Narayan AmmachchiArgentina is filling the honeypot for big foreign money.
The administration of President Javier Milei recently unveiled the details of a major tax cut program, known as the Regime of Incentives for Large Investments (RIGI), aimed at drawing the attention of large FDI projects.
Companies registered under RIGI will benefit from the elimination of import and customs duties, as well as a rare guarantee on regulatory stability, particularly in matters of import duties and currency exchange.
As of now, the program has been tailored to draw investment from the technology, tourism, logging, mining, energy, iron and steel industries.
Investors have until August 2026 to register under RIGI. If they’re accepted into the program, the government seeks to guarantee conditions of “previsibility, stability and competitiveness” for 30 years.
To qualify, companies must commit to a minimum investment of US$2 million in infrastructure and technology. In return, they can expect a 25% reduction in income tax.
Weathering the storm
Analysts are optimistic about the potential impact that RIGI might bring to Argentina’s FDI landscape. They see in the new regulations a chance to provide the certainty and legal security that foreign investors have long sought in Argentina.
Argentina closed 2023 scoring over US$23.8 billion in FDI, a 57% increase compared to the year prior and its highest foreign investment volume since 1999. The number also put it as the third largest FDI recipient in Latin America, accounting for 13% of the regional total.
Though the numbers are impressive, most of the FDI registered during 2023 came from inter-company loans and reinvestments by businesses already in the country.
“This increase [in FDI], however, was affected by restrictions on capital flows, which determined the large investment flows in the form of credit among companies and reinvested profits,” Argentina’s own central bank stated in its 2023 FDI report.
Ultra-high inflation, a byzantine currency system and poor FDI performance are but a few of the problems Argentina faces in the economic front. President Javier Milei vowed to revitalize it through a radical, “shock therapy” approach which has yet to bear fruit.
On the FDI front, Milei seems to be betting on “CEO diplomacy” and initiatives such as RIGI, aiming mainly for strong investments from the tech sector. The president toured Silicon Valley in May of this year, and his economic advisors have been peddling the arrival of major tech projects by the latter half of the year.
I read your article on Argentina’s big tax cuts with interest – a great move to attract foreign investment. But I couldn’t help thinking about the elephant in the room: the country’s strict employment laws.
Honestly, no matter how attractive the tax cuts are, it’s hard for companies to ignore the risks tied to Argentina’s labor regulations. For new businesses, especially startups, the rigid hiring and firing rules, high severance costs, and all the compliance red tape make it a real challenge to set up shop.
Tax breaks are significant, don’t get me wrong. But it’s a bit of a hard sell without more flexible labor laws. Companies need to know they can adapt and scale their workforce without being bogged down by legal restrictions.
If Argentina wants to attract serious investment, fixing the labor laws would have just as much impact—if not more—than the tax cuts.
Thanks for the great read!