Volume 5, Number 26, Page 1

Duty Free Zones in Argentina

by Carlos Casanovas and Daniel Vanrell

In General

Definition: In the interest of developing certain economically depressed areas of the country, Argentina has created new regulations establishing Duty Free Zones (DFZs). Law No. 24,331 allows each Argentine province to establish an area that is not subject to the regular control of Customs authorities. The new law is aimed at developing certain regions and encouraging trade and export activities.

The main characteristics of these duty-free zones are the following:

• DFZs represent a portion of a territory neutralized for Customs purposes;
• DFZs are areas in which any type of goods — regardless of origin and nature — can be imported into and exported abroad without restrictions; and
• the aforementioned export/import transactions are not subject to customs duties.

Activities That Can Be Developed Within DFZs

Commercial, storage, service, and industrial activities are allowed within the zone. Also, industrial activities are permitted for manufacturing goods to be sold exclusively abroad. However, for entities involved in the production of goods that have never before been manufactured within the country, importing through the zone to the country is allowed.

DFZs Available

According to the new DFZ law, all Argentine provinces can establish a DFZ within their territory, but only a few are currently active. One of the most important, fully active zones is LPDFZ, located in La Plata a province of Buenos Aires. La Plata DFZ is the closest zone to the city of Buenos Aires.

Tax Treatment

Inflow and Outflow of Goods to and from DFZs

Under Article 24 of the new law, goods entering a DFZ are exempt from all taxes applicable to imports. Therefore, the import of goods to a DFZ is exempt from customs duties, VAT, and excise taxes, among others. This exemption does not apply to fees for services rendered.

Additionally, Article 25 provides that the outflow of goods from a DFZ to third party countries is exempt from customs duties applicable to exports.

Goods Entering Zone

Goods entering a DFZ may be destined for consumption or storage within the area. The LPDFZ regulations establish a maximum five-year storage term. Under new regulations applicable to the LPDFZ, non-Argentine entities may store goods within the zone by entering into a “warehouse agreement” with a zone user — an entity or individual with premises (warehouses) within the zone for the sole purpose of storing them – no transfer of the property is permitted. Also, the nonresident need not be registered in Argentina to be able to store goods in the zone.

Under these regulations, a non-Argentine entity may invoice goods directly from abroad to a client located in Argentina. Then, the Argentine client may import such goods from the free trade zone.

Goods Entering the General Customs Territory from DFZs

Goods entering the country from a DFZ are considered imports. Therefore, all taxes on imports are applicable — customs duties, VAT, and excise taxes. The Argentine importer of record (in general, the client) is responsible for these taxes.

Permanent Establishment

Under the Argentine Income Tax Law (ITL), there is no clear definition of permanent establishment (PE). The concept, however, has been included in the majority of tax treaties that Argentina has signed. In general, these treaties establish that the following will be considered a PE:

• a branch of a foreign company;
• an office;
• a factory;
• a mine or any kind of place that natural resources are extracted from;
• and any other kind of fixed place of business.

Also, some treaties specify that the use of a warehouse for the sole purpose of delivering goods will not be considered a PE, or that the use of installations for the sole purpose of storing and displaying goods will not be considered a PE. These latter treaties are those with Austria, Canada, Denmark, France, Germany, Italy, and the Netherlands.

Even though the Argentina-U.S. tax treaty is not in force, we believe that these aforementioned definitions could be used as guidance due to the absence of specific regulations.

Conclusions

Even though the Income Tax Law does not include a general definition of a PE, other laws, such as tax treaties, do.

Furthermore, no registration with the tax authorities is required to store goods within the LPDFZ. Therefore, a non-Argentine entity can develop commercial activities for Argentina directly from abroad or through independent agents, thus being able to invoice its transactions directly from abroad. Therefore, we believe that the maintenance of a warehouse in the LPDFZ for the sole purpose of storing and/or delivering goods to Argentine clients would not create a PE in Argentina for the owner of the goods.

Carlos Casanovas is a senior tax consultant and Daniel Vanrell is a tax principal with Ernst & Young in Buenos Aires.