A very frequent query made by international corporations is the possibility of having an employee in Argentina with an employment agreement applying foreign law and without having a registered local entity in Argentina.
This kind of employment structure may create high employment liabilities as well as tax and social security debts with the tax authorities.
The general rule is that all employees who work in the Argentine territory must be registered within the payroll of an entity duly registered according to Argentinean Law.
The purpose of this article is to provide the reader with a brief overview about the steps to follow in order to become an employer in Argentina, and the contingencies that may arise for not properly register an employment relationship in Argentina.
Argentine labor law contains the so called "territoriality principle"1 set forth in Section 3 of the Argentine Labor Contract Law No. 20,744 ("LCL").
According to such principle, any employee rendering services in Argentina is subject to Argentine labor law in general, and to the LCL provisions in particular, regardless of such employee's or the employer's nationality or the place of original execution of the employment contract.
Additionally, the LCL provides that its provisions shall be considered mandatory and, thus, may not be amended or waived by the parties (Sections 7 and 12 of the LCL).
On a related matter, local Rules of Labor Procedure, codified by means of Law No. 18,345, are also public policy and set forth that, whenever an Employee works in the City of Buenos Aires, the competent judges shall be, at the defendant's sole option, those located: (i) at the place where the Employee worked; (ii) at the place of execution of the employment contract; or (iii) at the place where the defendant has its domicile. Taking into account the materially employee-protective nature of Argentine labor judges, it would be highly likely that the Employee, in the hypothetical event of a conflict, would choose to litigate in Argentina.
Consequently, it is relevant to note firstly that Argentine labor law and jurisdiction would apply to the Employee's services rendered in Argentina and any agreement between the Company, the Argentine Entity and/or the Employee stating otherwise would be null and void. Therefore, in the event of a conflict, an Argentine judge would hear the case and would decide according to Argentine law.
Pursuant to Argentine law, all economic benefits received by an employee as a result of his work in Argentina are considered remuneration and must be registered in local labor documentation. Consistent with such registration, applicable social security and taxes must be paid regularly in Argentina, as applicable to each case.
Lack of Registration – Contingencies
Failure to register, totally or partially, a labor relationship performed in Argentina, or any term or condition thereof, including, without limitation, remuneration, benefits in cash or in kind, modality of hiring or hire date, may trigger labor, social security and administrative contingencies, summarized as follows:
- Labor contingency: The Employee may demand due registration of his/her local labor relationship and, in the event that such registration was not timely completed, the Employee may consider himself/herself constructively dismissed, thus claiming: (i) regular severance for dismissal without cause; (ii) fines for incorrect registration of employment of up to 25% of unregistered salaries plus duplication of regular severance package; (iii) fine for forcing the Employee to litigate to collect such severance equal to 50% of regular severance package; and (iv) fine for the lack of delivery of certain work certificates in the amount of 3 times the Employee's monthly salary.
- Social security contingency: The social security contingency would consist in the risk that, in the event that social security was not fully paid on the Employee's full compensation, the Argentine Tax Authority (AFIP) would determine a debt for withholdings and contributions, plus interest that range from 2% to 4% per month and fines of up to 200% of the debt assessed. The amount of such fine depends on the behavior adopted by the employer (or alleged employer) as a result of the claim by the authorities and the statute of limitations is 10 years.
- Administrative contingency: In the event that the Labor Ministry, upon inspection, argued that the Employee was incorrectly registered, the authority may impose fines ranging: (i) from AR$ 250 (US$ 65) to AR$ 1,000 (US$ 250) in the event that only a part of the relationship was not correctly registered (e.g. remuneration and/or benefits); or (ii) from AR$ 1,000 (US$ 250) to AR$ 5,000 (US$ 1,260) in the event of complete lack of registration.
Registration of a Local Entity
In order to become an employer in Argentina, the first thing to do is to set up a local entity/subsidiary (hereinafter the "Company") in order to hire any Employee, either national or foreigner.
Registering a Company in Argentina is not a complex process. Once the Company is registered, the legal representative must register the entity with the Federal Tax Authorities (AFIP). Among other taxes, the Company shall request to be included within the Social Security System.
The Company must also register the Salaries & Wages Book with the local Administrative Labor Authority, in order to keep a record of all the salaries paid, as well as the corresponding withholdings and contributions addressed to the Tax and Social Security Authorities.
Upon the completion of the abovementioned duties, the Company will then be entitled to hire employees.
Any employee who may be hired by the Company must have a Labor Identity Code, locally known as "CUIL", which is obtained at the Social Security Authority ("ANSES"). After such registration, the Employee may start rendering services as an employee in Argentina. This process involves the purchasing of Labor Risks Insurance and the appropriate Health Care Provider.
Foreign employees must secure immigration paperwork in order to obtain a work visa with the National Immigration Department. Only then they will be entitled to request a "CUIL" and therefore, will be included within the payroll of the local Company.
On the other hand, in order to hire foreign employees, the companies that conduct their operations in Argentina must be registered with the RENURE (Registro National Unico de Requirentes / National Registry of Sponsoring Entities). The RENURE is a division of the Immigration Department and requires the companies that intend to hire foreigners to submit a wide scope of documentation in order to grant them with their registration.
Once the RENURE's registration certificate is obtained, the companies have the annual obligation of updating all their corporate information; otherwise, it shall not be possible to hire foreigners until the update is completed.
Working without a work visa is illegal in Argentina. Penalties and enforcement vary widely. Common personal ramifications are deportation, personal fines, and if deported, difficulty securing future visas in Argentina. In addition to the personal consequences, the Argentinean Company could be fined, have difficulty sponsoring future work applications, and/or could even lose the right to hire foreigners.
1. Section 3 of the LCL states the following: "This law shall rule every aspect related to the validity, rights and obligations of the parties, regardless if the employment contract has been executed inside or outside the country; insofar the contract is performed within its territory".
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.