the money is returned once the company is formed). At least 25% of the subscribed capital must be deposited. The shareholders must contribute the remaining capital within two years.
4. Announce the company's formation by publishing in the Official Bulletin. The cost varies depending on the length of the publication and the fee is charged per word and per line.
5. Pay the incorporation fee.
6. Register with the IGJ and pay the registration fee. Regular and urgent filings are available, with urgent filings having a higher fee.
   
7. Buy the company's books. These books will be used to record the company's resolutions, serve as the general journal, record wages, etc.
8. Fill out a form from the College of Notaries and submit books to a notary for certification before the IGJ.
9. The Manging Partner of the SRL must request a tax password (clave fiscal) from AFIP. All company taxes will be submitted using this password.
10. Request a tax identification number (CUIT) from AFIP and enroll the company in income and VAT taxes. AFIP will require evidence of the company's address (i.e. rental contract).
    
11. Register for sales taxes with the City of Buenos Aires en Rentas, again proving the company's address.
12. Register with the Social Security Administration (ANSES).
13. Select a Labor Insurance Company (ART - Aseguradora de Riesgos del Trabajo).
14. Submit the company's wages book for certification by the Labor Ministry.

Costs (in pesos)

The costs listed here are all the miscellanius fees that you msut pay to the various government agencies in order to form a company. The fees listed here do not include any profesional fees that you will pay your attorney, accountant, and any other professionals who are assisting with the incorporation process. Those fees vary depending on the professional.

• $18 - Register company name.
• $200+ - Certify signatures (an escribano will charge $100 per signature)
• $36.50 - Banco Nación deposit fee
• $500-600 - Publishing in the Official Bulletin.
• $30 - Incorporation Fee
• $282 - IGJ Urgent Filing Fee
• $200 - Buy special books
• $415 - Certify books with the IGJ
• $50 - Register with Rentas
• $75 - Certify wages book with the Labor Ministry
• Total Cost: $1630 and up in government and other miscellaneous fees

Lawyers fees could range anywhere from $1200-1500 pesos, depending on the professional selected. At current exchange rates (3.8:1), that's about $800 USD (total, including both legal fees and government fees) to form an SRL. Of course if you're using an international law firm, a big accounting studio, etc., you could end up paying much more.

Costs to Form a Limited Liability Company (SRL)

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.

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

Argentina Foreign Branch Offices (Sucursal de Compañía Extranjera)

The foreign branch office (Sucursal de compañía extranjera) is an attractive option to use for investing in Argentina, since it typically allows the head office to take advantage of foreign taxes paid in the form of direct foreign tax credits. Nevertheless, the procedure for nationalizing a foreign company so that it may operate in Argentina is complicated and requires quite a bit of paperwork, much of which must be updated annually. Once a company has been nationalized, it pays tax only on Argentina-source income. The procedures to nationalize a company are, in short:

• Present the articles of incorporation, bylaws, and any amendments
• Prove the company is valid by presenting the certificate of incorporation or certificate of formation in the company’s home country
• Appoint a legal representative in Argentina (this must be a physical person legally resident in Argentina)
• Prove to the IGJ that the company has no restrictions to operate in the country of origin (i.e. make sure the company isn’t an offshore company that isn’t allowed to operate in the country of incorporation)
• Prove to the IGJ that the company has branches, fixed assets, and other business dealings outside of Argentina (i.e. no shell companies permitted)
• Provide identifying information to the IGJ of all shareholders of the foreign company (i.e. no anonymous shareholders, bearer shares, etc.)

After the company has been registered, it may operate within Argentina, form an Argentine subsidiary, or invest in an Argentine company. Branch offices must have:

• Capital: There is no specific capital requirement for branch offices. A few specific exceptions to this rule exist for financial services companies.
• Directors: An Argentine resident must be appointed as the legal representative of the foreign company to operate the local branch.
• Books: The branch must maintain separate books from its headquarters and file annual financial statements.

One huge benefit for US investors who invest in Argentina using branch offices is that due to the fact that these entities are not separate from the US head office, they file a consolidated tax return in the US using the same tax id number. It also saves investors from having to enter into the complicated Controlled Foreign Corporation tax rules that are designed to stop multinationals from shifting profits to tax haven countries.

Investors from other countries will likely avoid their home country's complex set of international tax rules by forming branch offices to operate in Argentina. On the downside, it is much more difficult and costly to register a branch office due to all the paperwork that must be sent from the home office, translated, certified (with apostilles), and presented to the IGJ.

Argentina Foreign Branch Offices (Sucursal de Compañía Extranjera)

Argentina Limited Liability Companies (S.R.L. - Sociedad de Responsabilidad Limitada)

The Limited Liability Company (S.R.L. - Sociedad de Responsibilidad Limitada) is the second most common legal entity in Argentina. It is similar to a corporation, but is somewhat cheaper to operate and there are limitations on the number of shareholders. Some of the properties of SRLs:

• Capital: Instead of shares, capital is represented by “cuotas”. There is no minimum capital requirement, but the IGJ will require the company to have capital sufficient to comply with the company’s objective (i.e. if you say you’re going to build power plants, you can’t declare the company’s capital to be $12,000 pesos)
• Partners: An SRL can have between 2 and 50 partners. Partners can be other SRLs, foreign companies, or individuals. An Argentine corporation cannot be a partner in a SRL.
• Meetings: Meetings take place according to the bylaws of the company. They are not required, as in the case of a corporation.
  
• Managers: The SRL is governed by managers, who can act individually or together, depending on the bylaws of the company. Managers do not need to be partners in the SRL.
• Transferring Ownership: It is more burdensome to transfer ownership in a SRL than in a SA, since each transfer will require a visit to the notary (escribano). There are no restrictions on the transfer of cuotas, as long as the company's operating agreement doesn't prohibit it.
  

Who Shouldn't Form a Sociedad de Responsibilidad Limitada
Firstly, it is impossible to form a SRL if there are going to be more than 50 investors, but smaller groups may still want to avoid SRLs if the company is going to need multiple rounds of equity financing. Every time ownership changes hands, the partners of an SRL must return to an escribano to sign more documents. It can be cumbersome to deal with SRLs when many investors are involved and ownership is changing hands frequently.

Who Should Form a Sociedad de Responsibilidad Limitada
Small companies with small and stable groups of investors should form SRLs. The cost is lower, there is less publishing required, and fewer administrative burdens. SRLs are designed to accomidate smaller businesses which by nature of their size do not need all the formalities of corporations.

Argentina Limited Liability Companies (S.R.L. - Sociedad de Responsabilidad Limitada)

Argentina Corporations (S.A. - Sociedad Anónima)

Corporations (S.A. - sociedad anónima) are the most common type of legal entities in Argentina. Some of the properties of corporations in Argentina:

• Capital: Ownership is represented by non-endorsable shares. Share certificates are optional. Bearer shares are not permitted. A minimum capital of $12,000 pesos is required (About $3000 USD). A minimum of 25% of the authorized capital must be paid in during incorporation and the rest within 2 years.
• Shareholders: a minimum of two, no maximum. No one shareholder can control more than 98% of the capital stock. Shareholders can be Argentine companies, foreign companies, or individuals from any country.
• Shareholder Meetings: Corporations are officially governed through meetings. Meetings must be announced and the resolutions published in the Official Bulletin unless resolutions are adopted unanimously by 100% of all voting shares (i.e. everyone must be present at the meeting and all resolutions must be unanimously, otherwise you must publish). Most important business of the company such as approval of the financial statements, appointment of directors, payment of dividends, etc., must be approved in shareholder meetings before it can be authorized.
• Board of Directors: A majority of board members must reside in Argentina. There are no nationality requirements for board members. The board must have a President, who is the legal representative of the company and will need to sign company documents, do official company business, and appear before government bodies.
• IGJ Tax: Corporations pay an annual tax to the IGJ based on their authorized capital and the change in capital based on the last set of financial statements presented. For a company with the minimum capital of $12,000 pesos, the tax would be $400 pesos. Things get more complicated, however, if the company fails to present its financial statemets and the tax goes up.
• Audited Financial Statements: Corporations are required to present audited financial statements on a yearly basis.
• Shares Freely Transferable: The shares of an SA can be transferred freely without restrictions and with limited hassle.
  

Who Shouldn't Form a Sociedad Anónima
The Argentina Companies Law prescribes many different formalities for corporations, such as shareholder meetings, formal resolutions, share voting, etc. If you are planning on running a small business, I do not recommend forming a sociedad anónima, as it will lead to lots of beurocracy, paperwork, and other administrative burdens. For the small business owner, there really is no reason to form a corporation.

Who Should Form a Sociedad Anónima
On the other hand, if you're forming a large company, with many investors, and there is a need to facilitate the easy transfer of shares to allow investors to enter and exit the company at will, a sociedad anónima is ideal and is designed for this purpose. The formalities that exist are there for the protection of the shareholders and ensure that management can't make decisions unchecked.

Argentina Corporations (S.A. - Sociedad Anónima)

Argentina Legal Entities - Types of Companies You Can Form

There are essentially three types of legal entities which are useful for doing business in Argentina: corporations (SA), limited liability companies (SRL), and the branch office. There are of course other types entities that can be created under the Argentine Commercial Companies Law, but they serve little practical use and I won’t be discussing them.

Regulation
Companies of all types are regulated by the Inspección General de Justicia (or “IGJ”). Public companies are also regulated by the National Securities Commission (Comisión Nacional de Valores).

Objective
Both corporations and limited liability companies must declare an “objective”, which specifies the business activity the company will be allowed to perform. A company can’t simply specify “perform services”. It actually needs to say, “provide architectural services for the construction of new residencies and remodeling of existing ones.” The more specific the objective, the easier it is to get it approved by the IGJ.

Limited Liability
In both the case of the Corporation and the Limited Liability Company, liability is limited to the capital invested by each shareholder or partner. To the best of my knowledge, a foreign branch office (since it is not a separate legal entity) exposes the parent company abroad to full liability for its operations in Argentina. For this reason, most multinationals (and every bank) form subsidiary companies rather than operate as a branch.

I will make a detailed post on each entity type in the coming days.

Argentina Legal Entities - Types of Companies You Can Form

Sole Proprietorships

How does one do business in Argentina? If you read any of the 200 guides out there written by lawyers, they’ll begin to explain the difference between the different types of legal entities in Argentina -- SRL or SA -- but since all the guides are designed for Fortune 500 companies, there’s a key option missing -- a sole proprietorship.

In the US, when you are going to start doing business as a consultant or sole proprietor, you don’t need to do anything special, you just get started. At the most you’ll get a business license from your municipality and register for sales taxes. But the IRS doesn’t require anything from you. At the end of the year you just attach an extra schedule to your 1040 and you’re off and running.

In Argentina, as you’ll see with many things, the system is different. Anyone in Argentina who is engaged in a trade or business needs to register with AFIP (the Argentina tax agency) and the province where the business is based.

Sole Proprietorship Are For Residents Only
It is important to note at this point that if you are not a legal resident in Argentina (i.e. you don't have a DNI), you may not do business as a sole proprietorship, since you have no authorization to work within Argentina’s territory. You will need to form a corporation in order to do business.

Unlimited Liability
Just like in the United States and elsewhere, if you are operating your business as a sole proprietor, you have unlimited liability and no personal protection against creditors. You will need to determine whether the limited liability offered by a corporation is worth the added expense and hassle (and believe me it is much more expensive and a lot more hassle) of maintaining a company.

As a practical matter, an expatriate who has recently arrived to Argentina and maintains their assets abroad is pretty much judgement proof. Lawsuits in Argentina take forever, there is no debtors prison, and the worst that happens to debtors here is that they have their reputation ruined with their suppliers and they are put into the Veraz (the local credit bureau).

On the other hand, if you have properties in your name, significant assets, or you expect to be running a large company with many employees, you should be looking at forming a company.

Federal Registration: Two Different Regimes
If you decide to go forward as a sole proprietor, there are two basic options to choose from when it comes to your taxes. You can either choose to enroll in VAT, or if you are a small business with limited revenues, you can choose to enroll in a parallel regime called “monotributo” (or single tax). It’s actually a misnomer because you’ll pay more than one tax as an entrepreneur, but the tax is certainly simpler and easier to calculate.

I highly recommend the monotributo regime for entrepreneurs who are just starting out and have limited sales. I especially recommend it for entrepreneurs from the United States who do not have experience with VAT. Not only will it allow you to get your feet wet and see whether your business idea works, you’ll be subject to less administrative headaches as you try to get your business off the ground.

If you don’t qualify for monotributo, you will need to register for income taxes, self employment taxes, and VAT.

Provincial Registration
Until now, we’ve been talking about federal taxes. However, provincial taxes also apply for most non-manufacturing activities. If your business is located in the City of Buenos Aires, you’ll need to register with Rentas. If you’re in one of Argentina’s provinces, you will need to register with the province’s tax authority.

Printing Invoices
This article is not meant to discuss taxes, but all the previous steps are required to obtain the different inscription papers which will allow you to finally go to an official print shop and have your invoices printed up. Once you have your invoices (“facturas” as they are known in Spanish) you can finally begin to sell legally. Selling without a factura or official ticket emitted from a Controlador Fiscal (a special receipt printer) is illegal.

There are more steps to be followed if you are going to sell to the general public rather than businesses (such as the need to emit tickets via the Controlador Fiscal) and that is beyond the scope of this particular article. However, every entrepreneur should be aware that running a business as a sole proprietorship is a viable possibility in Argentina and I recommend it for new businesses.

As always, please feel free to contact me should you require assistance with your particular situation or need more information. I’m happy to assist when possible.

Sole Proprietorships