Rules on the Formation of External Assets of Residents

2011 – Year of Decent Work, Health and Safety of Workers

COMMUNICATION "A" 5198
04/04/2011

TO FINANCIAL INSTITUTIONS,
TO EXCHANGE HOUSES, AGENCIES AND OFFICES:

Ref.: Circular
CAMEX 1 - 669

Rules on the formation of external assets of residents.

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We are writing to inform you that the following has been established, effective from 05.04.2011 inclusive:

1. Replace the following points of the Annex to Communication "A" 5085 of 7.06.10 as amended by Communication "A" 5126 of 21.09.10:

a. Point 3.1., with the following:

"3.1. The purchases of foreign currency made until 31.08.2011 by resident legal entities in the country that are not authorized entities to operate in foreign exchange, provided that the following conditions are met:"

b. Last paragraph of point 3.1.6.1., with the following:

"In the case of the formation of external assets for the settlement of debts with the outside world, the details of the financial and/or commercial debt with the outside world must be stated in said note under sworn statement, which must be validated in the information regime of Communication "A" 3602 and complementary ones, at the various reference dates whose submission is overdue as of the date of submission of the note."

c. Point 4.1., with the following:

"4.1. The purchases of foreign currency without a limit on the amount made by resident companies in the country until 31.08.2011 for the purpose of making direct investments abroad in productive activities of non-financial goods and services, provided that the following conditions are met:

4.1.1. The company does not record new financial indebtedness with the outside world. For these purposes, it shall be understood that this condition is met when no disbursements abroad or income from the foreign exchange market for loans or other financial indebtedness with the outside world are recorded, excluding disbursements of loans from International Organizations, in the period of sixty (60) calendar days before and after the date of access to the foreign exchange market, and have been reported to the Sub-management of Foreign Exchange Statistics

CENTRAL BANK
OF THE ARGENTINE REPUBLIC

before the twenty (20) business days of their access to the foreign exchange market.

4.1.2. The company records increases in share capital in the last 365 days prior to the date of access to the foreign exchange market, in an amount not less than 50% of the sum resulting from considering the values of the direct investments made abroad with access to the local foreign exchange market in that same period, plus the amount in local currency for which new access is requested.

4.1.3. The client does not record overdue and unpaid external liabilities as of the date of access to the local foreign exchange market, in the terms set forth in this rule."

d. First paragraph of point 4.2. with the following:

"a. The purchases of banknotes and foreign currency made by trusts constituted with contributions from the national public sector, resident individuals and legal entities constituted in the country, excluding authorized entities to operate in foreign exchange and non-registered companies, for the aggregate of the following concepts: real estate investments abroad, loans granted to non-residents, contributions of direct investments abroad by residents, portfolio investments abroad by individuals, other investments abroad by residents, portfolio investments abroad by legal entities, purchase for holdings of foreign banknotes in the country and purchase of traveler's checks, and donations; when the following conditions are met:"

e. Point 4.2.2., with the following:

"4.2.2. The funds purchased in foreign currency are not intended for the purchase in the secondary market of securities and instruments issued by residents or representative of these, or issued by non-residents with trading in the country. For such purposes, it shall be understood that prior consent is required when said destination is materialized directly or indirectly with a settlement of the purchase of the securities within the twenty (20) business days following the date of access to the local foreign exchange market."

f. Last paragraph of point 4.2.3., with the following:

"These requirements shall not apply when purchases in the calendar month across the set of authorized entities to operate in foreign exchange do not exceed the equivalent of five thousand United States dollars (US$ 5.000)."

g. Point 5.2., with the following:

"5.2. For purchases of banknotes in foreign currency and foreign currency for the concepts covered by this Communication, when in aggregate they exceed in the calendar month the equivalent of twenty thousand United States dollars (US$ 20.000) across all authorized entities to operate in foreign exchange, the sale of the excess amount may only be made by debit to a demand deposit account opened in financial institutions in the name of the client, or by transfer via MEP in favor of the intervening entity of the funds from the client's demand deposit accounts opened at a financial institution, or by payment with a check from the client's own account."

2. Delete subsection c. of point 4.2.3. of Communication "A" 5126:

3. Incorporate as the last paragraph of point 3.1.3. the following:

"Likewise, in cases of access to the local foreign exchange market for the formation of external assets for their application to the making of direct investments abroad, compliance with the remaining requirements established in point 4.1. must be met."

4. Incorporate as the penultimate paragraph of point 4.2.3., the following:

In the case of non-financial private sector legal entities that are not income tax subjects, when the equivalent of two hundred fifty thousand United States dollars (US$ 250.000) is exceeded throughout the calendar year, the intervening entity must have a closed and audited financial statement and a sworn declaration regarding the origin of the funds applied to the purchase in the foreign exchange market.

Attached in the Annex is the update of the rules provided for herein, which replaces the Annex made known by Communication "A" 5126 of 21.09.2010.

We send you our best regards.

CENTRAL BANK OF THE ARGENTINE REPUBLIC

Jorge L. Rodríguez
Senior Manager of
Foreign Exchange and Foreign Trade

Juan I. Basco
Deputy General Manager of Operations

ANNEX

C.B.R.A.
Annex to
Comm. "A"
5198

Index

Foreign Trade and Foreign Exchange Rules

1. Foreign exchange rules for residents' access to the local foreign exchange market for the formation of external assets.................................................................. 2

2. Purchase of foreign currency for its application to specific destinations in local assets.......................................................................................................... 2

3. Purchase of foreign currency for the formation of external assets for their subsequent application to specific destinations............................................................................ 4

4. Rules for residents' access to the local foreign exchange market for the formation of external assets, without the obligation of a subsequent specific application. ................................................................................................................ 7

5. Other requirements and application rules for access to the foreign exchange market through the formation of residents' external assets............................................. 9

Foreign Trade and Foreign Exchange Rules

1. Foreign exchange rules for residents' access to the local foreign exchange market for the formation of external assets.

Resident individuals and legal entities, estates and other universals constituted in the country, and local governments, may access the local foreign exchange market to form external assets when the conditions established for each case in this rule are met.

Cases that do not fall within the established conditions must obtain the prior consent of the Central Bank before the entity grants the client access to the local foreign exchange market.

2. Purchase of foreign currency for its application to specific destinations in local assets.

Residents will have access to the local foreign exchange market to purchase external assets for their application to a specific destination in local assets, when it concerns the following operations:

2.1. The purchases of foreign currency made by resident individuals and legal entities, estates and other universals constituted in the country without a limit on the amount, which are destined on the settlement date of the foreign exchange operation to make up the primary subscription in foreign currency of public securities issued by the National Government.

2.2. Purchases of foreign currency banknotes made by local governments without limit of amount for their deposit in local accounts of financial entities under the conditions established for the disbursements of loans granted by International Organizations. The funds thus constituted, plus their interest net of account expenses, must be settled in the local foreign exchange market at the time of use.

2.3. Purchases of foreign currency banknotes to deposit in local bank accounts under the concept “Purchases of foreign currency for allocation to investment projects” that are made simultaneously with the entry of funds from the financings provided in Communications “A” 4785 and “A” 4970 and provided that the conditions established therein are met.

2.4. Purchases of foreign currency banknotes made without limit of amount by public companies, companies that even being constituted as subjects of private law are under the control of the National State, and trusts constituted with funds contributed by the national public sector, to the extent that:

2.4.1. The funds used for the purchase of foreign currency correspond to funds contributed by the National Treasury.

2.4.2. The funds acquired are deposited on the date of access to the local
foreign exchange market, in local accounts in foreign currency opened in the entity that processes the operation.
2.4.3. The local accounts constituted with these funds are destined to guarantee
letters of credit or other types of guarantees issued by the aforementioned entities, to guarantee the payment of Argentine imports of goods.
2.4.4. The funds released from these accounts must be settled by the local
foreign exchange market on the date of their withdrawal.
2.4.5. The entity through which the exchange operation is processed will be responsible for
carrying out the monitoring and eventual reporting to the Central Bank in case of non-compliance with the provisions of this regulation.
2.5.
Purchases of foreign currency banknotes to deposit in local bank accounts made by companies of the non-financial private sector to the extent that the following conditions are met:
2.5.1. The company registers overdue and unpaid debt with abroad in the concept of
securities issued abroad, syndicated financial loans abroad, financial loans granted by foreign banks, and other direct debts or guaranteed by official foreign credit agencies.
2.5.2. On the date of access to the local foreign exchange market, the company has made an
offer to refinance its debt to foreign creditors.
2.5.3. The amounts acquired do not exceed the amount of the capital and
interest services of debt overdue according to the original schedule, without computing the advance payments of maturities due to default clauses, nor 75% of the cash payments offered in the refinancing offer.
2.5.4. Funds deposited in local accounts plus their interest, net of expenses and
commissions affecting the account, must be re-entered by the local foreign exchange market on the cash payment date of the offer in the event of acceptance thereof, or within the following 10 business days in the event of rejection.
2.5.5. Purchases shall be channeled by the banking entity receiving the deposit,
which shall be responsible for monitoring these transactions and any eventual report to the Central Bank in the event of non-compliance with the provisions of this regulation.
2.6.
Purchases of foreign currency banknotes made by mutual funds to pay in the country redemptions of units of clients not covered by the provisions of point 1.b. of Communication "A" 4377 and to the extent that they have entered foreign currency for such purpose in the same amount.
2.7.
Purchases of foreign currency banknotes made by stockbrokers resident in the country and to the extent that the funds are deposited in their name in local accounts at the same entity, up to the amount of foreign currency income arranged on the same date as repatriation of portfolio investments, when the funds resulting from these transactions are applied within the following 24 business hours from the foreign exchange settlement date, to cancel

CENTRAL BANK
OF THE ARGENTINE REPUBLIC

purchases of securities issued by non-residents with quotation in the country and abroad, made to clients not covered by the provisions of point 1.b. of Communication "A" 4377 in transactions arranged no more than 72 business hours prior and settleable in foreign currency in the country.

This exception shall apply to the extent that the funds resulting from the transaction remain deposited in local accounts in foreign currency in the name of the seller of the traded securities.

The period for applying the funds to the settlement of securities shall be extended in cases of delays due to causes beyond the buyer of the securities and to the extent that the funds are not used for other purposes, until the causes preventing their application are remedied.

3. Purchase of foreign currency for the formation of external assets for subsequent application to specific purposes.

Resident legal entities shall have access to the local foreign exchange market to constitute deposits abroad for subsequent application to specific purposes, in the following cases:

3.1. Purchases of foreign currency made until 31.08.2011 by legal entities resident in the country that are not entities authorized to operate in foreign exchange, to the extent that the following conditions are met:

3.1.1. The funds and their income are applied within thirty (30) calendar days from the date of access to the foreign exchange market to the payment of:

    3.1.1.1. Capital and interest services of financial debts abroad in respect of securities issued abroad, syndicated financial loans abroad, financial loans granted by foreign banks, and other direct debts or debts guaranteed by official foreign credit agencies.

    3.1.1.2. Debts for Argentine imports of goods.

    3.1.1.3. Profits and dividends.

    3.1.1.4. Argentine direct investments abroad.

3.1.2. The maximum amount of external assets that may be accumulated under the conditions set forth in the previous point, including the amount for which access to the foreign exchange market is requested, and the income received from such assets, shall be given by:

    3.1.2.1. Imports of goods: without limit.

    3.1.2.2. Financial debt services: for maturities of capital and interest abroad occurring in the next three hundred sixty-five (365) calendar days.

    3.1.2.3. Profits and dividends: the greater amount resulting from comparing: i) the amount paid for this concept to non-residents and ADRs in the previous calendar year, or ii) the accumulated amount pending payment of

results of fiscal years with annual or quarterly closed and audited financial statements, which should be applied to payments to non-residents and ADRs.

3.1.2.4. Argentine direct investments abroad: the equivalent in US dollars of 30% of Net Equity less the book value of equity interests in companies in the country and abroad and other portfolio investments abroad, arising from the last closed and audited annual financial statement, considering the reference exchange rate published by the Central Bank, of the business day immediately preceding the date of access to the local foreign exchange market.

3.1.3. Funds used for access to the foreign exchange market for the formation of external assets to be applied to the payment of profits and dividends and direct investments abroad, do not have as a source of funding, financial indebtedness abroad.

For these purposes, this condition shall be deemed met when no disbursements abroad or income through the foreign exchange market for loans or other financial indebtedness abroad are recorded, excluding disbursements corresponding to loans from International Organizations, in the period of sixty (60) calendar days before and after the date of access to the foreign exchange market.

Likewise, in cases of access to the local foreign exchange market for the formation of external assets for application to the making of direct investments abroad, the remaining requirements established in point 4.1 must be complied with.

3.1.4. On the date of effective application of the funds abroad to the payment of the corresponding concept, the requirements established in the foreign exchange regulations must be met in order to access the foreign exchange market for the payment of the concept for which such assets were formed.

For the purposes of corroborating the application and classification under the regulation, the legal entity must appear before the financial institution designated for monitoring, submitting the documentation that corresponds to classify the transaction under the regulations in force at the date of application, and make the corresponding registrations.

3.1.5. If the foreign currency acquired and its income are not applied to the specific destination within the established period, the corresponding funds must be re-entered into the local foreign exchange market within five (5) business days following the deadline established for their application.

The prior consent of the Central Bank must be required for the modification of the destination of the accumulated funds, and/or the extension of the period established for the application of the payments for which access to the foreign exchange market had been obtained, and to process transactions for amounts greater than those provided for when they are destined for the early cancellation of external financial debt under the conditions established in the foreign exchange regulations.

3.1.6. Comply with the following procedural and registration rules:

3.1.6.1. The resident company must designate a local financial institution that will be in charge of monitoring the purchases of foreign currency made and their applications, and will be responsible for informing the Central Bank in cases of non-compliance with the provisions of this regulation. The designation must be communicated by the company to the Subgerencia de Estadísticas Cambiarias of the Gerencia Principal de Exterior y Cambios, by means of a note submitted through the designated financial institution. The note must be filed with the Mesa de Entradas of this Central Bank prior to carrying out the transactions.

The designated institution will be responsible for monitoring all transactions carried out from the date of submission of the letter to the Central Bank.

In the case of formation of external assets for the cancellation of debts abroad, the note must include, under sworn declaration, the detail of the financial and/or commercial debt abroad, which must be validated in the reporting regime of Communication “A” 3602 and complementary ones, at the different reference dates whose submission is overdue as of the date of submission of the note.

3.1.6.2. The designated financial institution will issue the certifications that may be necessary so that the company can access the foreign exchange market through other institutions authorized to operate in foreign exchange.

3.1.6.3. Foreign exchange purchases made under the provisions herein must be processed under the following concepts:

a. “Portfolio investments abroad for the servicing of debt service maturities with external creditors” (Code 881).

b. “Portfolio investments abroad for the payment of imports” (Code 896).

c. “Portfolio investments abroad for the payment of profits and dividends” (Code 897).

d. “Portfolio investments abroad for the making of direct investments abroad” (Code 898).

3.1.6.4. At the time of applying the funds acquired under this regime to the corresponding specific destination, a purchase ticket must be made under the concept of:

a. For the cancellation of debt abroad: “Application of portfolio investments for the cancellation of debts” (Code 475) and a sale ticket under the concept of the debt service being cancelled.

b. For the payment of imports of Argentine goods: a purchase ticket must be made under the concept of “Application of portfolio investments for the payment of imports” (Code 497) and a sale ticket under the concept of payment at sight or deferred of imports of goods as applicable.

c. For the payment to non-residents and ADRs for profits and
dividends: a purchase ticket must be made under the concept of “Application of portfolio investments for the payment of profits and dividends” (Code 498), and a sale ticket under the concept of “Profits and dividends paid abroad”.

d. For the making of direct investments abroad, a purchase ticket must be made under the concept of “Application of portfolio investments for the making of direct investments abroad” (Code 499), and a sale ticket under the concept of “Direct investments abroad by residents”.

The inflows of funds under the concepts “Application of portfolio investments for the cancellation of debts” (Code 475), “Application of portfolio investments for the payment of imports” (Code 497), “Application of portfolio investments for the payment of profits and dividends” (Code 498), and “Application of portfolio investments for the making of direct investments abroad” (Code 499), as they are technical tickets without movements of funds or, as the case may be, to the extent that they are applied simultaneously to the specific destinations provided for at the time of their constitution, are exempt from the constitution of the deposit established in point 6 of Communication “A” 4359.

4. Rules for access to the local foreign exchange market for the formation of external assets of residents, without the obligation of a specific subsequent application.

Residents in the country may access the local foreign exchange market for the purchase of foreign currency for the formation of external assets, without the obligation of a specific subsequent application, in the following cases:

4.1. Purchases by companies resident in the country of foreign currency without amount limit made until 31.08.2011 for the making of direct investments abroad in productive activities of non-financial goods and services, provided that the following conditions are met:

4.1.1. The company does not record new financial indebtedness abroad. For these purposes, this condition shall be deemed to be met when no disbursements abroad or income from the foreign exchange market for loans or other financial indebtedness with abroad are recorded, excluding disbursements of loans from International Organizations, in the period of sixty (60) consecutive days prior to and following the date of access to the foreign exchange market, and they have been reported to the Submanagement of Exchange Statistics

before twenty (20) business days from their access to the foreign exchange market.

4.1.2. The company records increases in share capital in the last 365 days prior to the date of access to the foreign exchange market, for an amount not less than 50% of the sum resulting from considering the values of direct investments made abroad with access to the local foreign exchange market in that same period, plus the amount in local currency for which the new access is requested.

4.1.3. The client does not record overdue and unpaid external liabilities as of the date of access to the local foreign exchange market, under the terms set forth in this regulation.

4.2. Purchases of banknotes and foreign currency in foreign currency made by trusts constituted with contributions from the national public sector, resident natural persons and legal persons constituted in the country, excluding entities authorized to operate in foreign exchange and unregistered companies, for the set of the following concepts: real estate investments abroad, loans granted to non-residents, contributions of direct investments abroad by residents, portfolio investments abroad by natural persons, other investments abroad by residents, portfolio investments abroad by legal persons, purchase for holdings of foreign banknotes in the country and purchase of traveler's checks, and donations; when the following conditions are met:

4.2.1. For the total operated for the aforementioned concepts, the equivalent of two million United States dollars (US$ 2,000,000) is not exceeded in the calendar month and in the set of entities authorized to operate in foreign exchange;

4.2.2. The funds purchased in foreign currency are not destined for the purchase in the secondary market of securities and instruments issued by residents or representative of these, or issued by non-residents with trading in the country. For this purpose, prior conformity shall be deemed required when said destination is realized directly or indirectly with a settlement of the purchase of the securities within twenty (20) business days following the date of access to the local foreign exchange market;

4.2.3. When the amount acquired in the set of entities authorized to operate in foreign exchange exceeds throughout the calendar year the equivalent of two hundred fifty thousand United States dollars (US$ 250,000), the intervening entity must verify that the amounts acquired are compatible with the goods declared for tax purposes as investments in local financial assets and cash holdings, and where applicable, the existence of subsequent facts that justify the patrimonial disposal of assets that generated the funds that are applied to the purchase of foreign currency, and/or that the client has income in the calendar year that justifies the holding of the funds used. For these purposes, the entity must at least have in the client's file the following information:

a. For natural persons: a) copy of the last sworn statement of personal assets with the filing date of the expired declaration; b) sworn statement from the client regarding the facts subsequent to the reference date of the personal assets declaration filed, that justify the disposal of funds for amounts greater than the total declared as assets in the country in financial assets and cash holdings, and/or income in the year that justify, where applicable, the

CENTRAL BANK OF THE ARGENTINE REPUBLIC

availability of funds for amounts greater than said declared holdings and regarding the updated actual domicile of the client; c) copy of documentation presented by the client as support for the sworn statement.

b. For legal persons that are subjects of income tax: copy of the last income tax return with the filing date of the expired declaration and of the closed and audited accounting balance corresponding to said tax declaration, to the extent applicable.

In the cases of legal persons of the non-financial private sector that are not subjects of income tax, when the equivalent of two hundred fifty thousand United States dollars (US$ 250,000) is exceeded throughout the calendar year, the intervening entity must have a closed and audited accounting balance and a sworn statement on the origin of the funds applied to the purchase in the foreign exchange market.

These requirements shall not apply when the purchases in the calendar month in the set of entities authorized to operate in foreign exchange do not exceed the equivalent of five thousand United States dollars (US$ 5,000).

4.2.4. The client's sworn statement is available that they do not record overdue and unpaid debts with abroad for capital and interest services of debts of all types.

This requirement shall not apply to purchases of banknotes and traveler's checks for amounts that do not exceed the equivalent of ten thousand United States dollars (US$ 10,000) per calendar month, in the set of entities authorized to operate in foreign exchange.

For the purposes of the requirements established in this point, it shall be understood that:

i. financial and commercial obligations with abroad without maturity shall be considered as overdue debt as of 365 consecutive days from the date on which they were contracted;

ii. in the case of debts for imports of goods, those in which 365 consecutive days have not elapsed from the date on which, according to the agreed purchase condition, the obligation to deliver the good from the exporter to the importer is considered fulfilled, shall not be considered as overdue and unpaid operations, whatever the due date.

5. Other requirements and rules applicable for access to the foreign exchange market for the formation of external assets by residents.

5.1. Entities authorized to operate in foreign exchange may only process foreign exchange operations for sales of foreign currency to residents for the constitution of portfolio investments abroad, to the extent that the transfer is destined to an account in the name of the client carrying out the foreign exchange operation, opened in:

i. foreign banks constituted in OECD countries whose sovereign debt has
an international rating not lower than “BBB”, or that consolidate their balance sheet in the country with a local banking entity, or in
ii. foreign banks of the country of permanent residence of natural persons who
have authorization for their stay in the country as “temporary residents” under the terms established in article 23 of the Migration Law No. 25.871, or in
iii. financial institutions that habitually carry out investment banking
activities and that are constituted in OECD countries whose sovereign debt has an international rating not lower than “BBB”.

The identification of the foreign entity where the account is constituted and the client's account No. must be recorded in the corresponding foreign exchange ticket.

5.2. For purchases of foreign currency banknotes and foreign currency for the concepts included in this Communication, when in the calendar month they jointly exceed the equivalent of twenty thousand United States dollars (US$ 20,000) in all entities authorized to operate in foreign exchange, the sale for the excess amount may only be made by debit to a demand account opened in financial entities in the name of the client, or by transfer via MEP in favor of the intervening entity of the funds from demand accounts of the client opened in a financial entity, or by payment with a check from the client's own account.

5.3. For the purposes of calculating the limits mentioned as of the date of carrying out a new operation, for purchases in foreign currencies other than the United States dollar, the pesos settled for each operation shall be calculated at the reference exchange rate of the banking business day immediately prior to the one on which each operation was carried out.”

5.4. The intervening entities must have the client's sworn declaration stating that with the foreign exchange operation to be arranged with the entity, the limits established in the regulations for its operations in all entities authorized to operate in foreign exchange are complied with, in the cases where applicable. In this sworn declaration it must also be stated that as of the date of access to the local foreign exchange market, it has complied, where applicable, with the filings with due dates occurring more than 10 business days earlier, of the declaration regimes for: a) external debt of Communication “A” 3602, and b) the Direct Investment Survey established by Communication “A” 4237 and complementary ones.

5.5. Sales of external assets carried out in compliance with the obligation to repatriate funds acquired for a specific purpose are exempt from the limit established in article 2 of Resolution No. 365/05 of the Ministry of Economy and Production for the constitution of the deposit established in Decree No. 616/05.

5.6. These rules are independent of those applicable in matters of prevention of money laundering and other illicit activities and the financing of terrorism.