The Milei Administration Pushed through Tax Reform
Does It Make Any Difference to Foreign Investment?

The recently enacted Fiscal Measures and Relief Law (Law No. 27,743 or the “2024 Tax Reform”) has been touted by certain media and government spokespersons as “transformative” and “fostering a more investor-friendly environment.” Is this true or merely wishful thinking?

Forced to compromise due to a legislative minority, the president’s 2024 Tax Reform falls far short of his electoral promise to overhaul one of the world’s most oppressive tax systems. Nonetheless, a companion piece of legislation, the Ley de Bases (Law No. 27,742), created the Régimen de Incentivo para Grandes Inversiones (the Large Investment Incentive Regime or “RIGI).

In our opinion, the RIGI, summarized at the end of this article, is far more likely to have a long-term effect on Argentina’s economy—particularly if it is to once again attract foreign direct investment (“FDI”).

Let us quickly look at those aspects of the 2024 Tax Reform and the RIGI, which we believe are relevant to FDI.[1]

The 2024 Tax Reform includes many other provisions, including a tax amnesty and moratorium. We mention these in passing and omit many others based on an assessment that these provisions are not vital to FDI and, therefore, outside the scope of this article.

For decades, Argentina has required its taxpayers to pay bienes personales (assets tax) on holdings in Argentina and around the world. For non-resident investors, at a minimum, that means paying a tax on the (non-publicly traded) shares or other assets held in Argentina.

We think it strange that an administration holding itself out as neoliberal would abide this tax. Nonetheless, in struggling to balance the budget, the tax reform proponents had to limit their ambitions to lowering the tax rate despite the relatively small revenue (assets tax receipts represented only 1.7% of total government revenue in 2022[2]) expected from the tax.

• The non-taxable minimum was increased from AR$27.4 million to AR$100 million (roughly the equivalent of US$107,000 at the current exchange rate[3]).
• The residential property exemption from tax was raised from AR$137 million to AR$350 million (roughly equal to US$375,000).
• For tax year 2023, the maximum applicable rate was lowered from 1.75% to 1.50%. The 2024 Tax Reform will continue to lower rates so that by 2027, the applicable rate will be 0.25%. Taxpayers who have complied with the wealth tax for tax years 2020-22 will qualify for an additional 0.5% reduction in the applicable tax rate for tax years 2023-25.
• Finally, taxpayers willing to prepay the wealth tax can qualify for several additional benefits associated with the tax, including guaranteed tax stability through December 31, 2038.

In the waning days of its quest for popularity, the prior administration lowered income tax on wages by implementing the so-called “impuesto cedular.” Though popular among employees who enjoyed six months of lower withholdings from their wages, the 2024 Tax Reform repeals the impuesto cedular and reinstates the progressive income tax on wages. This is a blow to most wage earners above the current income tax-exempt threshold of AR$1.8 million per month (single persons) and AR$2.3 million (married persons with up to two children).

The 2024 Tax Reform tweaks various other income and other tax laws, including the creation of a tax amnesty and a tax moratorium. The amnesty affords taxpayers an opportunity to declare previously sheltered assets without facing prosecution or penalties, while paying a modest tax ranging from 0% to 15%, depending on the circumstances of each disclosure. The tax moratorium offers substantial interest reductions and flexible payment plans for those who have accrued wealth tax, income tax, and social security tax liabilities.

While the government’s left hand has been busy lowering federal taxes to boost the economy, the right hand has worked to attract FDI and to revert the country’s bad brand for foreign investment. In 1999, FDI in Argentina was US$23.99 billion (net inflows stated in historic dollars)[4]. In 2022, that number had dropped to US$15.41 billion[5]. Thus, the government has rolled out a plan to achieve its greatest hopes for much-needed investment in oil & gas, mining, infrastructure, and agribusiness.

The RIGI endeavors to woo investors by offering a series of short-, medium-, and long-term benefits for “large investments,” defined as government-approved projects of US$200 million or more, 40% of which must be invested within the first two years of the project.[6] Qualifying projects will receive these benefits:

• A 25% reduction of the applicable income tax rate.
• Reduced tax rate on dividends (7% instead of 13%) during the first three years of the project, further reduced to 3.5% after seven years.
• Accelerated amortization and depreciation schedules.
• The ability to transfer (sell) to third parties any Net Operating Losses remaining after the conventional five years from accrual.
• No import duties and no withholdings on the purchase of imports, spare parts, or associated inputs and raw materials.
• No export duties as of the third year of the project (two years for specially qualifying “strategic exports”).

Our muted applause for the 2024 Tax Reform reflects our belief that the government has failed to achieve anything remotely innovative. Economic stimulus may follow only if the government has the political muscle to continue to reform tax and other laws that previously turned foreign investors away from Argentina. We harbor a bit more enthusiasm for the RIGI, but only because it is more accurately timed with Argentina’s best offerings to the foreign investors of natural resource extraction. If these changes are a harbinger of more to come, they make a nice first step.

[1] The 2024 Tax Reform includes many other provisions, including a tax amnesty and moratorium. We mention these in passing and omit many others based on an assessment that these provisions are not vital to FDI and, therefore, outside the scope of this article.

[2] Derived from information published by the Ministry of Economy for the 2022 national budget found here: Presupuesto Ciudadano 2022 (economia.gob.ar).

[3] In this article, all amounts originally stated in local currency (“AR$”) have been re-expressed in U.S. dollars (“US$”) based on the sell-side (tipo vendedor) exchange rate published by Banco de la Nación Argentina on July 5, 2024 (US$1 = AR$934.5).

[4] World Bank Group https://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD?locations=AR.

[5] World Bank Group https://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD?locations=AR.

[6] In the applicable executive order implementing the RIGI, the government has reserved the right to increase the investment threshold to US$900 million.