Argentina’s Act 26,737, enacted in 2011, restricts foreign ownership of rural real estate. The restrictions imposed by Act 26,737 are relevant for any project that involves acquisition of rural land in Argentina .
The Act imposes several limitations. Under the Act and its applicable amendments, foreign ownership is defined as any acquisition, transfer of ownership or possession rights, whatever the type or name granted by the parties or duration of the same, in favor of a series of points, set forth below.
- Natural foreign persons, whether or not they have an actual home in Argentina;
- Legal persons in cases when more than 51 percent of the share capital is owned by foreign individuals;
- Natural foreign persons or foreign companies that, although they do not formally evidence a participation right in any company, for practical purposes act within such company as if they were de facto partners;
- Legal persons in cases when foreign entities hold greater than 25 percent of the capital or the number of votes required to form the social will;
- Companies that have issued bonds or debentures convertible into shares representing more than 25 percent of the share capital, when their holders are foreigners; and
- trusts whose beneficiaries are individuals or foreign legal persons holding higher than 51percent and 25 percent, respectively, of the trust.
In several provinces the total foreign ownership of rural lands exceeded 10 percent (for example, Misiones 12.62 percent, Salta 11.9 percent, Corrientes 10.78 percent, San Juan 10.81 percent).
Furthermore, because Act 26,737 regulates matters of public policy, its provisions cannot be altered by provisions or agreements between individuals.
In that sense, the enforcement authority – the National Register of Rural Lands – is empowered to examine any relevant legal activity and determine its real nature, without being subject to the form or qualification that the parties granted to such act (that is, substance takes precedence over form). This attribution of joint and several liability to those who are defined as “participants” will impact heavily on notaries’ duty of care to fulfill in the granting of any deed which transfers or modifies rights over rural lands, as well as the precautions lawyers shall observe when drafting contracts for the transfer of shareholdings in companies owning rural land.
Act 26,737’s restrictions have been controversial in Argentina because they represent a departure from the historical and constitutional tradition of equality between domestic and foreigner investors. In July 2016, the Macri Administration relaxed certain of these restrictions as a part of its broader efforts to promote foreign investment in Argentina. For example:
- Industrial use. Rural land zoned as industrial, including industrial parks, is excluded from the 1,000 hectare individual limitation (direct or indirectly) and will not be counted as a part of the total land owned by foreigners for purposes of restrictions imposed by the Act.
- Modification of the cadastral registration at the municipal level. In general, municipalities are the authorities that modify the cadastral registration of land. The Act only applies to rural land; any other land (urban, non-urban, semi-urban, industrial, semi-industrial) is excluded from the restrictions imposed by Act 26,737.
- Lease. A lease of rural land with an option to purchase is not an ownership acquisition. Therefore, the Act is not applicable.
- Usufruct and surface rights. Usufructs and surface rights are exempted from the restrictions included in the Act.
- Minority stock ownership. The revisions by the Macri Administration narrow the group of companies that are considered foreign owners. A company with foreign ownership not exceeding 50 percent (an increase from the original 25% limit) is not a foreign company and is excluded from the restrictions imposed by the Act.
In sum, foreigners embarking on projects in Argentina that involve use of rural land must consider the issues mentioned above.
Please do not hesitate to contact the author at Richards, Cardinal, Tutzer, Zabala & Zaefferer s.c. –Abogados-, an independent law firm in Argentina, www.rctzz.com.ar for further information at email@example.com.
Damián Navarro, Partner in Richards, Cardinal, Tützer, Zabala & Zaefferer’s Administrative Law and Economic Regulations practices.