On 27 June 2024, Argentina passed Law No 27,742 (“Ley Bases”) on ‘Foundations and Starting Points for the Freedom of Argentines’, colloquially referred to as “Ley Bases” in Spanish. The law introduces several tax and regulatory incentives for investors and establishes a new dispute resolution framework, making the country an attractive destination for large-scale investment in key industry sectors.
Background
The Ley Bases introduces comprehensive reforms aimed at deregulating and reducing federal government spending, aligning with recently elected Argentine President Javier Milei’s libertarian vision for the country. Passed alongside a tax reform law with similar aims, it enables the privatisation of several State-owned enterprises and the delegation of legislative powers to the executive branch, contains a labour reform and encourages major projects by offering investors protections against risks of the Argentine economy by providing tax and regulatory incentives to private investors in key economic sectors like energy, mining and forestry.
The reforms introduced by the new law have attracted mixed reactions, with some politicians praising its potential to attract new investment and reduce public spending, while members of the opposition have criticised the benefits it grants foreign investment over local small and medium businesses.
The new investment promotion regime
A cornerstone of the Ley Bases is the creation of the Régimen de Incentivos para Grandes Inversiones (“RIGI”), contained in Title VII of said law. The RIGI provides generous tax, foreign-exchange and trade incentives over a 30-year regulatory stability period for qualifying large investments in the energy, mining, forestry, infrastructure, steel, oil and gas, technology and tourism industries.
The term to adhere to the investment regime will be two years from its entry into force. To benefit from the terms of the RIGI, the firms must commit to a project worth a minimum of USD 200 million – potentially a larger amount going up to USD 900 million in certain sectors or sub-sectors as determined by the Executive Branch. Firms will need to invest at least 40% of the capital within the first two years. Additionally, firms are required to establish a ‘single-project vehicle’ (“VPU”) specifically and solely dedicated to projects that meet RIGI criteria in order to be evaluated and approved by the Ministry of Industry and Trade. Projects valued at least at USD 1 billion, and considered strategically significant to position Argentina as a key global supplier, may receive additional benefits.
Qualifying VPUs will receive tax benefits such as a reduction in corporate income tax from 35% to a fixed 25% rate; a reduced dividend tax rate of 7%, reduced to 3.5% after the seventh year; and the option to pay value-added tax using tax credit certificates and several exceptions on certain import and export taxes.
An important development is that Ley Bases also includes a new arbitration framework as part of the RIGI. According to the arbitration clause (Art. 221), all disputes arising out of or in relation to a qualifying investment between Argentina and a VPU that is a member of the RIGI, including, but not limited to, the execution, application, scope or interpretation of this regime shall, in the first instance, be resolved by amicable consultation and negotiation. If the Dispute cannot be settled amicably within 60 days of the VPU notifying the State of the existence of the dispute, the VPU shall, at its own choice, submit the dispute to arbitration before (i) the Permanent Court of Arbitration (“PCA”), which has a seat in Buenos Aires, the International Chamber of Commerce (“ICC”), or the International Centre for Settlement of Investment Disputes (“ICSID”). Apart from ICSID, it will be for the tribunal to choose the seat of arbitration; and if the VPU chooses PCA, the language of the arbitration will be in Spanish. Nonetheless, the Executive Branch may set forth other dispute resolution mechanisms, specific to each project, when issuing the administrative act that approves the application for adherence and the investment plan.
What to expect
The Ley Bases is an attempt from the new government to attract capital into the country. The tax and investment frameworks set up by the RIGI posits Argentina as an attractive destination for investors in key sectors of its economy. At the same time, it attempts to address the potential risks usually associated with an unstable economy by providing greater legal certainty and favourable regulatory and dispute resolution frameworks.
The RIGI became operational on 20 October 2024, and registered its first new project on 26 October 2024 – a USD 220 million investment from Argentinian company YPF Luz to build a solar power park in the province of Mendoza. It is expected that this will be the first of numerous upcoming projects.
Although it is expected that more investors will soon take the opportunity to operate under such favourable conditions, there is ongoing discussion on whether this will benefit the country in the long term and achieve the Argentine government’s objective of revitalising its economy.
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