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
|