With the Wall Street Dow Jones industrial index at all-time nominal highs, this week surpassed 30,000 points for the first time, and expectations for a post-pandemic global economic recovery on the rise given the encouraging results of research to come up with a vaccine against the covid-19, the temptation for Argentine savers without so many investment options at hand is to dump some part of their holdings to assets abroad.
The exchange controls that have been in force in the country since 2019 do not make it easy, and tax considerations also matter since local taxes are applied with differential aliquots according to whether holdings are inside or outside the country.
Yet against what may be feared, Putting money to work in foreign stocks or bonds is not prohibited or impossible, even if it is not provided. And, even without properly taking money out of the country, there are local alternatives to bet on foreign assets.
The easiest way to invest in shares of foreign companies, listed in New York or other markets such as São Paulo, is through the Argentine Certificates of Deposit (Cedear). It is one of the most attractive assets generated this year in the local market because they allow investing in pesos in stocks such as Apple, Walmart or Vale, among many other dozen, on the Buenos Aires Stock Exchange.
The simplest way to invest in foreign shares is through Cedear, certificates in pesos of shares of international companies that are traded on the Stock Exchange
It is, in fact, a local investment. Local agents buy shares of these companies in their markets of origin and, with the authorization of the Argentine regulator, issue the Cedear that are then traded in pesos in the Buenos Aires market. As they are backed by the corresponding share, they follow the price in dollars of the share in the market in which they are traded but in pesos at an exchange rate similar to the cash settlement.
Thus, investments can be tied to the fate of foreign stocks or Argentine companies that are not listed in the country such as MercadoLibre or Globant, and at the same time to the fluctuations of the exchange rate gap.
Thus, it is an investment that exposes two different variables: one, the evolution of the share price in dollars and, two, the free dollar price. This double exposure is also double risk: for example, the drop suffered by the cash flow from its October records generated losses measured in pesos for those who entered at that time.
But even if it is a local investment, Cedear is also a way to invest outside the country. And this is because the current regulations allow the certificates to be converted into the shares that back them. “To invest in the US via Cedears, you only need a local account. The Cedears operate with a conversion ratio, because it is common for each share to issue several certificates that are fractions of the total value of the paper. But with the number of certificates needed to complete an action, the conversion is very simple although it is not free of costs ”, he said. Jose Bano of InvertirOnline.
The second way to invest abroad is the traditional one: simply moving dollars from a local bank account to another outside the country. This is because the tightening of exchange barriers in December 2019 prohibited the transfer of foreign currency from a local bank account to a “subaccount” or investment account, the accounts offered by brokers.
Moving money abroad to and from a bank account is not prohibited, but it is difficult. The Central Bank does not allow sending dollars to investment accounts
However, on paper, the transfer to your own bank account abroad has no limits. “Opening the account outside the country is not difficult, in fact the pandemic made the process much faster. Today the interviews of US banks are done by Zoom, Meet or any videoconference. But the truth is that local banks drag their feet when making transfers, they don’t make it easy, and that makes it somewhat more cumbersome, “he explained. Mariano Sardans of FDI Asset Manager.
Once the money has been transferred, the next thing is to find a broker to which to transfer the dollars again in order to start trading. But this road, although it is not closed, is not the one that is being used the most.
“The way to transfer dollars today, with current regulations, is through a settlement and clearing agent (Alyc), a Stock Exchange company. It is done through the dollar cable or counted with liquid. If you start with dollars, you buy a bond with dollars in the local market, the bond is transferred to a foreign broker, and the bond is sold in exchange for dollars. The cost is the difference between the MEP dollar, local, and the dollar counted with settlement that today is around 2.5%, but which knew how to be at 10% ”, said Sardáns.
Some of the stock companies, especially those that developed online trading platforms, simply offer the possibility of opening an investment account in the US at the same time as opening a local investment account.
“The only difference within our platforms is a click to accept the opening of the account in the US and that you have to fill out an extra form called W8 that subjects investors to US tax conditions,” said Bano. Retail platforms allow you to invest from USD 1,000, or about $ 150,000 converted at the exchange rate counted with settlement.
But anyway, having an investment account, “funding” that account -as they call in the jargon to deposit dollars in that account- to start operating also implies a cash movement with settlement or cable dollar.
To put funds in dollars in investment accounts, the most used ways are cash with settlement and the dollar cable, which are operated with bonds
For the process of buying a bond and selling it abroad, there is a 2-day “parking” period if the operation starts in pesos, now if the purchase of the bonds is made with dollars, the credit in the account abroad is practically immediate. And if, at some point, you want to bring the money back to the country, the process is the reverse: with two days of waiting if it goes to pesos and no wait if it goes from dollars to dollars. In both cases, entry and exit, there is a commission for the purchase and sale of the bonds.
If other avenues than local platforms are chosen to invest abroad, the next thing to do is to choose the broker. “There are options that allow you to manage it from here or, from the local Alyc, to direct it to the broker you want. Today discount brokers like Robin Hood, E-Toro, Interactive Broker and others are a revolution. They do not charge or charge practically no commission, but they are useful for some forms of investment such as investing in stocks, but very impractical for investing in Argentine bonds or bonds from emerging countries, ”said Sardáns.
“The type of investment that you want to make is important, because they begin to play tax issues. For example, Dividend distributions pay in the US a withholding tax that reaches up to 30%, beyond what the Argentine treasury charges, and because there are assets that are exempt, ”adds Sardáns.
Regarding the tax treatment, Sebastian Dominguez partner of SDC Asesores Tributarios explained that investments outside the country are subject to Income and Personal Property Tax, but with exceptions and different rates depending on the type of investment and the amounts involved.
“You pay earnings on the results, while Personal Assets are applied on the assets”, summarized Domínguez. “On the issue of Earnings, the first thing to take into account is to see if a double taxation treaty can be applied. For example, the titles of the Brazilian State do not pay Profits but they do pay Personal Assets. In contrast, Bolivian bonds do not pay Profits or Personal Assets. Argentine bonds, although they are operated from outside, are exempt from both ”, he added.
There are tax exemptions for some investments even if they are made from abroad: for example, Brazilian bonds do not pay Profits
“The results of purchase and sale of capital are reached at the 15% rate while the returns are reached at the progressive rate that can reach 35%, for example interest,” he added.
But perhaps the most important weight is that of Personal Property Tax. “Last year a different treatment of Personal Assets was established if the asset is in the country or abroad. If they are abroad, they are taxed by the increased rate, unless 5% of the total is repatriated. If you do not want to repatriate, the aliquot can reach 2.25%. This implies that it is necessary to achieve profitability higher than that level, it is necessary to take into account that cost to invest ”, he said.
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