I. Introduction
II. Basic principles
III. Complementary provisions
IV. Treaties for the promotion and reciprocal protection of investments
V. Conclusions

LEADING FOREIGN INVESTORS

SIZE OF FOREIGN INVESTMENT

ORIGIN OF FOREIGN INVESTMENT

SECTORS OF FOREIGN INVESTMENT

RELAXATION OF FOREIGN INVESTMENT REGULATIONS FOREIGN INVESTMENT LAW
- Technology Transfer

AGREEMENTS BETWEEN UNRELATED PARTIESTax
- Consequences of Registration
- Loan Agreements Between Related Parties
- Free Repatriation and Remittance of Investments and Profits
- Mineral Rights
- Tax Incentives
- Investment Policy and Changes
- Investment Procedures
- Reserved, Restricted, and Unrestricted Investment Activities
- Special Considerations and Arrangements for Foreign Investors

INVESTMENT INCENTIVES
- Tax Incentives
- Nontax Incentives
- Economic Development Programs
- Real Estate-Commercial and Industrial Space

I. Introduction

Foreign investment is regulated in Argentina by law Nº 21.382 enacted in 1976 ("FIL") as amended by laws Nº 22.208 enacted in 1980, Nº 23.697 of 1989 and Nº 23.760 of 1990. In September 1993 the Executive Power enacted decree Nº 1852/93 approving the new updated text of the FIL. Here below follows a summary of the FIL as per its text updated pursuant to decree nr.1853/93

II. Basic principles

The FIL carries three basic principles which are highlighted by decree nr. 1853/93:

1) Foreign investors may invest in the country in any economic activity - industrial, mining, agricultural, commercial, financial, provision of services or others related with the production and exchange of goods and services - without needing any type of prior approval, and under conditions equal to those applicable to domestic investors (FIL section 1, decree nr. 1853/93, sections 2 and 4). There are no activities excluded from this principle, except for radio broadcasting, nor is there any type of obligation of being associated with domestic investors nor any other type of restriction or condition;

2) Foreign investors have the right to repatriate their investments and to remit profits abroad at any time (FIL section 5, decree nr. 1853/93, section 5). In this respect there is no type of limitation or restriction whatsoever. The distinction which existed under the previous law between registered and non-registered foreign investors, granting the former certain rights which were denied to the latter in relation to the repatriation of their capital investments and to the remittance of profits in case an exchange control regime was implemented, has now been eliminated. As a consequence, the concept of registered or non-registered foreign investor has itself been eliminated, same as the foreign investment registry regime. All foreign investors have the right to repatriate their capital and to remit profits abroad at any time. We consider that by virtue of the peso's free convertibility enacted through law nr. 23.928 in March, 1991 and in view of what is established by article 5 of the FIL, this right could only be limited in the future by way of a provision having the hierarchy of a law passed by national congress; and

3) The principle of equal treatment between domestic and foreign investors is reaffirmed (FIL sections 1 and 9, and decree nr. 1853/93, sections 7 and 8). Those foreign investors which make capital investments in Argentina for the promotion of economic activities, or the extension or improvement of those already existing, have the same rights and obligations which are conferred by the National Constitution and local legal provisions to domestic investors. As a consequence, decree nr. 1853/93 eliminates the former need of prior approval by the National Industrial Technology Institute ("I.N.T.I.") of those agreements concerning transfer of technology and licensing of trademarks, patents and industrial designs, executed between a local company of foreign capital and the foreign company abroad which directly or indirectly controls it. Said agreements must be filed in the future with the I.N.T.I. exclusively for information purposes in order to bear the tax effects established by local laws and the treaties ratified by the Argentine Republic related to avoiding international double taxation.

III. Complementary provisions

Bearing in mind the basic principles which have been mentioned here above and which appear clearly stated in the FIL, a brief reference is made to some of its complementary provisions.

(a) Definitions. Various concepts are defined, such as: (i) foreign capital investment (all capital contributions made by foreign investors and applied to economic activities within the country, and the purchase by foreign investors of capital participation in an existing local company -section 2 parag. 1-); (ii) foreign investor (any natural or legal person domiciled out of Argentina and local companies of foreign capital -section 2 parag.2-); and (iii) local company of foreign capital and local company of domestic capital (these definitions are not relevant at present in view of the equal rights and obligations which one and the other have).

(b) Investment channeling. There are no limitations as to how the foreign investment can be carried out: freely convertible foreign currency, capital goods, their spares and accessories, profits or capital in local currency, capitalization of foreign credits, intangible assets, etc. (section 3).

(c) Legal structuring. Foreign investors can use any of the forms of organization that are admitted by domestic legislation, this is, stock companies, limited liability companies, etc.

(d) Agreements between affiliated parties. Section 9 of the FIL reaffirms the principle which had already been included in our legislation and accepted by local judicial and administrative jurisprudence, in the sense that legal acts executed between a local company of foreign capital and the company abroad which directly or indirectly controls the former or with an affiliate of the latter, shall be considered, for all purposes, as agreements executed between independent parties when the obligations and conditions agreed meet usual market practices between independent entities.

IV. Treaties for the promotion and reciprocal protection of investments

With the purpose of improving the foreign investment legal framework in Argentina, national government has signed treaties for the promotion and reciprocal protection of investments with most of the countries known as capital exporters (France, Germany, Great Britain, U.S.A., Italy, Austria, Holland, Switzerland, etc.). These treaties foresee:

1) treatment in favour of the investors of a signing party which is not to be less favourable than that granted to domestic investors; or than the treatment granted to the investors of a most favoured nation if this were more beneficial;

2) free transfer abroad of the liquid assets belonging to the investors of the signing countries, specially dividends and other current profits, loans and capital repatriations; and

3) the submission of all controversies which may arise between the investors and the countries party to the treaty, to the jurisdiction of an international arbitration court, at the investor's option.

V. Conclusions

The enactment of decree nr. 1853/93 has provided the local foreign investment regime with clearness, certainty and transparency.

The principle of equal treatment to domestic and foreign investors is reaffirmed, same as the foreign investors rights to repatriate their investment and remit profits abroad at any moment and without restrictions.

The FIL has now been reduced to a few provisions which mainly highlight the three basic principles mentioned in chapter II here above.

LEADING FOREIGN INVESTORS

Analyst evaluations estimates that US$ 89 billion have been invested in Argentina by foreign companies from 1994 to 2000. The most important investors were from the US, Europe (particularly Spain and France), and its closest Latin American neighbors, Chile and Brazil. Foreign investment has entered every industry, but mainly oil and gas, infrastructure, car manufacturing, foods and beverages, chemicals, mining and different services.

SIZE OF FOREIGN INVESTMENT

In Argentina precise figures on flows of capital from abroad are not kept and it is hard to name precise data on foreign investment. Cumulative, recorded, direct, nonfinancial foreign investment (investment other than portfolio investment placed in securities that can be liquidated rapidly-the so-called "hot money") in Argentina as of year-end 1993 amounted to approximately US$ 28 billion for the period 1990-1993, the third largest inflow among emerging markets worldwide (only Mexico and China received more foreign investment during the period). Significantly, nearly one-third of that total was in the form of investment in assets privatized by the Argentine government. Between 1994 and 1999 FDI inflows boosted at 53.7 billion, according to IMF reports, that is the most important world receiver of external capital, after China, Mexico and Brazil.

Analyst evaluations estimated that a total cumulative inflow of US$ 30 billion in foreign direct investment had come into Argentina as of year-end 1994 . Fundación also identified foreign investment projects totaling around US$ 89.2 billion for the period 1994-2000. This is a dramatic turnaround for an economy that saw net private capital outflows of an estimated US$ 50 billion during the 1980s; and more than US$ 5 billion fled abroad during Argentina's economic and financial turmoil in 1989-1990 alone. Argentina's foreign investment reform, currency stabilization, the effective privatization efforts, and a dramatic reduction in perceived country riskwere major contributors to this reversal. In addition, macroeconomic and global financial market trends during the nineties, such as the beginning of a recovery from recession among the OECD nations, and a low interest rate environment that pushed global investors towards opportunities in higher-yielding emerging economies, added to favorable domestic conditions, in spite of the crisis of Southeast Asian countries, and Russia.

In 1990-1991 more than US$ 15 billion in net private capital made its way back into Argentina. Foreign investment continued its heated pace during 1992, remaining strong in 1993 and 1994. The Deregulatione Decree and the Bilateral Investment Treaty with the US, eliminating most restrictions on internal commerce and foreign trade, set the tone for investor optimism in 1992. Mass privatization continued unabated with foreign investors becoming the beneficiary owners of more than one-third of all privatized assets. By the end of 1993, foreign companies had purchased nearly US$ 9.6 billion in asset value of privatized entities. Private capital inflow in 1992 almost reached US$ 8 billion and was slightly more than US$ 5 billion for 1993.

During the second half of the 90's, with the privatization process largely completed, capital inflows continued to be high related to direct investments and mergers and acquisitions in several sectors, particularly the oil and gas, communications, supermarkets and distribution, energy, foods and beverages, automotives and inancial sector.

ORIGIN OF FOREIGN INVESTMENT

The sources of investment in Argentina are the US, Europe, and its closest Latin American neighbors, Chile and Brazil. The USA and Spain have been the leading foreign investors in Argentina, topping the list during the 1990's ; US investors' share of the country's total foreign investment over the past seven years (1994-2000 was 31.6 percent. Spanish investors' share was 27.7 percent during the same period. Much of that participation has been in the form of the purchase and additional investments on privatized assets (primarily petroleum and other infrastructure assets), with the next most prevalent form representing capital investments in the automotive, the consumer products, and distribution industries.
Other main foreign investors include those from France, Chile, Italy, United Kingdom, Brazil , the Netherlands, Germany and Canada.

As noted, backing the overall foreign investment trend, there are bilateral agreements between Argentina and various countries, primarily those from Europe and the Americas. Typically, these bilateral trade agreements establish a government-to-government framework for channeling private investment and official financing, and guarantees between firms from the participating nations. They also usually provide for international arbitration of investment disputes and grant foreign investors protection from uncompensated expropriation and full capital repatriation rights (even in the event of a currency crisis).

The agreements and new reforms have gone a long way towards reducing Argentine sovereign risk for all investors, not just those covered under bilateral national agreements.

Projects scheduled for 2001-2002 identified by Fundacion Invertir show that the US should remain the major investor in Argentina, with a total amount of US$ 4.0 billion. Some of the projects involve joint ventures with Argentine or third country firms. Spanish firms have projects for US$ 2.3 billion; French firms for US$ 1.0 billion; Chilean firms for US$ 0.7 billion; Italian firms for US$ 0.7 billion; Dutch firms for US$ 0.5 billion; U.K. firms for US$ 0.5 billion; German firms for US$ 0.4 billion; Canadian firms for US$ 0.4 billion and Brazilian firms US$ 0.2 billion. Other major investors are Australian, Mexican, Japanese, Swedish, Swiss, Uruguayan, Belgium, South African, and Korean firms.

SECTORS OF FOREIGN INVESTMENT

As noted, the largest share of recent foreign capital has gone towards the purchase and modernization of privatized state firms and their assets. The second largest share of foreign capital inflow has gone to the private sector through equity investments and credit. Foreign direct investment is occurring through direct purchase of assets, mergers and acquisitions, and new business formations, primarily from major multinational industrial corporations. Infrastructure sectors such as oil and gas, telecommunications, sewer and water, transportation, ports and port services, and mining have received the greatest portion of the capital inflows. Other sectors that have participated to a significant degree include manufacturing, especially automobiles and household durable and non-durable goods, supermarkets and distribution, chemicals, and construction and housing industries. Government policy is currently encouraging investment in a variety of sectors, including mining, construction, the auto industry, energy, forestry, processed agricultural products, and tourism.

For projects scheduled between 1994 and 2000 the highest dollar amount involve Oil and Gas (US$ 28 billion) and telecommunications projects (US$ 12.4 billion); the third is Banking, insurance and health services with US$ 7.3 billion Commercial services account for US$ 6.6 billion and automotive and autopart production for US$ 6.1 billion. However, the greatest number of projects are in food, beverage, and tobacco processing (with an amount of US$ 5.8 billion). The production of electrical energy account for US$ 5.7 billion. . Investments in chemicals, media, mining, paper and pulp; tourism and hotels and construction have been very important during the second half of the 90s'.

RELAXATION OF FOREIGN INVESTMENT REGULATIONS FOREIGN INVESTMENT LAW

On September 8th, 1993 Decree No. 1853 (the "Decree" was published in the Official Gazette. The Decree updated the wording of the Foreign Investment Law No. 21,382 ("FIL") and amended the Technology Transfer Law ("TTL"). Salient aspects of the decree include the following:

The FIL applies to any foreign-domiciled individual or legal entity investing capital in local economic activities ("foreign investors"). Under the Decree, investments by foreign investors are no longer subject to prior government approval even when they are made in an area where special prior approval was required in the past, such as banking and insurance.

The FIL declares that foreign investors will be given the same treatment as local investors, provided the investments are destined to productive activities. Those activities have been defined to be industrial, mining, agricultural, commercial, service or financial activities, or any other related to the production or exchange of goods or services.

Prior to the Decree foreign investors could register their investments with the foreign investment authorities. The advantage of registration was it "protected" the investor against most (though not all) of the restrictions that the government was entitled to impose on the availability of foreign exchange for the remittance of profits and/or the repatriation of capital. Currently there are no such restrictions.

Technology Transfer
Scope of the Technology Transfer Law

The TTL has been clarified by the Decree. The TTL law governs agreements which provide for the transfer, assignment or license of technology or trademarks by foreign-domiciled persons to Argentine-domiciled persons ("License Agreements"). The regulations of the TTL define "technology" as patents, industrial models and designs, and any technical knowledge applicable to the manufacture of a product, or the rendering of a service.

Prior to the issuance of the Decree the TTL provided that, where the licenser directly or indirectly controls the licensee, or was an affiliate of that controlling entity, the License Agreement had to be approved in advance by, and registered with, the National Institute of Industrial Technology ("INTI"). Failure to obtain INTI approval and registration of the agreement resulted in adverse tax treatment of the payment of royalties, both for the licensor and the licensee. INTI scrutinized License Agreements at the approval stage. Once approval was granted, registration was obtained automatically. With the enactment of the Decree, INTI approval is no longer required. Failure to obtain INTI registration of the agreement however continues to result in adverse tax treatment.

Though INTI approval is no longer necessary, the requirement that terms and conditions should comply with "normal practices between independent parties" remains in effect.

A License Agreement between related parties used to be approved and registered only if INTI determined that its terms and conditions were in accord with "normal practices between independent parties." The TTL provides that the agreed consideration must "bear a relationship" to the transferred technology. Under the regulations, it is presumed that the consideration agreed upon "bears a relationship" to the licensed technology when it does not exceed 5 percent of the net sales value of the products manufactured or the services rendered using the technology. The regulations define "net sales value" as ex-factory invoice value, less discounts, allowances, returns and excise and value added taxes.

In order to evaluate the royalty rate included in the License Agreements between related parties, INTI used to calculate the percentage of the licenser's gross income that was spent on research and development. INTI generally objected to a royalty rate that exceeded that percentage. Since 1977, the average royalty rate approved by INTI in agreements between related parties has been 3 percent of the licensee's net sales. This, however, was merely an average, and should not be interpreted as implying an INTI policy to reject higher royalty rates or accept royalty rates that did not exceed 3 percent.

INTI will not register trademark licenses between related parties unless they are granted on a royalty-free basis and are part of another registrable agreement.

Neither the TTL nor its regulations contain provisions concerning the treatment of other terms and conditions under the "normal practices between independent parties" test.

The majority of License Agreements between related parties that have been rejected by INTI involve technology that INTI considers to be available in Argentina. Another large percentage of rejections are based on INTI's determination that the consideration for the technology is too high. A small percentage of the rejections is based on the inclusion of restrictive clauses, such as restrictions on the licensee's exports, disclaimers of liability of the licensor, requirements that the licensee acquire raw materials from a specified source and provisions fixing the price of the products to be manufactured or the services to be rendered using the technology.

AGREEMENTS BETWEEN UNRELATED PARTIES

A License Agreement executed between unrelated parties should be registered with the INTI (a routine procedure) for statistical and tax purposes.

The TTL and its regulations do not establish any specific requirements regarding the content of License Agreements executed between unrelated parties. Nonetheless, INTI from time to time has refused to register such agreements based on its determination that the actual purpose of the agreement was not the transfer of technology.

Since 1977, the average royalty contemplated by INTI-registered agreements between unrelated parties has been 4 percent of the net sales of the licensee.

Tax Consequences of Registration

Royalty payments made under a License Agreement are considered Argentine-source income of the licenser and are subject to withholding. The tax rates vary depending on whether the License Agreement is registered with INTI and, if it is registered, on the type of technology to be transferred.

The failure to register a License Agreement, whether between related or unrelated parties, does not affect the validity of the agreement between the parties. Payments made to the licensor, however, may not be deducted by the licensee for income tax purposes (they are deductible if the agreement is registered), and such payments are subject to an effective income tax withholding of 31.5 percent, rather than the otherwise applicable 21 percent or 28 percent rates, as explained below.

Royalty payments made under a registered License Agreement are subject to an effective income tax withholding rate of 21 percent if (i) the technology is transferred in the form of technical assistance, engineering or consultancy services, (ii) the payments are made on a nonrecurring basis, and (iii) the amount of the payments is based on the amount or duration of the services performed. Otherwise, payments made pursuant to a registered License Agreement are subject to an effective rate of 28 percent.

In order to benefit from one of the lower rates, a certificate must be obtained from INTI. A registration fee that ranges from 0.15 percent to 0.25 percent, depending on the type of technology transferred, calculated over the amount of the consideration to be paid, or estimated to be paid for the technology will apply.

Loan Agreements Between Related Parties

The Decree implicitly abrogated the powers of the Argentine Central Bank ("BCRA") to approve loan agreements executed between a local company and a foreign related company. These agreements were approved when they were executed on an arm's length basis and assessing the financial exposure of the borrower. Notwithstanding that such approval power has been implicitly abrogated, loan agreements between related parties should be executed on an arm's length basis. BCRA, through Communication A 2161 dated 15 November 1993, has acknowledged receipt of the abrogation of its powers.

Free Repatriation and Remittance of Investments and Profits

The Decree maintains the principle in force since 1989 that foreign investors are entitled to freely repatriate their investments and remit their profits abroad at any time.

Mineral Rights

As a result of the general reform initiated in 1989, the government issued the Modernization Law in June, 1995. This law eliminates the large scale mining regime. Thus, all mining projects are now covered by the same rules. Except for reserved areas, the government is not entitled to contract third parties through a bidding process. However, the law increases the exploration areas that private parties may claim in each province from 100,000 to 200,000 hectares and grants private parties the right to explore larger areas using aircraft. Moreover, the Modernization Law reduces the size of areas the state may exclude from the exploration of private parties (reserved areas) from 200,000 to 100,000 hectares per province, limits the time that the government may keep such areas under its control from four years to two years, and includes among the minerals that private parties may exploit under the Mining Code those used in generating nuclear energy.

Tax Incentives

In 1993 the government issued a promotional tax regime. This regime established a favorable depreciation system for capital expenditures in mining projects, exempted the capital goods related to a mining project from import duties, and held taxes for mining companies stable for 30 years. For that period, mining companies that qualify under this law are subject only to the federal, provincial and municipal taxes in effect at the commencement of the project; new taxes or any increase in the tax rates do not apply to a company operating under this law. The Value Added Tax (currently 21 percent) is not covered by this tax stability clause.

Since most of the mineral resources belong to the provinces, on May 6, 1993, all provinces executed an agreement with the federal government to unify mining policies and procedures throughout the country.

Investment Policy and Changes

Foreign investment is legally defined as any contribution of capital belonging to foreign investors and/or the acquisition of shares of existing domestic enterprise using foreign capital. In general, any investment made by foreign individuals, companies, or unincorporated entities, as well as by Argentine companies with more than 49 percent foreign ownership control-or in which foreigners have the right to appoint and control the management of the entity-is deemed foreign investment. However, investments made by foreigners resident full time in Argentina are generally classified as domestic investment, while those made by Argentine nationals residing abroad are considered foreign investment.

The Argentine government fully accepts the principles of international dispute resolution, and investment disputes can be settled through local courts or administrative procedures. The bilateral investment agreement between the US and Argentina provides for binding international arbitration of disputes which cannot be settled through mutual negotiation between both parties.

Investment Procedures

Foreign investors have the same rights and obligations that the Argentine Constitution and laws give to national investors involved in economic or productive activities within the country. Foreign investment does not require formal approval or registration of any kind. This does make for trouble in assembling accurate national investment statistics but does remove the red tape from the formerly cumbersome investment registration process.

Foreign investors may make investments using any foreign currency, capital goods, capital or profits from existing operations denominated in local currency, or intangible assets under certain conditions. They may also invest by means of capitalization of accounts payable to foreign creditors. In short, just about any assets can be used for investing in Argentina.

Foreign capital contributed in either portfolio or direct investments may be unconditionally repatriated at any time. Foreign investors also have the right to remit earnings from their investments immediately.

No performance requirement are stipulated for foreign investors. Government incentives apply to both foreign or domestic firms. For details on how to set up a subsidiary in Argentina, refer to chapter 16, "Business Entities and Formation" and chapter 18, "Business Law."

Reserved, Restricted, and Unrestricted Investment Activities

Prior federal government approval was necessary under the 1976 Foreign Investment Law for investment in sectors such as defense, telecommunications, mass media, banking, publishing, insurance, and a number of other industries. Recent changes have eased this requirement.

Foreigners are barred from direct investment in uranium mining or nuclear power generation as a matter of national interest. Some restrictions also continue in mass media. Foreigners have reportedly been denied broadcasting licenses, although their participation is not officially prohibited either by law or government policy. In recent years, a large amount of foreign investment has been made in the major cable TV stations, by such companies as Citicorp, TCI, and US West. Foreign (as well as Argentine) investors may only enter the fishing and insurance industries through purchase of a controlling interest in an existing operation, as no new licenses are being issued in these sectors at this time (in the fishing sector new licenses have been limited to preserve natural resources). However, unlimited entry will likely be permitted in the insurance industry subsequent to ongoing restructuring and reform. Investments in banking and related services are not restricted, but ownership of local banks and the opening of branches or subsidiary operations of foreign banks must be approved by the Banco Central de la República Argentina (the central bank, or BCRA). Such permission is decided on a case-by-case basis and depends on the nature of the investment and the investor, and the situation in Argentina at the time of the application.

The government has modernized federal mining codes and has signed a Mining Integration Treaty with Chile to promote joint and more efficient operations. Provincial governments are actively seeking to develop mineral resources in the western half of the country. Foreign investors are being actively encouraged to participate in this development, and foreign companies have already become heavily involved in mineral exploration in these areas.

Most of the past state monopolies-such as those that existed in communications, oil and gas exploration and production, airlines, railways, port operations, post, airports and distribution of water, power, and light-were deregulated by the government's prior privatization efforts. Foreign investors have been allowed to participate in privatization on an equal footing with national bidders, and foreigners accounted for nearly 40 percent of such investment.

Special Considerations and Arrangements for Foreign Investors

As is the case with any foreign commitment, the investor should exercise caution before proceeding with the investment. This means acquiring extensive knowledge of all applicable rules, regulations, and policies, as well as familiarity with the historic and current local market situation. In view of the recent, rapid change in the economy's structure and in Argentine commercial codes and rules, it is especially important for foreigners to familiarize themselves with the current environment and local market players.

INVESTMENT INCENTIVES

In Argentina, import tariffs for both new and second-hand capital goods is zero.
VAT on capital goods has been reduced to 10.5%, half the VAT payed on the rest of goods and services, and the Government pays the cost of financing this VAT until it can be transferred to consumers.

Foreign investment incentive policy is based on the concept of national treatment for all investors, that is, treatment is the same for both foreigners and nationals. In the past, a wide variety of industrial promotional programs existed giving tax breaks to specific industries or rewarding the establishment of industrial activity in certain geographic regions, usually to encourage development in neglected areas of the country. The main reason for the demise of such incentives was the government's decision to eliminate all subsidies that resulted in special treatment and economic distortion, as well as creating a costly addition to the national budget. Some companies still enjoy benefits from past promotional programs; however, these will soon expire -some have already done so- and are not expected to be renewed.

In recent years, Congress has included a reduced amount in the national budget directed towards the promotion of agricultural and tourism projects, in a few of the lesser developed provinces (Catamarca, La Rioja, San Luis and San Juan). In addition, there are some limited subsidies for forest plantations, and tax incentives for mining.

It is possible to obtain some tax incentives under promotional schemes sponsored by various provincial governments. These usually take the form of a waiver of local taxes due or reduction in tax rates, and are negotiated on a case-by-case basis with the specific provincial governments based on the nature of the proposed investment. The sectors promoted vary in different provinces; but usually include manufacturer industries, mining, forestry and tourism.

FTZs New legislation has been passed to authorize the creation of FTZs in each of Argentina's 23 provinces, as well as in four other areas of the country considered suitable for development as foreign trade ports. Some of them are already in operation. Argentina has also established a special regime similar to a free trade zone (FTZ) in the Province of Tierra del Fuego in the far south. Products imported by approved high-priority industries are admitted duty-free to the zone and must be re-exported after a transformation process. The firms installed in FTZs may also be eligible for certain tax benefits.

Tax Incentives

Significant tax incentives exist in the mining sector under the Mining Investment Law (foreigners are prohibited from investing in or owning operations involved in the production of uranium). For eligible operations, the government guarantees taxes and tax rate stability for 30 years, as well as full tax deductibility for all prospecting and exploration costs for each project. Tax deductions may be taken for environmental conservation allowances. Profits on mines and mineral rights capital contributions are to be exempted from taxation entirely. In addition, accelerated depreciation can be used to account for investment in new mining operations and extensions of existing mining capacity.

In the case of the forestry sector, existing laws guarantee that the current taxation structure will not be modified for 33 years to encourage investment; there is also a subsidy of 50 percent for the cost of planting, one and one-half years after the planting, once it has been verified by the government. The regime is limited to small investments in certain specific areas.

In addition, the overall tax regime for any industrial activity is generally attractive for multinational enterprises operating in Argentina. A 35 percent flat tax rate on income from Argentine as well as foreign companies exists for all entities.

Nontax Incentives

Various available nontax benefits take the form of accelerated procedures for government licensing and approvals. New concessions have been offered to foreign and local entities to develop cellular telephone networks and infrastructure projects, including roads, bridges, and pipelines. In the fishing sector, transparency has been established for the procedures used to obtain new resource exploitation approvals and use permits for existing activities. In the automotive sector -in which the majority of manufacturers are foreign multinationals- entities operate with a highly protective import scheme that contains various tax and nontax barrier incentives determined by the amount of production exported and the specific destinations of the products.

The government also actively encourages joint ventures between foreign and domestic firms, although this does not constitute mandatory policy.

All in all, because foreign firms have essentially equal access to local loan funds, full currency convertibility, repatriation of capital and earnings, and virtually unrestricted access to almost all industrial sectors, the lack of official incentive programs is not likely to dampen foreign direct investment in the near future. Multinational industrial firms have typically used internally generated funds, funds representing intra-company transfers, or funds raised in international capital markets to make direct investments in Argentine projects.

Foreigners considering an investment in Argentina can draw on a variety of resources, both in Argentina and overseas. The main Argentine organization offering basic information and consulting services is Fundación Invertir Argentina, an institution backed and managed by the private sector and also supported by the state. Invertir's primary function is to promote Argentine investment and assist investors interested in doing business in Argentina. Some provinces have recently organized investment promotion areas, working closely with Fundación Invertir. The Fundacion also provides information the foreign investor needs in order to fulfill its investment objectives in Argentina, like economic, financial, educational, technical, and legal aspects useful for investment decision taking.

This entity can provide a wealth of information and directions regarding what agencies and persons should be contacted, as well as where to find the required investment services and information.

In addition, numerous private organizations offer basic information and consulting services, usually on a fee basis, for virtually every aspect of investment in Argentina. Those organizations include management consulting firms, accounting firms, law firms, commercial banks, trading houses, and real estate agencies. Refer to the "Important Addresses" chapter for listings.

Economic Development Programs

A public investment program of around US$12 billion is currently underway to develop and improve the nation's infrastructure in the main segments of the economy. The main programs focus on energy production, especially electric power generation and distribution, public works (roads, water, and sewers), and such transportation facilities as airports, railroads, waterways, and seaport and riverport facilities. Running parallel to this list of activities are a host of specific economic development programs designed to encourage private investment and participation in these areas. Target sectors include agriculture and livestock, forestry, mining, basic industry and other export oriented activities.

To diversify agricultural production and increase overall supply in Argentina, the Banco de la Nación Argentina (BNA) has increased the financing available for firms that produce commodities for export.

The BNA, an official development bank designed primarily to serve the needs of small and medium-sized firms through direct loans to such businesses, has teamed up with the Agriculture Secretariat (SAGPyA).

Certain projects owned or operated by foreigners may be eligible for funds from this source.
The forestry and mining sectors are assisted by programs from the BNA and the Interamerican Development Bank (IDB).

The manufacturing sector is receiving assistance through credit lines for financing investment and working capital, which are being extended primarily through the BNA and the Banco de Inversión y Comercio Exterior (BICE-set up to promote investment in and financial support of the import/export sector), as well as through other official and private financial sector institutions.

In addition, Argentina is working in cooperation with the European Union (EU) and the US Department of Commerce to develop pilot programs in various industrial sectors and regions.

Most of these programs encourage (and to a certain extent provide funding for) foreign participation under specified terms and conditions. Foreign investors wishing to take advantage of these and other specific development programs are encouraged to contact the financial institutions or government agencies directly for more information.

Real Estate-Commercial and Industrial Space

Real estate leasing or purchasing in Argentina, as is the case in many economies around the world, requires careful research and consideration before decisions can be made. The real estate market worldwide is still characterized by pricing inefficiencies, lack of procedural standardization, and localized variability in quality and supply. In Latin America as a whole-although to a lesser extent in Argentina-state-of-the-art commercial office and industrial space is harder to come by than in many other markets.

The basics that many operators take for granted in Europe, North America, and the more developed Asian markets do not necessarily hold true in real estate markets in some cities of Argentina.

Difficulty in securing appropriate space usually goes beyond the initial lack of familiarity of local market terms and conditions. For example, in some areas, commercial projects may have been built under condominium-type laws. Here, tenants may have to deal with not one but multiple landlords, possibly on a floor-by-floor basis in some areas. Undeniably, it is important for the foreign manager or investor to research the current market conditions. And because the real estate industry in Argentina is a closely held sector typically controlled by individuals and family groups, rather than arm's length corporate entities, it is also important to build key relationships with players in the local market in order to get a chance at fair and equitable treatment.

The typical way to find office space is with the assistance of a real estate agent. In the larger cities, particularly Buenos Aires, you will find real estate agents who specialize by property types and in serving foreign clients. They can often provide useful information such as where specific industrial activity occurs and which location will be most likely to provide the foreign operator with the right mix of services and resources. Large, multinational commercial property developers and managers operate in Argentina, and can often serve as good sources, consultants, and agents for foreigners. Some foreign businesses may be more comfortable with such an arrangement than they would be diving directly into the local agent market.

In general, all property types are available for lease or can be built in Argentina. Buenos Aires has a good supply of top tier (Class A) office space, suburban office space, and retail space. Residential housing is relatively expensive to rent but relatively less expensive to purchase as compared to similar urban markets, such as Los Angeles. Land prices will vary widely by province and location (coastal and inland, urban and rural). The accompanying table reviews typical real estate rental and purchase prices in Buenos Aires.