The Milestone EU-Mercosur Trade Deal

9 December 2024

  • Argentina
  • Brazil
  • Italy
  • Uruguay
  • Distribution
  • Foreign investments
  • Tax

“This agreement is not just an economic opportunity. It is a political necessity.” In the current geopolitical context of growing protectionism and significant regional conflicts, Ursula von der Leyen’s statement says a lot.

Even though there is still a long way to go before the agreement is approved internally in each bloc and comes into force, the milestone is highly significant. It took 25 years from the start of negotiations between Mercosur and the European Union to reach a consensus text. The impacts will be considerable. Together, the blocs represent a GDP of over 22 trillion dollars, and are home to over 700 million people.

Our aim here is to highlight, in a simplified manner, the most important information about the agreement’s content and its progress, which we will update here at each stage.

What is it?

The agreement was signed as a trade treaty, with the main goal of reducing import and export tariffs, eliminating bureaucratic barriers, and facilitating trade between Mercosur countries and European Union members. Additionally, the pact includes commitments in areas such as sustainability, labor rights, technological cooperation, and environmental protection.

Mercosur (Southern Common Market) is an economic bloc created in 1991 by Brazil, Argentina, Paraguay, and Uruguay. Now, Bolivia and Chile participate as associated members, accessing some trade agreements, but not fully integrated into the common market. On the other hand, the European Union, with its 27 members (20 of which have adopted the common currency), is a broader union with greater economic and social integration compared to Mercosur.

What does the EU Mercosur agreement include?

Trade in goods:

  • Reduction or elimination of tariffs on products traded between the blocs, such as meat, grains, fruits, automobiles, wines, and dairy products (the expected reduction will affect over 90% of the traded goods between the blocks).
  • Easier access to European high-tech and industrialized products.

Trade in services:

  • Expands access to financial services, telecommunications, transportation, and consulting for businesses in both blocs.

Movement of people:

  • Provides facilities for temporary visas for qualified workers, such as technology professionals and engineers, promoting talent exchange.
  • Encourages educational and cultural cooperation programs.

Sustainability and environment:

  • Includes commitments to combat deforestation and meet the goals of the Paris Agreement on climate change.
  • Provides penalties for violations of environmental standards.

Intellectual property and regulations:

  • Protects geographical indications for European cheese, wines, and South American coffee and cachaça.
  • Harmonizes regulatory standards to reduce bureaucracy and avoid technical barriers.

Labor rights:

  • Commitment to decent working conditions and compliance with International Labor Organization (ILO) standards.

Which benefits to expect?

  • Access to new markets: Mercosur companies will have easier access to the European market, which has more than 450 million consumers, while European products will become more competitive in South America.
  • Costs reduction: The elimination or reduction of tariffs could lower the prices of products such as wines, cheese, and automobiles and boost South American exports of meat, grains, and fruits.
  • Strengthened diplomatic relations: The agreement symbolizes a bridge of cooperation between two regions historically connected by cultural and economic ties.

What’s next?

The signing is only the first step. For the agreement to come into force, it must be ratified by both blocs, and the approval process is quite distinct between them, since Mercosur does not have a common Council or Parliament.

In the European Union, the ratification process involves multiple institutional steps:

  • Council of the European Union: Ministers from the member states will discuss and approve the text of the agreement. This step is crucial, as each country has representation and may raise specific national concerns.
  • European Parliament: After approval by the Council, the European Parliament, composed of elected deputies, votes to ratify the agreement. The debate at this stage may include environmental, social, and economic impacts.
  • National Parliaments: In cases where the agreement affects shared competencies between the bloc and member states (such as environmental regulations), it must also be approved by the parliaments of each member country. This can be challenging, given that countries like France and Ireland have already expressed specific concerns about agricultural and environmental issues.

In Mercosur, the approval depends on each member country:

  • National Congresses: The agreement text is submitted to the parliaments of Brazil, Argentina, Paraguay, and Uruguay. Each congress evaluates independently, and approval depends on the political majority in each country.
  • Political Context: Mercosur countries have diverse political realities. In Brazil, for example, environmental issues can spark heated debates, while in Argentina, the impact on agricultural competitiveness may be the focus of discussion.
  • Regional Coordination: Even after national approval, it is necessary to ensure that all Mercosur members ratify the agreement, as the bloc acts as a single negotiating entity.

Stay tuned: you will find the update here as the processes advance.

Civil and Commercial Code of Argentina (“Code”) do not contain specific provisions for distribution contracts. Rather, a distribution contract is considered a so-called “innominate contract”, which combines, among other things, elements of purchase and sales contracts, commercial agency and mandate agreements. Article 1511 establishes that the rules of Chapter 18 (Concession Contracts) shall be applied to distribution agreements when applicable. Therefore, if the distribution agreement does not regulate a specific issue, the solution should sought by analogy referring to the statutory provisions related to these three types of contracts as default rules to the extent suitable in a given case.

Form and Formalities

Argentine Law requires no particular form or formalities for this type of agreements. However, written contracts are the most common form of agreements.

Important Provisions

For all parties:

  1. a) Force Majeure: Considering that Argentina tends to be an unstable environment for business due to political reasons, parties may be interested in considering the possibility of including acts of law/change in law and government acts within the scope of force majeure of the agreements.
  2. b) Insurance of products. It is important to have the products covered by an insurance, so that in the event of an accident, losses can be limited.
  3. c) Product registration.

For the supplier:

  1. a) Payment (if international, without taxes, provisions to receive full amount with no deduction or withholding).
  2. b) Currency (due to unstable of Argentine Pesos, it’s important to establish it and price increase if necessary).
  3. c) Product Recall.
  4. d) Lead Time.
  5. e) Delays.
  6. f) Stock conditions.

For the distributor:

  1. a) Returns.
  2. b) Clientele compensation.
  3. c) Defective product.
  4. d) Product samples.

Incoterms

In national distribution agreements, Incoterms are not commonly used. However, in international distribution agreements, the most common Incoterms used are the following:

For air transport: FCA (Free Carrier); for ship transport: FOB (Free On Board)

Product Liability

According to Argentine Consumers Law No. 24,240, the term for a consumer to bring an action against the distributor and/or supplier would elapse after three years, the term for other players in the commercialization chain who have a direct contractual relationship with the distributor and/or the supplier (e.g. retailers who have acquired the goods from the distributor and/or the distributor’s subcontractor) would expire only after ten years. In any event, the contractors may be interested in considering the possibility of counting the three-year term from the date of expiration of the products instead of considering the date of termination of the agreement (e.g. the product might be stored and not sold for a while and the mentioned 3-year expiration shall be therefore delayed).

Intellectual Property

Supplier shall obtain and renew registration of the products’ trademarks in Argentina. Besides, supplier should include a clause in the agreement stating that the trademarks are of its own property and that distributor only can use them to the extent granted by supplier in the agreement while it’s still in force. Moreover, distributor should protect supplier’s trademarks.

Termination

La parties may agree freely how to terminate the agreement. In case you agree a non cause resolution clause, such should have a reasonable prior notice so that the other party may have time to get another distribuitor or face the lose of the client, depending how exercise such option.

Applicable Law and Jurisdiction

The parties may agree the law wich they consider more convenient to solve any issue of the agreement. Moreover, the parties also are free to choose a court or an arbitral tribunal within the country or foreign.

The author of this post is Tomás García Navarro.

This post aims at giving an overview of some key issues about labor rights in Argentina, which foreign investors should know before entering in the Argentinian market.

Minimum Salary: ARS 8,060 (ARS 40.40 per hour) or the amount established for the employee’s category in the collective bargaining agreement, whichever is higher.

Salary Reduction: No.

Profit Sharing: It is mandatory according to a constitutional clause, though it is not regulated by the labor law.

Stock Options: Not mandatory.

Integration of Benefits as part of the Salary: Unless specifically regulated by the labor law as a non- remunerative fringe benefit, its economic value is part of the remuneration and cannot be withdrawn.

13th Salary: Yes, but there is no 14th Salary.

Seniority Payment Fund: No.

Employment Contract: It is not required for indefinite-term contracts, but it is mandatory for special hiring alternatives (e.g.: fixed term, seasonal, internship, etc.).

Internal Labor Regulations: Yes.

Trial Period when the Employment Relationship begins: 90 days.

Employment Contract for a Stated Term: The minimum duration is of one month and the maximum of five years. It requires the existence of a just cause.

Types of Contract:

  1. Indefinite-Term Contracts:
    • Are the general rule in Argentinian Labor law.
    • No need to be drafted in written form, however it is normally used and convenient.
    • Subject to a trial period of three months.
  2. Fixed-Term Contracts
    • The end of the term is fixed
    • Requires existence of a just cause.
    • Minimum duration: One month.
    • Maximum duration: Five years, severance payment upon termination when term exceeds one year.
    • No trial period is applicable and must be executed in writing.
  3. Contingent Work
    • For contingent work and the end of the term is uncertain
    • Requires existence of a just cause
    • When an employee is hired due to a production peak or market requirements, the maximum hiring period is six months per year and 12 months every three years.

Work Day and Work Week: Eight hours and 48 hours.

Overtime Surcharge: 50% weekly days and 100% on weekends (Saturdays after 1:00 p.m.) and holidays.

Paid Weekly Rest Days and Holidays: Yes.

Annual Paid Vacations: 14, 21, 28, and 35 calendar days after one, five, 10, and 20 years of accrued seniority.

Annual Vacation Bonus: Yes. Annual paid leave: salary during vacation days is increased by 20% of its regular value.

Maternity Leave: 90 days of paid leave.

Statute of Limitations: Two years with possible extension up to three years and six months, when causes of suspension of statute of limitation term applies.

Special bars against dismissal: Employers cannot discharge workers’ council’s representatives.

Pregnant women, new mothers and newlyweds receive special severance in case of termination without just cause.

Termination: No prior authorization is required to dismiss without just cause. Execution of termination agreement and approval (“homologación”) by a labor judicial or administrative authority is advisable.

Severance:

  • Seniority: one month of salary per year of work or fraction exceeding three months, with limitations.
  • Lack of prior notice: one-half, one or two months of salary, if seniority is less than three months, more than three months and less than five years, or more than five years.
  • Accrued salary, proportional vacations, and proportional 13th salary.

Prior Notice of Dismissal:

15 days: during the trial period.

30 days: up to five worked years.

60 days: above five worked years.

Restrictions on hiring foreign employees: There are no limitations.

Unions: Membership in labor unions is voluntary and there may be different types of unions representing the same activity. Organization of unions requires compliance with several formalities.

Strike:

  • Only recognized trade unions can call for strikes.
  • Employees are not obliged to adhere to a strike, but if they do, they are not entitled to their wages. Employers cannot suspend employees on grounds of the strike but they can ordinarily dismiss without just cause.

Legal Strike: It is indispensable that a settlement period of no more than 15 days is observed, during which a settlement must be tried before the Labor Ministry. The settlement period may be extended for five additional days, after which – if no agreement is reached – the parties are free to start the action or agree on the voluntary extension of the settlement stage.

Illegal Strike: This occurs when:

  • the trade union fails to comply with the settlement procedures, or
  • the strike does not respond to a labor cause, or
  • there is strike-related violence either on or off the employer’s property.

Illegal strikes entitle employers to request employees to withdraw the strike, and eventually dismiss them with just cause. In addition, the union that called the illegal strike could be suspended or lose their official recognition.

Provision of Food: It is not mandatory: if paid, the economic value may be considered part of the remuneration.

Company Car: It is not mandatory: if the car is provided to the employee as a working tool, the economic value does not integrate the remuneration. If not, the economic value integrates the remuneration.

Housing Benefit: It is not mandatory, but if provided to the employee, the economic value integrates the remuneration.

Health Plan: It is not mandatory, as it is granted by Social Security System. Anyway, if it is provided to the employee, the economic value does not integrate the remuneration.

Life Insurance: It is not mandatory. If the employer provides additional coverage, the economic value could be deemed as part of the remuneration.

Performance Bonus/Commission: not mandatory; if granted at the employers’ sole discretion (i.e. without objective basis) it will generate an acquired right in favor of the employee. Thus, the bonus would be part of the remuneration and the average value would integrate the base to calculate severances.

Social Security Contributions / Income Tax:

The employers’ contributions are calculated over the employee’s total salary, depending on their activity and turnover amount:

  • 27% if the employer is engaged in the provision of services or in commercial activities and the invoiced amount exceeds ARS 111,900,000.
  • 23% for the rest of the employers.
  • Employees’ contributions: 17%. These contributions have a cap. No social security contributions would be due on employee’s monthly salary exceeding ARS 72.289,62.
  • Net salary after deducting employees’ social security contributions would be subject to income tax withholdings up to 35%.

Labor agreements: Although labor agreements are not mandatory, and employees are not obligated to visit the labor authority to sign agreements, the execution of these kinds of agreements is convenient. Such waivers and/or releases executed between employees and their employers shall be valid and enforceable only if signed before the government officials of the labor authority (i.e. Ministry of Labor) and approved by such authority.

The author of this post is Tomás García Navarro.

In a previous post we outlined how a foreign investor may conduct a business in Argentina and, specifically, we analysed the main characteristics of the Limited Liability Companies (Sociedades de Responsabilidad Limitada “SRL”).

In this post we are going to focus the attention on another type of company: the Joint Stock Corporation – Sociedades Anónimas  (“SA”).

The main differences between Sociedades de Responsabilidad Limitada and Sociedades Anónimas are the following:

  1. The transfer of SRL quotas shall be registered in the Registry of Commerce. On the contrary, the transfer of shares shall only be registered in the Shareholders’ Register of the SA.
  2. Number of partners cannot be more than 50 in the SRL, while in the SA there is only the minimum number of 2.
  3. Board of Directors of a SA has the obligation of meeting at least every 3 months, while in the SRL the management does not have such obligation.
  4. In a SRL, the partner who has the majority vote does not need the vote of another partner to approve decisions. On the other hand, one shareholder with the majority vote can manage a SA without the favorable vote of any other shareholder.

Main characteristics of the Argentinian Stock Corporations: las Sociedades Anónimas (“SA”)

Shareholders: A minimum of two shareholders is required, and they may be resident or non-resident in Argentina.

Corporate capital: The minimum capital currently required by law is equal to Argentina Pesos (ARS) 100.000 (approximately USD 6.250), of which only 25% must be paid in at the time of the corporate organization. The balance shall be paid within a maximum term of two years from the incorporation. However, the Public Registry of Commerce may require an initial corporate capital amount higher than ARS 100,000 in case – having regards to the nature and characteristics of the businesses involved by the corporate purpose – the corporate capital is considered overtly inappropriate.

Liability SA: Shareholders liability is limited to the amount of capital invested. The sole limitation to this rule is the “lifting of the corporate veil” doctrine, applicable only when a company has been organized or used for fraudulent purposes, in order to abuse the liability limitation.

Legal Books and Records SA: There are 4 company books and records provided by the law: 1) Shareholders’ Register; 2) Register of attendance at General Meetings; 3) Minutes of General Meetings; and 4) Minutes of Directors’ Meetings.

Administration: The Board of Directors is the body in charge of the company administration. Its members do not need to be shareholders or residents in Argentina. However, the law requires that the Board of Directors meets at least four times a year with the physical presence of the majority of its members. The law also requires that the majority of the Directors are domiciled in Argentina.

If the corporate capital amounts to ARS 10.000.000 (approximately USD 625.000) or more, the minimum number of Directors is three; otherwise, the law does not impose any minimum number of directors.

The President of the Board of Directors has the power of legal representation of the company and, in case of his/her absence, the Vice President may act as the company’s legal representative.

In addition to and notwithstanding the above, the company’s representation may be conferred through powers of attorney issued by the Board of Directors for specific purposes (banking, administrative affairs, judicial, etc.).

Supervision SA: If the SA’s corporate capital is lower than ARS 10.000.000 no Syndic (a kind of internal auditor, with the duty to ensure that the company formally complies with the law) need to be appointed. If the capital is above said amount, the S.A. must organize a supervisory body composed of Syndics.

The SA that does not make public offer of its stock capital may appoint only one principal Syndic and one alternate Syndic. The principal Syndic and the alternate Syndic are elected by the Shareholders. To be elected Syndic it is necessary to be a lawyer or a public accountant domiciled in Argentina. Employees, directors or managers of the company or its parent or subsidiary companies may not be syndics. Shareholders may remove Syndics at their own discretion.

Governing body: The corporate authority governing the SA and adopting resolutions is the Shareholders’ Meeting, competent – among other issues – to approve the Annual Balance Sheet of the company, to appoint and/or remove its Directors and Syndics and to deal with any other item related to the company’s ordinary course of business.

Financial statements, Balance Sheets and Accounts SA: Annual financial statements must be submitted for the consideration of the Stakeholders’ Meeting. Argentine law provides that the Annual financial statements must be filed also with the Public Registry of Commerce.

The author of this post is Tomás García Navarro.

For purposes of conducting business in Argentina, a foreign investor may either incorporate a company under one of the types provided for by the Argentine Companies Law (“ACL”) – subsidiary – or it may set up a branch of its company and appoint a representative thereto. Foreign investors normally elect to set up a subsidiary under the type of Corporations (Sociedades Anónimas “SA”) or Limited Liability Companies (Sociedades de Responsabilidad Limitada “SRL”), for both cases the foreign investor’s liability is limited to the stock capital amount invested in the subsidiary. This first post will summarize the SRL main characteristics.

Foreign investors infrequently prefer the branch structure, as (unlike corporations and limited liability companies) branches do not enjoy limited liability. Branches are not considered to be a separate entity from their parent companies, and therefore, all such acts carried out by the branches are considered as directly performed by the parent company itself. This implies that foreign entities are fully liable for all the transactions carried out by their branches. Both legal structures (subsidiaries and branches) require the foreign investor to be registered with the Public Registry of Commerce in Argentina.

Main characteristics of the Argentinian Limited Liability Companies: las Sociedades de Responsabilidad Limitada (SRL)

Registration and by-laws: No more than 50 quotaholders are permitted in the limited liability companies.

Capital Limited liability companies: No minimum capital is required to form a limited liability company. As in the case of the corporations, the corporate capital must be proper to the development of the corporate purpose and the Public Registry of Commerce may request the companies to fix an amount higher than the one decided by the partners. At least 25% of the capital must be paid up at the time of formation and the remaining 75% must be contributed within a term of two years as of that moment.

Liability SRL: The liability of the quotaholders is limited to the amount of the capital invested. The sole limitation to this rule is the “lifting of the corporate veil” doctrine, applicable when companies have been organized or used with fraudulent purposes, abusing of the right to organize such separated legal person.

Legal Books and Records SRL: Only a Book of Meetings of Managers and Quotaholders is required.

Management SRL: Are managed by managers who may be appointed indefinitely. Managers are not required to be Quotaholders and also the majority must be resident in Argentina. Managers have the same rights and obligations as directors of corporations.

Supervision SRL: the appointment of a syndic is optional unless the capital is more than AR$ 10,000,000, in which case one or more syndic must be appointed.

Quotaholders’ Meetings SRL: Corporate resolutions are adopted by a partners’ resolution as set forth in the act of incorporation. At least one Ordinary Quotaholders’ Meeting must be summoned annually to consider the financial statements, the managers’ report, allocation of profits, and appointment of managers and statutory auditors as basic subjects. Amendments of the by-laws, should a sole partner represent the majority vote, require the vote of another partner.

Financial statements, Balance Sheets and Accounts SRL: Annual financial statements must be submitted for the consideration of the Quotaholders’ Meeting. Same must be filed with the Public Registry of Commerce only if the capital exceeds the amount of $ 10,000,000.

The author of this post is Tomás García Navarro.

Geraldo Fonseca

Practice areas

  • Corporate
  • Credit collection
  • Insolvency
  • International trade
  • Litigation
Contact Geraldo

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    Argentina – Distribution Agreements

    25 September 2018

    • Argentina
    • Distribution

    “This agreement is not just an economic opportunity. It is a political necessity.” In the current geopolitical context of growing protectionism and significant regional conflicts, Ursula von der Leyen’s statement says a lot.

    Even though there is still a long way to go before the agreement is approved internally in each bloc and comes into force, the milestone is highly significant. It took 25 years from the start of negotiations between Mercosur and the European Union to reach a consensus text. The impacts will be considerable. Together, the blocs represent a GDP of over 22 trillion dollars, and are home to over 700 million people.

    Our aim here is to highlight, in a simplified manner, the most important information about the agreement’s content and its progress, which we will update here at each stage.

    What is it?

    The agreement was signed as a trade treaty, with the main goal of reducing import and export tariffs, eliminating bureaucratic barriers, and facilitating trade between Mercosur countries and European Union members. Additionally, the pact includes commitments in areas such as sustainability, labor rights, technological cooperation, and environmental protection.

    Mercosur (Southern Common Market) is an economic bloc created in 1991 by Brazil, Argentina, Paraguay, and Uruguay. Now, Bolivia and Chile participate as associated members, accessing some trade agreements, but not fully integrated into the common market. On the other hand, the European Union, with its 27 members (20 of which have adopted the common currency), is a broader union with greater economic and social integration compared to Mercosur.

    What does the EU Mercosur agreement include?

    Trade in goods:

    • Reduction or elimination of tariffs on products traded between the blocs, such as meat, grains, fruits, automobiles, wines, and dairy products (the expected reduction will affect over 90% of the traded goods between the blocks).
    • Easier access to European high-tech and industrialized products.

    Trade in services:

    • Expands access to financial services, telecommunications, transportation, and consulting for businesses in both blocs.

    Movement of people:

    • Provides facilities for temporary visas for qualified workers, such as technology professionals and engineers, promoting talent exchange.
    • Encourages educational and cultural cooperation programs.

    Sustainability and environment:

    • Includes commitments to combat deforestation and meet the goals of the Paris Agreement on climate change.
    • Provides penalties for violations of environmental standards.

    Intellectual property and regulations:

    • Protects geographical indications for European cheese, wines, and South American coffee and cachaça.
    • Harmonizes regulatory standards to reduce bureaucracy and avoid technical barriers.

    Labor rights:

    • Commitment to decent working conditions and compliance with International Labor Organization (ILO) standards.

    Which benefits to expect?

    • Access to new markets: Mercosur companies will have easier access to the European market, which has more than 450 million consumers, while European products will become more competitive in South America.
    • Costs reduction: The elimination or reduction of tariffs could lower the prices of products such as wines, cheese, and automobiles and boost South American exports of meat, grains, and fruits.
    • Strengthened diplomatic relations: The agreement symbolizes a bridge of cooperation between two regions historically connected by cultural and economic ties.

    What’s next?

    The signing is only the first step. For the agreement to come into force, it must be ratified by both blocs, and the approval process is quite distinct between them, since Mercosur does not have a common Council or Parliament.

    In the European Union, the ratification process involves multiple institutional steps:

    • Council of the European Union: Ministers from the member states will discuss and approve the text of the agreement. This step is crucial, as each country has representation and may raise specific national concerns.
    • European Parliament: After approval by the Council, the European Parliament, composed of elected deputies, votes to ratify the agreement. The debate at this stage may include environmental, social, and economic impacts.
    • National Parliaments: In cases where the agreement affects shared competencies between the bloc and member states (such as environmental regulations), it must also be approved by the parliaments of each member country. This can be challenging, given that countries like France and Ireland have already expressed specific concerns about agricultural and environmental issues.

    In Mercosur, the approval depends on each member country:

    • National Congresses: The agreement text is submitted to the parliaments of Brazil, Argentina, Paraguay, and Uruguay. Each congress evaluates independently, and approval depends on the political majority in each country.
    • Political Context: Mercosur countries have diverse political realities. In Brazil, for example, environmental issues can spark heated debates, while in Argentina, the impact on agricultural competitiveness may be the focus of discussion.
    • Regional Coordination: Even after national approval, it is necessary to ensure that all Mercosur members ratify the agreement, as the bloc acts as a single negotiating entity.

    Stay tuned: you will find the update here as the processes advance.

    Civil and Commercial Code of Argentina (“Code”) do not contain specific provisions for distribution contracts. Rather, a distribution contract is considered a so-called “innominate contract”, which combines, among other things, elements of purchase and sales contracts, commercial agency and mandate agreements. Article 1511 establishes that the rules of Chapter 18 (Concession Contracts) shall be applied to distribution agreements when applicable. Therefore, if the distribution agreement does not regulate a specific issue, the solution should sought by analogy referring to the statutory provisions related to these three types of contracts as default rules to the extent suitable in a given case.

    Form and Formalities

    Argentine Law requires no particular form or formalities for this type of agreements. However, written contracts are the most common form of agreements.

    Important Provisions

    For all parties:

    1. a) Force Majeure: Considering that Argentina tends to be an unstable environment for business due to political reasons, parties may be interested in considering the possibility of including acts of law/change in law and government acts within the scope of force majeure of the agreements.
    2. b) Insurance of products. It is important to have the products covered by an insurance, so that in the event of an accident, losses can be limited.
    3. c) Product registration.

    For the supplier:

    1. a) Payment (if international, without taxes, provisions to receive full amount with no deduction or withholding).
    2. b) Currency (due to unstable of Argentine Pesos, it’s important to establish it and price increase if necessary).
    3. c) Product Recall.
    4. d) Lead Time.
    5. e) Delays.
    6. f) Stock conditions.

    For the distributor:

    1. a) Returns.
    2. b) Clientele compensation.
    3. c) Defective product.
    4. d) Product samples.

    Incoterms

    In national distribution agreements, Incoterms are not commonly used. However, in international distribution agreements, the most common Incoterms used are the following:

    For air transport: FCA (Free Carrier); for ship transport: FOB (Free On Board)

    Product Liability

    According to Argentine Consumers Law No. 24,240, the term for a consumer to bring an action against the distributor and/or supplier would elapse after three years, the term for other players in the commercialization chain who have a direct contractual relationship with the distributor and/or the supplier (e.g. retailers who have acquired the goods from the distributor and/or the distributor’s subcontractor) would expire only after ten years. In any event, the contractors may be interested in considering the possibility of counting the three-year term from the date of expiration of the products instead of considering the date of termination of the agreement (e.g. the product might be stored and not sold for a while and the mentioned 3-year expiration shall be therefore delayed).

    Intellectual Property

    Supplier shall obtain and renew registration of the products’ trademarks in Argentina. Besides, supplier should include a clause in the agreement stating that the trademarks are of its own property and that distributor only can use them to the extent granted by supplier in the agreement while it’s still in force. Moreover, distributor should protect supplier’s trademarks.

    Termination

    La parties may agree freely how to terminate the agreement. In case you agree a non cause resolution clause, such should have a reasonable prior notice so that the other party may have time to get another distribuitor or face the lose of the client, depending how exercise such option.

    Applicable Law and Jurisdiction

    The parties may agree the law wich they consider more convenient to solve any issue of the agreement. Moreover, the parties also are free to choose a court or an arbitral tribunal within the country or foreign.

    The author of this post is Tomás García Navarro.

    This post aims at giving an overview of some key issues about labor rights in Argentina, which foreign investors should know before entering in the Argentinian market.

    Minimum Salary: ARS 8,060 (ARS 40.40 per hour) or the amount established for the employee’s category in the collective bargaining agreement, whichever is higher.

    Salary Reduction: No.

    Profit Sharing: It is mandatory according to a constitutional clause, though it is not regulated by the labor law.

    Stock Options: Not mandatory.

    Integration of Benefits as part of the Salary: Unless specifically regulated by the labor law as a non- remunerative fringe benefit, its economic value is part of the remuneration and cannot be withdrawn.

    13th Salary: Yes, but there is no 14th Salary.

    Seniority Payment Fund: No.

    Employment Contract: It is not required for indefinite-term contracts, but it is mandatory for special hiring alternatives (e.g.: fixed term, seasonal, internship, etc.).

    Internal Labor Regulations: Yes.

    Trial Period when the Employment Relationship begins: 90 days.

    Employment Contract for a Stated Term: The minimum duration is of one month and the maximum of five years. It requires the existence of a just cause.

    Types of Contract:

    1. Indefinite-Term Contracts:
      • Are the general rule in Argentinian Labor law.
      • No need to be drafted in written form, however it is normally used and convenient.
      • Subject to a trial period of three months.
    2. Fixed-Term Contracts
      • The end of the term is fixed
      • Requires existence of a just cause.
      • Minimum duration: One month.
      • Maximum duration: Five years, severance payment upon termination when term exceeds one year.
      • No trial period is applicable and must be executed in writing.
    3. Contingent Work
      • For contingent work and the end of the term is uncertain
      • Requires existence of a just cause
      • When an employee is hired due to a production peak or market requirements, the maximum hiring period is six months per year and 12 months every three years.

    Work Day and Work Week: Eight hours and 48 hours.

    Overtime Surcharge: 50% weekly days and 100% on weekends (Saturdays after 1:00 p.m.) and holidays.

    Paid Weekly Rest Days and Holidays: Yes.

    Annual Paid Vacations: 14, 21, 28, and 35 calendar days after one, five, 10, and 20 years of accrued seniority.

    Annual Vacation Bonus: Yes. Annual paid leave: salary during vacation days is increased by 20% of its regular value.

    Maternity Leave: 90 days of paid leave.

    Statute of Limitations: Two years with possible extension up to three years and six months, when causes of suspension of statute of limitation term applies.

    Special bars against dismissal: Employers cannot discharge workers’ council’s representatives.

    Pregnant women, new mothers and newlyweds receive special severance in case of termination without just cause.

    Termination: No prior authorization is required to dismiss without just cause. Execution of termination agreement and approval (“homologación”) by a labor judicial or administrative authority is advisable.

    Severance:

    • Seniority: one month of salary per year of work or fraction exceeding three months, with limitations.
    • Lack of prior notice: one-half, one or two months of salary, if seniority is less than three months, more than three months and less than five years, or more than five years.
    • Accrued salary, proportional vacations, and proportional 13th salary.

    Prior Notice of Dismissal:

    15 days: during the trial period.

    30 days: up to five worked years.

    60 days: above five worked years.

    Restrictions on hiring foreign employees: There are no limitations.

    Unions: Membership in labor unions is voluntary and there may be different types of unions representing the same activity. Organization of unions requires compliance with several formalities.

    Strike:

    • Only recognized trade unions can call for strikes.
    • Employees are not obliged to adhere to a strike, but if they do, they are not entitled to their wages. Employers cannot suspend employees on grounds of the strike but they can ordinarily dismiss without just cause.

    Legal Strike: It is indispensable that a settlement period of no more than 15 days is observed, during which a settlement must be tried before the Labor Ministry. The settlement period may be extended for five additional days, after which – if no agreement is reached – the parties are free to start the action or agree on the voluntary extension of the settlement stage.

    Illegal Strike: This occurs when:

    • the trade union fails to comply with the settlement procedures, or
    • the strike does not respond to a labor cause, or
    • there is strike-related violence either on or off the employer’s property.

    Illegal strikes entitle employers to request employees to withdraw the strike, and eventually dismiss them with just cause. In addition, the union that called the illegal strike could be suspended or lose their official recognition.

    Provision of Food: It is not mandatory: if paid, the economic value may be considered part of the remuneration.

    Company Car: It is not mandatory: if the car is provided to the employee as a working tool, the economic value does not integrate the remuneration. If not, the economic value integrates the remuneration.

    Housing Benefit: It is not mandatory, but if provided to the employee, the economic value integrates the remuneration.

    Health Plan: It is not mandatory, as it is granted by Social Security System. Anyway, if it is provided to the employee, the economic value does not integrate the remuneration.

    Life Insurance: It is not mandatory. If the employer provides additional coverage, the economic value could be deemed as part of the remuneration.

    Performance Bonus/Commission: not mandatory; if granted at the employers’ sole discretion (i.e. without objective basis) it will generate an acquired right in favor of the employee. Thus, the bonus would be part of the remuneration and the average value would integrate the base to calculate severances.

    Social Security Contributions / Income Tax:

    The employers’ contributions are calculated over the employee’s total salary, depending on their activity and turnover amount:

    • 27% if the employer is engaged in the provision of services or in commercial activities and the invoiced amount exceeds ARS 111,900,000.
    • 23% for the rest of the employers.
    • Employees’ contributions: 17%. These contributions have a cap. No social security contributions would be due on employee’s monthly salary exceeding ARS 72.289,62.
    • Net salary after deducting employees’ social security contributions would be subject to income tax withholdings up to 35%.

    Labor agreements: Although labor agreements are not mandatory, and employees are not obligated to visit the labor authority to sign agreements, the execution of these kinds of agreements is convenient. Such waivers and/or releases executed between employees and their employers shall be valid and enforceable only if signed before the government officials of the labor authority (i.e. Ministry of Labor) and approved by such authority.

    The author of this post is Tomás García Navarro.

    In a previous post we outlined how a foreign investor may conduct a business in Argentina and, specifically, we analysed the main characteristics of the Limited Liability Companies (Sociedades de Responsabilidad Limitada “SRL”).

    In this post we are going to focus the attention on another type of company: the Joint Stock Corporation – Sociedades Anónimas  (“SA”).

    The main differences between Sociedades de Responsabilidad Limitada and Sociedades Anónimas are the following:

    1. The transfer of SRL quotas shall be registered in the Registry of Commerce. On the contrary, the transfer of shares shall only be registered in the Shareholders’ Register of the SA.
    2. Number of partners cannot be more than 50 in the SRL, while in the SA there is only the minimum number of 2.
    3. Board of Directors of a SA has the obligation of meeting at least every 3 months, while in the SRL the management does not have such obligation.
    4. In a SRL, the partner who has the majority vote does not need the vote of another partner to approve decisions. On the other hand, one shareholder with the majority vote can manage a SA without the favorable vote of any other shareholder.

    Main characteristics of the Argentinian Stock Corporations: las Sociedades Anónimas (“SA”)

    Shareholders: A minimum of two shareholders is required, and they may be resident or non-resident in Argentina.

    Corporate capital: The minimum capital currently required by law is equal to Argentina Pesos (ARS) 100.000 (approximately USD 6.250), of which only 25% must be paid in at the time of the corporate organization. The balance shall be paid within a maximum term of two years from the incorporation. However, the Public Registry of Commerce may require an initial corporate capital amount higher than ARS 100,000 in case – having regards to the nature and characteristics of the businesses involved by the corporate purpose – the corporate capital is considered overtly inappropriate.

    Liability SA: Shareholders liability is limited to the amount of capital invested. The sole limitation to this rule is the “lifting of the corporate veil” doctrine, applicable only when a company has been organized or used for fraudulent purposes, in order to abuse the liability limitation.

    Legal Books and Records SA: There are 4 company books and records provided by the law: 1) Shareholders’ Register; 2) Register of attendance at General Meetings; 3) Minutes of General Meetings; and 4) Minutes of Directors’ Meetings.

    Administration: The Board of Directors is the body in charge of the company administration. Its members do not need to be shareholders or residents in Argentina. However, the law requires that the Board of Directors meets at least four times a year with the physical presence of the majority of its members. The law also requires that the majority of the Directors are domiciled in Argentina.

    If the corporate capital amounts to ARS 10.000.000 (approximately USD 625.000) or more, the minimum number of Directors is three; otherwise, the law does not impose any minimum number of directors.

    The President of the Board of Directors has the power of legal representation of the company and, in case of his/her absence, the Vice President may act as the company’s legal representative.

    In addition to and notwithstanding the above, the company’s representation may be conferred through powers of attorney issued by the Board of Directors for specific purposes (banking, administrative affairs, judicial, etc.).

    Supervision SA: If the SA’s corporate capital is lower than ARS 10.000.000 no Syndic (a kind of internal auditor, with the duty to ensure that the company formally complies with the law) need to be appointed. If the capital is above said amount, the S.A. must organize a supervisory body composed of Syndics.

    The SA that does not make public offer of its stock capital may appoint only one principal Syndic and one alternate Syndic. The principal Syndic and the alternate Syndic are elected by the Shareholders. To be elected Syndic it is necessary to be a lawyer or a public accountant domiciled in Argentina. Employees, directors or managers of the company or its parent or subsidiary companies may not be syndics. Shareholders may remove Syndics at their own discretion.

    Governing body: The corporate authority governing the SA and adopting resolutions is the Shareholders’ Meeting, competent – among other issues – to approve the Annual Balance Sheet of the company, to appoint and/or remove its Directors and Syndics and to deal with any other item related to the company’s ordinary course of business.

    Financial statements, Balance Sheets and Accounts SA: Annual financial statements must be submitted for the consideration of the Stakeholders’ Meeting. Argentine law provides that the Annual financial statements must be filed also with the Public Registry of Commerce.

    The author of this post is Tomás García Navarro.

    For purposes of conducting business in Argentina, a foreign investor may either incorporate a company under one of the types provided for by the Argentine Companies Law (“ACL”) – subsidiary – or it may set up a branch of its company and appoint a representative thereto. Foreign investors normally elect to set up a subsidiary under the type of Corporations (Sociedades Anónimas “SA”) or Limited Liability Companies (Sociedades de Responsabilidad Limitada “SRL”), for both cases the foreign investor’s liability is limited to the stock capital amount invested in the subsidiary. This first post will summarize the SRL main characteristics.

    Foreign investors infrequently prefer the branch structure, as (unlike corporations and limited liability companies) branches do not enjoy limited liability. Branches are not considered to be a separate entity from their parent companies, and therefore, all such acts carried out by the branches are considered as directly performed by the parent company itself. This implies that foreign entities are fully liable for all the transactions carried out by their branches. Both legal structures (subsidiaries and branches) require the foreign investor to be registered with the Public Registry of Commerce in Argentina.

    Main characteristics of the Argentinian Limited Liability Companies: las Sociedades de Responsabilidad Limitada (SRL)

    Registration and by-laws: No more than 50 quotaholders are permitted in the limited liability companies.

    Capital Limited liability companies: No minimum capital is required to form a limited liability company. As in the case of the corporations, the corporate capital must be proper to the development of the corporate purpose and the Public Registry of Commerce may request the companies to fix an amount higher than the one decided by the partners. At least 25% of the capital must be paid up at the time of formation and the remaining 75% must be contributed within a term of two years as of that moment.

    Liability SRL: The liability of the quotaholders is limited to the amount of the capital invested. The sole limitation to this rule is the “lifting of the corporate veil” doctrine, applicable when companies have been organized or used with fraudulent purposes, abusing of the right to organize such separated legal person.

    Legal Books and Records SRL: Only a Book of Meetings of Managers and Quotaholders is required.

    Management SRL: Are managed by managers who may be appointed indefinitely. Managers are not required to be Quotaholders and also the majority must be resident in Argentina. Managers have the same rights and obligations as directors of corporations.

    Supervision SRL: the appointment of a syndic is optional unless the capital is more than AR$ 10,000,000, in which case one or more syndic must be appointed.

    Quotaholders’ Meetings SRL: Corporate resolutions are adopted by a partners’ resolution as set forth in the act of incorporation. At least one Ordinary Quotaholders’ Meeting must be summoned annually to consider the financial statements, the managers’ report, allocation of profits, and appointment of managers and statutory auditors as basic subjects. Amendments of the by-laws, should a sole partner represent the majority vote, require the vote of another partner.

    Financial statements, Balance Sheets and Accounts SRL: Annual financial statements must be submitted for the consideration of the Quotaholders’ Meeting. Same must be filed with the Public Registry of Commerce only if the capital exceeds the amount of $ 10,000,000.

    The author of this post is Tomás García Navarro.