Tapestry Alert: Argentina – Relaxes Foreign Exchange Controls

 
December 2015

Dear Client,

The recently elected government in Argentina has announced plans to ease restrictions on foreign exchange rules, reversing the tight controls imposed on residents’ access to the foreign exchange market to purchase foreign currency and remit funds out of Argentina. 

What are the problems with the existing exchange control rules?

Since 2011, strict exchange control regulations meant that the purchase and sale of foreign currency, and all transfers of foreign currency to and from Argentina, were strictly controlled with criminal consequences for non-compliance.  One consequence of the limits imposed on the ability of a local resident to purchase foreign currency has been to make remitting funds abroad to acquire shares under a share plan almost impossible.  An employee would only be permitted to pay for shares abroad using funds that were held aboard before the exchange controls were put in place.  Under the 2011 rules, money coming into the country had to be settled through the local exchange market, converted into Pesos and registered with the central bank. Incoming funds had to remain in Argentina for a minimum period of one year and 30% of the funds held in a mandatory, non-interest bearing deposit in US dollars.  The restrictions on payments out of Argentina also made it very difficult for companies to re-charge the cost of a share plan to the local company.

What are the key proposed changes?

On 17 December, the Argentine Central Bank (ACB) announced significant amendments to the exchange control rules, essentially winding back the 2011 restrictions and introducing greater flexibility in the acquisition of foreign currency for local residents, to allow for payments for imports, services and cross border finance.  The government has also allowed the peso to float against the dollar, which has resulted in a devaluation of the peso although the ACB is intervening to limit the impact.

Relevant changes which came into effect from 17 December include:

  • the removal of the Tax Authority’s prior authorization regime for the acquisition of foreign currency;
  • local residents (individuals or companies) are now able to purchase up to USD2,000,000 per calendar month, including for investment abroad;
  • the removal of the current regime for the payment of services, allowing the payment of services without limitation (even to affiliates and related entities);
  • the abolition of the obligation to settle in the local foreign exchange market any cross border finance (it will only be necessary if the resident paid the debt from Argentina). The minimum term for repayment was reduced from 365 to 120 days and advance payment will also be allowed (as long as the 120-day term is respected). It is still necessary to provide evidence of the inflow of funds for the payment of principal and interest through the foreign exchange market;
  • the mandatory deposit (30%) on incoming currency into Argentina was eliminated.

Tapestry Comment:
The highly restrictive exchange control rules added a layer of complexity for employers offering share plans to employees in Argentina. Plans had to be structured so that there was no inflow or outflow of funds and no obligations on local employees or the local employing company to make payments abroad.  The current news from Argentina appears to remove most of the restrictions on employees participating fully in global share plans.  However, it is still early days and the effect of the lifting of the controls, in particular the devaluation of the peso, has yet to be assessed.  


Our counsel in Argentina is looking at the new rules in depth for us and we will keep you up to date with developments.

In the meantime, if you would like more detail on the changes and how they affect you, please contact us.

Bob Grayson, Sharon Thwaites and Jessica Mitchell

           
 


Our online global database covering 100+ countries is ready for your use, it now includes global due diligence advice for more than 150 countries around the globe. This enables our users to quickly gain an understanding of any potential requirements or issues when operating a share plan around the world. It covers all the usual information like securities laws, exchange control and tax as well as hot topic issues like clawback issues and FATCA type requirements globally.

If you would like a demo of our database please contact 
Linda Bartlett.
 



 


    
 


 

 

 

 
 

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Janet's phone +44 (0)7889 999051
Email:
janet.cooper@tapestrycompliance.com

Bob's phone +44 (0)7957 918002
Email:
bob.grayson@tapestrycompliance.com

PA's +44 (0)203 432 2556

Gabby's phone: +44 (0)7896 768669
Email:
gabby.miranda@tapestrycompliance.com

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