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Argentina: Partial Foreign Exchange Deregulation and Implications for Stock Options / ESPPs

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In Brief

Argentina has recently relaxed its currency control restrictions for individuals, which should allow optionees to exercise their stock options other than through a cashless exercise method, as it is now possible to remit funds out of Argentina to purchase foreign shares. There has not been a similar relaxation of the exchange control restrictions for local entities. Consequently, it appears that there are still substantial limitations on offering Employee Stock Purchase Plans (ESPP) to employees in Argentina. The changes have no impact on RSU/PSU awards as those awards have been viable under the prior set of exchange control rules since there is no outward transfer of funds from Argentina in connection with those award types.

Background

Prior to this development, Argentina’s currency control restrictions imposed a USD 200 monthly limit on foreign currency purchases which significantly limited the ability of individuals remitting funds out of Argentina to purchase foreign shares. Accordingly, it was generally not possible for employees to exercise stock options by remitting the exercise price out of Argentina, and they were instead limited to using a cashless exercise method (such as a broker-assisted sell-all exercise). Additionally, the restrictions effectively made ESPP offerings impossible, as local subsidiaries were unable to remit contributions on behalf of employees without prior approval from the Argentine Central Bank. 

What’s New

Recent changes have relaxed foreign exchange restrictions for individuals, allowing them to purchase USD and transfer funds to foreign accounts for share purchases without the previous monthly USD 200 limit. This means optionees can now acquire foreign currency and remit such funds outside of Argentina to pay the exercise price of their options. 
 
However, while certain other foreign exchange restrictions have also been eased, these changes still do not appear to make it possible for local entities to remit ESPP contributions out of Argentina on behalf of employees. In theory, employees could now contribute to an ESPP by directly remitting contributions to the parent company, but this does not reflect the typical contribution process of almost all ESPP sponsors and is administratively challenging.
 
More changes are anticipated following the mid-term elections later this year, which may further relax exchange control rules.

Next Steps / Actions to Consider

Clients should consider the following actions:

  • Consider lifting any previously imposed restriction to exercise option only by way of a cashless exercise.
  • Consider if offering an ESPP through direct contributions by employees is feasible under the terms of the ESPP and administratively viable.
  • Monitor ongoing developments in foreign exchange regulations, particularly following the mid-term elections, to determine if offering an ESPP will become possible in the future.
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Author

Gabriel Gomez-Giglio is partner at Baker McKenzie’s Buenos Aires office, chair of the Latin America Banking & Finance Practice of Baker McKenzie and a member of the Global Steering Committee of the Firm’s Financial Institutions Industry Group. He advises clients on a variety of general commercial issues. His practice focuses on the areas of transactional and regulatory matters, including but not limited to multinational financial transactions, commercial agreements and mergers and acquisitions.

Author

Narendra Acharya focuses his practice on matters relating to US and international employee benefits and executive compensation — including global stock plans and pensions, as well as matters pertaining to pensions, executive compensation and employment issues in mergers and acquisitions. Mr. Acharya assists US and non-US companies – both publicly traded and private – in the design and implementation of employee stock plans. He has extensive experience advising clients on income tax, social security, payroll withholding and reporting, local corporate tax deduction, employment law, securities and other regulatory issues applicable to equity awards in numerous jurisdictions.

Author

Barbara Klementz is the chair of Baker McKenzie’s North American Compensation Practice. She has practiced in the area of global equity and executive compensation for over 20 years. Barbara is a Thomson Reuters Stand-out Lawyer for 2024 and recognized as a ranked practitioner by Legal 500 for Employee Benefits: Transactional and by Chambers USA. Client feedback in Chambers states that "Barbara is absolutely phenomenal" and "Barbara is incredibly impressive in terms of expertise and the ability to be pragmatic and practical. She knows the laws and rules in a staggering number of countries." Barbara is admitted to private practice in California and Düsseldorf, Germany. Barbara focuses her practice on global equity compensation programs, executive compensation and employee benefits. She regularly advises multinational companies on implementing their equity compensation and other incentive programs worldwide – particularly as it relates to tax and securities law matters and exchange control regulations. Barbara also frequently advises on the treatment of such programs in corporate transactions, including mergers and acquisitions, spin-offs and divestitures, as well as on the tax treatment of cross-border employees participating in such programs.

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