The following are the legal and investment considerations for the development of forestry carbon sequestration projects in Argentina.
1. Legal Aspects
Forestry carbon sequestration projects (“Forestry Projects”) involve a company (the “Developer”) that, typically through a Forestry Contractor, develops a project aimed at generating carbon credits (“CO2 Credits”). These credits can be retained by the Developer or transferred/marketed domestically or internationally under Article 6 of the Paris Agreement.
Under the Argentine law, the development of a Forestry Project encompasses four key areas:
· Land acquisition
· Certification and approval of the Forestry Project
· Forestry development (plantation, forest management, and project closure)
· Certification and transfer of CO2 Credits
Given Argentina's federal system, Forestry Projects fall under national, provincial, and, to a lesser extent, municipal jurisdictions.
1.1. Land Acquisition
Three critical aspects must be addressed during land acquisition: Legal Title, Limitations to Foreigners, and Security Zones/Border Restrictions.
(a) Legal Title to the Land
To establish a Forestry Project, Developers must secure a Legal Title that grants them perpetual or project-term rights over the land. This title must enable the Developer to utilise, transfer, or benefit from forest resources and CO2 Credits.
Legal Titles recognised under the Argentine Civil and Commercial Code include ownership, usufruct, surface rights, and leasing. Trusts (fideicomisos) may also be used, although with certain limitations. The choice of title depends on provincial laws, regulatory requirements, and associated tax implications. The title must be formalised by a Notary Public and registered with the provincial Real Estate Registry.
Typically, land transactions are conducted in US dollars, either locally or abroad. Due diligence is essential to confirm the suitability of the title for the Forestry Project and ensure compliance with local regulations.
(b) Limitations on Foreign Ownership
National Law 26737 imposes restrictions on foreign ownership of land. Corporations are deemed foreign if controlled by non-Argentine individuals or entities. This law limits foreign ownership to 15% of the total national, provincial, or municipal land area, with no more than 30% of this portion owned by nationals of the same foreign country. Additionally, foreigners may own no more than 1,000 hectares in Core Zones or an equivalent as determined by provincial authorities.
While strict in principle, these regulations are generally conducive to foreign investments that support productive projects. Compliance is overseen by provincial and national authorities, with approvals requiring Notary Public intervention. Upon approval, ownership rights become vested and protected.
On 20 December 2023, President Milei issued Urgency and Necessity Decree 70, repealing Law 26737. Although judicial measures initially sought to suspend the repeal, subsequent court rulings upheld it. Developers must conduct thorough due diligence to ensure no legal impediments to foreign ownership or identify alternative means of compliance.
(c) Security Zones and Border Restrictions
Land acquisition within the Border Security Zone is governed by National Decree 15385/44 and related regulations. These rules apply regardless of the foreign ownership restrictions outlined above and fall exclusively under national jurisdiction.
Security Zones encompass a 150-kilometre strip from the international border, affecting significant areas in provinces such as Misiones, Corrientes, and Entre Ríos. While seemingly restrictive, these regulations generally permit foreign investments that facilitate productive projects. Restrictions are typically limited to individuals or entities deemed potential risks to national security.
As with foreign ownership laws, compliance is overseen by national and provincial authorities, with Notary Public intervention during transactions. Upon approval, land acquisitions gain vested rights. Developers should conduct due diligence to ensure compliance with security zone regulations or identify legal mechanisms to address any potential restrictions.
1.2. Certification and Approval of the Forestry Project
(a) Provincial Jurisdiction
Given that the purpose of the Forestry Project is the certification of CO2 Credits for local or international use or commercialisation, the Developer must ensure that the Forestry Project is approved by both the chosen Carbon Certification Standard (e.g., Verra, Gold Standard, or another international or local entity) and the provincial Enforcement Authority responsible for forestry matters. This authority oversees the project's local technical and economic compliance.
While the regulatory frameworks of different provinces may present varying advantages or disadvantages for specific Forestry Projects, provincial regulations are generally supportive of forestry projects approved by recognised Carbon Certification Standards. However, if native forests are involved, stricter forestry and environmental regulatory standards will apply.
The Forestry Project must adhere to provincial forestry, environmental, and corporate social responsibility laws and regulations, which serve as baseline standards for project development. In addition, the project will also be subject to general provincial laws, including applicable provincial taxes such as Gross Income Tax and Stamp Duty, as well as municipal charges for public services like road maintenance and water supply, which directly benefit the project.
(b) National Forestry Regulations
In addition to provincial regulations, Forestry Projects must comply with national forestry regulations and fiscal incentives established by National Laws 25080 and 27487, under the purview of the National Ministry of Agriculture and Livestock. Projects may also fall under the jurisdiction of the National Ministry of Environment and Sustainable Development (MADS) if they involve compliance with Law 26331, which sets minimum protection standards for native forests.
1.3. Forestry Development: Plantation, Forest Management, and Project Closure
From the moment the forest is planted, forestry operations must be conducted by the Developer, often through a Forestry Contractor, and remain under the oversight of the provincial Forestry Authority throughout the lifecycle of the project.
This phase includes ensuring forest development and protection, establishing mechanisms for monitoring, review, and verification (MRV), safeguarding against fire, and conducting CO2 Credit certification. Forest management may also involve the seasonal harvesting of timber or other forest products (such as resin or tannins) if stipulated in the Forestry Project.
At the end of the Forestry Project’s lifecycle, the Developer, through the Forestry Contractor, must follow the closure procedures outlined in the project. These operations will be supervised by the Forestry Authority. The future use of the land must align with the terms of the Legal Title and commercial agreements associated with the project. Options may include continued use by the Developer, donation to an NGO, or other outcomes consistent with the Developer’s sustainability policy.
Any deviation from the approvals granted by the Forestry Authority or violations of applicable provincial laws —such as the Provincial Forestry Law and its regulations— will fall under provincial jurisdiction, subject to enforcement by the Forestry Authority, other administrative bodies, and provincial courts.
Although climate change and internationally transferred mitigation mechanisms fall under federal jurisdiction due to their connection to international treaties, Argentine provinces, as holders of original domain (“dominio originario”) over their natural resources, retain jurisdictional powers to regulate, tax, and adjudicate local CO2 Credit-related matters. For example, the Province of Jujuy has taken steps to assert jurisdiction over some CO2 Credit-related matters, even where they overlap with national jurisdiction. Commercial transactions involving CO2 Credits may be subject to provincial taxes such as Gross Income Tax and Stamp Duty.
1.4. Certification and Transfer of CO2 Credits
Through the execution of the Forestry Project, the Developer will certify CO2 Credits in accordance with the standards of the chosen Carbon Certification Standard.
These CO2 Credits will initially belong to the landowner and the forest owner, as a forest product. The subsequent transfer of CO2 Credits to third parties, domestically or internationally, constitutes the transfer of ownership of an intangible asset or service, subject to Argentine laws, regulations, and taxes.
While the Argentine Constitution and federal legislation define the respective powers of national and provincial jurisdictions, the legislative and regulatory framework for CO2 Credits in Argentina remains underdeveloped. At present, CO2 Credits are unregulated.
The Federal Government holds broad legislative and administrative authority over CO2 Credits, rooted in its jurisdiction over international treaties, environmental standards, interprovincial and international trade, customs, foreign exchange, national taxes, and civil and commercial law. It is anticipated that the Federal Government will implement Article 6 of the Paris Agreement through federal legislation, with MADS acting as the enforcement authority.
Provinces have more limited powers over CO2 Credits, which must align with federal laws. However, some provinces have introduced legislation addressing the issuance, registration, and transfer of CO2 Credits, occasionally exceeding their constitutional authority.
To date, the National Government’s involvement has been limited to creating the Registry for Climate Change Mitigation Projects, which aims at facilitating the calculation of Argentina’s Nationally Determined Contributions. The issuance, certification, and transfer of CO2 Credits, domestically or abroad, has not been restricted.
In its latest draft of the National Strategy for Carbon Markets, MADS proposes creating a national regulatory framework to harmonise subnational regulations and promote subnational carbon markets. On 31 October 2024, the Argentine Carbon Desk, in collaboration with Senator Alfredo de Angeli, Representative Maximiliano Ferraro, and other legislators from various parties, introduced the “Minimum Standards for the Implementation of Greenhouse Gas Mitigation Projects” Bill (the “Bill”). Key provisions include:
Carbon Market (Art. 3(c)): Establishing regulated and voluntary markets for buying and selling CO2 Certificates.
Projects (Art. 3(d)): Defining projects aimed at generating CO2 Certificates for use or trade within the carbon market.
Carbon Certification Standard (Art. 3(a)): Authorising public or private entities (national or foreign) to register, validate, approve, and verify projects, as well as issue CO2 Certificates.
Ownership (Art. 3(e)): Identifying the project owner and their rights over the project and CO2 Certificates.
National Registry (RENAMI) (Arts. 11–16): Creating a mandatory public registry for projects, standards, CO2 Certificates, and transfers.
Double Accounting Prevention (Grounds): Ensuring CO2 Certificates are not counted in multiple jurisdictions.
Transfer abroad of CO2 Credits (Art. 17): Allowing international transfers subject to prior written authorisation by the enforcement authority.
Limits on Transfers (Art. 17, final clause): Permitting the enforcement authority to impose annual limits on international transfers.
Enforcement Authority (Arts. 6–7): Designating the highest-ranking national environmental agency to oversee carbon market regulations and RENAMI.
If passed, the Bill will establish a comprehensive national framework for carbon markets, supplemented by regulations issued by the National Executive and provincial governments within their respective jurisdictions.
2. Business Considerations
2.1. Forestry Project Structure: Commercial Alternatives
For various business reasons, the Developer may choose to structure the Forestry Project in a way that ensures full control, partial control, or participation solely to obtain CO2 Credits.
To this end, at least three alternative structures can be identified: (a) Development through a wholly-owned subsidiary, which would grant the Developer full ownership and control over the Forestry Project; (b) Development through a Trust (“Fideicomiso”), where the Developer would act as both Trustor and Trustee, thereby retaining a certain degree of control over the Forestry Project; and (c) Development through a Trust, where the Developer would act as Trustor and an Independent Agent would act as Trustee, providing the Developer only the level of control over the Forestry Project as stipulated in the Trust agreement.
Each of these alternative structures has its own advantages and disadvantages, which should be carefully evaluated on a case-by-case basis. Trusts may face stricter scrutiny by public registries and authorities, such as the Office of Corporations, Real Estate Registries, and other national or provincial authorities, particularly in cases where the Trustee is an affiliate of the Trustor. Additionally, the Trust would need to be subject to Argentine law and jurisdiction.
These commercial alternatives may include agreements related to financing the Forestry Project and securing CO2 Credits for the Developer, such as Emission Reductions Payment Agreements (ERPA).
2.2. Funding Forestry Projects with Trapped Cash in Argentina
Due to existing foreign exchange regulations imposed by the Central Bank of the Republic of Argentina, there is an availability of local funds in Argentine pesos that can be utilised to develop Forestry Projects. These projects aim at generating CO2 Credits, which are typically denominated in US dollars or other foreign currencies.
A comprehensive analysis of funding alternatives for the Forestry Project falls beyond the scope of this report and should be conducted on a case-by-case basis. However, any proposed Forestry Project must demonstrate that the Developer’s expectations can be met through its development.
2.3. Highlights of the Argentine Tax Regime
Argentina operates as a federal country, with taxes imposed at both national and provincial levels.
The main national taxes include: Income Tax: 35%, and Value Added Tax (VAT): 21%
In addition, there are national customs duties, including the so-called “retenciones” (withholding taxes) applied to the export value of goods but not to services.
The main provincial taxes are: Gross Income Tax: Ranges from 1% to 7%, depending on the specific activity. Stamp Tax: Ranges from 1% to 3%, depending on the province.