Commercial Law in China and Argentina
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Introduction
Commercial law, often referred to as trade law or mercantile law, is the body of legislation that governs the rights, relationships, and conduct of individuals and businesses engaged in business, merchandising, trade, and sales. Commercial law is divided into two categories: contractual law and tort law. It is frequently referred to as a part of civil law since it deals with topics that pertain to both private and public law. Commercial law encompasses such titles as principal and agent, carriage by land and sea, merchant shipping, guarantee, marine, fire, life, and accident insurance, bills of exchange, negotiable instruments, contracts, and partnership, among other things. Commercial law is divided into three categories. Many of these categories are under the purview of financial law, which is a branch of commercial law that is concerned with finance and the financial markets in particular. It can also be interpreted as regulating company contracts, employment procedures, as well as the manufacturing and selling of consumer products. In a large number of states, civil codes that provide thorough formulations of their business law have been approved. This research examines the differences and similarities in commercial law between Argentina and China.
Legal System
Legal System and Judicial Order
ARGENTINA
Argentina is a federal state divided into 23 provinces and the Autonomous City of Buenos Aires, which serves as the capital of the country (Dupont, Sanson, Alvarez, and Atim, 2021). The federal government is divided into three branches: the executive, the legislative, and the judicial departments of government. Every province, as well as the City of Buenos Aires, has its own legislation and governmental branches, which are distinct from those of the country. Chilean and Argentine legal systems are based on the civil law system. The federal legislative branch is responsible for enacting federal, civil, economic, criminal, and labor legislation, whereas each municipal government is responsible for enacting procedural legislation. The Supreme Court of Justice is the apex of the federal judicial system, and it is responsible for determining admissibility within the constitution. Lower and appellate courts are also part of the federal judicial arm of government. Each one of the local judiciaries has its own lower appeals and supreme courts, as well as its own lower appeals court. Local courts have authority over issues involving civil, commercial, criminal, labor, and local legislation; federal courts have jurisdiction over cases involving the federal government and federal legislation.
CHINA
China is regulated by a communist legal system with Chinese traits, which is founded on the civil law system. China is the world’s largest economy. Established on a codified constitution as well as laws and regulations passed by the National People’s Congress and its central committee, the legal system is a multi-layered one. Founded in 1949, the State Council is China’s supreme administrative authoritative figure. It is supported to propound legal frameworks, and its constituting departments and sub-agencies are equipped to propound legally enforceable administrative procedures such as rules, choices, and guidelines, as well as to issue administrative regulations. Within their various domains, provincial and municipal assemblies, as well as their regional and local equivalents of the national administrative agencies, also exercise legislative and administrative functions, as well as other responsibilities. In order to avoid misunderstandings with their higher national-level equivalents, local laws and administrative papers need not contradict with each other.
The Chinese legal system is made of several tiers of courts, the most important of which are as follows.
• The Supreme People’s Court (Supreme People’s Court).
The following types of local people’s courts are available: 1. higher people’s courts at the provincial level; 2. intermediate people’s courts at the municipal level; and 3. basic people’s courts at the district or lower level (such as railway courts and maritime courts).
The Supreme People’s Court is the highest judicial authority in the Chinese legal system, and it has supervisory responsibility over the actions of other courts. It is located in Beijing (Tang et al., 2021). However, some instances have significant reference significance in China. Generally, court decisions in China do not function as legally binding precedence. China has instituted a “two-instance” trial procedure to ensure fairness. Proceedings are first examined by a court that has jurisdiction over the case in which they are being brought. A petitioner who is dissatisfied with a verdict during the first occasion has the right to appeal to the tribunal at the next superior stage even before verdict becomes final. It is the people’s procuratorates who act as public prosecutors in criminal prosecutions, and they are organized into tiers similar to those of the people’s courts. The procuratorates are responsible for approving incarceration made by public security agencies, conducting investigations into criminal crimes, instituting and prosecuting criminal prosecutions, and supervising the execution of convictions. A supervising role is played by the Supreme People’s Procuratorate over the actions of procuratorates at all levels of government. It is the responsibility of the Supreme People’s Court and the Supreme People’s Procuratorate to interpret the applicability of laws that have arisen from judicial practice.
Restrictions to Foreign Investments
Approval of Foreign Investments
ARGENTINA
Local as well as foreign investors have equal opportunities under the Argentine law and regulations, and foreign direct investment is not normally subject to prior clearance by the officials (Medina, 2013). Argentina has signed bilateral investment treaties with a number of nations, enhancing the protection afforded to foreign direct investment in Argentina.
The Companies Act – In accordance with the Companies Act (Act 19,550, as amended) (CA), each and every multinational corporation desiring to obtain an equity investment in a local firm (irrespective as to whether this symbolizes a controlling stake) or hoping to perform normal business in Argentina should first sign up with the Public Registry of Commerce, create a permanent address for service, as well as hire a private lawyer in Argentina.
The Frontier Securities Zone Act -The Frontier Securities Zone Act (Decree 15,385/44 as amended) (FSZA) governs the procurement of rural real estate holdings and some other urban property investments located in frontier regions by oversea persons or foreign corporations (along with, under this description, local firms governed by foreign corporations or with a 25 percent share capital by foreign corporations). It also governs the transfer of shares in corporations that control real estate assets, as well as any corporate restructuring procedures conducted by the corporations in question.
The Cultural Assets Act- In accordance with the Cultural Assets Act (Law 25,750) (CAA), foreigners and overseas corporations, as well as local firms directly or indirectly governed by foreigners, are prohibited from owning over 30% of the capital investment and votes of media organizations (namely publications, magazines, radios, internet companies, broadcast tv, digital and audio-visual content creators), with the remaining 70% being possessed by Argentine agencies (that is, Argentine citizens or foreign or local corporations governed by Argentine citizens). This restriction is not applicable in nations where this sort of property is specifically excluded from the scope of the relevant bilateral investment agreement (for example, the bilateral investment agreement with the USA).
The Audio-visual Communication Services Act – Additionally, the Audio-visual Communication Services Act (Act 26,522) (ACSA) prohibits organizations with audio-visual broadcasting licenses from entering into organizational associations with oversea media organizations or from becoming subsidiary firms or associates of foreign corporations, among other things (Dupont, Sanson, Alvarez and Atim, 2021). As a result, the description of subsidiary or affiliate is not specified by the Act in this circumstance. The ACSA replicates the prohibition on the shareholding in regional broadcasting businesses that was enacted by the Communications Act of 1934.
The Protection of Rural Lands Ownership Act – It is prohibited for non-resident persons (with some exclusions) or corporations to own or acquire rural land (together with corporations in which outsiders have governing equity interests). “Rural land” is described as any real estate property situated beyond the city boundaries under the Protection of Rural Lands Ownership Act (Act 26,737) (PRLO). It is prohibited for foreigners to own or control over 15 percent of the total volume of rural land in Argentina, according to the law governing foreign ownership. Overseas investors are also prohibited from owning or possessing well over 15 percent of the total rural land in just about any one province or administrative department. Furthermore, overseas investors of the same citizenship are prohibited from owning or possessing more than 30 percent of the total amount of rural land owned by foreign owners collectively. Furthermore, one foreign owner is prohibited from owning well over 1,000 hectares in the core region, or an equal quantity in other areas to be approved by the governing body. The understanding of these limitations will also be influenced by the real estate rights that are relevant to the asset. Lastly, overseas investors are barred from acquiring a stake in rural land that is next to waterbodies of particular significance. In order for an immigrant to acquire a piece of rural land, he or she should first obtain permission from the National Registry of Rural Land. More generally speaking, any transition in the composition of corporate capital of local firms that entitles them as foreign owners of rural land (or that, as a consequence of stated change, will meet the criteria or subside to qualify them as overseas investors) ought to be made clear to the law enforcement agencies in order to ensure that they comply with the PRLO is documented. The PRLO’s restrictions do not apply to parcels of property that will be used for the production of renewable energy.
Procedure and Sanctions in the Event of Non-compliance
Registration under the CA
An international institution’s organizational documents, as well as corporate resolutions authorizing the enrolment, providing a location in Argentina for service of process, and assigning a legal representative are required for registration under the CA (Dupont, Sanson, Alvarez and Atim, 2021). It is necessary to file these records with the Public Registry of Commerce, which has the authority to make assessments and necessitate the production of additional documentation. Depending on the municipality, the registration procedure can take anywhere between three and four weeks. If international corporations owning shares fail or refuse to register, they will be unable to vote or claim their rights as equity investors in a valid manner. Major corporations that run their businesses on a routine basis in Argentina are not subject to any particular sanctions under the CA for failing to register, despite the fact that this can lead to a violation of other laws, like labour, tax, and social security rules.
Obtaining a permit under the FSZA
Foreign corporations must file a filing with the Internal Affairs Ministry under the FSZA, which includes various documents issued by the Ministry, company data (– for example, corporate bylaws, board member appointments, latest bank disclosures, shareholder identification), certifications of board members’ criminal records, and an investment project to be executed at the real estate assets. The investment company is responsible for submitting the paperwork. Purchasing property assets with a surface of less than 5,000 sq. m and not for commercial uses in some of these urban centres has been excluded from the necessity to acquire prior approval, and in other urban centres that are not explicitly listed, purchasing real estate holdings with a surface area of less than 5,000 square metres and not for commercial reasons has also been excluded from the necessity to acquire prior approval. According to the FSZA, prior to granting the deed transferring possession of the pertinent real estate asset, the final approval must be acquired; as a result, ownership of the property cannot be obtained.
Observance of the PRLO’s requirements
According to the PRLO, even before the acquiring of rural land, a web documentation with the National Registry of Rural Land has to be completed, in which data about the acquisition, the real estate, and conformance with the boundaries imposed in the PRLO is provided, as well as whether or not the asset falls within the regulations of the FSZA is indicated (Dupont, Sanson, Alvarez and Atim, 2021). When all of the prerequisites have been fulfilled, the Registry will issue a certificate designed to allow the exchange deed to be executed, which should actually happen within 120 days of the date of the certificate being issued. In most cases, this procedure takes around one month. It is necessary to report any alteration in the shares of a local firm that meets the definition as a non – resident holder of rural land (or that, as a consequence of said alteration, would become or simply stop to be an international owner) to the National Registry of Rural Land within 30 days of the transfer in order to ensure conformance with the constraints imposed by the act. In most cases, this certification process takes around a month. Every act that breaches the PRLO’s requirements is null and void, and the involved entities are jointly accountable for any harm produced as a result of the breaches in question. It is specifically stated that, in the event of the purchase of shares, the purchase must be informed within 1 month of the conclusion of the transaction.
Commitments Required from Foreign Investors
It is in the country’s interest of Argentina that all resources located near the nation’s territory are owned by its residents, and this is the underlying principle of the (FSZA). As a result, authorization is given only in exceptional circumstances, and it is contingent on the entrepreneur (or its shareholders and officers) presenting proof that they have not been convicted of felonies impacting public safety, as well as proposing an investment proposal for the advancement of the procured property. According to the standards, the project is evaluated based on whether it is of national, provincial, or municipal importance as determined by the competent authority, essential to the social and economic growth of the area in which it is situated, will be put in place in impoverished areas, and will primarily hire Argentine workers. Argentine employees are the majority of those employed by foreign companies.
Right to Intervene in the Dispute
If the relevant agencies make a negative judgment, the decision can be contested by submitting an application for reconsideration to the superiors of the appropriate authority. Should the verdict of the governmental bodies be affirmed, the litigants will have the right to file an appeal with the Courts of Justice. Argentina’s judicial processes are extremely time-consuming.
CHINA
When it comes to foreign investing, China has taken a negative list strategy. Foreign direct investment is normally allowed without clearance in industries where foreign investment is neither banned or limited under the Special Administrative Measures for Foreign Investment Access (the Negative List) (Jia-wei, 2005). Currently, regulated sectors encompass telecommunications, schooling, and health services, whereas forbidden sectors comprise broadcast, publishing, and other related activities, among other things.
Regulated sectors are subject to specific formal procedures, which often involve stock restrictions, citizenship prerequisites for the legal representative as well as senior executives, and other restrictions on business operations (Tang et al., 2021). Obtaining a pre-investment license from the qualified industry regulator or, if neither exists, applying for evaluation by the local counterpart of the State Administration for Market Regulation is recommended to international investors interested in investing in strictly regulated industry segments in order to ensure conformity with the Negative List (SAMR). International investors could be subject to additional pre-investment administrative permissions or licenses, in addition to the Negative List system, that are applied to every investor, like anti-monopoly assessment, national security assessment, and industry-specific licences.
Procedure and Sanctions in the Event of Non-compliance
The Foreign Investment Law, which became applicable on January 1, 2020, establishes a comprehensive mechanism for government clearances and permissions for international investors, which includes the following provisions.
• A preliminary anti-monopoly assessment, which is required prior to the closure of cross-border purchases leading to changes of control or, in some situations, the formation of a partnership that satisfies specified criteria.
• Pre-closing approval for international investment having consequences for public safety is required under the National Security Review Act (NSRA).
• In order to proceed with an international investment project that involves fixed asset expenditures, the project should be approved or a record-filing has to be completed prior to the project’s initiation.
• Industry-specific licenses – they are required for particular commercial tasks that needs regulatory permission from the relevant sector and, in the majority of situations, can only be acquired after the foreign-invested corporation has secured its operating license.
When it comes to the above-mentioned licenses and permits, the timing is frequently dependent on the size and complexity of the assessment procedure (Behr, 2006). Failure to obtain necessary clearances and licenses from the appropriate authorities may have negative effects for international investors as well as their assets. An international investor who makes an unapproved venture in a regulated sector will first be compelled to make changes and take the steps necessary to bring the transaction into compliance with the rules. If this is not done, the investment may be forced to be repaid in full. Noncompliance concerns may also have a detrimental influence on the entrepreneur’s social credit rating, making it much more complicated to get funding and qualify for government programs that are advantageous to small businesses, among many other serious ramifications.
Foreign investors are required to make certain commitments.
Apart from a broad agreement to abide with Chinese regulations, Chinese officials normally do not ask investors to make any specific commitments before investing in their country. There are certain exceptions (Tang et al., 2021). The State Administration for Market Regulation (SAMR) can place stringent requirements on anti-monopoly approval, like mandating asset divestment or decrease in ownership, or mandating the completion of specific measures.
Right to File an Appeals
Investors who disagree with unfavourable administrative judgments may, in theory, appeal them via a complaint system, administration reassessment with the agency, or administrative lawsuit in court. It is rare for businesses to dispute a regulatory government’s choice not to grant necessary permits in actuality since pursuing legal proceedings against the government would be time-consuming and uncertain.
Tax Law
ARGENTINA
Taxes Applicable to Employees/Employers
Individual Income Tax (IIT) is levied on staff on an annual basis at a progressive rate tend to range from 5 percent to 35 percent of their total income (that is, gross salary less particular deductions, such as personal taxes and fees, worker social security taxes, and particularly unique deductions, such as interest paid on housing loans and mortgage repayments, among other things) (Marzorati, 2007). This tax is withdrawn from the worker’s wages on a monthly by the employer. Workers are subject to social security payments at a rate of 17 percent of their gross wage (which comprises contributions to social health and a pension scheme). Social security taxes are deducted from a worker’s gross compensation. The employer is required to withhold this sum from the employee’s paycheck. The taxable basis is typically limited at ARS225,000, which is a significant amount (approximately USD 2,250).
Employers are required to make monthly payments to the Social Security Administration. The relevant tax rate is determined by whether or not they classify as a small or medium-sized enterprise (SME) (small or medium-sized company). A total income tax rate of 24 percent is currently levied on the gross wage of a worker by small and medium-sized enterprises, whilst a rate of 26.4 percent is levied on non-SMEs whose primary business activity (gross income) is associated with services or commerce. Employers are required to transfer into the National Social Security System on a monthly basis the sums deducted from their workers’ salaries (personal income tax and social security taxes), as well as their individual social security taxes, to which they are subject. If an organisation fails to transfer the payments made by its employees, serious penalties and criminal charges may be levied against him or her.
Taxes that apply to corporations
Corporate Income tax- Recent amendments to the Income Tax Act have been made in association with corporate income taxes (CIT). In accordance with current legislation, the fixed tax rate (30 percent) applicable until fiscal year 2020 will be replaced by a progressive tax rate based on the following criteria:
• if the net income of the company does not exceed ARS5 million (approximately USD50,000) in the fiscal year, a 25 percent tax rate will apply;
• if the total income range surpasses ARS5 million although less than ARS50 million (around USD500,000), a tax rate of 30 percent will apply
Corporations that are domiciled in Argentina are subjected to CIT on a global income framework, meaning that they are taxable in Argentina on both their local-source earnings and their international-source revenues (Dupont, Sanson, Alvarez and Atim, 2021). Corporations, subject to particular limitations, can claim as a tax credit equal income tax payments made overseas on foreign-source income in the form of a tax credit. Non-resident corporations are solely subject to taxation on their income derived from sources in Argentina. Whenever a corporation has a net operating loss, the decline can be applied to lower the company’s income tax liability for the next five fiscal years. It is possible to deduct some particular losses from income made from similar sources, like capital losses from the stock trade, bonds, or other securities made by Argentine enterprises, but only against profits obtained from same sources.
Dividends- Dividends issued to international shareholders (whether corporations or individuals) are subject to a 7 percent withholding tax. Profit remittances paid by branches to their parent company are subject to similar dividend tax as dividends received by the branches. Dividends paid to Argentine people are likewise subject to a 7 percent tax, however dividends dispersed by an Argentine firm to some other Argentine corporation are exempt from taxation in both countries.
Withholding Tax -The withholding tax (WTX) is charged whenever an Argentine corporation pays interest to overseas recipients. The tax rate varies based on the nature of the creditor, but it is usually between 15.05 percent and 35 percent of the amount paid. It is possible that the tax rate will be decreased if a DTT is applied to the transaction. Argentine companies are allowed to deduct interest paid on their debts up to a specific maximum, which is subject to certain restrictions.
Depending on whether such resources are offered in Argentina or if the contract offering for the services has been certified with the National Institute of Industrial Property, royalties for services associated with technical assistance payments to foreign recipients are liable to WTX at a rate of 31.5 percent, 28 percent, or 21 percent, respectively. The value of royalties paid for trademarks and patents is subject to WTX at a rate of 28 percent. WTX is applied to other royalties for services at a rate of 31.5 percent. If a DTT is in effect, the tax rate that is applicable may be decreased. The royalties payable are regarded taxable expenditures for the Argentine corporation, subject to specific restrictions and limitations.
Value Added Tax. -Persons and legal companies engaged in business operation on Argentine territory are subject to value-added tax (VAT), which is levied on the sale of commodities, the supply of services, and the importation of goods (including that of the importation of services). Exported products and services are subject to a zero-percentage tax rate, and the exporter has the right to obtain a tax refund in order to recoup the value-added tax (VAT) that the exporter has paid to third parties. The general value-added tax (VAT) rate is 21 percent. Sales of products and services that are subject to a lower tax rate of 10.5 percent, like interest and commission levied in conjunction with loans made by financial institutions that conform to the criteria of the Basel Committee on Banks, are exempt from the taxation.
Tax on Deductions and Credits- According to the debits and credits tax, debits and credits in bank accounts are taxed at a rate of 0.6 percent for debits and 0.6 percent for credits, for a total tax rate of 1.2 percent. Based on how the account is used, there are some notable exceptions. Corporations are entitled to compute a tax credit against CIT for up to 33 percent of their debits and credits in tax contributions, according to the IRS. Small and micro businesses that are eligible for the SMEs regime are permitted to compute 100 percent of their CIT payments from their gross receipts before taxes.
Customs Duties on Exports- Exports of services will be treated as commodities under the Customs Code during fiscal years 2019, 2020, and 2021, and will be subjected to a specific export tax during those periods. This export duty has been implemented at a rate of 5% of the sum billed for the export of services, with the rate being adjusted annually. For SMEs, a non-taxable minimum level of ARS60 million (about USD600,000) per year is set aside as a tax exemption.
Assets subject to wealth tax – Finally, stock assets in local enterprises held by Argentine citizens or overseas beneficiaries are liable to wealth tax at the rate of 0.5 percent on the book value of the holdings at the end of each fiscal year on December 31st. Nevertheless, the local firm is responsible for paying this tax; even so, the organization is entitled to recoup the wealth tax paid by every shareholder.
CHINA
Taxes that are levied against employees and employers
Employers are often required by Chinese law to deduct income taxes and social welfare payments from their workers’ earnings, wages, incentives, as well as other amounts due to them on a regular basis (Jia-wei, 2005).
Individual Income Tax (IIT) – Workers are liable to individual income tax on their salaries and wages, which is charged at graded rates that range from 3 percent to 45 percent depending on their earnings. During every year, workers are eligible to a basic deduction from their taxable income of CNY60,000, and also deductions for particular social welfare payments and other special deductions that may be available.
Contributions to Social Security Benefits- China’s social benefits concept, which is comprised of the residential provident fund and compulsory social insurance plans – such as healthcare coverage, unemployment compensation, maternity insurance, job injury insurance, and retirement insurance – is typically expected to be funded by both workers and employers who work in China. Average social benefits payments rates vary from region to region, with workers and employers’ contributions accounting for around 10 percent and 35 percent, respectively, of the total contribution base in each region. Minimum contributions are established at 60 percent of the local average monthly pay, with a maximum contribution base of 300 percent of that salary.
Taxes that apply to commercial enterprises
China’s primary means of taxing economic activity is through the imposition of corporate income and value-added taxes. Consumption tax, customs duties, property appreciation tax, real estate tax, stamp duty, and local surcharges are some of the other taxes that exist.
Corporate Income Tax -Tax resident corporations in China are subject to a corporate income tax (CIT) on their global taxable profits, which is levied at a consistent rate of 25% on all taxable profits. Businesses that are resident for tax purposes in China include those that are formed under Chinese law as well as those that are formed in another jurisdiction yet has their effective management situated inside the country’s borders. Non-Chinese tax resident corporations are subjected to a 25 percent corporate income tax (CIT) on taxable profits due to their permanent premises in China. Withholding tax on China-sourced revenue received by non-resident corporations that is not traceable to a permanent establishment is normally 10 percent under the CIT withholding tax regulations. Withholding taxes are usually levied on passive income, such like dividends, interest, royalties, and capital gains, and they may be lowered as a result of tax treaties or even other arrangements with other countries.
Value-Added Tax- China levies a value-added tax on the acquisition of products, intangible and immovable property, and taxable services that are used in the course of the business, as well as on the entry of items into the country. There are three rates that apply to most transactions: 13 % on the sale and importation of a majority of products, the supply of repairs, replacement, and processing services, and the renting of physical movable assets; the sale and importation of exceptional items, 9% on the providing of transport services, mail services, fundamental telecommunication services, and building services, the lease and sale of immovable property, and the transfer of land use rights; and the transferring of land use rights and lastly, 6% on value-added telecommunication services provision, modern services like information services, monetary services inclusive of other intangible assets.
Intellectual Property
Patents
ARGENTINA
An innovation that is novel, the outcome of an innovative process, and has a practical application is protected under Argentina’s Patent Law (Act 24,481). Patents in the pharmaceutical, biotechnology, and software industries are subject to additional requirements. The safeguarding is in effect for 24 months from the date of filing the application. Argentina is also a signator
