The low-down on the situation regarding localization in Argentina. Prepared in association with Marval, O’Farrell & Mairal, a leading global law firm, this is an extract from The Pharma Legal Handbook: Argentina, available to purchase here for GBP 119.
1. Are there any rules or regulations requiring and/or encouraging localization in your country? What is the legal framework defining these localization rules and policies?
As a preliminary comment, please note that to carry out activities in Argentina on a permanent basis, a foreign company has to appoint a local representative (e.g., a distributor), establish a branch, or establish a subsidiary (e.g., a local company).
Argentina has certain regulations encouraging localization in the country, which provide benefits from a tax, customs, and commercial standpoint. Please see Questions 2, 6 and 7 below for more information.
Although the main benefits are from a tax and customs standpoint, it should be noted that the MoH together with the Secretary of Trade have issued a joint regulation regulating the mandatory coverage of certain high-costs medicines by private and public healthcare insurance providers companies by giving preference to those national manufactured products available in the market with the same active ingredient or biosimilar from those manufactured abroad, provided that their final sale price is significantly lower than the average price of the similar/biosimilar foreign manufactured medicines.
2. Have there been any recent significant changes involving localization rules? If yes, when did they take place and what did they involve?
Yes. During years 2020/2021, Argentina made effective certain promotional regimes that provide tax benefits to companies located in Argentina.
- Biotech Regime: Regarding the pharmaceutical industry, during the year 2018, the Argentine Government regulated the Promotional Regime for Biotechnology Projects, created under Law No. 26,270 (the “Biotech Regime”), which is directed to companies located in Argentina that are working in: (a) R&D projects based on the application of modern biotechnology or (b) projects that apply modern biotechnology for manufacturing goods, performing services or improving existing procedures or products.
The Biotech Regime provides certain tax benefits such as: (a) VAT reimbursements; (b) accelerated depreciation of capital goods affected to the promoted project, and (c) the granting of tax credit bonds which can be used for paying advances and/ or balances of other federal taxes, among others.
In years 2019 and 2020 additional regulations were issued to effectively implement the Biotech Regime. In particular, in 2020, the Argentine Tax Authority issued General Resolution No. 4,669/2020 which was modified by General Resolution No. 4,934/2021, establishing the requirements for owners of approved projects under the Biotech Regime to apply the fiscal benefits. This resolution makes the Biotech Regime fully operative.
- Knowledge-Economy Regime: In addition, in year 2019 (under the former administration), the Argentine Congress enacted Law No. 27,506 which provides for a promotional regime for the Knowledge Economy (the “Knowledge-Economy Regime”), that aims to promote economic activities performed in Argentina (such as the creation, design, development, production, implementation or adaptation of products and services) by applying the use of knowledge (supported by progress in science and technology). Law No. 27,506 granted interesting tax and social security advantages to the regime’s beneficiaries.
However, in year 2020, the current administration suspended the implementation of the Knowledge-Economy Regime, and enacted Law No. 27,570 which amended Law No. 27,506 (modifying the requirements to be considered beneficiary of this regime and the scope of the benefits).
Regarding the pharmaceutical industry, the Knowledge-Economy Regime provides for a promotional tax regime for many innovative companies located in Argentina, such as: (a) biotechnology, (b) neurotechnology and genetic engineering, and (c) nanotechnology and nanoscience, including trials and analysis activities. Medical sciences activities linked to research and experimental development tasks are also included.
As in the past regime, to qualify as beneficiary of the “new” Knowledge-Economy Regime, companies must: (A) perform any of the promoted activities under the regime; (B) register with the National Registry of Beneficiaries; and (C) meet at least two of the requirements set forth in applicable regulations: (i) perform continuous improvements in the quality of services, products or processes, (ii) invest in research and development activities for a certain period of time, and /or (iii) have exports of goods and/or services derived from the performance of any of the promoted activities in a minimum percentage that will depend of the kind of activity and the size of the beneficiary).
The benefits under the Knowledge-Economy Regime include:
- Fiscal stability in respect to the benefits granted under the regime;
- Reduction of the general income tax rate, depending on the size of the company (60% for micro and mini companies, 40% for medium companies and 20% for large companies) applicable on the gains derived from the performance of the promoted activities, and possibility of deducting for income tax purposes any amount paid abroad in concept of foreign taxes on the gains derived from the performance of the promoted activities;
- Exemption from value added tax withholdings or payments in advance; and
- Tax credit bonus equivalent to 70% of the social security contributions paid by the company in relation to employees affected to the promoted activities.
Each beneficiary must, however, pay an annual amount of up to 4% per cent of the total tax benefits granted under the Trust Fund for the Development of Entrepreneurial Capital regime.
Please note that the Biotech Regime and the Knowledge-Economy Regime are independent, and that companies located in Argentina that comply with the requirements set forth in each case may apply to both regimes.
In addition, on June 16, 2021, the Argentine Government enacted Law No. 27,630 which amended the Argentine Income Tax Law, and replaced the fixed rate paid by Argentine companies on their corporate income from 30% to a progressive rate ranging from 25% to 35% for tax periods starting on January 1, 2021. Subject to net income amounts, companies will have to pay a fixed amount and a progressive rate over the surplus of the minimum base rate in their category.
3. Is the process of obtaining a marketing authorization impacted by localization policies in your country? If yes, how so (what are the incentives received or the requirements)?
The process of obtaining a market authorization is not impacted by localization policies in Argentina.
4. Is the pricing process for pharmaceutical products impacted by localization policies in your country? If yes, how so (what are the incentives received or the requirements)?
The pricing process for pharmaceutical products is not impacted by localization policies in Argentina.
5. Is the reimbursement of pharmaceutical products impacted by localization policies in your country? If yes, how so (what are the incentives received or the requirements)?
The reimbursement of pharmaceutical products is not impacted by localization policies in Argentina.
6. Is the access to public or public tenders of pharmaceutical products impacted by localization policies in your country? If yes, how so (what are the incentives received or the requirements)?
Yes. According to Law No. 27,437 the locally manufactured products must have a preferential treatment in public tenders with respect to foreign products.
Preference to offers of goods of locally manufactured products will be granted, among other requirements, when for identical or similar services the price of offers of locally manufactured products is equal to or less than the offered goods that are not of national origin, increased by fifteen percent (15%), when said offers are made by Micro, Small and Medium Companies (“MiPyMEs”, after its acronym in Spanish), and by eight percent (8%) for the other companies.
7. Are import tariffs, importation and/or exportation permits, trade and/or taxation of pharmaceutical products impacted by localization policies in your country? If yes, how so?
From a tax standpoint, as explained in Question 2, Argentina has recently established (or made effective) two promotional regimes that may have impact for companies located in Argentina which are dedicated to the pharmaceutical industry.
In addition, once the Company has decided to land in Argentina, there may be certain customs and taxation benefits depending on the local jurisdiction (provincial or municipal) where the company is located.
As a general comment, importers/exporters in Argentina must be local entities registered before Customs, as explained below:
In Argentina there are two different localization policies with customs-related benefits: a) free-trade zones; and b) Law 19,640 for manufacturing operations in Tierra del Fuego.
Free-trade zones are located in different parts of the country and they only have relevant fiscal benefits for those manufacturers that export goods that have undergone at least one industrial process in the free-trade zone. The main benefit is to exempt from export duties the higher value of the final goods.
Law No 19,640 splits the Argentine territory in two different customs territories, separating Tierra del Fuego from mainland Argentina. Even though imports to both territories have the same import duties regime, the import of goods originated in Tierra del Fuego –under the regime provided for in Law No 19,640– to mainland Argentina is not subject to import duties, among other benefits.
Argentina has a federal organization, which consists in three levels of governments: (i) Federal Government, (ii) Provincial Governments and (iii) Municipal Governments. According to Argentine Constitution, all three levels are entitled to establish and collect taxes under their own regulations.
At federal level, applicable taxes (mainly: income tax, value added tax, tax on debits and credits in bank accounts, and personal assets tax) and applicable tax benefits are in principle not impacted by localization policies within Argentina. In other words, for federal tax purposes, is the same being located in the City of Buenos Aires or in the province of Mendoza.
However, there may be certain promotional regimes for different industries depending on whether they are located. For example, companies located in Tierra del Fuego which manufacture different kind of industrial goods (such as pharmaceutical products) therein, could apply for the tax benefits granted under the Promotional Tax Regime set forth by Law No. 19,640 (which promotes the development of manufacturing operations within Tierra del Fuego). In 2021, this Regime was extended until 2038.
At local level (both provincial and municipal), the level of taxation on activities related to the research, manufacturing, processing and/or trade of pharmaceutical products may vary depending on the jurisdiction where the company is located. For example, certain provincial governments may offer tax exemptions for manufacturing operations carried on in their territories, while others may subject those same activities to taxation.
8. Are there any other incentives or advantages offered by the current local localization rules in your country? If yes, what are they?
9. Are there discussions about the possibility of implementing localization policies in your country? If yes, what are the proposed reforms and when should they come into place?
So far, we are not aware of any project for implementing further localization policies in Argentina.