Argentina Relaxes Restrictions on Ownership of Rural Properties by Foreigners

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On June 29, 2016, the Argentine executive branch enacted decree 820/2016 (the New Decree), easing certain restrictions imposed under existing law on the acquisition and leasing of rural lands by foreign individuals and legal entities (Law No. 26,737, enacted in 2011 by the former administration, hereinafter, the Rural Land Law). 

The New Decree reaffirms the decision of the elected Argentine president, Mauricio Macri, to repeal existing barriers restricting foreign investment. The Argentine government has made significant economic changes since President Macri began his term in December 2015, including an end to currency controls, new tax cuts, and the settlement of the sovereign debt dispute with holdouts after a 14-year litigation. New investment promotion programs also are in place, including investment incentives in sectors such as renewable energies and the timber industry.

The Rural Land Law imposed restrictions on the ownership or possession of rural land by foreign individuals and legal entities. In particular, the Rural Land Law imposed the following restrictions: 

(a) A 15% limit on the total amount of “rural lands” in the Argentine territory that may be owned or possessed by foreign individuals or legal entities (as of July 2013, the regulatory agency determined that more than 267 million hectares—or more than 95% of the Argentine territory—were rural lands for the purposes of this law, while more than 15.8 million hectares were owned by foreign investors, representing less than 6% of the total rural lands); 
(b) A 4.5% limit on the total amount of rural lands that can be owned by foreign individuals or legal entities from the same country (as of July 2013, around 1.13% of the rural lands was owned by American investors); and
(c) A 1,000 hectare limit of the “core area”, or the “equivalent surface” to be determined by the enforcement agency, that can be owned by the same foreign individual or legal entity. The regulatory agency set forth, at the provinces’ proposal, the equivalences to the core area. The New Decree calls on all of the provinces to review the current foreign ownership limits per province aiming to substantially increase the current maximums.

The New Decree aims at facilitating and enabling foreign investments in Argentine rural lands by clarifying certain unregulated issues and removing certain problems in real estate practices that arose since the enactment of the Rural Land Law in 2011. 
 
The most significant changes relate to determining when the Rural Land Law applies. According to the New Decree, the application of the Rural Land Law shall be determined by:

(a) The nationality of the residuary title owner, in the case of real property rights such as usufruct and superficiary rights, enabling possession of land for up to 50 and 70 years respectively;
(b) The nationality of the trustee, in the case of land held in trust (which can last for up to 30 years), instead of the nationality of the beneficiaries; and 
(c) The proportional interests of the different equity-holders, in the case of land owned by a legal entity, in order to determine whether a single foreign individual or legal entity exceeds the 1,000 hectare limit of the “core area” or the “equivalent surface.” 

Further, the New Decree defines a “Foreign Legal Entity” as any legal entity registered as an owner of rural lands (whether incorporated in Argentina or abroad) in which foreign individuals or legal entities, directly or indirectly, control the majority vote. An Argentine legal entity in which more than 51% of the outstanding capital is owned by foreign individuals or legal entities shall be presumed to be a Foreign Legal Entity for the purposes of the Rural Land Law, subject to rebuttal by the interested party. 

Finally, the New Decree modifies certain reporting requirements and the consequences for failing to comply with such requirements. According to the Rural Land Law, all foreign legal entities owning or in possession of rural lands had the obligation to disclose any modification in their capital stock. Further, the breach of this obligation triggered tax and money-laundering prevention auditing by the respective government agencies (the Federal Tax Authority and the Financial Information Unit). 

The New Decree qualifies this reporting requirement by requiring disclosure of changes in the control of Foreign Legal Entities, while it eliminates the audit inspections triggered by a failure to comply with the reporting requirement.

The New Decree is expected to increase the interest of foreign investors in existing opportunities in the timber and agribusiness industries in Argentina. Since President Macri began his term in December 2015, there have been announcements of foreign direct investment of more than $15 billion in Argentina.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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